Liquid capital is one kind of the financial resources that a licensed corporation is required to maintain under the rules. It is the amount by which a licensed corporation’s liquid assets exceeds its ranking liabilities.  

Section reference: 2

Required liquid capital is the minimum amount of liquid capital that a licensed corporation must have in order to comply with the financial resources requirement under the rules. A licensed corporation’s required liquid capital is determined by reference to a fixed amount applicable to the type of regulated activities for which it is licensed and to a variable parameter called “variable required liquid capital”, the calculation of which is defined in section 2 of the Rules.

Section reference: 2

A licensed corporation’s liquid assets are the amount of assets that it is required to include in the calculation of its liquid capital. The values of such assets are subject to adjustments to cater for factors such as illiquidity and credit risks. The description and valuation of such assets are prescribed under Division 3 of Part 4 of the Rules. 

Section reference: 2

A licensed corporation’s ranking liabilities are the sum of the liabilities on its balance-sheet and adjustments to cater for such factors such as market risks and contingency. The description and calculation of such liabilities and adjustments are prescribed under Division 4 of Part 4 of the Rules. 

Section reference: 2

A haircut amount is an amount calculated as a certain percentage of the market value of securities or other investments. It is used to calculate a risk adjustment to cater for market risks of house positions or collateral for the purposes of liquid capital computation. The percentage mentioned above is called the “haircut percentage”. The haircut percentages for different types of securities and investments are set out in Schedule 2 of the Rules.

Section reference: 2

Licensed corporations are bound by an election previously made under the Rules but they can apply in writing to the SFC for approval of the withdrawal of such election.  A licensed corporation should continue to follow its elections until such time as the SFC has approved their withdrawal.

Section reference: 58(5)(g) and 59

Under section 146(1) of the SFO, a licensed corporation which becomes aware of its inability to maintain or to ascertain whether it maintains, the amount of financial resources required of it under the Rules shall notify the SFC in writing as soon as practicable and immediately cease carrying on regulated activity otherwise than for the purpose of completing such transactions as the SFC may permit. However, the SFC may permit such licensed corporation to carry on business subject to any conditions it may impose.  If the licensed corporation fails to comply with the above, it will be subject to a fine or imprisonment.

Section reference: 146 SFO

Yes, the details of the minimum amount of paid-up share capital amounts and required liquid capital for different types of regulated activities are set out in Schedule 1 of the Rules. This Schedule should be read in conjunction with the other provisions of the Rules, in particular sections 4, 5 and 6, in order to obtain a full picture of the application of these requirements.

Section reference: 2, 5, 6 & Sch 1

The minimum paid up share capital requirement for a licensed corporation which is licensed for more than one type of regulated activity is the highest of the minimum requirements that are applicable to the respective regulated activities for which it is licensed. In the example provided, the minimum paid up share capital requirement for Type 1 is $5 million whereas for Type 3 is $30 million. Therefore, a Type 1 cum Type 3 licensed corporation needs to maintain at least $30 million paid up share capital.

Section reference: 5 & Sch 1 Table 1

The minimum liquid capital requirement for a licensed corporation which is licensed for more than one type of regulated activity is the highest of the minimum requirements that are applicable to the respective regulated activities for which it is licensed. In the example provided, the minimum paid up share capital requirements for both Type 1 and Type 2 are $3 million. Therefore, for a Type 1 cum Type 2 licensed corporation the minimum liquid capital requirement is $3 million.

Section reference: 6 & Sch 1 Table 2

It depends. Advisers will be required to comply with a paid-up share capital requirement (unless it is subject to the “specified licensing condition” namely, that it does not hold any client asset) and liquid capital requirement under the Rules. In order for advisers to prepare themselves for the change in the regulatory capital regime, the Rules provide them with a 6 month grace period until 1 October 2003. During the grace period, advisers shall continue to maintain net tangible assets of not less than $500,000.

Section reference: 60(5) & (6)

No, licensed corporations that are only licensed for Type 4, 5, 6 or 9 and subject to the “specified licensing condition” are not subject to the paid up share capital requirement.

Section reference: 5

Most of the existing advisers’ registration or exemption are already subject to the “ specified licensing condition” which prohibits them from holding or controlling client assets either on their own or through other entities. Such condition will automatically continue to be attached to their licence to be granted under the SFO. If an adviser’s licence is not subject to such condition or the like and it is not holding and does not intend to hold client assets, it may contact the Licensing Department of the SFC for imposing such condition. 

Section reference: 2, 5, 6, 56(3) & Sch 1

Approved introducing agents are not subject to the paid up share capital requirement and have a lower minimum liquid capital requirement ($500,000). An introducing broker that satisfies the criteria set out in section 58(4) of the Rules can apply to the SFC for approval as an approved introducing agent.

Section reference: 58(4)

Currently the rules only accept equity linked instrument listed on the SEHK as liquid assets. Licensed corporations are advised to contact the Intermediaries Supervision Department if they wish to engage in dealing in products not specified in the Rules.

Section reference: 2 & Sch 2 Table 7

The Rules impose a cap on the admissible value of amounts receivable to be the net amount of the amount receivable after deducting the general provision for doubtful debts.

Section reference: 21(7), 22(3), 23(2), 24(2)

In respect of amounts receivable from cash clients who settle their securities transactions on a net basis, licensed corporations can elect to include, on a client by client basis, the lower of the net amount receivable from the client and the discounted market value of the securities held for the client as liquid assets if the client has authorized the licensed corporation in writing to dispose of his securities and set off any trading balance arising from securities dealing.

Section reference: 21(2) & (3)

Approved introducing agents can now also carry on Type 4, 5 and 6 regulated activities in addition to the introducing business.

No. We accept licensed corporations that find any forms inapplicable to simply so indicate in the Declaration page without needing to file a blank page for the nil return.

Section reference: General

Yes.

Section reference: Form 1

The amounts receivable from/ payable to group company or other related parties in Form 1 would include amounts receivable or payable in relation to intercompany loans, management fees, re-charge of costs or other similar items.  The profit or loss items under Form 7 would include income from and expense to group company or other related parties arising from management fees, re-charge of costs or other similar items.

Section reference: Form 1 & Form 7

Whether credit facilities granted under one credit facility letter should be classified as one group depends on the detailed provisions of the relevant credit facility letter.  For instance, two credit facilities under a single credit facility letter may be classified as separate groups if separate security collateral is required for the respective credit facilities.  

Section reference: Form 3

Yes.

Section reference: Form 8 Table 1

The amounts payable to clients and client money to be segregated can be different since not all amounts payable to clients are required to be segregated under the Securities and Futures (Client Money) Rules.  The following are examples of the circumstances leading to such difference:

1. certain client money included in the amounts payable to clients may not yet be due for segregation; and
2. certain amounts payable to clients that are related to dealing in overseas securities or futures may not fall within the ambit of the Securities and Futures (Client Money) Rules.

Section reference: Form 8 Table 2