Securities & Futures Commission of Hong Kong

Code of Conduct

Schedule 5

Q1:

How should a licensed corporation calculate the total credit limit of bank credit facilities for the purposes of paragraph 5(b) in Schedule 5 of the Code of Conduct?

A:

The total credit limit of bank credit facilities referred to in paragraph 5(b) in Schedule 5 of the Code of Conduct should be calculated at the sum of: 

  1. the credit limit of all unsecured bank credit facility; and 
  2. the lower of
    1. credit limit of all secured bank credit facilities; and
    2. the aggregate amount that the banks are willing to lend against the security pledged to banks.

Licensed corporations can also include as part of the total credit limit of bank credit facilities the following amounts:

  • the amount that the banks are willing to lend against the listed securities that belong to the licensed corporation and have not been pledged to the banks;
  • the amount that the banks are willing to lend against clients’ securities collateral that has not been repledged but may be so repledged as permitted by the repledging limit under Securities and Futures (Client Securities) Rules. 

Section reference: Paragraph 5(b) in Schedule 5

Q2:

If a licensed corporation has a practice of repledging securities collateral but does not repledge on a particular day, is it required to inform a new margin client upon account opening on that day that it has repledging practice?

A:

Yes, a licensed corporation that has a repledging practice shall inform the new margin client of the practice upon account opening irrespective of whether it repledges securities collateral on that particular day or not.

Section reference: Paragraph 9A(a) in Schedule 5

Q3:

If a licensed corporation has a practice of repledging securities collateral but did not repledge on a particular day(s), is it required to inform its clients of this temporary change in repledging status? 

A:

The licensed corporation is not required to inform its clients of temporary change from a repledging status to a non-repledging status. However, if it has previously informed (directly or indirectly) its clients that it did not repledge or had ceased to repledge clients’ securities collateral, it is required to inform all its clients as soon as practicable if it starts to repledge or resumes repledging.

Section reference: Paragraph 9A(b) in Schedule 5

Q4:

In what form should a licensed corporation inform its clients that it has a repledging practice?

A:

The Code of Conduct does not prescribe a particular form of communication of the information to clients but licensed corporations should maintain adequate audit trails of the communication (such as documentation in the account opening form that such communication has been made).

Section reference: Paragraph 9A(a) & (b) in Schedule 5

Q5:

Is a licensed corporation required to notify margin clients if the firm ceases to repledge client’s securities collateral?

A:

No. The Code of Conduct does not have such requirement. 

Section reference: Paragraph 9A(b) in Schedule 5

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