Section 18(2) of the Securities and Futures (Financial Resources) Rules ("FRR") provides that "a licensed corporation shall not include in its liquid assets-
(a) any asset that is an amount of a currency that is subject to exchange control; or
(b) any assets the proceeds of which upon realization are not freely remittable to Hong Kong,
unless the licensed corporation reasonably believes that approval for the remittance of such currency or proceeds to Hong Kong can be obtained from the relevant authority within one week of application by it for such approval."
Brokers are reminded to comply with the above FRR requirement when calculating their liquid capital.
On 19 July 2010, the People's Bank of China and Bank of China (Hong Kong) Limited as the Clearing Bank for RMB banking business in Hong Kong ("Clearing Bank") signed a revised "Settlement Agreement of the Clearing of RMB Businesses" ("the revised Settlement Agreement"). The revised Settlement Agreement relaxed a few policies on the RMB business in Hong Kong. On the same day, the Hong Kong Monetary Authority issued a circular to all authorized institutions on this change. Among other matters, the circular clarified that authorized institutions participating in RMB business ("Participating AIs") can open RMB deposit account for any corporate customers for general purpose, RMB can now be transferred between different accounts for any purpose, whether within the same AI or not and regardless of whether related to trade settlement. There is also no restriction on conversion services provided by Participating AIs to corporate customers other than for the purposes of or arising from cross-border trade settlement if they do not square the corresponding open position with the Clearing Bank, or if they seek to square such open position with other Participating AIs.
In light of the new scope of RMB business in Hong Kong, RMB cash notes held by licensed corporations in Hong Kong or RMB deposits held by licensed corporation in bank accounts in Hong Kong with Participating AIs would not be considered as assets falling within section 18(2)(a) of the FRR provided that they are not subject to any restriction on conversion with Participating AIs in Hong Kong.
Regarding RMB-denominated assets listed or traded in Hong Kong, any such RMB-denominated assets the proceeds of which upon realization are payable in Hong Kong would not be considered as assets falling within section 18(2)(b) of the FRR provided that such proceeds are not subject to any restriction on conversion with Participating AIs in Hong Kong.
The above guidance is subject to any change in the policies on RMB business in Hong Kong and the respective terms of the revised Settlement Agreement and of the agreement between the Clearing Bank and the Participating AIs.