Hong Kong’s SFC Announces Changes to Securities and Futures Rules

One of the key changes is relaxing the treatment of foreign currencies that are subject to exchange control.

The Securities and Futures Commission (SFC) announced on Friday that, after receiving comments on its consultation to amend the Securities and Futures (Financial Resources) Rules (FFR), it will be implementing a series of changes.

According to the statement, the changes are necessary so that the regulation can “catch up” to the latest market developments. Specifically, the amendments aim to update the computation basis of the financial resources requirements. This is in response to market developments. In addition, they will facilitate the business operation of licensed corporations.

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The key changes to the rules include relaxing the treatment of foreign currencies that are subject to exchange control and clarify the treatment for non-freely floating foreign currencies. In addition, the changes will see the introduction and updating of haircut percentages for certain types of securities and investments.

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According to Investopedia, a haircut is a negative spread between either the buying and selling of a security or a value which is lower than the market, placed on a security that is being used as collateral. Expressed as a percentage, the haircut shows the markdown between the two values.

The amendments will also refine the way amounts receivable are treated that arise from securities transactions. Furthermore, the SFC will add more futures and stock exchanges to the list of specified exchanges in the FFR – however, the securities regulator does not specify how many it plans to add.

Ashley Alder, SFC
Ashley Alder
Source: SFC

Commenting on the amendments, Ashley Alder, the SFC’s Chief Executive Officer said: “these changes are necessary to catch up with latest market developments. They will also streamline the existing financial resources requirements and facilitate licensed corporations’ participation in Mainland and overseas markets.”

The Changes From SFC Are Set to Come into Effect in 2019

The proposed amendments were gazetted on Friday. Now, they will be submitted to the Legislative Council for negative vetting. All going well, the changes will come into effect on April 1, 2019. However, the changes in regards to a new accounting standard will be implements earlier – on January 1, 2019.

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