Hong Kong Law
February 2006
Re-pledging Limit

SFC to Implement Securities Collateral Re-pledging Limited in 2 Phases

HKFE Announces Revised Margins for H-shares Index and Petrochina Futures Contracts

The SFC published a press release on February 6, 2006 confirming its intention to proceed immediately with its proposal to set a securities collateral re-pledging limit in light of the general support by members of the Legislative Council Panel on Financial Affairs.

A repledging limit proposal was originally included in the report of a working group made up principally of securities practitioners in 2004 and the public was consulted on the group’s proposals in the same year. The SFC now proposes to implement a repledging limit of 180% as soon as possible after completion of the legislative process. After a further period of 12 months, the repledging limit will be fixed at a level of between 130% – 150%. This is intended to give brokers about 18 months to prepare for compliance with the 130% – 150% re-pledging limit.

According to the SFC, the proposed re-pledging limit would only apply to the 84 Hong Kong broker firms (out of a total of 431 as of September 2005) that re-pledge client securities. Of those 84, most apparently already comply with the proposed re-pledging limit. Accordingly, only a limited number of broker firms should be affected by the proposal.

The full text of the press release and Mrs Alexa Lam’s speaking notes are available on the SFC website.

Hong Kong Futures Exchange (‘HKFE’) has announced that with effect from February 6, 2006, the minimum margins to be collected by an Exchange Participant from its clients in respect of their dealings in the following futures contracts will be as outlined in the table below.

Futures Contract Margin Rate Initial Margin(HK$) Maintenance Margin(HK$)
H-shares Index Full Rate 21,750/lot 17,400/lot
Spread Rate 6,525/spread 5,220/spread
PetroChina Company Limited Full Rate 1,166/lot 933/lot
Spread Rate 350/spread 280/spread

HKFE emphasises that the above are minimum rates and that Exchange Participants should set their margin requirements according to their clients’ individual circumstances.

The purpose of this newsletter is to provide a summary only of the proposals outlined in press releases of the SFC and Hong Kong Stock Exchange. The full text of those press releases is available on the SFC website and the Exchange’s website. Specific advice should be sought in relation to any particular situation.

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Charltons – Hong Kong Law Newsletter – Issue 34 – 07 February 2006

Re-pledging Limit

130% – 150%

Hong Kong

H-Shares Index

SFC implements Securities Collateral Re-pledging Limited

Brokers have 18 months from Feb 2006 to prepare for compliance with 130% – 150% pledging limit

Two-phase re-pledging limit implementation

Revised Margins for H-Shares Index 2006

Re-pleding limit applies to 84 Hong Kong broker firms (out of 431 as of September 2005)

Limited number of brokers affected by re-pledging limit

SFC proposals 2006

China H-Shares revised margins

PetroChina Company Limited

Hong Kong Law Update 2006
Charltons Hong Kong Newsletter