Cap. 155 sub. leg. Q

Banking (Liquidity) Rules(Cap. 155, section 97H)(Enacting provision omitted—E.R. 1 of 2015) [1 January 2015] Part 1 Preliminary 1. (Omitted as spent—E.R. 1 of 2015) 2. Interpretation (1) In these Rules—ACF means available core funding; (L.N. 176 of 2017)ASF means available stable funding; (L.N. 176 of 2017)associated entity (聯繫實體), in relation to an authorized institution, is to be construed in accordance with section 97H(4) of the Ordinance; available core funding (可用核心資金), in relation to a category 2A institution, means the amount as determined in accordance with rule 77; (L.N. 176 of 2017)available stable funding (可用穩定資金), in relation to a category 1 institution, means the amount as determined in accordance with rule 65; (L.N. 176 of 2017)Basel III LCR document (《巴塞爾III LCR文件》) means the document entitled “Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools” published by the Basel Committee in January 2013; (L.N. 84 of 2019)Capital Rules (《資本規則》) means the Banking (Capital) Rules (Cap. 155 sub. leg. L); category 1 institution (第1類機構) means an authorized institution designated under rule 3(1) as a category 1 institution; category 2 institution (第2類機構) means an authorized institution that is not a category 1 institution; category 2A institution (第2A類機構) means a category 2 institution designated under rule 3A(1) as a category 2A institution; (L.N. 176 of 2017) central bank (中央銀行) means— (a) the central bank of a country; or (b) an authority of a country that performs in the country functions similar to the functions performed by the Monetary Authority under section 5A(2) of the Exchange Fund Ordinance (Cap. 66); CFR means a core funding ratio; (L.N. 176 of 2017)committed facility (有承諾融通), in relation to an authorized institution, means a contractual agreement between the institution and its customer under which the institution has a contractually irrevocable commitment to extend funds to the customer at a future date, whether for credit or liquidity purposes, in accordance with the terms and conditions specified in the agreement; (L.N. 176 of 2017)consolidated basis (綜合基礎), in relation to the calculation by an authorized institution incorporated in Hong Kong of its LCR, LMR, NSFR or CFR, means the basis set out in rule 11(1); (L.N. 176 of 2017) consolidated group (綜合集團), in relation to an authorized institution incorporated in Hong Kong that has one or more specified associated entities, means— (a) the institution’s Hong Kong office; (b) the institution’s overseas branches (if any); and (c) the institution’s specified associated entities; convertible (可兌換), in relation to a currency other than Hong Kong dollars in which funds are held by an authorized institution, means that the funds may be exchanged by the institution into Hong Kong dollars through— (a) an active foreign exchange market; or (b) an established exchange and clearing arrangement operated by the central bank that issues the currency (or operated by a person appointed by the central bank for that arrangement); core funding ratio (核心資金比率), in relation to a category 2A institution, means the ratio, expressed as a percentage, of the amount (calculated in Hong Kong dollars) of the institution’s ACF to the amount (calculated in Hong Kong dollars) of the institution’s RCF, as calculated in accordance with Part 4 and Division 3 of Part 9; (L.N. 176 of 2017) corporate (法團) means— (a) a company; or (b) a partnership, or any other unincorporated body, that is neither a public sector entity nor a financial institution; country (國家) includes— (a) subject to paragraph (b), any part of a country; and (b) any jurisdiction; currency notes and coins (流通紙幣及硬幣), in relation to an authorized institution, means legal tender notes or other notes, and coins, representing the lawful currency of a country or Hong Kong held by the institution; customer (客户) includes a counterparty; debt securities (債務證券) means any securities other than— (a) equities; (b) securities that can be converted into equities; or (c) import or export trade bills; determine (斷定) includes calculate; EF debt security (外匯基金債務證券) means— (a) an Exchange Fund Bill; (b) an Exchange Fund Note; or (c) any other debt security issued by the Government for the account of the Exchange Fund under the Exchange Fund Ordinance (Cap. 66); Exchange Fund Bill (外匯基金票據) means any instrument described as such as issued by the Government for the account of the Exchange Fund under the Exchange Fund Ordinance (Cap. 66); Exchange Fund Note (外匯基金債券) means any instrument described as such as issued by the Government for the account of the Exchange Fund under the Exchange Fund Ordinance (Cap. 66); fair value (公平價值)— (a) in relation to an asset (whether an on-balance sheet asset or off-balance sheet asset), means the amount for which the asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction; or (b) in relation to a liability (whether an on-balance sheet liability or off-balance sheet liability), means the amount for which the liability could be settled between knowledgeable, willing parties in an arm’s length transaction; financial institution (金融機構) has the meaning given by section 139(1) of the Capital Rules; (L.N. 170 of 2023)Hong Kong office (香港辦事處), in relation to an authorized institution, means the institution’s principal place of business in Hong Kong and its local branches (if any); Hong Kong office basis (香港辦事處基礎), in relation to an authorized institution’s calculation of its LCR, LMR, NSFR or CFR, means the basis set out in rule 10(1)(a); (L.N. 176 of 2017)HQLA means high quality liquid assets; LCR means a liquidity coverage ratio; LCR period (LCR涵蓋時期), in relation to a category 1 institution’s LCR, means the period of 30 calendar days immediately following the date of the position in relation to which the LCR is calculated; level 1 assets (1級資產) means any assets falling within section 1 of Part 2 of Schedule 2; (L.N. 84 of 2019)level 2A assets (2A級資產) means any assets falling within section 2 of Part 2 of Schedule 2; (L.N. 84 of 2019)level 2B assets (2B級資產) means any assets falling within section 3 of Part 2 of Schedule 2; (L.N. 84 of 2019)liquefiable assets (流動資產), in relation to a category 2 institution, means the institution’s stock of liquefiable assets, as determined in accordance with Part 8, that the institution is permitted to include in the calculation of its LMR; liquidity coverage ratio (流動性覆蓋比率), in relation to a category 1 institution, means the ratio, expressed as a percentage, of the amount (calculated in Hong Kong dollars) of the institution’s HQLA to the amount (calculated in Hong Kong dollars) of the institution’s total net cash outflows, as calculated in accordance with Parts 4 and 7; liquidity maintenance ratio (流動性維持比率), in relation to a category 2 institution, means the ratio, expressed as a percentage, of the amount (calculated in Hong Kong dollars) of the institution’s liquefiable assets to the amount (calculated in Hong Kong dollars) of the institution’s qualifying liabilities (after deductions), as calculated in accordance with Parts 4 and 8; liquidity transfer restriction (流動性轉撥限制), in relation to an authorized institution, means any regulatory, legal, tax, accounting or other restriction or impediment that inhibits, or may potentially inhibit, the transfer of assets or the flow of funds between the institution’s Hong Kong office and any of its associated entities and overseas branches; LMR means a liquidity maintenance ratio; margin lending transaction (保證金借出交易) has the meaning given by rule 39; marketable debt securities (有價債務證券) means debt securities that have an established secondary market in or outside Hong Kong in which they can be monetized readily; monetize (套現), in relation to an asset of an authorized institution, means to convert the asset into cash by— (a) a direct sale of the asset; (b) entering into a repo-style transaction that is collateralized by the asset; or (c) any other means; net stable funding ratio (穩定資金淨額比率), in relation to a category 1 institution, means the ratio, expressed as a percentage, of the amount (calculated in Hong Kong dollars) of the institution’s ASF to the amount (calculated in Hong Kong dollars) of the institution’s RSF, as calculated in accordance with Part 4 and Division 2 of Part 9; (L.N. 176 of 2017)NSFR means a net stable funding ratio; (L.N. 176 of 2017)pledged deposit (質押存款), in relation to an authorized institution, means a deposit placed with the institution by a customer (other than a bank) that is contractually pledged to the institution as collateral to secure a loan from the institution; prescribed instrument (訂明票據) has the meaning given by section 137B(1) of the Ordinance; RCF means required core funding; (L.N. 176 of 2017)relevant liquidity event (流動性相關事件) has the meaning given by rule 14(3); required core funding (所需核心資金), in relation to a category 2A institution, means the amount as determined in accordance with rule 80; (L.N. 176 of 2017)required stable funding (所需穩定資金), in relation to a category 1 institution, means the amount as determined in accordance with rule 68; (L.N. 176 of 2017)residential mortgage loan (住宅按揭貸款) has the meaning given by section 139(1) of the Capital Rules; (L.N. 170 of 2023) residential mortgage-backed security (住宅按揭擔保證券) means a debt security— (a) that is issued by a special purpose entity or another company; and (b) the payments in respect of which are secured by a pool of underlying residential mortgage loans originated by banks or other financial institutions; RMBS means a residential mortgage-backed security; RSF means required stable funding; (L.N. 176 of 2017) sovereign (官方實體) means— (a) the Government; or (b) the central government of a country; special purpose entity (特定目的實體) means an entity (whether a company, trust or other entity)— (a) that is created for a specific purpose; (b) the activities of which are limited to those appropriate to achieving the purpose; and (c) the structure of which is intended to isolate the entity from the credit risk of an originator or seller of exposures; specified associated entity (指明聯繫實體), in relation to an authorized institution incorporated in Hong Kong, means an associated entity of the institution that is the subject of a notice given to the institution under rule 11(1) that is in force; total net cash outflows (淨現金流出總額), in relation to a category 1 institution, means the institution’s total expected cash outflows, after deduction of its total expected cash inflows, calculated in accordance with Division 5 of Part 7; uncommitted facility (無承諾融通), in relation to an authorized institution, means a facility granted by the institution to its customer that—(a) is for extending credit or providing liquidity to the customer at a future date; and(b) is unconditionally revocable by the institution without prior notice to the customer; (L.N. 176 of 2017)unconsolidated basis (非綜合基礎), in relation to the calculation by an authorized institution incorporated in Hong Kong of its LCR, LMR, NSFR or CFR, means the basis set out in rule 10(1)(b). (L.N. 176 of 2017)(2) In these Rules, an expression specified below has the meaning given by section 2(1) of the Capital Rules— (L.N. 176 of 2017)bank (銀行) credit quality grade (信用質素等級) ECAI ECAI issue specific rating (ECAI特定債項評級) ECAI issuer rating (ECAI發債人評級) financial instrument (金融工具) guarantee (擔保) home jurisdiction (原屬司法管轄區) (L.N. 170 of 2023)incorporated (成立為法團) long-term ECAI issue specific rating (長期ECAI特定債項評級)LT ECAI rating mapping table (LT ECAI評級配對表) (L.N. 170 of 2023)OTC derivative transaction (場外衍生工具交易) public sector entity (公營單位) recognized exchange (認可交易所) (L.N. 84 of 2019)relevant international organization (有關國際組織) repo-style transaction (回購形式交易) short-term ECAI issue specific rating (短期ECAI特定債項評級)ST ECAI rating mapping table (ST ECAI評級配對表) (L.N. 170 of 2023)trade-related contingency (貿易關聯或有項目) (L.N. 176 of 2017)Type A ECAI (A類ECAI) (L.N. 170 of 2023)Type B ECAI (B類ECAI) (L.N. 170 of 2023)(L.N. 170 of 2023)(3) A reference in these Rules to a class includes a subclass (if any) falling within that class. (4) A reference in these Rules to a formula followed by a number (including an alphanumeric number) is a reference to the formula in these Rules bearing that number. (L.N. 176 of 2017)(5) If, under a provision of these Rules, the approval of the Monetary Authority is required by an authorized institution in respect of any matter, the institution must seek the approval by making an application in a specified form (if any) to the Monetary Authority. (6) If, under a provision of these Rules, the Monetary Authority is required to give, or may give, notice of any matter to all authorized institutions, or to a class of such institutions, it is sufficient compliance with the provision if the Monetary Authority publishes the notice in the Gazette. (7) If any matter specified in a provision of these Rules is qualified by the word “adequate”, “appropriate”, “consistent”, “material”, “prudent”, “reasonable”, “relevant”, “reliable” or “significant”, then, for the purposes of assisting in ascertaining the nature of such qualification insofar as it relates to the matter, regard must be had to any guidelines or codes of practice issued under the Ordinance that are applicable to the provision. (8) A reference in a provision of these Rules to an asset or liability of an authorized institution is a reference only to an on-balance sheet asset or on-balance sheet liability of the institution unless the provision expressly states otherwise. (9) A reference in a provision of these Rules to an application that may be made by an authorized institution to the Monetary Authority is a reference to an application in a specified form (if any) to the Monetary Authority. (10) Except for section 2(a) of Part 3 of Schedule 1 and sections 5(1)(c), 6(1)(c) and 7(1)(c) of Part 3 of Schedule 2 to which section 2(9) of the Ordinance applies, a reference in a provision of these Rules to the relevant banking supervisory authority in a country (including a host country) or a place means the banking supervisory authority in that country or place that may impose the requirements, or determine or specify the matter, referred to in the provision concerned. (14 of 2025 s. 183) 2AA. Supplementary provisions regarding re-domiciled entities In these Rules—(a) a reference to a category 1 institution incorporated in Hong Kong includes a category 1 institution that is a re-domiciled entity;(b) a reference to a category 2 institution incorporated in Hong Kong includes a category 2 institution that is a re-domiciled entity; and(c) a reference to a category 2A institution incorporated in Hong Kong includes a category 2A institution that is a re-domiciled entity.(14 of 2025 s. 184) 2A. Use of ECAI issue specific ratings and ECAI issuer ratings An authorized institution may use an ECAI issue specific rating or an ECAI issuer rating for the purposes of these Rules only if the rating fulfils the requirements specified in section 4B(1)(a), (b), (c) and (d) of the Capital Rules.(L.N. 170 of 2023) 3. Designation of category 1 institution (1) The Monetary Authority may, by notice in writing to an authorized institution, designate the institution as a category 1 institution. (2) The designation may be made—(a) on the Monetary Authority’s own volition, if the Monetary Authority is satisfied that any of the grounds specified in Part 1 of Schedule 1 is applicable to the institution; or (b) on application by the institution, if—(i) the Monetary Authority is satisfied that any of the grounds specified in Part 1 of Schedule 1 is applicable to the institution; or (ii) subparagraph (i) does not apply to the institution, but the Monetary Authority is satisfied that all the grounds specified in Part 2 of that Schedule are applicable to the institution. (3) The designation takes effect—(a) on the date specified in the notice; or (b) when the event specified in the notice occurs. (4) Despite subrule (1), the Monetary Authority may decide not to designate an authorized institution as a category 1 institution in the circumstances specified in Part 3 of Schedule 1. (5) If—(a) an authorized institution has been designated as a category 1 institution; and (b) the Monetary Authority is satisfied that had the designation not been made, the Monetary Authority would not make the designation, the Monetary Authority may, on the Monetary Authority’s own volition or on application by the institution, by notice in writing to the institution, revoke the designation. (6) The revocation takes effect—(a) on the date specified in the notice; or (b) when the event specified in the notice occurs. (7) A decision made by the Monetary Authority under subrule (1) or (5) is a decision to which section 101B(1) of the Ordinance applies. 3A. Designation of category 2A institution (1) The Monetary Authority may, by notice in writing to a category 2 institution, designate the institution as a category 2A institution.(2) The designation may be made if the Monetary Authority is satisfied that it is prudent and reasonable to apply Division 2 of Part 3A to the institution, after taking into account—(a) the size of its business operation; and(b) the liquidity risks associated with it.(3) The designation takes effect—(a) on the date specified in the notice; or(b) when the event specified in the notice occurs.(4) If—(a) a category 2 institution has been designated as a category 2A institution; and(b) the Monetary Authority is satisfied that had the designation not been made, the Monetary Authority would not make the designation,the Monetary Authority may, on the Monetary Authority’s own volition or on application by the institution, by notice in writing to the institution, revoke the designation.(5) The revocation takes effect—(a) on the date specified in the notice; or(b) when the event specified in the notice occurs.(6) A decision made by the Monetary Authority under subrule (1) or (4) is a decision to which section 101B(1) of the Ordinance applies.(7) To avoid doubt, if the Monetary Authority designates, under rule 3(1), a category 2A institution as a category 1 institution, the institution ceases to be a category 2A institution immediately on the taking effect of the designation as a category 1 institution.(L.N. 176 of 2017) Part 2 Minimum LCR, Notifiable Matters Concerning LCR and Monetization of HQLA in Certain Financial Circumstances: for Category 1 Institution 4. Minimum LCR applicable to category 1 institution (1) Subject to subrule (3), a category 1 institution must, on and after 1 January 2019, at all times maintain an LCR of not less than 100%. (2) Subject to subrule (3), a category 1 institution must—(a) during the year of 2015, at all times maintain an LCR of not less than 60%; (b) during the year of 2016, at all times maintain an LCR of not less than 70%; (c) during the year of 2017, at all times maintain an LCR of not less than 80%; and (d) during the year of 2018, at all times maintain an LCR of not less than 90%. (3) A category 1 institution does not contravene subrule (1) or (2) if the institution’s failure to maintain an LCR as required is due only to the institution’s monetization of its HQLA as provided for in rule 6. 5. Category 1 institution must notify Monetary Authority of any matter that will or may cause it to maintain LCR less than as required under rule 4 (1) If a category 1 institution has reason to believe that a likely increase in its total net cash outflows or a likely reduction in its HQLA (or any combination of the increase and the reduction) will cause, or could reasonably be construed as potentially causing, whether by itself or in conjunction with any other event, the institution’s failure to maintain an LCR as required under rule 4, the institution must—(a) as soon as is practicable notify the Monetary Authority of the matter; and (b) provide the Monetary Authority with any particulars of the matter that the Monetary Authority requests. (2) To avoid doubt, subrule (1) does not apply in the case of a relevant liquidity event. 6. Monetization of HQLA in certain financial circumstances If—(a) a category 1 institution is undergoing significant financial stress; and (b) the institution’s financial circumstances are such that, in order to meet its financial obligations as they fall due, it has no reasonable alternative other than to monetize its HQLA to the extent necessary to meet those obligations, even though this might cause it to maintain an LCR less than as required under rule 4, it may monetize its HQLA to that extent in order to meet those obligations. Part 3 Minimum LMR and Notifiable Matters Concerning LMR: for Category 2 Institution 7. Minimum LMR applicable to category 2 institution A category 2 institution must maintain an LMR of not less than 25% on average in each calendar month. 8. Category 2 institution must notify Monetary Authority of any matter that will or may cause it to maintain LMR less than as required under rule 7 (1) If a category 2 institution has reason to believe that a likely increase in its qualifying liabilities (after deductions) or a likely reduction in its liquefiable assets (or any combination of the increase and the reduction) will cause, or could reasonably be construed as potentially causing, whether by itself or in conjunction with any other event, the institution’s failure to maintain an LMR as required under rule 7, the institution must—(a) as soon as is practicable notify the Monetary Authority of the matter; and (b) provide the Monetary Authority with any particulars of the matter that the Monetary Authority requests. (2) To avoid doubt, subrule (1) does not apply in the case of a relevant liquidity event. Part 3A Minimum NSFR and Minimum CFR (Part 3A added L.N. 176 of 2017) Division 1 Minimum NSFR, Self-rectification of NSFR Shortfall and Notifiable Matters Concerning NSFR: for Category 1 Institution 8A. Minimum NSFR applicable to category 1 institution Subject to rule 8B, a category 1 institution must at all times maintain an NSFR of not less than 100%. 8B. Self-rectification of NSFR shortfall (1) This rule applies to a category 1 institution if the institution’s NSFR—(a) becomes less than 100% but not less than 90% at any time on a day (first shortfall day); and(b) has been not less than 100% at all times in the 12-month period immediately before the first shortfall day.(2) Rule 8A does not apply to the institution between—(a) the first shortfall day (including that day); and(b) the earlier of the occurrence of the following—(i) the expiry of the period of 30 calendar days after the first shortfall day;(ii) the institution’s NSFR becoming less than 90%. 8C. Category 1 institution must notify Monetary Authority on rule 8B becoming applicable If rule 8B becomes applicable to a category 1 institution, the institution must—(a) as soon as is practicable notify the Monetary Authority of the matter; and(b) provide the Monetary Authority with any particulars of the matter that the Monetary Authority requests. Division 2 Minimum CFR: for Category 2A Institution 8D. Minimum CFR applicable to category 2A institution A category 2A institution must—(a) during the year of 2018, maintain a CFR of not less than 50% on average in each calendar month; and(b) on and after 1 January 2019, maintain a CFR of not less than 75% on average in each calendar month. Part 4 Valuation of Assets, etc., at Fair Value and Bases of Calculation for Purposes of LCR, LMR, NSFR and CFR (L.N. 176 of 2017) 9. Valuation of assets, liabilities, off-balance sheet items and cash flows measured at fair value (1) If an authorized institution measures any asset, liability, off-balance sheet item or cash flow at fair value, for the purposes of calculating its LCR, LMR, NSFR or CFR, the institution must establish and maintain valuation systems, controls and procedures that are effective to ensure that the valuation of any such asset, liability, off-balance sheet item or cash flow is prudent and reliable. (L.N. 176 of 2017)(2) For subrule (1), an authorized institution must make adjustments, where appropriate, to the valuation of any asset, liability, off-balance sheet item or cash flow that is measured at fair value to account for—(a) the limitations of the valuation model or methodology and the data used by the institution in the valuation process; (b) the liquidity of the asset, liability, off-balance sheet item or cash flow; and (c) other relevant factors that might reasonably be expected to affect the prudence and reliability of the valuation of the asset, liability, off-balance sheet item or cash flow. (3) To avoid doubt, adjustments made by an authorized institution in accordance with this rule may exceed adjustments made by the institution in accordance with the financial reporting standards adopted by the institution. 10. Calculation of LCR, LMR, NSFR or CFR on Hong Kong office basis and unconsolidated basis, etc. (L.N. 176 of 2017)(1) An authorized institution must calculate its LCR, LMR, NSFR or CFR— (L.N. 176 of 2017)(a) on the basis that the business of the institution includes all of its business in Hong Kong (being its principal place of business in Hong Kong and its local branches (if any)); and (b) (if the institution is an authorized institution incorporated in Hong Kong and has an overseas branch) subject to subrule (3), on an unconsolidated basis (being the basis set out in paragraph (a) with the inclusion of the business of the institution’s overseas branches but not its associated entities). (14 of 2025 s. 185) (2) An authorized institution may apply to the Monetary Authority for approval to exclude the business of its overseas branch from the calculation of its LCR, LMR, NSFR or CFR on an unconsolidated basis as set out in subrule (1)(b). (L.N. 176 of 2017)(3) On the application under subrule (2), the Monetary Authority may, by notice in writing to the institution, determine the application by—(a) granting approval to the institution to exclude the business of its overseas branch from the calculation of its LCR, LMR, NSFR or CFR on an unconsolidated basis as set out in subrule (1)(b) if the institution demonstrates to the satisfaction of the Monetary Authority that the liquidity risk associated with the business is immaterial; or (L.N. 176 of 2017)(b) refusing the institution’s application if the Monetary Authority is not satisfied as specified in paragraph (a). (4) For subrule (3)—(a) if the institution’s application is approved, the approval takes effect—(i) on the date specified in the notice; or (ii) when the event specified in the notice occurs; or (b) if the institution’s application is refused, the notice must state the reasons why the Monetary Authority is not satisfied as specified in subrule (3)(a). (5) If—(a) an authorized institution has been granted an approval under subrule (3)(a); and (b) the Monetary Authority is satisfied that had the business of an overseas branch of the institution not been the subject of the approval, the Monetary Authority would not grant the approval, the Monetary Authority may, by notice in writing to the institution, revoke the approval to the extent that the approval relates to the business. (6) The revocation takes effect—(a) on the date specified in the notice; or (b) when the event specified in the notice occurs. 11. Calculation of LCR, LMR, NSFR or CFR of authorized institution incorporated in Hong Kong on consolidated basis (L.N. 176 of 2017)(1) Subject to subrules (4) and (6) and without limiting rule 12, the Monetary Authority may, by notice in writing to an authorized institution incorporated in Hong Kong that has one or more associated entities, require the institution to calculate its LCR, LMR, NSFR or CFR on a consolidated basis (being the basis with the inclusion of all the business of the institution and one or more of its associated entities as specified in the notice). (L.N. 176 of 2017)(2) The requirement takes effect—(a) on the date specified in the notice; or (b) when the event specified in the notice occurs. (3) An authorized institution must comply with the requirements of a notice given to it under subrule (1). (4) Without limiting subrule (1), the Monetary Authority may decide which associated entities of an authorized institution incorporated in Hong Kong are to be specified in a notice under that subrule in consultation with the institution, having regard to—(a) the respective liquidity risks that the entities pose to the institution; and (b) whether the respective activities of the entities fall within any of the relevant financial activities. (5) An authorized institution may apply to the Monetary Authority for approval to exclude the business of a specified associated entity of the institution from the calculation of its LCR, LMR, NSFR or CFR on a consolidated basis as set out in subrule (1). (L.N. 176 of 2017)(6) On the application under subrule (5), the Monetary Authority may, by notice in writing to the institution, determine the application by—(a) granting approval to the institution to exclude the business of a specified associated entity of the institution from the calculation of its LCR, LMR, NSFR or CFR on a consolidated basis as set out in subrule (1) if the institution demonstrates to the satisfaction of the Monetary Authority that the liquidity risk associated with the business is immaterial; or (L.N. 176 of 2017)(b) refusing the institution’s application if the Monetary Authority is not satisfied as specified in paragraph (a). (7) For subrule (6)—(a) if the institution’s application is approved, the approval takes effect—(i) on the date specified in the notice; or (ii) when the event specified in the notice occurs; or (b) if the institution’s application is refused, the notice must state the reasons why the Monetary Authority is not satisfied as specified in subrule (6)(a). (8) If—(a) an authorized institution has been granted an approval under subrule (6)(a); and (b) the Monetary Authority is satisfied that had the business of a specified associated entity of the institution not been the subject of the approval, the Monetary Authority would not grant the approval, the Monetary Authority may, by notice in writing to the institution, revoke the approval to the extent that the approval relates to the business. (9) The revocation takes effect—(a) on the date specified in the notice; or (b) when the event specified in the notice occurs. (10) In this rule— relevant financial activity (有關財務活動), in relation to an associated entity of an authorized institution, means— (a) an activity ancillary to a principal activity of the institution, including—(i) owning and managing the institution’s property; and (ii) performing information technology functions for the institution; (b) lending, including—(i) the provision of consumer or mortgage credit; (ii) factoring; (iii) forfaiting; and (iv) the provision of guarantees and other financial commitments; (c) financial leasing; (d) money transmission services; (e) issuing and administering a means of payment, including—(i) credit cards; (ii) travellers’ cheques; and (iii) bank drafts; (f) trading for the entity’s own account, or for accounts of the entity’s customers, in—(i) money market instruments; (ii) foreign exchange; (iii) financial instruments traded on an exchange; (iv) OTC derivative transactions; or (v) transferable securities; (g) participating in securities issues, including the provision of services relating to the issues; (h) the provision of—(i) advice to undertakings on capital structure or industrial strategy, including any matter relating to capital structure or industrial strategy; or (ii) advice and services relating to mergers and the purchase of undertakings; (i) money broking; (j) portfolio management and the provision of advice relating to portfolio management; or (k) custodial and safekeeping services. 12. Calculation of LCR, LMR, NSFR or CFR of authorized institution incorporated in Hong Kong on basis other than those under rules 10 and 11 (L.N. 176 of 2017)(1) For an authorized institution incorporated in Hong Kong, if the Monetary Authority, after taking into account the liquidity risk associated with a part of the institution’s business in or outside Hong Kong, is satisfied that it is prudent and reasonable to do so, the Monetary Authority may, by notice in writing to the institution, require it to calculate its LCR, LMR, NSFR or CFR on the basis of that part by itself, or in conjunction with any other part of the institution’s other business as specified in the notice. (L.N. 176 of 2017; 14 of 2025 s. 186)(2) The requirement takes effect—(a) on the date specified in the notice; or (b) when the event specified in the notice occurs. (3) An authorized institution must comply with the requirements of a notice given to it under subrule (1). Part 5 Reporting Requirements 13. Authorized institution must notify Monetary Authority of certain matters concerning its associated entities (1) An authorized institution that calculates its LCR, LMR, NSFR or CFR on a consolidated basis as set out in rule 11(1) must give notice in writing to the Monetary Authority of any of the matters specified in subrule (2) as soon as is practicable after the institution is aware of the matter. (L.N. 176 of 2017)(2) The matters referred to in subrule (1) are—(a) an associated entity of the institution having ceased to be its associated entity; (b) an entity having become an associated entity of the institution; (c) the principal activities of an entity referred to in paragraph (b); and (d) any significant change to the principal activities of the institution or any of its associated entities (including an entity referred to in paragraph (b)). 14. Prescribed notification requirements for purposes of section 97I of Ordinance (1) For the purposes of section 97I of the Ordinance, an authorized institution must immediately notify the Monetary Authority of a relevant liquidity event and provide the Monetary Authority with any particulars of the event that the Monetary Authority requests. (2) If an authorized institution notifies the Monetary Authority under subrule (1) of a relevant liquidity event that falls within paragraph (a)(i), (ii), (iiia) or (iv), (b) or (c) of the definition of relevant liquidity event in subrule (3), the institution must, at the same time as it gives the notification, also give the Monetary Authority an assessment of its liquidity position, including— (L.N. 176 of 2017)(a) the factors contributing to it having to give the Monetary Authority the notification; (b) the measures it has taken or will take to deal with the event; and (c) the potential duration of the event based on the institution’s reasonable expectations. (3) In this rule— relevant liquidity event (流動性相關事件)— (a) for a category 1 institution, means—(i) (if the institution is not the subject of a notice under rule 16(1) or (2) that is in force) that the institution fails to comply with rule 4 and such failure does not arise from the institution’s taking action under rule 6 to monetize its HQLA to meet its financial obligations as they fall due; (ii) (if the institution is not the subject of a notice under rule 16(1) or (2) that is in force) that the institution is taking, or is about to take, action under rule 6 to monetize its HQLA to meet its financial obligations as they fall due such that the action will cause, or could reasonably be construed as potentially causing, whether by itself or in conjunction with any other event, the institution’s failure to maintain an LCR as required under rule 4; (iii) (if the institution is the subject of a notice under rule 16(1) or (2) that is in force) that the institution fails to comply with any condition specified in the notice; (iiia) that the institution, subject to rule 8B(2), fails to comply with rule 8A; or (L.N. 176 of 2017)(iv) (if the institution is a rule 37 institution as defined by rule 36) that the institution fails to comply with rule 37(d); (b) for a category 2 institution, means that the institution fails to comply with rule 7; or (c) for a category 2A institution, means that the institution fails to comply with rule 8D. (L.N. 176 of 2017) (L.N. 176 of 2017) 15. Category 2 institution must notify Monetary Authority of change of business plans, etc., that may cause it to fall under Part 1 of Schedule 1 (1) Subject to subrule (2), if a category 2 institution’s business plans, or particular circumstances, change, or are expected to change, in a manner that may be likely to cause any ground specified in Part 1 of Schedule 1 to arise in relation to the institution, the institution must—(a) as soon as is practicable notify the Monetary Authority of the matter; and (b) provide the Monetary Authority with any particulars of the matter that the Monetary Authority requests. (2) A category 2 institution must comply with subrule (1) irrespective of whether Part 3 of Schedule 1 may apply to it. Part 6 Action that may be Taken by Monetary Authority when Notified of Certain Relevant Liquidity Event 16. Conditions that Monetary Authority may impose on category 1 institution when it gives notice under rule 14(1) of event that falls within paragraph (a)(ii) of definition of relevant liquidity event (1) Where a category 1 institution notifies the Monetary Authority under rule 14(1) of a relevant liquidity event that falls within paragraph (a)(ii) of the definition of relevant liquidity event in rule 14(3), the Monetary Authority may, by notice in writing to the institution (subrule (1) notice), require the institution to comply with the conditions specified in the notice that relate to the institution’s LCR and with which the Monetary Authority is satisfied that, in all the circumstances of the case, it is prudent and reasonable that the institution must comply. (2) If a category 1 institution is the subject of a subrule (1) notice, the Monetary Authority may at any time, by notice in writing to the institution (subrule (2) notice) do either or both of the following as the Monetary Authority thinks proper— (a) amend any conditions specified in the subrule (1) notice (including amending by specifying new conditions in the subrule (1) notice); (b) cancel any conditions specified in the subrule (1) notice (including conditions specified in the subrule (1) notice pursuant to a prior subrule (2) notice). (3) The amendment or the cancellation takes effect—(a) on the date specified in the notice; or (b) when the event specified in the notice occurs. (4) Without limiting subrule (1) or (2), conditions specified in a subrule (1) notice or subrule (2) notice to a category 1 institution may include one or more of the following—(a) a condition that the institution must at all times maintain an LCR of not less than the percentage specified in the notice (which percentage must not be more than that as required under rule 4); (b) a condition that the institution must submit to the Monetary Authority a plan, within such period (being a period which is reasonable in all the circumstances of the case) as specified in the notice, satisfying the Monetary Authority that, if the plan is implemented by the institution, it would maintain, within a period reasonable in all the circumstances of the case, an LCR as required under rule 4; (c) a condition that the institution must start to implement the plan—(i) on the date specified in the notice; or (ii) when the event specified in the notice occurs; (d) a condition that the institution must reduce its liquidity risk exposures in such manner, or adopt such measures, as are specified in the notice which, in the opinion of the Monetary Authority, will cause the institution to maintain, within a period reasonable in all the circumstances of the case, an LCR as required under rule 4; (e) a condition that the institution must make such reports regarding its LCR to the Monetary Authority as are specified in the notice. (5) A category 1 institution must comply with the conditions specified in a notice given to it under this rule. (6) A decision made by the Monetary Authority under subrule (1) or (2)(a) is a decision to which section 101B(1) of the Ordinance applies. Part 7 Calculation of LCR Division 1 General 17. Interpretation of Part 7 and Schedule 4A (L.N. 176 of 2017)In this Part and Schedule 4A— (L.N. 176 of 2017)approved RMBS (經批准RMBS) means an RMBS that falls within section 3(b) of Part 2 of Schedule 2; covered bond (資產覆蓋債券) means a bond issued by a bank or mortgage corporation— (a) that is subject to relevant laws or regulations specially designed to protect the holder of the bond; and (b) the proceeds from the issue of which must, in conformity with those relevant laws or regulations, be invested in assets—(i) that, during the whole period of the validity of the bond, are capable of covering claims attached to the bond; and (ii) that, in the event of the failure of the issuer of the bond, would be used on a priority basis for the reimbursement of the principal and payment of the accrued interest; haircut (扣減), in relation to an asset held, or pledged to a counterparty, by a category 1 institution, means any adjustment to be applied to the principal amount of the asset for calculating the institution’s LCR or other purposes, to take into account possible future fluctuations in the monetizable value of the asset; host country (業務所在國家), in relation to a category 1 institution incorporated in Hong Kong, means a country outside Hong Kong in which— (a) any of the institution’s overseas branches operates; or (b) any of the institution’s associated entities is incorporated; HQLA qualifying asset (HQLA合資格資產) means an asset referred to in rule 25(a); principal amount (本金額)— (a) in relation to an on-balance sheet item of a category 1 institution, means—(i) if the item is measured at fair value, the value of the item determined in accordance with rule 9; or (ii) if the item is not measured at fair value, the book value (including any accrued interest) of the item; or (b) in relation to an off-balance sheet item of a category 1 institution, means—(i) subject to subparagraphs (ii) and (iii), the contracted amount; (ii) for an undrawn facility, the amount of the undrawn facility; or (iii) for a partially drawn facility, the amount of the undrawn portion; relevant securities financing transaction (相關證券融資交易) means a securities financing transaction that falls within rule 34(1)(a); retail deposit (零售存款) has the meaning given by rule 39; securities financing transaction (證券融資交易), in relation to a category 1 institution, means— (a) a repo-style transaction; or (b) a margin lending transaction; small business funding (小型企業借款) has the meaning given by rule 39; withdrawable central bank reserves (可提取央行儲備), in relation to a category 1 institution, means— (a) any funds placed by the institution with the Monetary Authority for the account of the Exchange Fund that are repayable on demand; or (b) any of the following funds placed by the institution with a central bank—(i) funds required to be so placed under the central bank’s reserve requirements but only to the extent that those funds are allowed by the central bank to be drawn down by the institution in times of financial stress; (ii) funds that are repayable on demand; (iii) term funds that are explicitly and contractually repayable on notice and will be available for use by the institution on the first day of the LCR period; (iv) term funds against which the institution can borrow from the central bank a loan on a term basis, or on an overnight but automatically renewable basis, as long as the term funds concerned are still placed with the central bank but, if the amount of the loan that the institution may borrow from the central bank against the term funds concerned and the amount of the funds are different, only the lower of those 2 amounts. 18. Assets, etc., must not be double counted in calculation of LCR (1) A category 1 institution must not, in the calculation of its LCR, double count an asset, liability, off-balance sheet item, or associated cash flow, that is included in that calculation. (2) Without limiting subrule (1), a category 1 institution must not, in the calculation of its LCR, include in its total net cash outflows any cash inflow associated with an asset included in its HQLA for the purposes of that calculation. 19. Calculation of LCR on Hong Kong office basis A category 1 institution must, in the calculation of its LCR on a Hong Kong office basis, determine—(a) its HQLA held in its Hong Kong office; and (b) the total net cash outflows of its Hong Kong office, as if its Hong Kong office were a single legal entity. 20. Calculation of LCR on unconsolidated basis Subject to rules 22 and 24, a category 1 institution incorporated in Hong Kong must, in the calculation of its LCR on an unconsolidated basis—(a) determine the aggregate of its HQLA held in its Hong Kong office and its overseas branches; (b) determine the aggregate of the total net cash outflows of its Hong Kong office and its overseas branches; and (c) ensure that all inter-branch balances with, and transactions between, its Hong Kong office and its overseas branches are offset in that calculation. 21. Calculation of LCR on consolidated basis (1) Subject to rules 22 and 23, a category 1 institution incorporated in Hong Kong must, in the calculation of its LCR on a consolidated basis—(a) determine the aggregate of its HQLA held by the members of its consolidated group; (b) determine the aggregate of the total net cash outflows of the members of its consolidated group; and (c) ensure that all inter-branch or inter-company balances with, and transactions between, the members of its consolidated group are offset in that calculation. (2) A category 1 institution must comply with subrule (1) as if the members of its consolidated group were a single legal entity. 22. Calculation of LCR on unconsolidated or consolidated basis, etc. when there are different liquidity requirements between Hong Kong and host countries (1) If— (L.N. 176 of 2017)(a) a category 1 institution incorporated in Hong Kong calculates its LCR on an unconsolidated basis or consolidated basis, or the basis specified in a notice to the institution under rule 12; and (b) the institution has an overseas branch that operates, or a specified associated entity that is incorporated, in a host country, this rule applies in respect of the deposits and funding of the overseas branch or specified associated entity. (2) For subrule (1), subject to subrule (4), if—(a) any liquidity requirements for the equivalent of an LCR and applicable to the deposits and funding concerned are imposed by the relevant banking supervisory authority in the host country; and (L.N. 176 of 2017)(b) those liquidity requirements are imposed for—(i) implementing the prevailing banking supervisory standards issued by the Basel Committee relating to the equivalent of an LCR; and (ii) reflecting the prevailing standards issued by the Basel Committee for such types of the deposits and funding concerned, the institution must apply those liquidity requirements to the calculation of its LCR insofar as the calculation relates to the deposits and funding concerned. (3) For subrule (1), if—(a) no liquidity requirements mentioned in subrule (2) are imposed by the relevant banking supervisory authority in the host country; or (L.N. 176 of 2017)(b) the authority, for the purposes of the calculation of the equivalent of an LCR insofar as the calculation relates to the deposits and funding concerned, does not adopt those liquidity requirements or does not apply those liquidity requirements to the institution, (L.N.

176 of 2017) the institution must apply the requirements of these Rules as applicable to the calculation of its LCR insofar as the calculation relates to the deposits and funding concerned. (4) For subrule (2), if the Monetary Authority—(a) is satisfied that the liquidity requirements imposed by the relevant banking supervisory authority in the host country are, for the purposes of the calculation of the equivalent of an LCR insofar as the calculation relates to the types of the deposits and funding concerned, less stringent than the requirements of these Rules as applicable to the calculation of the institution’s LCR insofar as the calculation relates to the deposits and funding concerned; and (b) has given the institution a notice in writing stating the matter mentioned in paragraph (a), (L.N. 176 of 2017) the institution must apply the requirements of these Rules as applicable to the calculation of its LCR insofar as the calculation relates to the deposits and funding concerned. (5) If subrule (2), (3) or (4) applies to a category 1 institution, the institution must construe, with all necessary modifications, the other requirements of these Rules in a manner consistent with the application of that subrule to it. (L.N. 176 of 2017)(6) In this rule—deposits and funding (存款及借款), in relation to a category 1 institution’s overseas branch that operates, or specified associated entity that is incorporated, in a host country, means the retail deposits and small business funding of the overseas branch or specified associated entity; (14 of 2025 s. 187)specified associated entity (指明聯繫實體)—(a) has the meaning given by rule 2(1); but(b) does not include a re-domiciled entity. (14 of 2025 s. 187) 23. Treatment of liquidity transfer restrictions in calculation of consolidated LCR (1) A category 1 institution incorporated in Hong Kong that has one or more specified associated entities must not, in the calculation of its LCR on a consolidated basis, include the following—(a) any HQLA held by a member of its consolidated group (except to the extent that the total net cash outflows of the member are also included in the calculation); and (b) any surplus HQLA held by the member. (2) Despite subrule (1)(b), surplus HQLA may be included in the calculation referred to in that subrule if—(a) the surplus HQLA is at all times freely transferable from the member of the category 1 institution’s consolidated group that holds the surplus HQLA to the institution’s Hong Kong office; and (b) without limiting paragraph (a) and subject to subrule (3)—(i) the transfer of the surplus HQLA from the country in which it is held by the member concerned to the institution’s Hong Kong office is not subject to any liquidity transfer restriction; and (ii) there is no reasonable doubt as to whether the surplus HQLA will at all times be freely transferable from the country in which it is held by the member concerned to the institution’s Hong Kong office. (3) For subrule (2), for assessing the transferability of the surplus HQLA, a category 1 institution—(a) is only required to take into account the applicable laws, regulations and supervisory requirements of the country in which the surplus HQLA is held; and (b) must have in place and maintain adequate processes to identify and monitor the applicable laws, regulations and supervisory requirements referred to in paragraph (a). (4) In this rule—surplus HQLA (超額HQLA), in relation to a member of a category 1 institution’s consolidated group, means any of the institution’s HQLA held by the member that is more than the higher of the following—(a) the total net cash outflows of the member; (b) the HQLA required to be held by the prevailing regulations applicable to the member. 24. Treatment of liquidity transfer restrictions in calculation of unconsolidated LCR, etc. Rule 23 applies, with all necessary modifications—(a) to a category 1 institution incorporated in Hong Kong that calculates its LCR on an unconsolidated basis as that rule applies to a category 1 institution incorporated in Hong Kong that calculates its LCR on a consolidated basis; and (b) to a category 1 institution incorporated in Hong Kong that calculates its LCR on the basis specified in a notice given to it under rule 12 as rule 23 applies to a category 1 institution incorporated in Hong Kong that calculates its LCR on a consolidated basis. Division 2 Requirements that Asset, etc., must Satisfy before it can be Included in HQLA for Purposes of Calculation of LCR 25. Requirements that must be satisfied before asset can be included in HQLA for purposes of calculation of LCR A category 1 institution must not, in the calculation of its LCR, include an asset in its HQLA unless—(a) subject to rules 29 and 30, the asset falls within a class of assets specified in Schedule 2 and meets the qualifying criteria (if any) specified in that Schedule for an asset that falls within that class; (b) the asset satisfies all the characteristic requirements specified in Schedule 3 that are applicable to the asset; (c) the asset satisfies all the operational requirements specified in Schedule 4 that are applicable to the asset; and (d) the institution satisfies all the operational requirements specified in Schedule 4 that are applicable to the institution insofar as those operational requirements relate to the asset. 26. Exclusion of non-qualifying asset from HQLA If an asset included in a category 1 institution’s HQLA ceases to satisfy any requirement of these Rules applicable to the inclusion of an asset in HQLA (including any case where the institution fails to satisfy any operational requirement specified in Schedule 4 that is applicable to the institution insofar as the operational requirement concerned relates to the asset), the institution must—(a) subject to paragraph (b), exclude the asset from its HQLA not later than 30 calendar days after the date of the cesser; or (b) exclude the asset from its HQLA immediately if it only becomes aware of the cesser after the 30 calendar days. 27. Management of HQLA and related foreign exchange risk (1) A category 1 institution must have in place and maintain adequate systems and procedures for the on-going assessment and management of its HQLA in order to ensure that—(a) each asset included in the HQLA satisfies all the requirements of these Rules that are applicable to the inclusion of that asset in the HQLA; (b) an asset included in the HQLA that ceases to satisfy any requirement of these Rules applicable to the inclusion of that asset in the HQLA is identified as soon as is practicable; and (c) without limiting rule 26, prompt action is taken to exclude from the HQLA an asset identified as referred to in paragraph (b).(2) A category 1 institution must have in place and maintain adequate systems and procedures to manage the foreign exchange risk associated with its HQLA, including—(a) managing its ability to access relevant foreign exchange markets for the exchange of funds from one currency to another taking into account the risk that the access to such markets may be hindered in times of financial stress; (b) managing its HQLA so that the HQLA is able to generate liquidity to meet the institution’s total net cash outflows in different currencies; and (c) subject to Division 4, managing the composition of its HQLA by currency so that the HQLA is broadly consistent with the distribution of its total net cash outflows by currency. 28. HQLA must have diversification of classes of assets, etc. (1) A category 1 institution must—(a) have in place and maintain adequate policies and limits to control the level of concentration of its HQLA within asset classes with respect to the type of asset, type of issue, type of issuer and, without limiting rule 27(2)(c), type of currency; and (b) subject to subrule (2), ensure that the HQLA is well diversified within each of the asset classes comprising the HQLA. (2) Subrule (1)(b) does not apply to a level 1 asset included in a category 1 institution’s HQLA if the asset falls within any of the following types of asset—(a) currency notes and coins; (b) withdrawable central bank reserves; (c) EF debt securities; (d) qualifying debt securities issued by the sovereign or central bank of a country in which the institution is incorporated; (14 of 2025 s. 188)(e) qualifying debt securities issued by the sovereign or central bank of a country in which the institution operates. (14 of 2025 s. 188)(3) To avoid doubt, in relation to a category 1 institution incorporated in a place that is part of a country (Country A)—(a) a reference in subsection (2)(d) to “the sovereign or central bank of a country in which the institution is incorporated” includes the sovereign or central bank of Country A; and(b) a reference in subsection (2)(e) to “the sovereign or central bank of a country in which the institution operates” includes the sovereign or central bank of Country A. (14 of 2025 s. 188)(4) For the purposes of this rule, a category 1 institution that is a re-domiciled entity is to be regarded as being incorporated in Hong Kong. (14 of 2025 s. 188) 29. General exclusion of assets from HQLA, etc. (1) The Monetary Authority may, by notice in writing to all category 1 institutions, specify that a category 1 institution must not include in its HQLA, with effect from the date, or the occurrence of an event, specified in the notice, an asset, or a class of assets, of the type specified in the notice, on the ground that the Monetary Authority is satisfied that that type of asset or class of assets, as the case may be, is not, or is no longer, sufficiently liquid in private markets or readily monetizable by other means to be included in any category 1 institution’s HQLA. (2) Every category 1 institution must comply with the requirements of a notice given to it under subrule (1). 30. Specific exclusion of assets from HQLA, etc. (1) The Monetary Authority may, by notice in writing to a category 1 institution, require the institution, with effect from the date, or the occurrence of an event, specified in the notice—(a) to cease to include in its HQLA the asset specified in the notice on the ground that the Monetary Authority is satisfied that it no longer satisfies, or has never satisfied, the requirement of these Rules as specified in the notice that is applicable to the inclusion of that asset in its HQLA; or (b) without limiting rules 27(2) and 28(1), to make the changes specified in the notice to its HQLA on the ground that the Monetary Authority is satisfied that those changes are necessary in order to mitigate the risks associated with the institution’s failure, as specified in the notice, to comply with rule 27(2) or 28(1). (2) A category 1 institution must comply with the requirements of a notice given to it under subrule (1). 31. Provisions supplementary to rule 25 (1) The Monetary Authority may, after consultation with the Financial Secretary, the Banking Advisory Committee, the Deposit-taking Companies Advisory Committee, The Hong Kong Association of Banks and The DTC Association, and if satisfied that it is prudent and reasonable to do so in the prevailing financial circumstances, by notice in writing to all category 1 institutions, specify that a category 1 institution may include in its HQLA, with effect from the date, or the occurrence of an event, specified in the notice, a relevant asset specified in the notice if the institution and the relevant asset comply with—(a) the prevailing banking supervisory standards issued by the Basel Committee relating to the inclusion of the relevant asset in HQLA; and (b) the conditions (if any) specified in the notice relating to the inclusion of the relevant asset in the institution’s HQLA. (2) If a category 1 institution includes a relevant asset in its HQLA in accordance with a notice under subrule (1), the institution must construe, with all necessary modifications, the other requirements of these Rules in a manner consistent with the inclusion of that asset in the HQLA. (3) In this rule—relevant asset (有關資產) means an asset (which may be an off-balance sheet asset), or an asset which falls within a class of assets (which may be a class of off-balance sheet assets), of a type which—(a) under the prevailing banking supervisory standards issued by the Basel Committee relating to the inclusion of assets in HQLA, may be included in HQLA; and (b) under the other provisions of these Rules, is not presently permitted to be included in a category 1 institution’s HQLA. Division 3 Determination of HQLA: General 32. General requirements applicable to determination of HQLA Subject to rules 33, 34, 35, 36, 37 and 38, a category 1 institution must determine the total weighted amount of its HQLA—(a) subject to paragraphs (b), (c) and (d), as the sum of the total weighted amounts of its level 1 assets, level 2A assets and level 2B assets, calculated in accordance with rule 35; (b) if any of its level 1 assets, level 2A assets or level 2B assets are not available to the institution on the first day of the LCR period concerned, by excluding the asset concerned from its HQLA for that period and irrespective of the asset’s remaining maturity; (c) so that the sum of—(i) the total weighted amount of level 2A assets; and (ii) the total weighted amount of level 2B assets, does not exceed 40% of the total weighted amount of its HQLA (40% ceiling); and (d) so that the total weighted amount of level 2B assets does not exceed 15% of the total weighted amount of its HQLA (15% ceiling). 33. Calculation of total weighted amount of HQLA (without reversal of relevant securities financing transaction) (1) Subject to rule 34, a category 1 institution must, for the purposes of rule 32, calculate the total weighted amount of its HQLA by the use of Formula 1. Formula 1 Calculation of Total Weighted Amount of HQLA Total weighted amount of HQLA = total weighted amount of level 1 assets + total weighted amount of level 2A assets + total weighted amount of level 2B assets – adjustment for 15% ceiling – adjustment for 40% ceiling where— adjustment for 15% ceiling = max (level 2B assets – 15/85* (level 1 assets + level 2A assets), level 2B assets – 15/60* level 1 assets, 0); adjustment for 40% ceiling = max ((level 2A assets + level 2B assets – adjustment for 15% ceiling) – 2/3* level 1 assets, 0); level 1 assets = total weighted amount of level 1 assets calculated in accordance with rule 35(1)(a); level 2A assets = total weighted amount of level 2A assets calculated in accordance with rule 35(1)(b); and level 2B assets = total weighted amount of level 2B assets calculated in accordance with rule 35(1)(c). (2) To avoid doubt, a category 1 institution must comply with subrule (1) after all haircuts required by rule 35 have been made to its HQLA. 34. Calculation of total weighted amount of HQLA (if there is relevant securities financing transaction) (1) Subrule (2) applies to a category 1 institution if—(a) the institution has entered into a securities financing transaction that matures within the LCR period concerned and the transaction involves the exchange, during that period, of an HQLA qualifying asset of the institution for another HQLA qualifying asset from the counterparty to the transaction; (b) the HQLA qualifying asset from the counterparty satisfies, or will satisfy when it is given to the institution, all the requirements of rule 25(b) and (c) applicable to the asset; and (c) the institution satisfies, or will satisfy when it is given the HQLA qualifying asset from the counterparty, all the requirements of rule 25(d) applicable to the institution insofar as those requirements relate to the asset. (2) A category 1 institution to which this subrule applies must—(a) by the use of Formula 2, calculate the total weighted amount of its HQLA after the reversal of the relevant securities financing transaction concerned; and (b) take the lower amount of the 2 amounts calculated under paragraph (a) and rule 33 as the total weighted amount of its HQLA for the purposes of rule 32. Formula 2 Calculation of Total Weighted Amount of HQLA (Adjusted for Reversal of any Relevant Securities Financing Transaction) Total weighted amount of HQLA = total weighted amount of level 1 assets + total weighted amount of level 2A assets + total weighted amount of level 2B assets – adjustment for 15% ceiling – adjustment for 40% ceiling where— adjustment for 15% ceiling = max (adjusted level 2B assets – 15/85* (adjusted level 1 assets + adjusted level 2A assets), adjusted level 2B assets – 15/60* adjusted level 1 assets, 0); adjustment for 40% ceiling = max ((adjusted level 2A assets + adjusted level 2B assets – adjustment for 15% ceiling) – 2/3* adjusted level 1 assets, 0); adjusted level 1 assets = total weighted amount of level 1 assets adjusted for the reversal of any relevant securities financing transaction involving the exchange by the category 1 institution of any level 1 asset, level 2A asset or level 2B asset for receipt by the category 1 institution from the counterparty of any level 1 asset within the LCR period concerned; adjusted level 2A assets = total weighted amount of level 2A assets adjusted for the reversal of any relevant securities financing transaction involving the exchange by the category 1 institution of any level 1 asset, level 2A asset or level 2B asset for receipt by the category 1 institution from the counterparty of any level 2A asset within the LCR period concerned; and adjusted level 2B assets = total weighted amount of level 2B assets adjusted for the reversal of any relevant securities financing transaction involving the exchange by the category 1 institution of any level 1 asset, level 2A asset or level 2B asset for receipt by the category 1 institution from the counterparty of any level 2B asset within the LCR period concerned. (3) To avoid doubt, a category 1 institution to which subrule (2) applies must comply with that subrule after all haircuts required by rule 35 have been made to its HQLA. 35. Haircuts (1) Subject to rule 38, for the purposes of rule 32—(a) the total weighted amount of level 1 assets is the sum of the weighted amount of assets that fall within each of the asset subclasses specified in column 1 of Table 1 in Schedule 4A (Table 4A-1) under the asset class of level 1 assets, calculated by multiplying together— (L.N. 176 of 2017)(i) the principal amount of assets that fall within each of those asset subclasses; and (ii) the post-haircut factor specified in column 2 of Table 4A-1 in relation to each of those asset subclasses; (b) the total weighted amount of level 2A assets is the sum of the weighted amount of assets that fall within each of the asset subclasses specified in column 1 of Table 4A-1 under the asset class of level 2A assets, calculated by multiplying together— (L.N. 176 of 2017)(i) the principal amount of assets that fall within each of those asset subclasses; and (ii) the post-haircut factor specified in column 2 of Table 4A-1 in relation to each of those asset subclasses; and (c) the total weighted amount of level 2B assets is the sum of the weighted amount of assets that fall within each of the asset subclasses specified in column 1 of Table 4A-1 under the asset class of level 2B assets, calculated by multiplying together— (L.N. 176 of 2017)(i) the principal amount of assets that fall within each of those asset subclasses; and (ii) the post-haircut factor specified in column 2 of Table 4A-1 in relation to each of those asset subclasses. Table 1 (Repealed L.N. 176 of 2017)(2) Subject to subrule (3), the principal amount of assets that fall within each of the asset subclasses listed in Table 4A-1 is the fair value of the assets concerned. (3) The principal amount of assets that fall within the asset subclasses of currency notes and coins and withdrawable central bank reserves listed in Table 4A-1 is the book value of the assets concerned (including any accrued interest in the case of withdrawable central bank reserves). (L.N. 176 of 2017) Division 4 Determination of HQLA: Requirements Applicable to Category 1 Institutions that Use Foreign Currency-denominated HQLA to Cover HKD LCR Mismatch 36. Interpretation of Division 4 In this Division—foreign currency-denominated HQLA (外幣計值HQLA), in relation to the calculation by a category 1 institution of its LCR, means the total weighted amount of its HQLA, as determined in accordance with this Part before making any adjustment in respect of the 40% ceiling and 15% ceiling referred to in rule 32, that are denominated in foreign currencies; foreign currency-denominated total net cash outflows (外幣計值淨現金流出總額), in relation to the calculation by a category 1 institution of its LCR, means the institution’s total net cash outflows, as calculated in accordance with Division 5 before the application of rule 40(2) to those outflows, that are denominated in foreign currencies; HKD-denominated HQLA (港元計值HQLA), in relation to the calculation by a category 1 institution of its LCR, means the total weighted amount of its HQLA, as determined in accordance with this Part before making any adjustment in respect of the 40% ceiling and 15% ceiling referred to in rule 32, that are denominated in Hong Kong dollars; HKD-denominated total net cash outflows (港元計值淨現金流出總額), in relation to the calculation by a category 1 institution of its LCR, means the institution’s total net cash outflows, as calculated in accordance with Division 5 before the application of rule 40(2) to those outflows, that are denominated in Hong Kong dollars; HKD LCR mismatch (港元LCR錯配), in relation to the calculation by a category 1 institution of its LCR, means that portion of the institution’s HKD-denominated total net cash outflows that is not covered by its HKD-denominated HQLA; relevant portion (有關部分), in relation to the calculation by a category 1 institution of its LCR, is to be construed in accordance with rule 38; rule 37 institution (第37條機構) means a category 1 institution that uses, or is proposing to use, part of its foreign currency-denominated HQLA to cover its HKD LCR mismatch in the calculation of its LCR in accordance with rule 37. 37. Circumstances and requirements under which category 1 institution may use foreign currency-denominated HQLA to cover HKD LCR mismatch Without limiting rule 27(2)(c) but subject to rule 38, a category 1 institution may use part of its foreign currency-denominated HQLA to cover its HKD LCR mismatch in the calculation of its LCR only if—(a) the institution can demonstrate to the satisfaction of the Monetary Authority that it has a genuine need to use such HQLA to comply with rule 4; (b) such HQLA are level 1 assets and have not already been used by the institution to cover its foreign currency-denominated total net cash outflows; (c) the institution applies the foreign exchange haircuts required under rule 38 in the calculation of its LCR; (d) the use of such HQLA does not result in the institution holding HKD-denominated HQLA that are level 1 assets being less than 20% of its HKD-denominated total net cash outflows; and (e) the institution can demonstrate to the satisfaction of the Monetary Authority that it has the necessary systems and capacity to manage the level of foreign exchange risk associated with the use of such HQLA. 38. Application of foreign exchange haircuts (1) Subject to subrule (2), a rule 37 institution, in determining the amount of its HQLA for calculating its LCR, must deduct from the total weighted amount of its HQLA an amount calculated by multiplying together—(a) the principal amount of the level 1 assets constituting that portion of foreign currency-denominated HQLA held by the institution to cover its HKD LCR mismatch (relevant portion); and (b) the foreign exchange haircut specified in Table 2 in Schedule 4A as applicable to those assets. (L.N. 176 of 2017)Table 2(Repealed L.N. 176 of 2017)(2) Subrule (1) does not apply to the relevant portion, or that part of the relevant portion, that is not more than 25% of the relevant rule 37 institution’s HKD-denominated total net cash outflows. Division 5 Calculation of Total Net Cash Outflows 39. Interpretation of Division 5 In this Division—cash management services (現金管理服務), in relation to a category 1 institution, means services provided by the institution that directly or indirectly enable its customers to manage their cash flows, assets and liabilities, or to conduct financial transactions necessary for their on-going operations, in relation to payment remittances, the collection and aggregation of funds, payroll administration or control over the disbursement of funds; clearing services (結算服務), in relation to a category 1 institution, means services provided by the institution that enable its customers to transfer funds or assets indirectly through direct participants in settlement systems to final recipients, but such services are limited to the transmission, reconciliation or confirmation of payment orders, daylight overdrafts or overnight financing, the maintenance of post-settlement balances or the determination of intraday and end-of-day settlement positions; committed liquidity facility (有承諾流動性融通), in relation to a category 1 institution, means a committed facility that serves as a standby facility granted by the institution to its customer to refinance the customer’s debt obligations (for example, under a commercial paper programme) in situations where the customer is unable to refinance those debt obligations in financial markets; correspondent banking services (代理銀行服務) means services under which a correspondent bank holds deposits and other funding from a respondent bank for the clearing and settlement of transactions in a currency other than the currency of the country in which the respondent bank is incorporated or operates; custodial-related services (託管關聯服務), in relation to a category 1 institution, means services that are— (a) provided by the institution—(i) for the safekeeping, processing and reporting of financial assets on behalf of its customers; or (ii) for the facilitation, on behalf of its customers, of operational and administrative arrangements associated with transactions involving the customers’ financial assets; and (b) limited to—(i) the settlement of transactions involving securities; (ii) the transfer of contractual payments; (iii) the processing of collateral; (iv) the provision of custodial-related cash management services; (v) the receipt of dividends and other income; (vi) client subscriptions and redemption; (vii) asset and corporate trust servicing; (viii) treasury; (ix) escrow; (x) fund transfer; (xi) stock transfer and agency services; (xii) payment and settlement services not related to correspondent banking services; or (xiii) depository receipts; derivative contract (衍生工具合約) means— (a) a financial instrument (other than a bond, loan, share, note or structured financial instrument) the value of which is determined by reference to the value of, or any fluctuation in the value of, one or more than one underlying asset, index, financial instrument, rate or thing as designated in the financial instrument; or (b) (where a financial instrument that falls within paragraph (a) is embedded in or combined with, or forms part of, a bond, loan, share, note or structured financial instrument) the financial instrument that falls within that paragraph; effective deposit insurance scheme (有效存款保險計劃) means— (a) the Deposit Protection Scheme established under section 11 of the Deposit Protection Scheme Ordinance (Cap. 581); (b) a deposit insurance scheme—(i) that has the ability to make prompt payouts of insured deposits; (ii) for which the deposit coverage is clearly defined; (iii) of which public awareness is high; and (iv) in which the deposit insurer has formal legal powers to fulfil its mandate and is operationally independent, transparent and accountable; or (c) an explicit and legally binding deposit guarantee provided by the sovereign in a country that effectively functions as deposit insurance in that country; excess non-segregated collateral (超額非分隔抵押品), in relation to a category 1 institution, means the fair value of non-segregated collateral held by the institution that is— (a) posted by the institution’s counterparty under a derivative contract or other transaction; and (b) in excess of the amount of collateral contractually required to be posted to the institution under that contract or transaction; fully insured (十足受保), in relation to a deposit covered under an effective deposit insurance scheme, means that 100% of the deposit amount (up to the deposit coverage limit) is insured by the scheme; fully performing (一直依期清償), in relation to an asset or exposure of a category 1 institution, means the asset or exposure is not overdue and the original terms of repayment—(a) have not been revised;(b) have been revised for a reason other than the inability of the obligor to meet those terms; or(c) have been revised because of the inability of the obligor to meet those terms and the asset or exposure has subsequently been serviced by the obligor in accordance with the revised terms continuously for—(i) in the case of an asset or exposure with monthly repayments (whether in respect of principal, interest or both)—a period of not less than 6 months; or(ii) in any other case—a period of not less than 12 months; (L.N. 170 of 2023)investment grade (投資等級) has the meaning given by section 281 of the Capital Rules; IRB subclass (IRB子類別) has the meaning given by section 2(1) of the Capital Rules; less stable retail deposit (較不穩定零售存款), in relation to a category 1 institution, means a retail deposit taken by the institution that is not a stable retail deposit or retail term deposit; margin agreement (保證金協議) has the meaning given by section 226A of the Capital Rules; margin lending transaction (保證金借出交易), in relation to a category 1 institution, means a secured lending transaction under which the institution extends a margin loan to its customer; margin loan (保證金貸款), in relation to a category 1 institution, means a collateralized loan extended by the institution to its customer under a margin agreement in connection with the trading of securities by the customer; material adverse event (重大不利事件), in relation to a derivative contract or other contract entered into by a category 1 institution with a counterparty, means an event specified in the contract that relates to adverse changes in the institution’s credit-worthiness or financial conditions (caused by a downgrade of its ECAI issuer rating up to and including a 3-notch downgrade or a downgrade of such rating to a rating that is not investment grade), the occurrence of which will require the institution to fulfil its obligations specified in the contract (which may include the payment of a sum of money or the posting of additional collateral) to the counterparty; non-contractual contingent funding obligation (非合約或有出資義務), in relation to a category 1 institution, includes, but is not limited to, an obligation of the institution that is— (a) associated with the issue or sponsorship of financial instruments (including structured financial instruments), or the provision of financial services, that may necessitate the funding support of, or the extension of funds by, the institution in times of financial stress; or (b) associated with financial instruments (including structured financial instruments) originated, sponsored, marketed or sold by the institution that may render it necessary for the institution, out of reputation risk considerations, to repurchase those instruments from the holders of the instruments if there is a failure to satisfy the holders’ reasonable expectations about the liquidity and marketability of the instruments; non-segregated collateral (非分隔抵押品), in relation to a category 1 institution, means collateral posted by the institution’s counterparty under a derivative contract or other transaction that is not segregated from other assets held by the institution; operational deposit (營運存款), in relation to a category 1 institution, means a deposit placed, by a wholesale customer (other than a small business customer) of the institution, with the institution in the course of the institution providing to the customer operational services— (a) on which the customer has become significantly dependent for its business operation; and (b) that does not arise from the institution’s provision of correspondent banking services or prime brokerage services to the customer; operational services (營運服務) means clearing services, custodial-related services or cash management services; other contingent funding obligation (其他或有出資義務), in relation to a category 1 institution, means a contractual or non-contractual contingent funding obligation of the institution that— (a) is not a lending commitment; and (b) is not otherwise included in the calculation of the institution’s total net cash outflows for calculating its LCR; other contractual cash outflow (其他合約現金流出), in relation to a category 1 institution, means a contractual cash outflow of the institution (other than a contractual cash outflow relating to the operating expenses of the institution) that— (a) occurs within the LCR period; and (b) is not otherwise included in the calculation of the institution’s total net cash outflows for calculating its LCR; other established relationship (其他既定關係), in relation to a category 1 institution, means a banking relationship between the institution and a customer of the institution, other than the placing of deposits with the institution, in relation to loans, credit cards, investments or wealth management accounts; prime brokerage services (主要經紀服務), in relation to a category 1 institution, means services provided by the institution to institutional or professional investors to facilitate their investment and trading activities; retail customer (零售客户), in relation to a category 1 institution, means a customer of the institution who is an individual; retail deposit (零售存款), in relation to a category 1 institution, means a deposit taken by the institution from a retail customer; retail term deposit (零售定期存款), in relation to a category 1 institution, means a retail deposit, taken by the institution from a retail customer, that has a remaining term to maturity, or a withdrawal notice period, greater than the LCR period, and— (a) which the retail customer has no legal right to withdraw within the LCR period; or (b) any early withdrawal of which will result in the retail customer being charged a significant penalty that is materially greater than the loss of interest that may arise from the early withdrawal; secured funding transaction (有抵押借款交易), in relation to a category 1 institution, means a securities repurchase transaction or securities lending transaction, or other similar transaction, entered into by the institution with a counterparty who provides a sum of money or other securities to the institution on a collateralized basis; secured lending transaction (有抵押借出交易), in relation to a category 1 institution, means a securities reverse repurchase transaction or securities borrowing transaction, margin lending transaction, or other similar transaction, entered into by the institution with a counterparty in which the institution provides a sum of money or other securities to the counterparty on a collateralized basis; securities borrowing transaction (證券借入交易), in relation to a category 1 institution, means a repo-style transaction entered into by the institution under which the institution borrows securities from a counterparty and provides a sum of money or other securities to the counterparty in exchange as collateral; securities lending transaction (證券借出交易), in relation to a category 1 institution, means a repo-style transaction entered into by the institution under which the institution lends securities to a counterparty and receives a sum of money or other securities from the counterparty in exchange as collateral; securities repurchase transaction (證券回購交易), in relation to a category 1 institution, means a repo-style transaction entered into by the institution under which the institution agrees to sell securities to a counterparty for a sum of money with a commitment to repurchase the securities, at a specified price and on a specified future date, from the counterparty; securities reverse repurchase transaction (證券逆向回購交易), in relation to a category 1 institution, means a repo-style transaction entered into by the institution under which the institution agrees to acquire securities from a counterparty for a sum of money with a commitment to resell the securities, at a specified price and on a specified future date, to the counterparty; securities swap transaction (證券掉期交易), in relation to a category 1 institution, means— (a) a securities lending transaction under which the institution lends securities to a counterparty and receives other securities from the counterparty in exchange as collateral; or (b) a securities borrowing transaction under which the institution borrows securities from a counterparty and provides other securities to the counterparty in exchange as collateral; small business customer (小型企業客户), in relation to a category 1 institution, means a corporate (or, if applicable, a group of related corporates) which has provided the institution with total aggregated funding of less than 10 million Hong Kong dollars (or its equivalent in another currency), and in respect of which— (a) if the institution has a credit exposure to the corporate (or the group), the credit exposure meets the criteria for the IRB subclass of small business retail exposures under section 144 of the Capital Rules; or (b) if the institution has no credit exposure to the corporate (or the group), that aggregated funding is managed by the institution as if it were a retail deposit; small business funding (小型企業借款), in relation to a category 1 institution, means unsecured wholesale funding provided to the institution by small business customers; stable retail deposit (穩定零售存款), in relation to a category 1 institution, means a retail deposit taken by the institution from a retail customer, where— (L.N. 176 of 2017) (a) the deposit is fully insured by an effective deposit insurance scheme; and (b) either—(i) the retail customer has at least 2 other established relationships with the institution, where—(A) subject to sub-subparagraph (B), at least one of the relationships (but not that of a credit card account) has been established for not less than 6 months and the account underlying that relationship has not been dormant or inactive in the last 6 months; and (B) the requirement in sub-subparagraph (A) is deemed to be satisfied if the relationship relates to a mortgage loan that charges a penalty for early settlement of the loan within 6 months from the date on which the loan is drawn down; or (ii) the deposit is maintained by the retail customer in a transactional account at the institution; structured financing transaction (結構式融資交易) means a collateralized transaction involving the issue of a structured financial instrument in which the repayment of obligations and other exposures to the transaction is largely derived, directly or indirectly, from the cash flows generated by the pool of underlying assets that secures the obligations and other exposures to the transaction; total aggregated funding (整體借款總額), in relation to a small business customer (or, if applicable, a group of related small business customers) of a category 1 institution, means the gross amount of funding (including any deposit or other form of funding) provided to the institution by the customer (or the group as if it were a single customer); transactional account (交易帳户), in relation to a category 1 institution, means a deposit account maintained at the institution that is designated by the account-holder to receive funds or make payments on a regular basis; unsecured wholesale funding (無抵押批發借款), in relation to a category 1 institution, means a deposit or liability (other than any liability or obligation arising from derivative contracts)— (a) from or to a person other than an individual; and (b) that is not collateralized by a legal right to any designated asset owned by the institution in the case of the default, bankruptcy, insolvency, liquidation or resolution of the institution; wholesale customer (批發客户), in relation to a category 1 institution, means a customer of the institution other than a retail customer. (L.N. 176 of 2017; L.N. 84 of 2019; L.N. 170 of 2023) 40. Calculation of total net cash outflows (1) A category 1 institution must, in calculating its total net cash outflows under the LCR—(a) calculate its total expected cash outflows, in accordance with rule 41; (b) subject to subrule (2), calculate its total expected cash inflows in accordance with rule 42; and (c) deduct its total expected cash inflows calculated under paragraph (b) from its total expected cash outflows calculated under paragraph (a). (2) A category 1 institution’s total expected cash inflows calculated under subrule (1)(b) must not be more than 75% of the institution’s total expected cash outflows calculated under subrule (1)(a). 41. Calculation of total expected cash outflows (1) A category 1 institution must, for the purposes of rule 40(1)(a), calculate its total expected cash outflows within the LCR period arising from the following types of on-balance sheet liability or off-balance sheet obligation of the institution—(a) stable retail deposits; (b) less stable retail deposits; (c) retail term deposits; (d) small business funding; (e) operational deposits; (f) unsecured wholesale funding (other than operational deposits) provided by—(i) corporates (other than small business customers); (ii) sovereigns; (iii) the Monetary Authority for the account of the Exchange Fund; (iv) central banks; (v) multilateral development banks; and (vi) public sector entities; (g) unsecured wholesale funding other than funding mentioned in paragraphs (d), (e) and (f); (h) debt securities and prescribed instruments issued by the institution and redeemable within the LCR period; (i) liabilities or obligations arising from secured funding transactions (including securities swap transactions); (j) contractual net cash outflows arising from derivative contracts; (k) liabilities or obligations arising from derivative contracts or other transactions (which are not otherwise covered in paragraph (j)) for covering additional liquidity needs arising from the following situations—(i) derivative contracts or other transactions with material adverse event clauses; (ii) potential loss in the market value of collateral posted by the institution to its counterparty; (iii) holding of excess non-segregated collateral posted by the institution’s counterparty who has the contractual right to withdraw the excess collateral from the institution; (iv) holding of non-segregated collateral posted by the institution’s counterparty—(A) that qualifies for inclusion as HQLA under the LCR (HQLA collateral); and (B) under which the counterparty has a contractual right to substitute the posted HQLA collateral by one or more than one type of collateral that qualifies as HQLA at a lower level or does not qualify as HQLA; (v) contractual obligations of the institution to post collateral to its counterparty; (vi) increase in collateral needs under derivative contracts or other transactions that are subject to collateral requirements arising from adverse changes in the market value of such contracts or transactions; (vii) repayment of funding obtained from structured financial instruments issued by the institution and redeemable within the LCR period; and (viii) obligations under structured financing transactions for repayment of maturing debt or provision of funding or asset that may arise from any embedded option in such transactions; (l) potential drawdown of undrawn committed facilities (including committed credit facilities and committed liquidity facilities); (m) contractual lending obligations to the Monetary Authority for the account of the Exchange Fund, central banks and financial institutions not otherwise covered in this subrule; (n) contractual lending obligations to the institution’s retail customers and other customers that are not otherwise covered in this subrule, the aggregate amount of which exceeds 50% of total contractual payment obligations from the same types of customer to the institution;(o) other contingent funding obligations, whether contractual or non-contractual; and (p) other contractual cash outflows. (2) Subject to subrules (3) and (4), a category 1 institution may exclude a pledged deposit from the calculation of its total expected cash outflows if—(a) the deposit is pledged as collateral against a loan that will not be settled within the LCR period; (b) the pledge arrangement concerned is subject to a legally enforceable contract that effectively disallows withdrawal of the deposit before the loan is fully settled; and (c) the amount of deposit to be excluded from the calculation does not exceed the outstanding balance of the loan. (3) If a pledged deposit is pledged as collateral against an undrawn credit facility—(a) subrule (2) does not apply to the deposit; and (b) the category 1 institution must, in the calculation of its total expected cash outflows insofar as the calculation relates to that deposit and facility, use the higher of the outflow rates that are respectively applicable to the deposit or facility as if the deposit were not a pledged deposit. (4) If a pledged deposit is pledged as collateral against a partially drawn credit facility, then—(a) subrule (2) only applies to the drawn portion of the facility; and (b) subrule (3) only applies to the undrawn portion of the facility. (5) Subject to subrules (6) and (7), a category 1 institution must account for any type of funding it has obtained in the calculation of its total expected cash outflows if—(a) the funding is callable by the fund provider within the LCR period; (b) the earliest possible contractual maturity date of the funding falls within the LCR period; or (c) the funding is either payable on demand or does not have a specific maturity date. (6) If—(a) the funding obtained by the category 1 institution is callable at its option within the LCR period; and (b) there is market expectation that the institution will exercise that option and thus cause that funding to be repaid before its contractual maturity date, the institution must include the funding in the calculation of its total expected cash outflows as if the funding were to be repaid within the LCR period. (7) Subrule (5) does not apply to funding that is callable by the fund provider subject to a contractually defined and legally binding notice period that extends beyond the LCR period. (8) A category 1 institution must, for the purposes of rule 40(1)(a), calculate, by using the standard calculation methodology templates specified by the Monetary Authority, its total expected cash outflows by multiplying together—(a) the principal amount of each of its on-balance sheet liabilities and off-balance sheet obligations of the types listed in subrule (1); and (b) an outflow rate determined in accordance with subrule (9). (9) Subject to subrules (10) and (11), the outflow rate (and the manner of its application) for each type of on-balance sheet liabilities or off-balance sheet obligations listed in subrule (1) must be consistent with, and no less stringent than, the relevant outflow rate (or any other term having a similar denotation) referred to in paragraphs 73 to 141 of the Basel III LCR document.

(10) For those types of on-balance sheet liabilities or off-balance sheet obligations mentioned in subrule (1) (other than the non-contractual contingent funding obligations mentioned in subrule (11)), if—(a) the applicable outflow rate is to be determined by the relevant banking supervisory authority in a country and therefore is not specified in the Basel III LCR document; or (b) the Monetary Authority is satisfied that having regard to the prevailing circumstances in Hong Kong, it is prudent and reasonable to apply a higher outflow rate than that specified in the Basel III LCR document, a category 1 institution must apply the outflow rates specified in Table 3 in Schedule 4A to those types of liabilities or obligations. (L.N. 176 of 2017) Table 3 (Repealed L.N. 176 of 2017) (11) For a category 1 institution’s non-contractual contingent funding obligations under subrule (1)(o), if—(a) the obligations relate to potential liquidity drawn by either of the following that is not consolidated for the purposes of rule 11(1)—(i) a joint venture; (ii) an entity in which the institution has a minority interest; and (b) there is a reasonable expectation that the institution will be the main provider of liquidity should the joint venture or entity concerned be in need of liquidity, the institution must comply with subrule (12). (12) For subrule (11), the institution must—(a) notify the Monetary Authority of the existence of the contingent funding obligations and the circumstances giving rise to the obligations; and (b) agree with the Monetary Authority the methodology for determining the expected cash outflow arising from the obligations on a case-by-case basis. (13) If the Monetary Authority is satisfied that—(a) the outflow rate of 10% specified in Table 3 in Schedule 4A in respect of less stable retail deposits is not adequate to cover the liquidity risks associated with all or part of the deposits held by a category 1 institution; and (L.N. 176 of 2017)(b) it is prudent and reasonable to increase the outflow rate to a level above 10% applicable to the institution for the deposits concerned, the Monetary Authority may exercise the power under section 97K of the Ordinance. (14) Subrule (13) does not operate to limit the circumstances in respect of which the Monetary Authority may exercise the power under section 97K of the Ordinance in the case of a category 1 institution to which that subrule applies. 42. Calculation of total expected cash inflows (1) A category 1 institution must, in calculating its total expected cash inflows under rule 40(1)(b)—(a) include only contractual cash inflows (including any accrued interest) that—(i) are expected to be received within the LCR period; and (ii) arise from assets (whether on-balance sheet assets or off-balance sheet assets) that are fully performing and in respect of which the institution has no reason to expect a default within the LCR period; (b) assume that those inflows are received by the institution at the latest possible date based on contractual rights available to its customers; and (c) not include any cash inflows that are contingent in nature. (2) A category 1 institution must, for the purposes of rule 40(1)(b), calculate its expected cash inflow within the LCR period arising from the following types of asset (whether an on-balance sheet asset or off-balance sheet asset), transaction or activity of the institution—(a) secured lending transactions (including securities swap transactions); (b) secured or unsecured loans (other than those that fall within paragraph (a)); (c) release of balances maintained by the institution in segregated accounts in accordance with requirements for the protection of customer assets; (d) maturing securities not included by the institution in its HQLA; (e) undrawn facilities granted to the institution by another financial institution; (f) operational deposits placed by the institution at other financial institutions; (g) contractual net cash inflows arising from derivative contracts; and (h) other contractual cash inflows arising from assets, transactions or activities not otherwise covered in this subrule. (3) A category 1 institution must, for the purposes of rule 40(1)(b), calculate, by using the standard calculation methodology templates specified by the Monetary Authority, its total expected cash inflows by multiplying together—(a) the principal amount of each of its assets (whether on-balance sheet assets or off-balance sheet assets) of the types listed in subrule (2); and (b) an inflow rate determined in accordance with subrule (4). (4) Subject to subrules (5) and (6), the inflow rate (and the manner of its application) for each type of asset listed in subrule (2) must be consistent with, and no less stringent than, the relevant inflow rate (or any other term having a similar denotation) referred to in paragraphs 142 to 160 of the Basel III LCR document. (5) For those types of contractual cash inflows under subrule (2)(h), if the applicable inflow rate is to be determined by the relevant banking supervisory authority in a country and therefore is not specified in the Basel III LCR document, a category 1 institution must apply the inflow rates specified in Table 4 in Schedule 4A to those types of cash inflows. (L.N. 176 of 2017)Table 4(Repealed L.N. 176 of 2017)(6) A category 1 institution must have in place and maintain—(a) adequate policies and limits to ensure that its liquidity position is not unduly reliant on the receipt of expected cash inflows from a limited number of wholesale customers; and (b) adequate policies and systems for managing assets received as collateral from its counterparties under secured lending transactions so that it is able to fulfil any contractual obligation under those transactions to return one or more of those assets to the counterparty concerned whenever the counterparty decides not to renew the secured lending transaction concerned on its maturity. Part 8 Calculation of LMR Division 1 General 43. Interpretation of Part 8 In this Part—average LMR (平均LMR), in relation to a category 2 institution, means the average of the institution’s LMR in a calendar month, as determined in accordance with rule 48; fully performing (一直依期清償), in relation to a loan extended by a category 2 institution, means—(a) that—(i) if the loan is repayable by periodic instalments at intervals of not more than one month, there is no instalment that is in arrears for more than one month on the working day when the LMR is calculated; or (ii) in any other case, there are no arrears of principal or interest payment in respect of the loan; and (b) that the loan (relevant loan) is not a loan that has been raised to repay another loan granted to the same customer by the institution, or in respect of which the repayment date or dates has or have been postponed, unless—(i) the raising of the relevant loan or the postponement of the repayment date or dates, as the case may be, was not caused by a deterioration in the financial position of the customer or by the customer’s inability to repay on the original repayment date or dates; and (ii) the new or revised repayment terms are not unfavourable to the institution as compared to the terms of other loans, of a similar nature to that of the relevant loan, granted by the institution to other customers and negotiated at arm’s length; net due from banks (存放銀行同業淨額), in relation to a category 2 institution, means the amount, if any, by which the total one-month liabilities of the institution to other banks are exceeded by the total one-month liabilities of other banks to the institution; one-month liability (一個月債務), in relation to a category 2 institution or its customer, means—(a) any liability, other than a contingent liability, the effect of which will or could be to reduce within 1 month the liquefiable assets of the institution or its customer; and (b) any contingent liability that, in the opinion of the Monetary Authority, may result in a reduction within 1 month of the liquefiable assets of the institution or its customer. 44. Assets, etc., must not be double counted in calculation of LMR (1) A category 2 institution must not, in the calculation of its LMR, double count an asset, liability, off-balance sheet item, or associated cash flow, that is included in that calculation. (2) Without limiting subrule (1), a category 2 institution must not, in the calculation of its LMR, deduct from its qualifying liabilities any cash inflow associated with an asset included in its liquefiable assets for the purposes of that calculation. 45. Calculation of LMR on Hong Kong office basis A category 2 institution must, in the calculation of its LMR on a Hong Kong office basis, determine—(a) its liquefiable assets held in its Hong Kong office; and (b) the qualifying liabilities (after deductions) of its Hong Kong office, as if its Hong Kong office were a single legal entity. 46. Calculation of LMR on unconsolidated basis A category 2 institution incorporated in Hong Kong must, in the calculation of its LMR on an unconsolidated basis—(a) determine the aggregate of its liquefiable assets held in its Hong Kong office and its overseas branches; (b) determine the aggregate of the qualifying liabilities (after deductions) of its Hong Kong office and its overseas branches; and(c) ensure that all inter-branch balances with, and transactions between, its Hong Kong office and its overseas branches are offset in that calculation. 47. Calculation of LMR on consolidated basis (1) A category 2 institution incorporated in Hong Kong must, in the calculation of its LMR on a consolidated basis—(a) determine the aggregate of its liquefiable assets held by the members of its consolidated group; (b) determine the aggregate of the qualifying liabilities (after deductions) of the members of its consolidated group; and (c) ensure that all inter-branch or inter-company balances with, and transactions between, the members of its consolidated group are offset in that calculation. (2) A category 2 institution must comply with subrule (1) as if the members of its consolidated group were a single legal entity. Division 2 Calculation of Average LMR, Liquefiable Assets, Qualifying Liabilities, etc. 48. Calculation of average LMR in each calendar month (1) Subject to subrule (2), a category 2 institution must, for the purposes of rule 7, calculate, for each calendar month, its average LMR on the basis of the sum of the net weighted amounts of its liquefiable assets, as determined in accordance with subrule (3), and the sum of the net weighted amounts of its qualifying liabilities (after deductions), as determined in accordance with subrule (4), for each working day of that month. (2) The Monetary Authority may, by notice in writing to a category 2 institution, permit the institution to calculate its average LMR by reference to such days during the month as the Monetary Authority specifies in the notice (and, if any such specified day is a public holiday, the immediately preceding working day must be taken to be that specified day for the purposes of that calculation). (3) The net weighted amount of liquefiable assets of a category 2 institution is the total of the weighted amounts calculated in accordance with subrules (6) and (7)(a) of each liquefiable asset item specified in Table A in section 2 of Schedule 5 held by the institution that satisfies the requirements of rule 49 applicable to the item, after deducting from that total the weighted amount calculated in accordance with subrule (6) of the deductible item specified in Table B in that section. (4) The net weighted amount of qualifying liabilities (after deductions) of a category 2 institution is the difference between—(a) the total of the weighted amounts calculated in accordance with subrule (6) of each qualifying liability item specified in Table C in section 2 of Schedule 5; and (b) subject to subrule (5), the total of the weighted amounts calculated in accordance with subrules (6) and (7)(b) of each deductible item specified in Table D in that section. (5) A category 2 institution’s total weighted amount calculated under subrule (4)(b) must not be more than 75% of the institution’s total weighted amount calculated under subrule (4)(a). (6) Subject to subrule (7), the weighted amount of each item specified in Table A, B, C or D in section 2 of Schedule 5 must be calculated by multiplying together—(a) the principal amount of the item; and (b) the liquidity conversion factor specified in Table A, B, C or D in that section in relation to the item. (7) If a category 2 institution has any net due from banks—(a) the weighted amount of the institution’s net due from banks to be included in its liquefiable assets (under item 4 in Table A in section 2 of Schedule 5) in accordance with subrule (3) must not exceed 40% of the total weighted amount of its qualifying liabilities as referred to in subrule (4)(a) (40% cap); and (b) the weighted amount of the institution’s net due from banks exceeding the 40% cap, if any, must be included as a deductible item (under item 3 in Table D in that section) as referred to in subrule (4)(b) for the purpose of calculating its qualifying liabilities (after deductions). (8) In this rule— principal amount (本金額)— (a) in relation to an item mentioned in item 2, 6 or 6A in Table A in section 2 of Schedule 5, means the fair value of the item determined in accordance with rule 9 at the close of business on a working day; or (L.N. 84 of 2019) (b) in relation to any other item specified in Table A, B, C or D in that section, means the book value (including any accrued interest) of that item at the close of business on a working day. 49. Requirements that must be satisfied before asset can be included in liquefiable assets for purposes of calculation of LMR (1) Subject to rules 51 and 52, a category 2 institution must not, in the calculation of its LMR, include an asset in its liquefiable assets unless the asset falls within a class of assets specified in Table A in section 2 of Schedule 5 and meets the other qualifying criteria specified in subrule (2). (2) The other qualifying criteria referred to in subrule (1) are—(a) the asset must be readily monetizable; (b) the asset must not be overdue or in default; (c) the asset must be free from encumbrances and there must be no regulatory, legal, contractual or other restrictions that inhibit the category 2 institution from liquidating, selling, transferring or assigning the asset; (d) the value of the asset must be readily identifiable and measurable; (e) subject to subrule (3), the asset must be freely transferable and available to the category 2 institution and must not be subject to any liquidity transfer restriction; (f) the asset must not be a subordinated debt security; (fa) for a listed ordinary share, the share—(i) would fall within section 3(c) of Part 2 of Schedule 2 if the category 2 institution were a category 1 institution; and(ii) must be listed on a recognized exchange; (L.N. 84 of 2019)(g) if the asset is a structured financial instrument, the structure of the instrument must be simple and standardized; and (h) the asset must be denominated in Hong Kong dollars or in a currency freely convertible into Hong Kong dollars. (3) If one or more assets held by a member of a category 2 institution’s consolidated group are subject to liquidity transfer restriction, such assets must not be included in the institution’s liquefiable assets for the calculation of its LMR—(a) except to the extent that the qualifying liabilities (after deductions) of the member are also included in the calculation; and (b) unless the assets so included satisfy all other relevant requirements in subrules (1) and (2). (4) The Monetary Authority may, by notice in writing to a category 2 institution that has made an application to the Monetary Authority for the grant of an approval referred to in item 6(f) of Table A in section 2 of Schedule 5, determine the application by—(a) granting approval to the institution, with effect from the date, or the occurrence of an event, specified in the notice, to include the RMBS, other debt security or prescribed instrument specified in the notice in its liquefiable assets if the institution demonstrates to the satisfaction of the Monetary Authority that—(i) that RMBS, other debt security or prescribed instrument meets the criteria specified in subrule (2) applicable to it; and (ii) the inclusion of that RMBS, other debt security or prescribed instrument as a liquefiable asset would not prejudice the institution’s calculation of the LMR, having regard to the risks associated with holding that RMBS, other debt security or prescribed instrument; or (b) if the Monetary Authority is not satisfied as referred to in paragraph (a), refusing to grant the approval and specifying in the notice the reasons why the Monetary Authority is not so satisfied. (5) If the Monetary Authority grants an approval under subrule (4)(a) to a category 2 institution, the approval may be granted subject to any conditions that the Monetary Authority thinks proper to attach to the approval in any particular case. (6) Without limiting subrule (5), the Monetary Authority may at any time, by notice in writing to a category 2 institution in respect of which the Monetary Authority has granted an approval under subrule (4)(a), do either or both of the following as the Monetary Authority thinks proper—(a) attach to the approval any conditions (including those for amending the conditions already attached to the approval); (b) cancel any conditions attached to the approval. (7) For subrule (6), the conditions or cancellation takes effect—(a) on the date specified in the notice; or (b) when the event specified in the notice occurs. 50. Management of liquefiable assets and related risks by category 2 institution (1) A category 2 institution must have in place and maintain adequate systems and procedures for the on-going assessment and management of its liquefiable assets in order to ensure that—(a) each asset included in the liquefiable assets satisfies all the requirements of this Part that are applicable to its inclusion in the liquefiable assets; (b) an asset included in the liquefiable assets which ceases to satisfy any requirement of this Part applicable to its inclusion in the liquefiable assets is identified as soon as is practicable; and (c) prompt action is taken to exclude from the liquefiable assets an asset identified as referred to in paragraph (b). (2) A category 2 institution must have in place and maintain adequate systems and procedures to monitor and control the risks, including but not limited to liquidity risk, associated with its holdings in liquefiable assets. 51. General exclusion of assets from liquefiable assets, etc. (1) The Monetary Authority may, by notice in writing to all category 2 institutions, specify that a category 2 institution must not include in its liquefiable assets, with effect from the date, or the occurrence of an event, specified in the notice, an asset, or a class of assets, of the type specified in the notice, on the ground that the Monetary Authority is satisfied that that type of asset or class of assets—(a) is not capable of generating liquidity for the institution within 1 month; or (b) is not, or is no longer, sufficiently liquid in private markets or readily monetizable by other means to be included in any category 2 institution’s liquefiable assets. (2) Every category 2 institution must comply with the requirements of a notice given to it under subrule (1). 52. Specific exclusion of assets from liquefiable assets, etc. (1) The Monetary Authority may, by notice in writing to a category 2 institution, require the institution, with effect from the date, or the occurrence of an event, specified in the notice—(a) to cease to include in its liquefiable assets the asset specified in the notice on the ground that the Monetary Authority is satisfied that it no longer satisfies, or has never satisfied, the requirement of these Rules as specified in the notice that is applicable to the inclusion of that asset in its liquefiable assets; or (b) without limiting rule 50, to make the changes specified in the notice to its liquefiable assets on the ground that the Monetary Authority is satisfied that those changes are necessary in order to mitigate the liquidity risk associated with the institution’s failure, specified in the notice, to comply with that rule. (2) A category 2 institution must comply with the requirements of a notice given to it under subrule (1). 53. Calculation of net weighted amount of qualifying liabilities (after deductions) (1) Subject to subrules (2) and (3), a category 2 institution may exclude a pledged deposit from the calculation of its LMR if—(a) the deposit is pledged as collateral against a loan that will not be settled within 1 month; (b) the pledge arrangement concerned is subject to a legally enforceable contract that effectively disallows withdrawal of the deposit before the loan is fully settled; (c) the deposit would otherwise be included in the calculation of qualifying liabilities under rule 48; and (d) the amount of deposit to be excluded from the calculation does not exceed the outstanding balance of the loan. (2) A category 2 institution must not, in calculating its net weighted amount of qualifying liabilities under the LMR, deduct a cash inflow from its qualifying liabilities unless the cash inflow—(a) is expected to be received within 1 month; and (b) arises from assets (whether on-balance sheet assets or off-balance sheet assets) that are fully performing and in respect of which the institution has no reason to expect a default within 1 month. (3) For the purposes of subrule (2), a category 2 institution must—(a) assume that a cash inflow is received by the institution at the latest possible date based on contractual rights available to its customers; and (b) not include any cash inflow that is contingent in nature. Part 9 Calculation of NSFR and CFR (Part 9 added L.N. 176 of 2017) Division 1 Interpretation 54. Interpretation of Part 9 and Schedule 6 (1) In this Part and Schedule 6—Additional Tier 1 capital (before regulatory adjustments) (額外一級資本(經監管調整前)), in relation to an authorized institution, means the sum of the following capital, calculated in Hong Kong dollars—(a) subject to rule 56(2), the institution’s Additional Tier 1 capital instruments;(b) the amount standing to the credit of the institution’s share premium account (if any) resulting from the issue of capital instruments that fall within paragraph (a);(c) subject to rule 56(3), the applicable amount of capital instruments issued by the consolidated bank subsidiaries of the institution and held by third parties, that is recognized as Additional Tier 1 capital of the institution on a consolidated basis, as calculated based on the requirements set out in sections 2(2) and 4 of Schedule 4D to the Capital Rules;CET1 capital (before regulatory adjustments) (CET1資本(經監管調整前)), in relation to an authorized institution, subject to rule 55, means the sum of the following capital, calculated in Hong Kong dollars—(a) the institution’s CET1 capital instruments;(b) the amount standing to the credit of the institution’s share premium account (if any) resulting from the issue of capital instruments that fall within paragraph (a);(c) the institution’s retained earnings and other disclosed reserves;(d) the applicable amount of minority interests arising from the CET1 capital instruments issued by the consolidated bank subsidiaries of the institution and held by third parties, that is recognized as CET1 capital of the institution on a consolidated basis, as calculated based on the requirements set out in sections 2(1) and 3 of Schedule 4D to the Capital Rules;insurance asset (保險資產), in relation to an authorized institution, means the book value of the institution’s net contractual rights under an insurance contract entered into by the institution;N/A means not applicable;net derivative assets (衍生工具資產淨額), in relation to an authorized institution, means the net amount of the institution’s total derivative assets (after adjustments) in excess of the institution’s total derivative liabilities (after adjustments);net derivative liabilities (衍生工具負債淨額), in relation to an authorized institution, means the net amount of the institution’s total derivative liabilities (after adjustments) in excess of the institution’s total derivative assets (after adjustments);non-performing (未依期清償), in relation to an asset of an authorized institution representing a claim of the institution on a person, means that—(a) the claim is overdue for more than 90 calendar days; or(b) the person is in default;principal amount (本金額)—(a) in relation to an on-balance sheet item, other than a derivative contract, of an authorized institution, means—(i) if the item is measured at fair value—the value of the item determined in accordance with rule 9; or(ii) if the item is not measured at fair value—the book value (including any accrued interest) of the item; or(b) in relation to an off-balance sheet item, other than a derivative contract, of an authorized institution, means—(i) subject to subparagraphs (ii) and (iii), the contracted amount;(ii) for an undrawn facility, the amount of the undrawn facility; or(iii) for a partially drawn facility, the amount of the undrawn portion;replacement cost (重置成本), in relation to a derivative contract of an authorized institution, means the costs, measured at fair value, that would be incurred by the institution if—(a) the institution were required to enter into another derivative contract with another counterparty to replace the existing derivative contract; and(b) that other derivative contract has substantially the same economic consequences for the institution;retained earnings (保留溢利), in relation to an authorized institution incorporated in Hong Kong, has the meaning given by section 35 of the Capital Rules;retained interest (保留權益), in relation to a structured financing transaction collateralized by assets of an authorized institution, means any part of such assets in respect of which the risks and rewards are retained by the institution;Tier 1 capital (before regulatory adjustments) (一級資本(經監管調整前)), in relation to an authorized institution, means the sum of the institution’s—(a) CET1 capital (before regulatory adjustments); and(b) Additional Tier 1 capital (before regulatory adjustments);Tier 2 capital (before regulatory adjustments) (二級資本(經監管調整前)), in relation to an authorized institution, means the sum of the following capital, calculated in Hong Kong dollars—(a) subject to rule 57(2), the institution’s Tier 2 capital instruments;(b) the amount standing to the credit of the institution’s share premium account (if any) resulting from the issue of capital instruments that fall within paragraph (a);(c) subject to rule 57(3), the applicable amount of Tier 2 capital instruments issued by the consolidated bank subsidiaries of the institution and held by third parties, that is recognized as Tier 2 capital of the institution on a consolidated basis, as calculated based on the requirements set out in sections 2(2) and 5 of Schedule 4D to the Capital Rules;(d) the institution’s collective provisions;total derivative assets (after adjustments) (衍生工具資產總額(經調整)), in relation to an authorized institution, subject to rule 58, means the sum of the replacement costs of derivative contracts between the institution and its counterparties, where each of those contracts has a positive replacement cost after adjustment for any variation margin received in the form of cash by the institution from the counterparty under the contract;total derivative liabilities (after adjustments) (衍生工具負債總額(經調整)), in relation to an authorized institution, subject to rule 58, means the sum of the replacement costs of derivative contracts between the institution and its counterparties, where each of those contracts has a negative replacement cost after adjustment for any variation margin posted by the institution to the counterparty under the contract;total derivative liabilities (before adjustments) (衍生工具負債總額(經調整前)), in relation to an authorized institution, subject to rule 58, means the sum of the replacement costs of derivative contracts between the institution and its counterparties, where each of those contracts has a negative replacement cost before adjustment for any variation margin posted by the institution to the counterparty under the contract; (L.N. 84 of 2019)trade-date payable (交易日應支付帳項), in relation to an authorized institution, means the value of funds payable by the institution for settling transactions in respect of currencies, commodities or financial instruments, where for each of those transactions, the transaction order has been executed and the transaction—(a) is expected to settle within the standard settlement cycle or period that is customary for the relevant exchange or type of transaction; or(b) has failed to settle but is still expected to settle within a period of less than 6 months;trade-date receivable (交易日應收取帳項), in relation to an authorized institution, means the value of funds receivable by the institution for settling transactions in respect of currencies, commodities or financial instruments, where for each of those transactions, the transaction order has been executed and the transaction—(a) is expected to settle within the standard settlement cycle or period that is customary for the relevant exchange or type of transaction; or(b) has failed to settle but is still expected to settle within a period of less than 6 months;value (價值) means—(a) in relation to an on-balance sheet item or off-balance sheet item, other than a derivative contract, of an authorized institution—the principal amount of the item; or(b) in relation to a derivative contract of an authorized institution—the replacement cost of the contract;variation margin (變動保證金), in relation to an authorized institution and a counterparty under a derivative contract, means the collateral posted by the institution to, or received by the institution from, the counterparty on a daily or intraday basis based on the movement of the contract’s replacement cost.(2) In this Part and Schedule 6, an expression specified below has the meaning given by rule 39—derivative contract (衍生工具合約)structured financing transaction (結構式融資交易)(3) In this Part and Schedule 6, an expression specified below has the meaning given by section 2(1) of the Capital Rules—Additional Tier 1 capital instrument (額外一級資本票據)CET1 capital instrument (CET1資本票據)collective provisions (集體準備金)special purpose vehicle (特定目的工具)Tier 2 capital instrument (二級資本票據)valid bilateral netting agreement (有效雙邊淨額結算協議) 55. CET1 capital (before regulatory adjustments) (capital instruments issued to third parties through special purpose vehicle) (1) This rule applies to the determination of an authorized institution’s CET1 capital (before regulatory adjustments) under this Part.(2) To avoid doubt, any capital instruments issued to third parties through a special purpose vehicle must not be included in the institution’s CET1 capital (before regulatory adjustments). 56. Additional Tier 1 capital (before regulatory adjustments) (capital instruments issued to third parties through special purpose vehicle) (1) This rule applies to the determination of an authorized institution’s Additional Tier 1 capital (before regulatory adjustments) on a consolidated basis under this Part.(2) If the institution issues capital instruments to third parties through a special purpose vehicle and—(a) the special purpose vehicle is consolidated with the institution;(b) the capital instruments meet the qualifying criteria set out in Schedule 4B to the Capital Rules; and(c) the only asset of the special purpose vehicle is its investment in the capital of the institution in a form that meets the qualifying criteria set out in Schedule 4B to the Capital Rules,the capital instruments may be included in the Additional Tier 1 capital (before regulatory adjustments) of the institution on a consolidated basis as if the institution itself had issued the capital instruments directly to the third parties.(3) If the institution issues capital instruments to third parties through a special purpose vehicle via a consolidated bank subsidiary of the institution and—(a) the special purpose vehicle is consolidated with the bank subsidiary;(b) the capital instruments meet the qualifying criteria set out in Schedule 4B to the Capital Rules; and(c) the only asset of the special purpose vehicle is its investment in the capital of the bank subsidiary in a form that meets the qualifying criteria set out in Schedule 4B to the Capital Rules,the institution may treat the capital instruments as if the bank subsidiary itself had issued the capital instruments directly to the third parties and, accordingly, may include the capital instruments in determining the applicable amount of the capital instruments to be included in the Additional Tier 1 capital (before regulatory adjustments) of the institution on a consolidated basis, as calculated based on the requirements set out in sections 2(2) and 4 of Schedule 4D to the Capital Rules. 57. Tier 2 capital (before regulatory adjustments) (capital instruments issued to third parties through special purpose vehicle) (1) This rule applies to the determination of an authorized institution’s Tier 2 capital (before regulatory adjustments) on a consolidated basis under this Part and Schedule 6.(2) If the institution issues capital instruments to third parties through a special purpose vehicle and—(a) the special purpose vehicle is consolidated with the institution;(b) the capital instruments meet the qualifying criteria set out in Schedule 4C to the Capital Rules; and(c) the only asset of the special purpose vehicle is its investment in the capital of the institution in a form that meets the qualifying criteria set out in Schedule 4C to the Capital Rules, the capital instruments may be included in the Tier 2 capital (before regulatory adjustments) of the institution on a consolidated basis as if the institution itself had issued the capital instruments directly to the third parties.(3) If the institution issues capital instruments to third parties through a special purpose vehicle via a consolidated bank subsidiary of the institution and—(a) the special purpose vehicle is consolidated with the bank subsidiary;(b) the capital instruments meet the qualifying criteria set out in Schedule 4C to the Capital Rules; and(c) the only asset of the special purpose vehicle is its investment in the capital of the bank subsidiary in a form that meets the qualifying criteria set out in Schedule 4C to the Capital Rules,the institution may treat the capital instruments as if the bank subsidiary itself had issued the capital instruments directly to the third parties and, accordingly, may include the capital instruments in determining the applicable amount of the capital instruments to be included in the Tier 2 capital (before regulatory adjustments) of the institution on a consolidated basis, as calculated based on the requirements set out in sections 2(2) and 5 of Schedule 4D to the Capital Rules. 58. Total derivative assets (after adjustments), total derivative liabilities (after adjustments) or total derivative liabilities (before adjustments)—valid bilateral netting agreements (L.N. 84 of 2019)(1) This rule applies to an authorized institution that has entered into 2 or more derivative contracts with a particular counterparty that are subject to a valid bilateral netting agreement. (L.N. 84 of 2019)(1A) In determining an authorized institution’s total derivative assets (after adjustments), total derivative liabilities (after adjustments) or total derivative liabilities (before adjustments) under this Part and Schedule 6—(a) the replacement costs of the contracts mentioned in subrule (1) are not to be included; and(b) subrules (2), (3) and (4) apply. (L.N. 84 of 2019)(2) The institution must determine the aggregate net value of the contracts mentioned in subrule (1) (aggregate net value) by— (L.N. 84 of 2019)(a) offsetting those contracts in negative value with those contracts in positive value;(b) adding variation margins (whether in the form of cash or other assets) posted by the institution to the counterparty under those contracts; and(c) deducting variation margins in the form of cash received by the institution from the counterparty under those contracts.(3) If the aggregate net value is a positive value, it—(a) must be included in the institution’s total derivative assets (after adjustments); and(b) must not be included in the institution’s total derivative liabilities (after adjustments) and total derivative liabilities (before adjustments). (L.N. 84 of 2019)(4) If the aggregate net value is a negative value, it—(a) must be included in the institution’s total derivative liabilities (after adjustments) and total derivative liabilities (before adjustments); and(b) must not be included in the institution’s total derivative assets (after adjustments). (L.N. 84 of 2019) Division 2 Calculation of NSFR Subdivision 1 General 59. Interpretation of Division 2 and Tables 1 and 2 in Schedule 6 (1) In this Division and Tables 1 and 2 in Schedule 6—ASF item (ASF項目), in relation to a category 1 institution, means a capital item or on-balance sheet liability, listed in column 1 of Table 1 in Schedule 6, of the institution; (L.N. 84 of 2019)default fund contribution (違責基金承擔) has the meaning given by section 2(1) of the Capital Rules;free from encumbrances (沒有產權負擔), in relation to an asset of a category 1 institution, means having no regulatory, legal, contractual or other restrictions that inhibit the institution from liquidating, selling, transferring or assigning the asset;HKD CHATS Account (港元CHATS帳户), in relation to a category 1 institution, means an account opened, maintained and operated by the institution under a requirement imposed on the institution under section 3A(1) of the Exchange Fund Ordinance (Cap. 66);host country (業務所在國家), in relation to a category 1 institution incorporated in Hong Kong, has the meaning given by rule 17;initial margin (開倉保證金), in relation to a category 1 institution and a counterparty under a derivative contract, means the collateral (whether in the form of cash or other assets) posted by the institution to the counterparty to mitigate the potential future exposure of the counterparty to the institution arising from the possible future change in the value of the contract; national development bank (國家發展銀行) means— (a) an entity specified in Schedule 7; or (b) an entity specified by the relevant banking supervisory authority of a place outside Hong Kong (whether by means of legislation or a public notice or otherwise) to be a national development bank for the purposes of the calculation of the equivalent of an NSFR in accordance with the document entitled “Basel III: the net stable funding ratio” published by the Basel Committee in October 2014; physical traded commodity (實物交易商品) means any metal (to avoid doubt, including gold), energy, agricultural product or any other physical product that is traded on an exchange or similar trading facility;RSF item (RSF項目), in relation to a category 1 institution, means an on-balance sheet asset or off-balance sheet obligation or the total derivative liabilities (before adjustments), listed in column 1 of Table 2 in Schedule 6, of the institution; (L.N. 84 of 2019) stable small business funding (穩定小型企業借款), in relation to a category 1 institution, means small business funding provided to the institution by a small business customer, where— (a) the funding is fully insured by an effective deposit insurance scheme; and (b) either—(i) the small business customer has at least 2 other established relationships with the institution, where—(A) subject to sub-subparagraph (B), at least one of the relationships (but not that of a credit card account) has been established for not less than 6 months and the account underlying that relationship has not been dormant or inactive in the last 6 months; and(B) the requirement in sub-subparagraph (A) is deemed to be satisfied if the relationship relates to a mortgage loan that charges a penalty for early settlement of the loan within 6 months from the date on which the loan is drawn down; or(ii) the funding is maintained by the small business customer in a transactional account at the institution. (2) In this Division and Tables 1 and 2 in Schedule 6, an expression specified below has the meaning given by rule 39—effective deposit insurance scheme (有效存款保險計劃)fully insured (十足受保)operational deposit (營運存款)other established relationship (其他既定關係)retail customer (零售客户)retail deposit (零售存款)small business customer (小型企業客户)small business funding (小型企業借款)stable retail deposit (穩定零售存款)transactional account (交易帳户)wholesale customer (批發客户) 60. Capital, etc. must not be double counted in calculation of NSFR A category 1 institution must not, in the calculation of its NSFR, double count any capital, on-balance sheet liability, on-balance sheet asset or off-balance sheet obligation that is included in that calculation. 61. Calculation of NSFR on Hong Kong office basis A category 1 institution must, in the calculation of its NSFR on a Hong Kong office basis, determine—(a) the ASF of its Hong Kong office; and(b) the RSF of its Hong Kong office,as if its Hong Kong office were a single legal entity. 62. Calculation of NSFR on unconsolidated basis Subject to rule 64, a category 1 institution incorporated in Hong Kong must, in the calculation of its NSFR on an unconsolidated basis—(a) determine the aggregate of the ASF of its Hong Kong office and its overseas branches;(b) determine the aggregate of the RSF of its Hong Kong office and its overseas branches; and(c) ensure that all inter-branch balances with, and transactions between, its Hong Kong office and its overseas branches are offset in that calculation. 63. Calculation of NSFR on consolidated basis (1) Subject to rule 64, a category 1 institution incorporated in Hong Kong must, in the calculation of its NSFR on a consolidated basis—(a) determine the aggregate of the ASF of the members of its consolidated group;(b) determine the aggregate of the RSF of the members of its consolidated group; and(c) ensure that all inter-branch or inter-company balances with, and transactions between, the members of its consolidated group are offset in that calculation.(2) A category 1 institution must comply with subrule (1) as if the members of its consolidated group were a single legal entity. 64. Calculation of NSFR on unconsolidated or consolidated basis, etc. when there are different liquidity requirements between Hong Kong and host countries (1) If—(a) a category 1 institution incorporated in Hong Kong calculates its NSFR on an unconsolidated basis or consolidated basis, or the basis specified in a notice to the institution under rule 12; and(b) the institution has an overseas branch that operates, or a specified associated entity that is incorporated, in a host country,this rule applies in respect of the deposits and funding of the overseas branch or specified associated entity.(2) For subrule (1), subject to subrule (4), if—(a) any liquidity requirements for the equivalent of an NSFR and applicable to the deposits and funding concerned are imposed by the relevant banking supervisory authority in the host country; and(b) those liquidity requirements are imposed for—(i) implementing the prevailing banking supervisory standards issued by the Basel Committee relating to the equivalent of an NSFR; and(ii) reflecting the prevailing standards issued by the Basel Committee for such types of the deposits and funding concerned,the institution must apply those liquidity requirements to the calculation of its NSFR insofar as the calculation relates to the deposits and funding concerned.(3) For subrule (1), if—(a) no liquidity requirements mentioned in subrule (2) are imposed by the relevant banking supervisory authority in the host country; or(b) the authority, for the purposes of the calculation of the equivalent of an NSFR insofar as the calculation relates to the deposits and funding concerned, does not adopt those liquidity requirements or does not apply those liquidity requirements to the institution,the institution must apply the requirements of these Rules as applicable to the calculation of its NSFR insofar as the calculation relates to the deposits and funding concerned.(4) For subrule (2), if the Monetary Authority—(a) is satisfied that the liquidity requirements imposed by the relevant banking supervisory authority in the host country are, for the purposes of the calculation of the equivalent of an NSFR insofar as the calculation relates to the types of the deposits and funding concerned, less stringent than the requirements of these Rules as applicable to the calculation of the institution’s NSFR insofar as the calculation relates to the deposits and funding concerned; and(b) has given the institution a notice in writing stating the matter mentioned in paragraph (a),the institution must apply the requirements of these Rules as applicable to the calculation of its NSFR insofar as the calculation relates to the deposits and funding concerned.(5) If subrule (2), (3) or (4) applies to a category 1 institution, the institution must construe, with all necessary modifications, the other requirements of these Rules in a manner consistent with the application of that subrule to it.(6) In this rule—deposits and funding (存款及借款), in relation to a category 1 institution’s overseas branch that operates, or specified associated entity that is incorporated, in a host country, means the retail deposits and small business funding of the overseas branch or specified associated entity; (14 of 2025 s. 189)specified associated entity (指明聯繫實體)—(a) has the meaning given by rule 2(1); but(b) does not include a re-domiciled entity. (14 of 2025 s. 189) Subdivision 2 Determination of ASF and RSF 65. Determination of ASF (1) A category 1 institution must, for the purposes of the calculation of its NSFR, determine its ASF by adding together the weighted amounts of all of its ASF items. (L.N. 84 of 2019)(2) (Repealed L.N. 84 of 2019)(3) Subject to subrules (4), (5) and (6) and Subdivision 3, the weighted amount of an ASF item is determined by multiplying together—(a) the value of the item; and(b) the corresponding ASF factor specified in—(i) if the item has a remaining term to maturity of less than 6 months or is repayable on demand—column 2 of Table 1 in Schedule 6 (Table 6-1); (L.N. 84 of 2019)(ii) if the item has a remaining term to maturity of 6 months to less than 12 months—column 3 of Table 6-1;(iii) if the item has a remaining term to maturity of 12 months or more—column 4 of Table 6-1; or(iv) if the item has no specified term to maturity—column 5 of Table 6-1.(4) In determining, under subrule (3), the weighted amount of a deferred tax liability that has no specified term to maturity—(a) if the earliest possible realization of the liability is in less than 6 months—the liability is to be treated as having a remaining term to maturity of less than 6 months or being repayable on demand;(b) if the earliest possible realization of the liability is in less than 12 months but not less than 6 months—the liability is to be treated as having a remaining term to maturity of 6 months to less than 12 months;

or(c) if the earliest possible realization of the liability is in not less than 12 months—the liability is to be treated as having a remaining term to maturity of 12 months or more.(5) A category 1 institution must, in determining its ASF, account for an ASF item according to the earliest possible contractual maturity date of the item.(6) For an ASF item of a category 1 institution that is callable—(a) if the item is callable at the option of the institution—the institution must, if there is market expectation that the institution will exercise the option and thus cause the item to be repaid before its contractual maturity date, account for the item as if the option would be exercised; or(b) if the item is callable at the option of a person other than the institution—the institution must account for the item as if the option would be exercised. 66. General exclusion of capital or liabilities from ASF (1) The Monetary Authority may on the ground specified in subrule (2), by notice in writing to all category 1 institutions, specify that a category 1 institution must not include in its ASF, with effect from the date, or the occurrence of an event, specified in the notice, any capital or a liability, or a class of capital or liabilities, of the type specified in the notice.(2) The ground for giving a notice under subrule (1) is that the Monetary Authority is satisfied that the type of capital or liability, or class of capital or liabilities, as the case may be, is not, or is no longer, a sufficiently reliable source of liquidity for inclusion in a category 1 institution’s ASF.(3) Every category 1 institution must comply with the requirements of a notice given under subrule (1). 67. Specific exclusion of capital or liabilities from ASF (1) The Monetary Authority may on the ground specified in subrule (2), by notice in writing to a category 1 institution, require the institution to cease to include in its ASF, with effect from the date, or the occurrence of an event, specified in the notice, any capital or a liability, or a class of capital or liabilities, of the type specified in the notice.(2) The ground for giving a notice under subrule (1) is that the Monetary Authority is satisfied that the type of capital or liability, or class of capital or liabilities, as the case may be, is not, or is no longer, a sufficiently reliable source of liquidity for inclusion in the institution’s ASF.(3) A category 1 institution must comply with the requirements of a notice given to it under subrule (1). 68. Determination of RSF (1) A category 1 institution must, for the purposes of the calculation of its NSFR, determine its RSF by adding together the weighted amounts of all of its RSF items. (L.N. 84 of 2019)(2) (Repealed L.N. 84 of 2019)(3) Subject to subrules (4), (5) and (6) and Subdivision 3, the weighted amount of an RSF item is determined by multiplying together—(a) the value of the item; and(b) the corresponding RSF factor specified in—(i) if the item has a remaining term to maturity of less than 6 months or is repayable on demand—column 2 of Table 2 in Schedule 6 (Table 6-2); (L.N. 84 of 2019)(ii) if the item has a remaining term to maturity of 6 months to less than 12 months—column 3 of Table 6-2;(iii) if the item has a remaining term to maturity of 12 months or more—column 4 of Table 6-2; or(iv) if the item has no specified term to maturity—column 5 of Table 6-2.(4) A category 1 institution must, in determining its RSF, account for an asset that is an RSF item according to the latest possible contractual maturity date of the asset.(5) For an asset that is an RSF item of a category 1 institution—(a) if the contractual maturity date of the asset is extendable at the option of the institution—the institution must, if there is market expectation that the institution will exercise the option and thus cause the contractual maturity date of the asset to be extended, account for the asset as if the option would be exercised; or(b) if the contractual maturity date of the asset is extendable at the option of a person other than the institution—the institution must account for the asset as if the option would be exercised.(6) If an asset that is an RSF item of a category 1 institution is not free from encumbrances, the institution must—(a) if the asset is encumbered for a period of less than 6 months—regard the asset as if it were free from encumbrances;(b) if the asset is encumbered for a period of 6 months to less than 12 months—apply an RSF factor of 50% for the asset, if the RSF factor for the asset specified in Table 6-2 is less than 50%; or(c) if the asset is encumbered for a period of 12 months or more—apply an RSF factor of 100% for the asset. Subdivision 3 Interdependent Assets and Liabilities 69. Legal tender notes and certificates of indebtedness (1) This rule applies to—(a) a category 1 institution that is a note-issuing bank; and(b) legal tender notes issued by the institution, in relation to which a certificate of indebtedness has been issued to the institution to be held as cover for the notes.(2) The institution, in determining its ASF and RSF, may choose either to—(a) treat the weighted amounts of both the legal tender notes and certificate of indebtedness as $0; or(b) apply rules 65 and 68 to determine the weighted amounts of the legal tender notes and certificate of indebtedness.(3) In this rule—certificate of indebtedness (負債證明書) means a certificate of indebtedness issued under section 4(1) of the Exchange Fund Ordinance (Cap. 66);note-issuing bank (發鈔銀行) has the meaning given by section 2 of the Legal Tender Notes Issue Ordinance (Cap. 65). 70. Permission for treating assets and liabilities as interdependent (1) The Monetary Authority may, if satisfied with the matters specified in subrule (2), by notice in writing to a category 1 institution, permit the institution, subject to any conditions that the Monetary Authority thinks proper, to treat the following as a pair of interdependent asset and liability in determining the institution’s ASF and RSF—(a) a pair of asset and liability specified in the notice; or(b) a pair of asset and liability falling within a class of pairs of asset and liability specified in the notice.(2) The matters are that, in relation to the pair of asset and liability or the class of pairs of asset and liability, as the case may be, on the basis of contractual arrangements—(a) the asset and liability are clearly identifiable;(b) the asset and liability have the same principal amount;(c) the liability cannot fall due while the asset remains on the balance sheet;(d) the terms to maturity (if any) of the asset and liability are the same;(e) the institution acts solely as a pass-through unit to channel the funds received arising from the taking up of the liability to finance the acquisition of the asset only, and—(i) the funds cannot be used to fund other assets; and(ii) the cash flows in relation to the asset’s principal payment cannot be used other than to repay the liability; and(f) the institution’s customer in respect of the asset is not the institution’s customer in respect of the liability.(3) The permission takes effect—(a) on the date specified in the notice; or(b) when the event specified in the notice occurs.(4) On the taking effect of the permission, in determining the institution’s ASF and RSF, if the conditions mentioned in subrule (1) are complied with in relation to a pair of asset and liability covered by the notice, the institution may choose to treat the pair of asset and liability as a pair of interdependent asset and liability.(5) In determining the institution’s ASF and RSF, the institution is to—(a) if the institution makes the choice under subrule (4)—treat the weighted amounts of both the asset and liability in the pair as $0; or(b) if the institution does not make the choice—continue to apply rules 65 and 68 to determine the weighted amounts of the asset and liability. Division 3 Calculation of CFR Subdivision 1 General 71. Interpretation of Division 3 and Tables 3 and 4 in Schedule 6 (L.N. 84 of 2019)In this Division and Tables 3 and 4 in Schedule 6— (L.N. 84 of 2019)ACF item (ACF項目), in relation to a category 2A institution, means a capital item or on-balance sheet liability, listed in column 1 of Table 3 in Schedule 6, of the institution; (L.N. 84 of 2019)average CFR (平均CFR), in relation to a category 2A institution for a calendar month, means the average of the institution’s CFR in that month as calculated in accordance with rule 76; (L.N. 84 of 2019)RCF item (RCF項目), in relation to a category 2A institution, means an on-balance sheet asset or off-balance sheet obligation or the total derivative liabilities (before adjustments), listed in column 1 of Table 4 in Schedule 6, of the institution. (L.N. 84 of 2019) 72. Capital, etc. must not be double counted in calculation of CFR A category 2A institution must not, in the calculation of its CFR, double count any capital, on-balance sheet liability, on-balance sheet asset or off-balance sheet obligation that is included in that calculation. 73. Calculation of CFR on Hong Kong office basis A category 2A institution must, in the calculation of its CFR on a Hong Kong office basis, determine—(a) the ACF of its Hong Kong office; and(b) the RCF of its Hong Kong office,as if its Hong Kong office were a single legal entity. 74. Calculation of CFR on unconsolidated basis A category 2A institution incorporated in Hong Kong must, in the calculation of its CFR on an unconsolidated basis—(a) determine the aggregate of the ACF of its Hong Kong office and its overseas branches;(b) determine the aggregate of the RCF of its Hong Kong office and its overseas branches; and(c) ensure that all inter-branch balances with, and transactions between, its Hong Kong office and its overseas branches are offset in that calculation. 75. Calculation of CFR on consolidated basis (1) A category 2A institution incorporated in Hong Kong must, in the calculation of its CFR on a consolidated basis—(a) determine the aggregate of the ACF of the members of its consolidated group;(b) determine the aggregate of the RCF of the members of its consolidated group; and(c) ensure that all inter-branch or inter-company balances with, and transactions between, the members of its consolidated group are offset in that calculation.(2) A category 2A institution must comply with subrule (1) as if the members of its consolidated group were a single legal entity. Subdivision 2 Calculation of Average CFR and Determination of ACF and RCF 76. Calculation of average CFR in each calendar month (1) Subject to subrule (2), a category 2A institution must, for the purposes of rule 8D, calculate, for each calendar month, its average CFR on the basis of—(a) the sum of the weighted amounts of all of its ACF items, as determined in accordance with rule 77; and(b) the sum of the weighted amounts of all of its RCF items, as determined in accordance with rule 80,for each working day of that month. (L.N. 84 of 2019)(2) The Monetary Authority may, by notice in writing to a category 2A institution, permit the institution to calculate its average CFR by reference to such days during the month as the Monetary Authority specifies in the notice (and if any such specified day is a public holiday, the immediately preceding working day must be taken to be that specified day for the purposes of that calculation). 77. Determination of ACF (1) A category 2A institution must, for the purposes of the calculation of its CFR, determine its ACF by adding together the weighted amounts of all of its ACF items. (L.N. 84 of 2019)(2) (Repealed L.N. 84 of 2019)(3) Subject to subrules (4), (5) and (6), the weighted amount of an ACF item is determined by multiplying together—(a) the value of the item; and(b) the corresponding ACF factor specified in—(i) if the item has a remaining term to maturity of less than 6 months or is repayable on demand—column 2 of Table 3 in Schedule 6 (Table 6-3); (L.N. 84 of 2019)(ii) if the item has a remaining term to maturity of 6 months to less than 12 months—column 3 of Table 6-3;(iii) if the item has a remaining term to maturity of 12 months or more—column 4 of Table 6-3; or(iv) if the item has no specified term to maturity—column 5 of Table 6-3.(4) In determining, under subrule (3), the weighted amount of a deferred tax liability that has no specified term to maturity—(a) if the earliest possible realization of the liability is in less than 6 months—the liability is to be treated as having a remaining term to maturity of less than 6 months or being repayable on demand;(b) if the earliest possible realization of the liability is in less than 12 months but not less than 6 months—the liability is to be treated as having a remaining term to maturity of 6 months to less than 12 months; or(c) if the earliest possible realization of the liability is in not less than 12 months—the liability is to be treated as having a remaining term to maturity of 12 months or more.(5) A category 2A institution must, in determining its ACF, account for an ACF item according to the earliest possible contractual maturity date of the item.(6) For an ACF item of a category 2A institution that is callable—(a) if the item is callable at the option of the institution—the institution must, if there is market expectation that the institution will exercise the option and thus cause the item to be repaid before its contractual maturity date, account for the item as if the option would be exercised; or(b) if the item is callable at the option of a person other than the institution—the institution must account for the item as if the option would be exercised. 78. General exclusion of capital or liabilities from ACF (1) The Monetary Authority may on the ground specified in subrule (2), by notice in writing to all category 2A institutions, specify that a category 2A institution must not include in its ACF, with effect from the date, or the occurrence of an event, specified in the notice, any capital or a liability, or a class of capital or liabilities, of the type specified in the notice.(2) The ground for giving a notice under subrule (1) is that the Monetary Authority is satisfied that the type of capital or liability, or class of capital or liabilities, as the case may be, is not, or is no longer, a sufficiently reliable source of liquidity for inclusion in a category 2A institution’s ACF.(3) Every category 2A institution must comply with the requirements of a notice given under subrule (1). 79. Specific exclusion of capital or liabilities from ACF (1) The Monetary Authority may on the ground specified in subrule (2), by notice in writing to a category 2A institution, require the institution to cease to include in its ACF, with effect from the date, or the occurrence of an event, specified in the notice, any capital or a liability, or a class of capital or liabilities, of the type specified in the notice.(2) The ground for giving a notice under subrule (1) is that the Monetary Authority is satisfied that the type of capital or liability, or class of capital or liabilities, as the case may be, is not, or is no longer, a sufficiently reliable source of liquidity for inclusion in the institution’s ACF.(3) A category 2A institution must comply with the requirements of a notice given to it under subrule (1). 80. Determination of RCF (1) A category 2A institution must, for the purposes of the calculation of its CFR, determine its RCF by adding together the weighted amounts of all of its RCF items. (L.N. 84 of 2019)(2) (Repealed L.N. 84 of 2019)(3) Subject to subrules (4) and (5), the weighted amount of an RCF item is determined by multiplying together—(a) the value of the item; and(b) the corresponding RCF factor specified in—(i) if the item has a remaining term to maturity of less than 6 months or is repayable on demand—column 2 of Table 4 in Schedule 6 (Table 6-4); (L.N. 84 of 2019)(ii) if the item has a remaining term to maturity of 6 months to less than 12 months—column 3 of Table 6-4;(iii) if the item has a remaining term to maturity of 12 months or more—column 4 of Table 6-4; or(iv) if the item has no specified term to maturity—column 5 of Table 6-4.(4) A category 2A institution must, in determining its RCF, account for an asset that is an RCF item according to the latest possible contractual maturity date of the asset.(5) For an asset that is an RCF item of a category 2A institution—(a) if the contractual maturity date of the asset is extendable at the option of the institution—the institution must, if there is market expectation that the institution will exercise the option and thus cause the contractual maturity date of the asset to be extended, account for the asset as if the option would be exercised; or(b) if the contractual maturity date of the asset is extendable at the option of a person other than the institution—the institution must account for the asset as if the option would be exercised. Schedule 1 [rr. 2, 3 & 15](14 of 2025 s. 190)Grounds for Designating Authorized Institution as Category 1 Institution and Exceptions to those Grounds Part 1 Grounds for Designating Authorized Institution as Category 1 Institution (whether on Monetary Authority’s Own Volition or on Institution’s Application) 1. The authorized institution is internationally active. 2. The authorized institution is significant to the general stability and effective working of the banking system in Hong Kong. 3. The liquidity risk associated with the authorized institution is material. 4. The authorized institution (first-mentioned institution) is so connected to another authorized institution (being a category 1 institution) (second-mentioned institution) that, if the first-mentioned institution were not to be designated as a category 1 institution, such connection would prejudice, or may potentially prejudice—(a) the calculation of the LCR under Part 7 of these Rules by the second-mentioned institution; (b) the calculation of the LMR under Part 8 of these Rules by the first-mentioned institution; or (c) the calculation mentioned in both paragraphs (a) and (b). Part 2 Grounds for Designating Authorized Institution as Category 1 Institution (on Institution’s Application) 1. The authorized institution’s particular circumstances provide reasonable justification for it to be designated as a category 1 institution. 2. The authorized institution has the capacity (including systems and resources) to comply with all the provisions of these Rules that apply to category 1 institutions. Part 3 Circumstances in which Monetary Authority may Decide Not to Designate Authorized Institution as Category 1 Institution 1. For an authorized institution incorporated in or outside Hong Kong, the Monetary Authority is satisfied that—(a) the institution’s particular circumstances provide reasonable justification for it not to be designated as a category 1 institution; and (b) it would not materially prejudice the institution’s calculation of its LMR under Part 8 of these Rules if it were not designated as a category 1 institution. 2. For an authorized institution incorporated outside Hong Kong, the Monetary Authority is satisfied that—(a) the institution is adequately supervised in respect of liquidity risk by the relevant banking supervisory authority of the place of its incorporation; and (b) the institution complies with the liquidity requirements in the place of its incorporation that are comparable to the provisions of these Rules that apply to category 1 institutions. Schedule 2 [rr. 2, 17, 25 & 49 & Schs. 4A, 5 & 6](L.N. 176 of 2017; L.N. 84 of 2019)Classes of Assets which may be Included in HQLA for Calculating LCR and Qualifying Criteria Applicable to those Classes Part 1 Interpretation of Schedule 2 1. Interpretation of Schedule 2 (1) In this Schedule— (L.N. 84 of 2019)associated entity (聯繫實體), in relation to a financial institution, is to be construed in accordance with section 97H(4) of the Ordinance as if the references to an authorized institution were the references to a financial institution; covered bond (資產覆蓋債券) has the meaning given by rule 17; haircut (扣減) has the meaning given by rule 17; probability of default (違責或然率) has the meaning given by section 139(1) of the Capital Rules; PSE bank (公營單位銀行) means a bank that is a public sector entity; (L.N. 84 of 2019)withdrawable central bank reserves (可提取央行儲備) has the meaning given by rule 17. (L.N. 84 of 2019)(2) In this Schedule, an expression specified below has the meaning given by section 2(1) of the Capital Rules—central counterparty (中央交易對手方)credit risk (信用風險)IRB approach (IRB計算法)local currency (本地貨幣)standardized (credit risk) approach (標準(信用風險)計算法) (L.N. 84 of 2019)(L.N. 170 of 2023)(3) For the purposes of sections 2 and 3 of Part 3 of this Schedule, a category 1 institution that is a re-domiciled entity is to be regarded as being incorporated in Hong Kong. (14 of 2025 s. 191) Part 2 Classes of Assets which may be Included in HQLA for Calculating LCR 1. Level 1 assets The following assets are level 1 assets for the purposes of these Rules—(a) currency notes and coins; (b) withdrawable central bank reserves; (c) subject to section 1 of Part 3 of this Schedule, marketable debt securities that are issued or guaranteed by a sovereign, central bank, public sector entity, relevant international organization or multilateral development bank, or that are EF debt securities; (d) subject to section 2 of Part 3 of this Schedule, marketable debt securities that are issued by the sovereign or central bank of a country and denominated in the local currency of that country, or that are EF debt securities, and which, under the standardized (credit risk) approach—(i) do not qualify for 0% risk-weight under section 55(1) of the Capital Rules; or (L.N. 170 of 2023)(ii) qualify for 0% risk-weight only by virtue of section 56(1) or (2) of the Capital Rules; and (e) subject to section 3 of Part 3 of this Schedule, marketable debt securities that are issued by the sovereign or central bank of a country and denominated in a currency that is not the local currency of that country and which do not, under the standardized (credit risk) approach, qualify for 0% risk-weight under section 55(1) of the Capital Rules. (L.N. 170 of 2023) 2. Level 2A assets The following assets are level 2A assets for the purposes of these Rules—(a) subject to section 4 of Part 3 of this Schedule, marketable debt securities that are issued or guaranteed by a sovereign, central bank or public sector entity; (b) subject to section 5 of Part 3 of this Schedule, marketable debt securities issued by corporates; and (c) subject to section 6 of Part 3 of this Schedule, covered bonds. 3. Level 2B assets The following assets are level 2B assets for the purposes of these Rules—(a) subject to section 7 of Part 3 of this Schedule, marketable debt securities issued by a corporate, sovereign, central bank or public sector entity;(b) subject to sections 8 and 9 of Part 3 of this Schedule, RMBS; and (c) subject to section 10 of Part 3 of this Schedule, listed ordinary shares. (L.N. 84 of 2019)(L.N. 84 of 2019) Part 3 Qualifying Criteria Applicable to Classes of Assets which may be Included in HQLA for Calculating LCR 1. Qualifying criteria—marketable debt securities (level 1 assets) under section 1(c) of Part 2 of this Schedule (1) A marketable debt security does not fall within section 1(c) of Part 2 of this Schedule unless—(a) it qualifies, in the calculation of credit risk under the standardized (credit risk) approach, for 0% risk-weight—(i) subject to subsections (2) and (3), under section 55(1) of the Capital Rules in any case where the debt security is issued or guaranteed by a sovereign or central bank or is an EF debt security; (ii) under section 57(3) of the Capital Rules in any case where the debt security is issued or guaranteed by a public sector entity; (iii) under section 56(3) of the Capital Rules in any case where the debt security is issued or guaranteed by a relevant international organization; and (iv) under section 58(1) of the Capital Rules in any case where the debt security is issued or guaranteed by a multilateral development bank; (L.N. 170 of 2023)(b) it is traded in large, deep and active markets, characterized by a low level of concentration, and where debt securities of that type can be monetized through direct sale or repo-style transactions; (c) it has a proven record as a reliable source of liquidity in those markets, even during a period of financial stress; and (d) it is not an obligation of a financial institution, or an associated entity of a financial institution, that is not a PSE bank. (L.N. 84 of 2019)(2) Section 56(2) of the Capital Rules must be disregarded for the purposes of calculating credit risk as specified in subsection (1)(a)(i). (3) For the purposes of subsection (1)(a)(i), an EF debt security must be treated as if it were a marketable debt security issued by a central bank. 2. Qualifying criteria—marketable debt securities (level 1 assets) under section 1(d) of Part 2 of this Schedule (1) A marketable debt security does not fall within section 1(d) of Part 2 of this Schedule, unless it is issued by—(a) the sovereign or central bank of the country in which the category 1 institution holding the debt security is incorporated; or(b) the sovereign or central bank of the country in which that institution carries on a banking business through a branch or subsidiary. (14 of 2025 s. 191)(1A) To avoid doubt—(a) in relation to a category 1 institution incorporated in a place that is part of a country (Country B), the reference in subsection (1)(a) to “the sovereign or central bank of the country in which the category 1 institution holding the debt security is incorporated” includes the sovereign or central bank of Country B; and(b) in relation to a category 1 institution that carries on, in a place that is part of Country B, a banking business through a branch or subsidiary, the reference in subsection (1)(b) to “the sovereign or central bank of the country in which that institution carries on a banking business through a branch or subsidiary” includes the sovereign or central bank of Country B. (14 of 2025 s. 191)(2) To avoid doubt, if a marketable debt security, issued by a sovereign or central bank and with a risk-weight of 20% under the standardized (credit risk) approach, falls within both sections 1(d) and 2(a) of Part 2 of this Schedule, it may, at the discretion of the category 1 institution, be treated as falling within section 1(d) of that Part. (3) For the purposes of this section, an EF debt security must be treated as if it were a marketable debt security issued by a central bank. 3. Qualifying criteria—marketable debt securities (level 1 assets) under section 1(e) of Part 2 of this Schedule (1) A marketable debt security does not fall within section 1(e) of Part 2 of this Schedule unless—(a) it is issued by—(i) the sovereign or central bank of the country in which the category 1 institution holding the debt security is incorporated; or(ii) the sovereign or central bank of the country in which that institution carries on a banking business through a branch or subsidiary; and (14 of 2025 s. 191)(b) the amount of the category 1 institution’s holding in the debt security that may be eligible for inclusion in the institution’s HQLA does not exceed the amount of total net cash outflows in the currency of the debt security arising from the institution’s banking business in the country in which the debt security is issued. (1A) To avoid doubt—(a) in relation to a category 1 institution incorporated in a place that is part of a country (Country C), the reference in subsection (1)(a)(i) to “the sovereign or central bank of the country in which the category 1 institution holding the debt security is incorporated” includes the sovereign or central bank of Country C; and(b) in relation to a category 1 institution that carries on, in a place that is part of Country C, a banking business through a branch or subsidiary, the reference in subsection (1)(a)(ii) to “the sovereign or central bank of the country in which that institution carries on a banking business through a branch or subsidiary” includes the sovereign or central bank of Country C. (14 of 2025 s. 191)(2) To avoid doubt, if a marketable debt security, issued by a sovereign or central bank and with a risk-weight of 20% under the standardized (credit risk) approach, falls within both sections 1(e) and 2(a) of Part 2 of this Schedule, it may, at the discretion of the category 1 institution, be treated as falling within section 1(e) of that Part. 4. Qualifying criteria—marketable debt securities (level 2A assets) under section 2(a) of Part 2 of this Schedule (1) A marketable debt security does not fall within section 2(a) of Part 2 of this Schedule unless—(a) it qualifies, in the calculation of credit risk under the standardized (credit risk) approach, for 20% risk-weight—(i) subject to subsections (2) and (3), under section 55(1) of the Capital Rules in any case where the debt security is issued or guaranteed by a sovereign or central bank; and (L.N. 170 of 2023)(ii) under section 57 of the Capital Rules in any case where the debt security is issued or guaranteed by a public sector entity; (b) it is traded in large, deep and active markets, characterized by a low level of concentration, and where debt securities of that type can be monetized through direct sale or repo-style transactions; (c) subject to subsection (3), it has a proven record as a reliable source of liquidity in those markets, even during a period of financial stress; and (d) it is not an obligation of a financial institution, or an associated entity of a financial institution, that is not a PSE bank. (L.N. 84 of 2019)(2) Section 56(2) of the Capital Rules must be disregarded for the purposes of calculating credit risk as specified in subsection (1)(a)(i). (3) A marketable debt security, for meeting the criterion specified in subsection (1)(c), must not have experienced a decline of more than 10% of its market price, or (if it is used as collateral in a repo-style transaction) an increase in haircut of more than 10 percentage points, within—(a) any period of 30 calendar days during a relevant period of significant liquidity stress since the debt security was issued; or (b) (if no such relevant period of significant liquidity stress is applicable to the debt security) any period of 30 calendar days since the debt security was issued. 5. Qualifying criteria—marketable debt securities (level 2A assets) under section 2(b) of Part 2 of this Schedule (1) A marketable debt security does not fall within section 2(b) of Part 2 of this Schedule unless—(a) subject to subsection (2), if the debt security is issued by a corporate incorporated outside the home jurisdiction of a Type B ECAI, it has an ECAI issue specific rating that—(i) if mapped to the scale of credit quality grades in accordance with the LT ECAI rating mapping table for Type A ECAIs (for a long-term ECAI issue specific rating assigned by a Type A ECAI), would result in the debt security being assigned a credit quality grade of 1 or 2; or(ii) if mapped to the scale of credit quality grades in accordance with the ST ECAI rating mapping table for Type A ECAIs (for a short-term ECAI issue specific rating assigned by a Type A ECAI), would result in the debt security being assigned a credit quality grade of 1; (L.N. 170 of 2023)(b) subject to subsection (2), if the debt security is issued by a corporate incorporated in the home jurisdiction of a Type B ECAI, it has an ECAI issue specific rating assigned by a Type A ECAI or that Type B ECAI that—(i) if mapped to the scale of credit quality grades in accordance with the LT ECAI rating mapping table for Type A ECAIs (for a long-term ECAI issue specific rating assigned by a Type A ECAI), would result in the debt security being assigned a credit quality grade of 1 or 2;(ii) if mapped to the scale of credit quality grades in accordance with the ST ECAI rating mapping table for Type A ECAIs (for a short-term ECAI issue specific rating assigned by a Type A ECAI), would result in the debt security being assigned a credit quality grade of 1; or(iii) if mapped to the scale of credit quality grades in accordance with the LT ECAI rating mapping table for Type B ECAIs (for a long-term ECAI issue specific rating assigned by that Type B ECAI) or the ST ECAI rating mapping table for Type B ECAIs (for a short-term ECAI issue specific rating assigned by that Type B ECAI), would result in the debt security being assigned a credit quality grade of 1; (L.N. 170 of 2023)(c) if the debt security does not have an ECAI issue specific rating and the category 1 institution holding the debt security has the Monetary Authority’s approval to use the IRB approach under section 8 of the Capital Rules (or, if the institution is incorporated outside Hong Kong and is not a re-domiciled entity, it has the approval of the relevant banking supervisory authority to use an internal ratings-based approach that reflects the standards issued by the Basel Committee for calculation of its regulatory capital for credit risk), it is internally rated by the institution as having a probability of default corresponding to the credit quality grade required under paragraph (a) or (b); (14 of 2025 s. 191) (d) it is traded in large, deep and active markets, characterized by a low level of concentration, and where debt securities of that type can be monetized through direct sale or repo-style transactions; (e) subject to subsection (3), it has a proven record as a reliable source of liquidity in those markets, even during a period of financial stress; (f) it is not issued by a financial institution or any of its associated entities; and (g) it is not a structured financial instrument or subordinated debt security. (2) If a marketable debt security has more than one ECAI issue specific rating, the category 1 institution holding the debt security must, for the purposes of subsection (1)(a) and (b), apply section 54E(2) of the Capital Rules to determine the ECAI issue specific rating of the debt security. (L.N. 170 of 2023)(3) A marketable debt security, for meeting the criterion specified in subsection (1)(e), must not have experienced a decline of more than 10% of its market price, or (if it is used as collateral in a repo-style transaction) an increase in haircut of more than 10 percentage points, within—(a) any period of 30 calendar days during a relevant period of significant liquidity stress since the debt security was issued; or (b) (if no such relevant period of significant liquidity stress is applicable to the debt security) any period of 30 calendar days since the debt security was issued. 6. Qualifying criteria—covered bonds (level 2A assets) under section 2(c) of Part 2 of this Schedule (1) A covered bond does not fall within section 2(c) of Part 2 of this Schedule unless—(a) it is issued by a person other than the category 1 institution holding the covered bond or any of the institution’s associated entities; (b) subject to subsection (2), it has an ECAI issue specific rating that—(i) if mapped to the scale of credit quality grades in accordance with the LT ECAI rating mapping table for Type A ECAIs (for a long-term ECAI issue specific rating assigned by a Type A ECAI), would result in the covered bond being assigned a credit quality grade of 1 or 2; or(ii) if mapped to the scale of credit quality grades in accordance with the ST ECAI rating mapping table for Type A ECAIs (for a short-term ECAI issue specific rating assigned by a Type A ECAI), would result in the covered bond being assigned a credit quality grade of 1; (L.N. 170 of 2023)(c) if the covered bond does not have an ECAI issue specific rating and the category 1 institution holding the covered bond has the Monetary Authority’s approval to use the IRB approach under section 8 of the Capital Rules (or, if the institution is incorporated outside Hong Kong and is not a re-domiciled entity, it has the approval of the relevant banking supervisory authority to use an internal ratings-based approach that reflects the standards issued by the Basel Committee for calculation of its regulatory capital for credit risk), it is internally rated by the institution as having a probability of default corresponding to the credit quality grade required under paragraph (b); (14 of 2025 s. 191)(d) it is traded in large, deep and active markets, characterized by a low level of concentration, and where covered bonds of that type can be monetized through direct sale or repo-style transactions; and(e) subject to subsection (3), it has a proven record as a reliable source of liquidity in those markets, even during a period of financial stress. (2) If a covered bond has more than one ECAI issue specific rating, the category 1 institution holding the covered bond must, for the purposes of subsection (1)(b), apply section 54E(2) of the Capital Rules to determine the ECAI issue specific rating of the covered bond. (L.N. 170 of 2023)(3) A covered bond, for meeting the criterion specified in subsection (1)(e), must not have experienced a decline of more than 10% of its market price, or (if it is used as collateral in a repo-style transaction) an increase in haircut of more than 10 percentage points, within—(a) any period of 30 calendar days during a relevant period of significant liquidity stress since the covered bond was issued; or (b) (if no such relevant period of significant liquidity stress is applicable to the covered bond) any period of 30 calendar days since the covered bond was issued. 7. Qualifying criteria—marketable debt securities (level 2B assets) under section 3(a) of Part 2 of this Schedule (1) A marketable debt security does not fall within section 3(a) of Part 2 of this Schedule unless—(a) subject to subsection (2), if the debt security is issued by a corporate incorporated outside the home jurisdiction of a Type B ECAI, it has an ECAI issue specific rating that—(i) if mapped to the scale of credit quality grades in accordance with the LT ECAI rating mapping table for Type A ECAIs (for a long-term ECAI issue specific rating assigned by a Type A ECAI), would result in the debt security being assigned a credit quality grade of 1, 2, 3 or 4; or(ii) if mapped to the scale of credit quality grades in accordance with the ST ECAI rating mapping table for Type A ECAIs (for a short-term ECAI issue specific rating assigned by a Type A ECAI), would result in the debt security being assigned a credit quality grade of 1, 2 or 3; (L.N. 170 of 2023)(b) subject to subsection (2), if the debt security is issued by a corporate incorporated in the home jurisdiction of a Type B ECAI, it has an ECAI issue specific rating assigned by a Type A ECAI or that Type B ECAI that—(i) if mapped to the scale of credit quality grades in accordance with the LT ECAI rating mapping table for Type A ECAIs (for a long-term ECAI issue specific rating assigned by a Type A ECAI), would result in the debt security being assigned a credit quality grade of 1, 2, 3 or 4;(ii) if mapped to the scale of credit quality grades in accordance with the ST ECAI rating mapping table for Type A ECAIs (for a short-term ECAI issue specific rating assigned by a Type A ECAI), would result in the debt security being assigned a credit quality grade of 1, 2 or 3; or (iii) if mapped to the scale of credit quality grades in accordance with the LT ECAI rating mapping table for Type B ECAIs (for a long-term ECAI issue specific rating assigned by that Type B ECAI) or the ST ECAI rating mapping table for Type B ECAIs (for a short-term ECAI issue specific rating assigned by that Type B ECAI), would result in the debt security being assigned a credit quality grade of 1, 2, 3 or 4; (L.N. 170 of 2023)(ba) subject to subsection (2), if the debt security is issued by a sovereign or central bank, it has an ECAI issue specific rating assigned by a Type A ECAI that, if mapped to the scale of credit quality grades in accordance with the LT ECAI rating mapping table for Type A ECAIs, would result in the debt security being assigned a credit quality grade of 1, 2, 3 or 4; (L.N. 170 of 2023)(bb) subject to subsection (2), if the debt security is issued by a public sector entity, it has an ECAI issue specific rating assigned by a Type A ECAI that—(i) if mapped to the scale of credit quality grades in accordance with the LT ECAI rating mapping table for Type A ECAIs (for a long-term ECAI issue specific rating), would result in the debt security being assigned a credit quality grade of 1, 2, 3 or 4; or(ii) if mapped to the scale of credit quality grades in accordance with the ST ECAI rating mapping table for Type A ECAIs (for a short-term ECAI issue specific rating), would result in the debt security being assigned a credit quality grade of 1, 2 or 3; (L.N. 170 of 2023)(c) if the debt security does not have an ECAI issue specific rating and the category 1 institution holding the debt security has the Monetary Authority’s approval to use the IRB approach under section 8 of the Capital Rules (or, if the institution is incorporated outside Hong Kong and is not a re-domiciled entity, it has the approval of the relevant banking supervisory authority to use an internal ratings-based approach that reflects the standards issued by the Basel Committee for calculation of its regulatory capital for credit risk), it is internally rated by the institution as having a probability of default corresponding to the credit quality grade required under paragraph (a), (b), (ba) or (bb); (14 of 2025 s. 191)(d) it is traded in large, deep and active markets, characterized by a low level of concentration, and where debt securities of that type can be monetized through direct sale or repo-style transactions; (e) subject to subsection (3), it has a proven record as a reliable source of liquidity in those markets, even during a period of financial stress; (f) it is not issued by a financial institution, or an associated entity of a financial institution, that is not a PSE bank; and (L.N. 84 of 2019)(g) it is not a structured financial instrument or subordinated debt security. (2) If a marketable debt security has more than one ECAI issue specific rating, the category 1 institution holding the debt security must, for the purposes of subsection (1)(a), (b), (ba) and (bb), apply section 54E(2) of the Capital Rules to determine the ECAI issue specific rating of the debt security. (L.N. 170 of 2023)(3) A marketable debt security, for meeting the criterion specified in subsection (1)(e), must not have experienced a decline of more than 20% of its market price, or (if it is used as collateral in a repo-style transaction) an increase in haircut of more than 20 percentage points, within—(a) any period of 30 calendar days during a relevant period of significant liquidity stress since the debt security was issued; or (b) (if no such relevant period of significant liquidity stress is applicable to the debt security) any period of 30 calendar days since the debt security was issued.(L.N. 84 of 2019) 8. Qualifying criteria—RMBS (level 2B assets) under section 3(b) of Part 2 of this Schedule (1) An RMBS does not fall within section 3(b) of Part 2 of this Schedule unless—(a) it has the approval of the Monetary Authority under section 9 of this Part; (b) it is issued, and its underlying assets are originated, by a person other than the category 1 institution holding the RMBS or any of the institution’s associated entities; (c) subject to subsection (2), if the RMBS is issued by a public sector entity, financial institution or corporate incorporated outside the home jurisdiction of a Type B ECAI, it has a long-term ECAI issue specific rating assigned by a Type A ECAI that, if mapped to the scale of credit quality grades in accordance with the LT ECAI rating mapping table for Type A ECAIs, would result in the RMBS being assigned a credit quality grade of 1 or 2; (L.N. 170 of 2023)(d) subject to paragraph (e) and subsection (2), if the RMBS is issued by a public sector entity, financial institution or corporate incorporated in the home jurisdiction of a Type B ECAI, it has a long-term ECAI issue specific rating—(i) assigned by a Type A ECAI that, if mapped to the scale of credit quality grades in accordance with the LT ECAI rating mapping table for Type A ECAIs, would result in the RMBS being assigned a credit quality grade of 1 or 2; or(ii) assigned by that Type B ECAI that, if mapped to the scale of credit quality grades in accordance with the LT ECAI rating mapping table for Type B ECAIs, would result in the RMBS being assigned a credit quality grade of 1; (L.N. 170 of 2023)(e) it does not have an ECAI issue specific rating assigned by a Type A ECAI that is, or is ranked lower than, AA- or Aa3 (or its equivalent rating); (L.N. 170 of 2023)(f) it is traded in large, deep and active markets, characterized by a low level of concentration, and where RMBS of that type can be monetized through direct sale or repo-style transactions; (g) subject to subsection (3), it has a proven record as a reliable source of liquidity in those markets, even during a period of financial stress; (h) it is backed by a pool of residential mortgage loans that have full recourse to the mortgagor and the weighted average loan-to-value ratio of which does not exceed 80% at the time when the RMBS is issued; and (i) it is subject to regulations which require issuers of the RMBS to retain an interest in the RMBS. (2) If an RMBS has more than one ECAI issue specific rating, the category 1 institution holding the RMBS must, for the purposes of subsection (1)(c) and (d), apply section 54E(2) of the Capital Rules to determine the ECAI issue specific rating of the RMBS. (L.N. 170 of 2023)(3) An RMBS, for meeting the criterion specified in subsection (1)(g), must not have experienced a decline of more than 20% of its market price, or (if it is used as collateral in a repo-style transaction) an increase in haircut of more than 20 percentage points, within—(a) any period of 30 calendar days during a relevant period of significant liquidity stress since the RMBS was issued; or(b) (if no such relevant period of significant liquidity stress is applicable to the RMBS) any period of 30 calendar days since the RMBS was issued. (4) To avoid doubt, the underlying assets of the RMBS must not contain any structured financial instrument. 9. Category 1 institution requires Monetary Authority’s approval to include RMBS in its HQLA (1) The Monetary Authority may, by notice in writing to a category 1 institution that has made an application to the Monetary Authority for the grant of an approval under this subsection, determine the application by—(a) granting approval to the institution, with effect from the date, or the occurrence of an event, specified in the notice, to include the RMBS specified in the notice in its HQLA if the institution demonstrates to the satisfaction of the Monetary Authority that—(i) that RMBS satisfies the requirements of section 8 of this Part applicable to it; and (ii) the institution has in place and maintains adequate systems and measures to monitor and control the risks associated with holding that RMBS; or (b) if the Monetary Authority is not satisfied as referred to in paragraph (a), refusing to grant the approval and specifying in the notice the reasons why the Monetary Authority is not so satisfied.

(2) If the Monetary Authority grants an approval under subsection (1)(a) to a category 1 institution, the approval may be granted subject to any conditions that the Monetary Authority thinks proper to attach to the approval in any particular case.(3) Without limiting subsection (2), the Monetary Authority may at any time, by notice in writing to a category 1 institution in respect of which the Monetary Authority has granted an approval under subsection (1)(a), do either or both of the following as the Monetary Authority thinks proper—(a) attach to the approval any conditions (including those for amending the conditions already attached to the approval); (b) cancel any conditions attached to the approval. (4) For subsection (3), the conditions or cancellation takes effect—(a) on the date specified in the notice; or (b) when the event specified in the notice occurs. 10. Qualifying criteria—listed ordinary shares (level 2B assets) under section 3(c) of Part 2 of this Schedule (1) A listed ordinary share does not fall within section 3(c) of Part 2 of this Schedule unless—(a) it is not issued by a financial institution or an associated entity of a financial institution;(b) it is listed and traded on an exchange, and its trading is cleared by a central counterparty;(c) it is a constituent of—(i) the Hang Seng Index or MSCI Hong Kong Index; or(ii) a stock index specified by the relevant banking supervisory authority of a country outside Hong Kong, where the following conditions are met—(A) the category 1 institution holding the share is incorporated in that country and is not a re-domiciled entity, or the category 1 institution carries on a banking business through a branch or subsidiary in that country; and (14 of 2025 s. 191)(B) the supervisory authority’s liquidity requirements on level 2B assets are consistent with, and no less stringent than, the relevant requirements referred to in paragraph 54(c) of the Basel III LCR document;(d) it is denominated— (14 of 2025 s. 191)(i) (if the category 1 institution is not a re-domiciled entity) in Hong Kong dollars or in the local currency of the country in which the institution holding the share is incorporated or carries on a banking business through a branch or subsidiary; or(ii) (if the category 1 institution is a re-domiciled entity) in Hong Kong dollars or in the local currency of the country in which the institution holding the share carries on a banking business through a branch or subsidiary; (14 of 2025 s. 191)(e) it is traded in large, deep and active markets, characterized by a low level of concentration, and where a share of that type can be monetized through direct sale or repo-style transactions; and(f) subject to subsection (2), it has a proven record as a reliable source of liquidity in those markets, even during a period of financial stress.(2) A listed ordinary share, for meeting the criterion specified in subsection (1)(f), must not have experienced a decline of more than 40% of its market price, or (if it is used as collateral in a repo-style transaction) an increase in haircut of more than 40 percentage points, within—(a) any period of 30 calendar days during a relevant period of significant liquidity stress since the share was listed; or(b) (if no such relevant period of significant liquidity stress is applicable to the share) any period of 30 calendar days since the share was listed.(L.N. 84 of 2019) Schedule 3 [r. 25]Characteristic Requirements that Asset must Satisfy before it can be Included in HQLA for Purposes of Calculation of LCR 1. Interpretation of Schedule 3 In this Schedule—current market price (現行市場價格) means the current market price as determined in accordance with rule 9 as if it were measured at fair value; general wrong-way risk (一般錯向風險) is to be construed in accordance with section 226E(3)(b) of the Capital Rules; haircut (扣減) has the meaning given by rule 17; specific wrong-way risk (特定錯向風險) has the meaning given by section 226A of the Capital Rules. (L.N. 84 of 2019) 2. Principal characteristic Subject to section 3 of this Schedule, the asset must at all times be immediately monetizable with little or no loss of value. 3. General characteristics The asset does not fall within section 2 of this Schedule unless it has the following characteristics—(a) the risks (including any risk of default) that are associated with the asset are so low that they do not prejudice the asset’s ability to be monetizable as specified in section 2 of this Schedule;(b) the value of the asset is readily identifiable and measurable, and can be readily agreed on by the parties to a transaction involving the asset, by reference to—(i) the asset’s book value; (ii) the asset’s current market price; or (iii) a simple valuation method or pricing formula based on publicly available market data; (c) if the asset is a structured financial instrument, the structure of the instrument is simple and standardized; (d) the asset does not—(i) have a strong correlation with another asset that has a material risk; and (ii) significantly expose the holder of the asset to specific wrong-way risk or general wrong-way risk; (e) if the asset is traded in a secondary market—(i) the market is active and sizable having regard to—(A) the diversity and large number of participants in the market; (B) the presence of committed market makers; and (C) the high volumes and low pricing spreads traded in the market; (ii) the asset is able to be readily monetized without a substantial discount or haircut to its market price; and(iii) the historical volatility associated with the trading prices and spreads of the asset are low; (f) if the asset is listed on an exchange, the exchange is a recognized exchange; and (g) the asset is denominated in Hong Kong dollars or in a currency freely convertible into Hong Kong dollars. Schedule 4 [rr. 25 & 26]Operational Requirements that Category 1 Institution and Asset must Satisfy before Asset can be Included in HQLA for Purposes of Calculation of LCR 1. Interpretation of Schedule 4 In this Schedule—approved RMBS (經批准RMBS) has the meaning given by rule 17; credit enhancement (信用提升) has the meaning given by section 227(1) of the Capital Rules; derivative contract (衍生工具合約) has the meaning given by rule 39; market risk (市場風險) has the meaning given by section 2(1) of the Capital Rules; securities financing transaction (證券融資交易) has the meaning given by rule 17. 2. Operational requirements (1) The category 1 institution must have in place and maintain adequate operational capacity and systems to readily monetize any asset in its HQLA without being constrained by its internal business or risk management strategy. (2) The category 1 institution’s HQLA must be—(a) managed by a liquidity management function designated by the institution for the purpose (designated function) which has the continuous authority and legal and operational capability to monetize any asset included in the institution’s HQLA; and (b) subject to subsection (3), maintained in a separate pool of assets under the control of the designated function with the sole intent of being used as a source of contingency funding. (3) The category 1 institution does not need to satisfy subsection (2)(b) if it demonstrates to the satisfaction of the Monetary Authority that—(a) the designated function can monetize any asset in the institution’s HQLA at any time within a period of financial stress that lasts for 30 calendar days; and (b) the proceeds of monetizing any asset in the institution’s HQLA are available to the designated function throughout a period of financial stress that lasts for 30 calendar days without direct conflict with the institution’s internal business or risk management strategy. (4) The category 1 institution periodically monetizes a representative portion of its HQLA to test or verify its ability to access relevant markets for monetizing assets included in its HQLA in case of need. (5) Subject to section 3(2) of this Schedule, each asset in the category 1 institution’s HQLA is free from encumbrances and, in particular, there must be no regulatory, legal, contractual or other restrictions that inhibit the institution from liquidating, selling, transferring or assigning any asset in its HQLA. (6) The category 1 institution has in place and maintains adequate policies and monitoring systems to enable it to have full knowledge of the composition of its HQLA, at least on a daily basis, including the legal entity, location, and custodial or other account in which the assets in its HQLA are held and the currencies in which the assets are denominated. (7) Subject to section 3(2)(e) of this Schedule, and rule 23(1)(a), the asset is freely transferable and available to the category 1 institution, whether between its Hong Kong office and any of its specified associated entities and overseas branches, and is not subject to any liquidity transfer restriction. (8) If the asset is included in the category 1 institution’s HQLA and is likely to be monetized through direct sale, there are no impediments to the sale of the asset and there are no requirements to hold such assets, including, but not limited to, statutory minimum inventory requirements if the institution is a market maker for assets of that type. 3. Provisions supplementary to section 2 of this Schedule (1) In section 2(1) of this Schedule, the reference to the category 1 institution having operational capacity means the institution has in place and maintains adequate systems and procedures, including the designated function referred to in section 2(2)(a) of this Schedule, with access to all necessary information for monetizing an asset in its HQLA within the standard settlement period for the type of asset concerned in the country concerned. (2) To avoid doubt, it is declared that—(a) an asset is not free from encumbrances if—(i) subject to paragraph (c), the asset is pledged by the category 1 institution, either explicitly or implicitly, to secure, collateralize or provide credit enhancement to a transaction; or(ii) the asset is designated by the institution to cover specific expenses; (b) if an asset satisfies all the other requirements of these Rules for inclusion in the institution’s HQLA but is pledged to the institution in a securities financing transaction or derivative contract, the asset may only be included in the HQLA if—(i) the institution has a contractual right to re-hypothecate the asset, but the asset has not been re-hypothecated and is legally and contractually available for use by the institution to obtain liquidity within the LCR period; (ii) the institution has no obligation to return the asset to a third party on demand or at any time within the LCR period; and (iii) the institution includes the expected cash outflow arising from the securities financing transaction or derivative contract within the LCR period in the calculation of its total expected cash outflows; (c) subject to paragraph (d), if an asset of the category 1 institution satisfies all the other requirements of these Rules for inclusion in the institution’s HQLA but is pre-positioned or deposited with, or pledged to, the Monetary Authority for the account of the Exchange Fund, or a central bank or public sector entity, for obtaining liquidity facilities, the asset may only be included in the institution’s HQLA to the extent that the institution has not utilized the asset to draw on those facilities;(d) if the category 1 institution has pre-positioned or deposited with, or pledged to, the Monetary Authority for the account of the Exchange Fund, or a central bank or public sector entity, a pool of assets consisting of level 1 assets, level 2A assets, level 2B assets and other assets that do not qualify as HQLA, and no specific asset in the pool has been designated as collateral for any of the institution’s liquidity facilities received from the Monetary Authority for the account of the Exchange Fund, or the central bank or public sector entity, the institution may, in determining which assets in the pool will be encumbered as it draws on the facilities, adopt the following order—(i) first order of encumbrance: assets that do not qualify as HQLA; (ii) second order of encumbrance: level 2B assets that are not approved RMBS; (iii) third order of encumbrance: approved RMBS; (iv) fourth order of encumbrance: level 2A assets; and (v) fifth order of encumbrance: level 1 assets; (e) for the purposes of section 2(7) of this Schedule, if the asset is held by the category 1 institution in a legal entity that does not have access to relevant markets for monetizing the asset, the asset is not freely transferable unless the asset can be freely transferred to the institution (or to a specified associated entity of the institution that can monetize the asset); and(f) for the purposes of section 2(2), (3), (4), (5), (6), (7) and (8) of this Schedule, if the category 1 institution hedges the market risk of an asset included in its HQLA, it takes into account the cash flows that may arise from the hedging arrangement (including any early closure of the hedge when the asset is sold) in the calculation of its LCR. Schedule 4A [rr. 17, 35, 38, 41 & 42](Schedule 4A added L.N. 176 of 2017)Tables Related to LCR Table 1Post-haircut Factors Column 1 Column 2 Asset class/asset subclass Post-haircut factor 1. Level 1 assets (a) currency notes and coins 100% (b) withdrawable central bank reserves 100% (c) marketable debt securities falling within section 1(c) of Part 2 of Schedule 2 100% (d) marketable debt securities falling within section 1(d) of Part 2 of Schedule 2 100% (e) marketable debt securities falling within section 1(e) of Part 2 of Schedule 2 (L.N. 84 of 2019) 100% 2. Level 2A assets (a) marketable debt securities falling within section 2(a) of Part 2 of Schedule 2 85% (b) marketable debt securities falling within section 2(b) of Part 2 of Schedule 2 85% (c) covered bonds falling within section 2(c) of Part 2 of Schedule 2 (L.N. 84 of 2019) 85% 3. Level 2B assets (a) marketable debt securities falling within section 3(a) of Part 2 of Schedule 2 (L.N. 84 of 2019) 50% (b) approved RMBS 75% (c) listed ordinary shares falling within section 3(c) of Part 2 of Schedule 2 (L.N. 84 of 2019) 50% Table 2Foreign Exchange Haircuts Column 1 Column 2 Type of foreign currency Foreign exchange haircut Level 1 assets denominated in US dollars 2% Level 1 assets denominated in Euro, Japanese yen or pound sterling 8% Level 1 assets denominated in any other foreign currency that is freely convertible into Hong Kong dollars 10% Table 3Outflow Rates for Calculation of Total Expected Cash Outflows Arising from On-balance Sheet Liabilities or Off-balance Sheet Obligations Mentioned in Rule 41(10) Column 1 Column 2 Column 3 Paragraph under rule 41(1) Type of on-balance sheet liability oroff-balance sheet obligation Outflow rate Paragraph (b) Less stable retail deposits 10% (subject to rule 41(13)) Paragraph (c) Retail term deposits 5% Paragraph (h) Debt securities and prescribed instruments issued by a category 1 institution and redeemable within the LCR period (irrespective of whether the holders of the debt securities or prescribed instruments are retail customers or wholesale customers) 100% Paragraph (o) Other contingent funding obligations— (a) trade-related contingencies; 3% (b) guarantees and letters of credit unrelated to trade-related contingencies; 10% (c) uncommitted facilities; 0% (d) non-contractual contingent funding obligations arising from— 100% (i) debt securities or structured financial instruments, in respect of which a category 1 institution (or an associated entity of it) is the issuer, a market maker or a dealer, or has been involved as an originator, sponsor, marketing agent or seller; (ii) money market funds or other types of collective investment funds marketed by a category 1 institution (or an associated entity of it); or (iii) circumstances not otherwise specified in paragraph 140 of the Basel III LCR document, where there is a reasonable expectation that the obligations will materialize within the LCR period Table 4Inflow Rates for Calculation of Expected Cash Inflow Applicable to Other Contractual Cash Inflows underRule 42(2)(h) Column 1 Column 2 Type of other contractual cash inflow Inflow rate Other contractual cash inflow to be received from— (a) any of the following— 100% (i) the Monetary Authority for the account of the Exchange Fund (ii) central banks (iii) financial institutions (b) retail customers or small business customers 50% (c) sovereigns, public sector entities, multilateral development banks, wholesale customers (excluding small business customers), or any other persons not covered by paragraph (a) or (b) 50% Note— See rule 17 for the interpretation of this Schedule. (L.N. 84 of 2019) Schedule 5 [rr. 48 & 49 & Sch. 6](L.N. 176 of 2017)Liquidity Conversion Factors Applicable to Assets and Liabilities in Calculation of LMR 1. Interpretation of Schedule 5 In this Schedule—eligible loan repayment (合格貸款付還), in relation to the calculation by a category 2 institution of its LMR, means a repayment—(a) to the institution by a customer (other than the Monetary Authority for the account of the Exchange Fund, or a central bank or a bank) in respect of a loan—(i) that the institution is not committed to continue, by renewal or otherwise; and (ii) that is fully performing; (b) the date of which is fixed; (c) that will fall due within 1 month; (d) in respect of which the institution has no reason to expect a default; and (e) if the loan referred to in paragraph (a) is secured by a pledged deposit referred to in rule 53(1)—(i) (where the loan will be fully repaid after receiving that repayment) consisting only of that part of the repayment that exceeds the aggregate of the deposit and interest payable on the deposit;(ii) (where the loan will not be so fully repaid) consisting only of that repayment insofar as it is not made by a corresponding reduction of the amount of the deposit or interest payable on the deposit, or both (but excluding any repayment in respect of residential mortgage loans referred to in item 7 of Table A in section 2 of this Schedule); investment-grade issue specific rating (投資級別特定債項評級)—see section 1B of this Schedule; (L.N. 84 of 2019)investment-grade issuer rating (投資級別發債人評級)—see section 1B of this Schedule; (L.N. 84 of 2019)investment-grade rating (投資級別評級)—see section 1B of this Schedule; (L.N. 84 of 2019)LMR period (LMR涵蓋時期), in relation to a category 2 institution’s LMR, means the period of 1 calendar month immediately following the date of the position in relation to which the LMR is calculated; net due from banks (存放銀行同業淨額) has the meaning given by rule 43; one-month liability (一個月債務) has the meaning given by rule 43; qualifying ECAI issue specific rating (合資格ECAI特定債項評級)—see section 1A of this Schedule; (L.N. 84 of 2019)qualifying ECAI issuer rating (合資格ECAI發債人評級)—see section 1A of this Schedule; (L.N. 84 of 2019)qualifying ECAI rating (合資格ECAI評級)—see section 1A of this Schedule. (L.N. 84 of 2019) 1A. Qualifying ECAI issue specific rating, qualifying ECAI issuer rating and qualifying ECAI rating For the purposes of this Schedule—(a) a marketable debt security or prescribed instrument has a qualifying ECAI issue specific rating if any of the following conditions is met—(i) the ECAI issue specific rating of the debt security or instrument assigned by a Type A ECAI—(A) if mapped to the scale of credit quality grades in accordance with the LT ECAI rating mapping table for Type A ECAIs (for a long-term ECAI issue specific rating), would result in the debt security or instrument being assigned a credit quality grade of 1, 2 or 3; or(B) if mapped to the scale of credit quality grades in accordance with the ST ECAI rating mapping table for Type A ECAIs (for a short-term ECAI issue specific rating), would result in the debt security or instrument being assigned a credit quality grade of 1 or 2; (L.N. 170 of 2023)(ii) without limiting subparagraph (i), for a debt security or instrument issued by a corporate incorporated in the home jurisdiction of a Type B ECAI, the ECAI issue specific rating of the debt security or instrument assigned by that Type B ECAI—(A) if mapped to the scale of credit quality grades in accordance with the LT ECAI rating mapping table for Type B ECAIs (for a long-term ECAI issue specific rating), would result in the debt security or instrument being assigned a credit quality grade of 1, 2 or 3; or(B) if mapped to the scale of credit quality grades in accordance with the ST ECAI rating mapping table for Type B ECAIs (for a short-term ECAI issue specific rating), would result in the debt security or instrument being assigned a credit quality grade of 1, 2 or 3; (L.N. 170 of 2023)(b) the issuer or guarantor of a marketable debt security or prescribed instrument has a qualifying ECAI issuer rating if any of the following conditions is met—(i) the ECAI issuer rating of the issuer or guarantor assigned by a Type A ECAI, if mapped to the scale of credit quality grades in accordance with the LT ECAI rating mapping table for Type A ECAIs, would result in the issuer or guarantor being assigned a credit quality grade of 1, 2 or 3;(ii) without limiting subparagraph (i), for an issuer or guarantor that is a corporate incorporated in the home jurisdiction of a Type B ECAI, the ECAI issuer rating of the issuer or guarantor assigned by that Type B ECAI, if mapped to the scale of credit quality grades in accordance with the LT ECAI rating mapping table for Type B ECAIs, would result in the issuer or guarantor being assigned a credit quality grade of 1, 2 or 3; and (L.N. 170 of 2023)(c) a marketable debt security or prescribed instrument has a qualifying ECAI rating if—(i) it has a qualifying ECAI issue specific rating; or(ii) its issuer or guarantor has a qualifying ECAI issuer rating.(L.N. 84 of 2019) 1B. Investment-grade issue specific rating, investment-grade issuer rating and investment-grade rating For the purposes of this Schedule—(a) a marketable debt security or prescribed instrument has an investment-grade issue specific rating if any of the following conditions is met—(i) the ECAI issue specific rating of the debt security or instrument assigned by a Type A ECAI—(A) if mapped to the scale of credit quality grades in accordance with the LT ECAI rating mapping table for Type A ECAIs (for a long-term ECAI issue specific rating), would result in the debt security or instrument being assigned a credit quality grade of 4; or(B) if mapped to the scale of credit quality grades in accordance with the ST ECAI rating mapping table for Type A ECAIs (for a short-term ECAI issue specific rating), would result in the debt security or instrument being assigned a credit quality grade of 3; (L.N. 170 of 2023)(ii) without limiting subparagraph (i), for a debt security or instrument issued by a corporate incorporated in the home jurisdiction of a Type B ECAI, the ECAI issue specific rating of the debt security or instrument assigned by that Type B ECAI—(A) if mapped to the scale of credit quality grades in accordance with the LT ECAI rating mapping table for Type B ECAIs (for a long-term ECAI issue specific rating), would result in the debt security or instrument being assigned a credit quality grade of 4; or(B) if mapped to the scale of credit quality grades in accordance with the ST ECAI rating mapping table for Type B ECAIs (for a short-term ECAI issue specific rating), would result in the debt security or instrument being assigned a credit quality grade of 4; (L.N. 170 of 2023)(b) the issuer or guarantor of a marketable debt security or prescribed instrument has an investment-grade issuer rating if any of the following conditions is met—(i) the ECAI issuer rating of the issuer or guarantor assigned by a Type A ECAI, if mapped to the scale of credit quality grades in accordance with the LT ECAI rating mapping table for Type A ECAIs, would result in the issuer or guarantor being assigned a credit quality grade of 4; (L.N. 170 of 2023)(ii) without limiting subparagraph (i), for an issuer or guarantor that is a corporate incorporated in the home jurisdiction of a Type B ECAI, the ECAI issuer rating of the issuer or guarantor assigned by that Type B ECAI, if mapped to the scale of credit quality grades in accordance with the LT ECAI rating mapping table for Type B ECAIs, would result in the issuer or guarantor being assigned a credit quality grade of 4; and (L.N. 170 of 2023)(c) a marketable debt security or prescribed instrument has an investment-grade rating if—(i) it has an investment-grade issue specific rating; or(ii) its issuer or guarantor has an investment-grade issuer rating.(L.N. 84 of 2019) 2. Tables Table A Item Liquefiable assets Liquidityconversion factor 1. Currency notes and coins 100% 2. Gold bullion 90% 3. Claims on, or reserves maintained with, the Monetary Authority for the account of the Exchange Fund or central banks that are repayable to a category 2 institution overnight, on demand, or on notice which expires on the first day of the LMR period 100% 4. Net due from banks of a category 2 institution to be included in its liquefiable assets referred to in rule 48(3), subject to the condition that the weighted amount must not exceed the 40% cap referred to in rule 48(7) 80% 5. Export bills— (a) payable within one month and which are either drawn under letters of credit issued by banks or accepted and payable by banks; or 90% (b) covered by irrevocable re-discounting facilities approved by the Monetary Authority 90% 6. Marketable debt securities or prescribed instruments that are— (a) issued or guaranteed by— (i) the Government, the Monetary Authority for the account of the Exchange Fund, or a domestic public sector entity, with a remaining term to maturity of— (A) not more than one year; 100% (B) more than one year; 95% (ii) an authorized institution incorporated in Hong Kong or the Hong Kong branch of an authorized institution incorporated outside Hong Kong, with a remaining term to maturity of— (A) not more than one month; 100% (B) more than one month but not more than one year; 95% (C) more than one year; 90% (b) having a qualifying ECAI rating, issued or guaranteed by the central bank or central government of a country, a multilateral development bank, or a relevant international organization, with a remaining term to maturity of— (L.N. 84 of 2019) (i) not more than one year; 100% (ii) more than one year; 95% (c) having a qualifying ECAI issue specific rating, issued or guaranteed by— (L.N. 84 of 2019) (i) a bank, other than those included in sub-item (a)(ii), with a remaining term to maturity of— (L.N. 84 of 2019) (A) not more than one month; 100% (B) more than one month but not more than one year; 95% (C) more than one year; 90% (ii) a regional government of a country or other entity, with a remaining term to maturity of— (A) not more than one year; 90% (B) more than one year but not more than 5 years; 85% (C) more than 5 years; 80% (d) not having a qualifying ECAI issue specific rating, issued or guaranteed by— (L.N. 84 of 2019) (i) a bank, other than those included in sub-item (a)(ii), if— (L.N. 84 of 2019) (A) the debt security or instrument has a remaining term to maturity of not more than one month; or 100% (B) the bank has a qualifying ECAI issuer rating; 80% (ii) a regional government of a country which has a qualifying ECAI issuer rating; 80% (e) not included elsewhere in this item, re-discountable with the Monetary Authority for the account of the Exchange Fund, or the central bank of a country that has a qualifying ECAI issuer rating (where such re-discounting arrangement is available to the category 2 institution); 80% (f) RMBS, other debt securities or instruments specifically approved for inclusion by the Monetary Authority; 80% (g) not included elsewhere in this item with a remaining term to maturity of not more than one month; (L.N. 84 of 2019) 80% (h) having an investment-grade rating, that are not covered by sub-item (a), (b), (c), (d), (e), (f) or (g) (L.N. 84 of 2019) 50% 6A. Listed ordinary shares that would fall within section 3(c) of Part 2 of Schedule 2 if the category 2 institution were a category 1 institution (L.N. 84 of 2019) 50% 7. Residential mortgage loans in respect of which there has been issued by The Hong Kong Mortgage Corporation Limited an irrevocable commitment to purchase which is approved by the Monetary Authority 90% Table B Item Deduction from liquefiable assets Liquidityconversion factor 1. Debt securities or prescribed instruments with a remaining term to maturity of not more than one month issued by a category 2 institution (other than any debt security or prescribed instrument that the Monetary Authority has approved to be 100% excluded from inclusion in this Table where the institution concerned has demonstrated to the satisfaction of the Monetary Authority that the treatment to be accorded to the debt security or instrument for the purpose of the calculation of qualifying liabilities is appropriate) Table C Item Qualifying liabilities Liquidityconversion factor 1. Total one-month liabilities of a category 2 institution to the Monetary Authority for the account of the Exchange Fund, or central banks 100% 2. If a category 2 institution’s total one-month liabilities to banks exceed the total one-month liabilities of banks to the institution, the amount of its total one-month liabilities to banks 100% 3. Other one-month liabilities 100% Table D Item Deduction from qualifying liabilities Liquidityconversion factor 1. Total one-month liabilities of the Monetary Authority for the account of the Exchange Fund, or central banks to a category 2 institution (other than the amount included in item 3 of Table A) 100% 2. If a category 2 institution’s total one-month liabilities to banks exceed the total one-month liabilities of banks to the institution, the amount of the total one-month liabilities of banks to it 100% 3. The weighted amount, if any, of a category 2 institution’s net due from banks exceeding the 40% cap referred to in rule 48(7) 100% 4. Eligible loan repayments 80% Schedule 6 [rr. 54, 57, 58, 59, 65, 68, 71, 77 & 80](L.N. 84 of 2019)(Schedule 6 added L.N. 176 of 2017)Tables Related to NSFR and CFR Table 1ASF Factors for Determination of Weighted Amounts of ASF Items(L.N. 84 of 2019) ASF item of a category 1 institution Remaining term to maturity—ASF factor Column 1 Column 2 Column 3 Column 4 Column 5 < 6 months or repayable on demand 6 months to < 12 months 12 months or more No specified term to maturity 1. Capital— (a) Tier 1 capital (before regulatory adjustments) 100% 100% 100% 100% (b) Tier 2 capital (before regulatory adjustments) 0% 50% 100% 100% (c) minority interests not covered by sub-item (a) or (b) 0% 50% 100% 100% (d) capital instruments not covered by sub-item (a), (b) or (c) 0% 50% 100% 100% 2. Debt securities or prescribed instruments issued by the institution 0% 50% 100% 100% 3. Retail deposits— (a) stable retail deposits 95% 95% 100% N/A (b) retail deposits not covered by sub-item (a) 90% 90% 100% N/A 4. Small business funding— (a) stable small business funding 95% 95% 100% N/A (b) small business funding not covered by sub-item (a) 90% 90% 100% N/A 5. Operational deposits 50% 50% 100% N/A 6. Funding (other than operational deposits) provided to the institution by— (a) corporates (other than small business customers), sovereigns, multilateral development banks, national development banks and public sector entities 50% 50% 100% N/A (b) the Monetary Authority for the account of the Exchange Fund or central banks 0% 50% 100% N/A (c) financial institutions and other entities not covered by sub-item (a) or (b) 0% 50% 100% N/A 7. Funding provided to the institution not covered by items 1 to 6 0% 50% 100% 0% 8. Deferred tax liabilities 0% 50% 100% N/A 9. Net derivative liabilities N/A N/A N/A 0% 10. Trade-date payables 0% N/A N/A N/A 11. Liabilities not covered by items 1 to 10 0% 0% 0% 0% Note— See rule 59 for the interpretation of this Table. (L.N. 84 of 2019) (L.N. 84 of 2019)Table 2RSF Factors for Determination of Weighted Amounts of RSF Items(L.N. 84 of 2019) RSF item of a category 1 institution Remaining term to maturity—RSF factor Column 1 Column 2 Column 3 Column 4 Column 5 < 6 months or repayable on demand 6 months to < 12 months 12 months or more No specified term to maturity 1. Currency notes and coins N/A N/A N/A 0% 2. Claims on the Monetary Authority for the account of the Exchange Fund or central banks— (a) funds placed with the institution’s HKD CHATS Account, or with central banks to meet reserve requirements 0% 0% 0% 0% (b) claims on the Monetary Authority for the account of the Exchange Fund or central banks not covered by sub-item (a), having a remaining term to maturity of less than 6 months or being repayable on demand 0% N/A N/A N/A (c) loans provided by the institution to the Monetary Authority for the account of the Exchange Fund or central banks, having a remaining term to maturity of 6 months or more— (i) loans that are subject to a risk-weight of 20% or less under section 55(1) of the Capital Rules (L.N. 170 of 2023) N/A 50% 65% 65% (ii) loans not covered by sub-sub-item (i) N/A 50% 85% 85% 3. Securities held by the institution (other than securities representing the institution’s claims covered by item 2(b))— (a) level 1 assets 5% 5% 5% 5% (b) level 2A assets 15% 15% 15% 15% (c) level 2B assets 50% 50% 50% 50% (d) debt securities not covered by sub-item (a), (b) or (c) 50% 50% 85% 85% (e) listed equities not covered by sub-item (c) (L.N. 84 of 2019) N/A N/A N/A 85% 4. Physical traded commodities held by the institution N/A N/A N/A 85% 5. Operational deposits placed by the institution at other financial institutions 50% 50% 100% 100% 6. Loans and funds (other than operational deposits) provided by the institution to other financial institutions— (a) loans and funds secured by level 1 assets 10% 50% 100% 100% (b) loans and funds not covered by sub-item (a) 15% 50% 100% 100% 7. Loans and funds provided by the institution to retail customers and wholesale customers (other than the Monetary Authority for the account of the Exchange Fund, central banks and financial institutions)— (a) loans and funds that are subject to a risk-weight of 35% or less under Division 3 of Part 4 of the Capital Rules 50% 50% 65% 65% (b) loans and funds not covered by sub-item (a) 50% 50% 85% 85% 8. Assets posted by the institution as initial margins or default fund contributions— (a) assets that would have been subject to an RSF factor of 100% had it not been posted by the institution 100% 100% 100% 100% (b) assets not covered by sub-item (a) 85% 85% 85% 85% 9. Net derivative assets N/A N/A N/A 100% 10. Trade-date receivables 0% N/A N/A N/A 11. Assets not covered by items 1 to 10— (a) fixed assets, investments in associated entities and other unlisted equities, goodwill and other intangible assets, assets of any defined benefit pension fund or plan, investments in own capital instruments (if not derecognized under applicable accounting standards), insurance assets, retained interests, non-performing assets, and other assets that do not have specified terms to maturity 100% 100% 100% 100% (b) other assets that have specified terms to maturity 50% 50% 100% N/A 12. Off-balance sheet obligations arising from— (a) potential drawdown of undrawn committed facilities 5% 5% 5% 5% (b) potential drawdown of uncommitted facilities 0% 0% 0% 0% (c) trade-related contingencies 0% 0% 0% 0% (d) guarantees and letters of credit unrelated to trade-related contingencies 0% 0% 0% 0% 13. Total derivative liabilities (before adjustments) (L.N. 84 of 2019) N/A N/A N/A 5% Note— See rule 59 for the interpretation of this Table. (L.N. 84 of 2019) (L.N. 84 of 2019)Table 3ACF Factors for Determination of Weighted Amounts of ACF Items(L.N. 84 of 2019) ACF item of a category 2A institution Remaining term to maturity—ACF factor Column 1 Column 2 Column 3 Column 4 Column 5 < 6 months or repayable on demand 6 months to < 12 months 12 months or more No specified term to maturity 1. Capital— (a) Tier 1 capital (before regulatory adjustments) 100% 100% 100% 100% (b) Tier 2 capital (before regulatory adjustments) 0% 50% 100% 100% (c) minority interests not covered by sub-item (a) or (b) 0% 50% 100% 100% (d) capital instruments not covered by sub-item (a), (b) or (c) 0% 50% 100% 100% 2. Debt securities or prescribed instruments issued by the institution 0% 50% 100% 100% 3. Deposits 80% 90% 100% N/A 4. Funding provided to the institution not covered by item 1, 2 or 3 0% 50% 100% 0% 5. Deferred tax liabilities 0% 50% 100% N/A 6. Net derivative liabilities N/A N/A N/A 0% 7. Trade-date payables 0% N/A N/A N/A 8. Liabilities not covered by items 1 to 7 0% 0% 0% 0% (L.N. 84 of 2019)Table 4RCF Factors for Determination of Weighted Amounts of RCF Items(L.N. 84 of 2019) RCF item of a category 2A institution Remaining term to maturity—RCF factor Column 1 Column 2 Column 3 Column 4 Column 5 < 6 months or repayable on demand 6 months to < 12 months 12 months or more No specified term to maturity 1. Currency notes and coins N/A N/A N/A 0% 2. Gold bullion N/A N/A N/A 0% 3. Claims on, or reserves maintained with, the Monetary Authority for the account of the Exchange Fund or central banks 0% 0% 0% 0% 4. Export bills 0% 50% 100% N/A 5. Securities or prescribed instruments held by the institution— (a) securities or prescribed instruments mentioned in item 6 of Table A in section 2 of Schedule 5 0% 0% 0% 0% (ab) listed ordinary shares that would fall within section 3(c) of Part 2 of Schedule 2 if the category 2A institution were a category 1 institution (L.N. 84 of 2019) 0% 0% 0% 0% (b) securities or prescribed instruments not covered by sub-item (a) or (ab) (L.N. 84 of 2019) 0% 50% 100% 100% 6. Loans and funds provided by the institution to banks 0% 50% 100% 100% 7. Loans and funds provided by the institution to customers (other than the Monetary Authority for the account of the Exchange Fund, central banks and banks)— (a) residential mortgage loans mentioned in item 7 of Table A in section 2 of Schedule 5 0% 0% 0% N/A (b) loans and funds provided to customers not covered by sub-item (a) 0% 50% 100% 100% 8. Net derivative assets N/A N/A N/A 100% 9. Trade-date receivables 0% N/A N/A N/A 10. Assets not covered by items 1 to 9— (a) fixed assets, investments in associated entities and other unlisted equities, goodwill and other intangible assets, assets of any defined benefit pension fund or plan, investments in own capital instruments (if not derecognized under applicable accounting standards), insurance assets, retained interests, non-performing assets, and other assets that do not have specified terms to maturity 100% 100% 100% 100% (b) other assets that have specified terms to maturity 0% 50% 100% N/A 11. Off-balance sheet obligations arising from— (a) potential drawdown of undrawn committed facilities 5% 5% 5% 5% (b) potential drawdown of uncommitted facilities 0% 0% 0% 0% (c) trade-related contingencies 0% 0% 0% 0% (d) guarantees and letters of credit unrelated to trade-related contingencies 0% 0% 0% 0% 12. Total derivative liabilities (before adjustments) (L.N. 84 of 2019) N/A N/A N/A 5% Note— See rule 54 for the interpretation of this Schedule. (L.N. 84 of 2019) (L.N. 84 of 2019) Schedule 7 [r. 59](Schedule 7 added L.N. 176 of 2017)Specified National Development Banks