Banking Liquidity Rules (HKMA)

Chapter: 155Q Banking (Liquidity) Rules Gazette Number Version Date
Empowering section E.R. 1 of 2015 29/01/2015
(Cap 155, section 97H)

(Enacting provision omitted—E.R. 1 of 2015)
[1 January 2015]
(Originally L.N. 129 of 2014)
Part: 1 Preliminary L.N. 129 of 2014 01/01/2015
Rule: 1 (Omitted as spent—E.R. 1 of 2015) E.R. 1 of 2015 29/01/2015
Rule: 2 Interpretation L.N. 129 of 2014 01/01/2015
(1) In these Rules—

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;
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;
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);
consolidated basis (綜合基礎), in relation to the calculation by an authorized institution incorporated in Hong Kong
of its LCR or LMR, means the basis set out in rule 11(1);
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);
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;
Cap 155Q - Banking (Liquidity) Rules 1

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 157A(3) of the Capital Rules;
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 or
LMR, means the basis set out in rule 10(1)(a);
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 specified in section 1 of Part 2 of Schedule 2;
level 2A assets (2A級資產) means any assets specified in section 2 of Part 2 of Schedule 2;
level 2B assets (2B級資產) means any assets specified in section 3 of Part 2 of Schedule 2;
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;
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;
relevant liquidity event (流動性相關事件) has the meaning given by rule 14(3);
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;
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;
unconsolidated basis (非綜合基礎), in relation to the calculation by an authorized institution incorporated in Hong
Kong of its LCR or LMR, means the basis set out in rule 10(1)(b).
(2) In these Rules, an expression specified below has the same meaning as it has in section 2(1) of the Capital Rules
—
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)
incorporated (成立為法團)
long-term ECAI issue specific rating (長期ECAI特定債項評級)
OTC derivative transaction (場外衍生工具交易)
public sector entity (公營單位)
relevant international organization (有關國際組織)
repo-style transaction (回購形式交易)
residential mortgage loan (住宅按揭貸款)

short-term ECAI issue specific rating (短期ECAI特定債項評級)
(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 table or formula followed by a number (including an alphanumeric number) is a
reference to the table or formula in these Rules bearing that number.
(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.
Rule: 3 Designation of category 1 institution L.N. 129 of 2014 01/01/2015
(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—
(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.

Part: 2 Minimum LCR, Notifiable Matters Concerning LCR and L.N. 129 of 2014 01/01/2015
Monetization of HQLA in Certain Financial
Circumstances: for Category 1 Institution
Rule: 4 Minimum LCR applicable to category 1 institution L.N. 129 of 2014 01/01/2015
(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.
Rule: 5 Category 1 institution must notify Monetary Authority of L.N. 129 of 2014 01/01/2015
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.
Rule: 6 Monetization of HQLA in certain financial circumstances L.N. 129 of 2014 01/01/2015
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: L.N. 129 of 2014 01/01/2015
for Category 2 Institution
Rule: 7 Minimum LMR applicable to category 2 institution L.N. 129 of 2014 01/01/2015
A category 2 institution must maintain an LMR of not less than 25% on average in each calendar month.
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—
(2) To avoid doubt, subrule (1) does not apply in the case of a relevant liquidity event.
Part: 4 Valuation of Assets, etc., at Fair Value and Bases of L.N. 129 of 2014 01/01/2015
Calculation for Purposes of LCR and LMR
Rule: 9 Valuation of assets, liabilities, off-balance sheet items and L.N. 129 of 2014 01/01/2015
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 or LMR, 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.
(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.
Rule: 10 Calculation of LCR or LMR on Hong Kong office basis L.N. 129 of 2014 01/01/2015
and unconsolidated basis, etc.
(1) An authorized institution must calculate its LCR or LMR—

(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 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).
(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 or LMR on an unconsolidated basis as set out in subrule (1)(b).
(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 or LMR 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
(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.
Rule: 11 Calculation of LCR or LMR of authorized institution L.N. 129 of 2014 01/01/2015
incorporated in Hong Kong on consolidated basis
(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 or LMR 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).
(2) The requirement takes effect—
(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 or LMR on a consolidated basis as
set out in subrule (1).
(6) On the application under subrule (5), the Monetary Authority may, by notice in writing to the institution,
(a) granting approval to the institution to exclude the business of a specified associated entity of the institution
from the calculation of its LCR or LMR 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
(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—
(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.
(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.
Rule: 12 Calculation of LCR or LMR of authorized institution L.N. 129 of 2014 01/01/2015
incorporated in Hong Kong on basis other than those
under rules 10 and 11
(1) Where an authorized institution is 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 or LMR 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.
(2) The requirement takes effect—
(3) An authorized institution must comply with the requirements of a notice given to it under subrule (1).
Part: 5 Reporting Requirements L.N. 129 of 2014 01/01/2015
Rule: 13 Authorized institution must notify Monetary Authority of L.N. 129 of 2014 01/01/2015
certain matters concerning its associated entities
(1) An authorized institution that calculates its LCR or LMR 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.
(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)).
Rule: 14 Prescribed notification requirements for purposes of L.N. 129 of 2014 01/01/2015
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) or (iv), or paragraph (b), 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—
(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; or
(iv) (if the institution is a rule 37 institution as defined by rule 36) that the institution fails to comply with
rule 37(d); or
(b) for a category 2 institution, means that the institution fails to comply with rule 7.
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—
(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 L.N. 129 of 2014 01/01/2015
Notified of Certain Relevant Liquidity Event

Rule: 16 Conditions that Monetary Authority may impose on L.N. 129 of 2014 01/01/2015
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—
(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—
(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 L.N. 129 of 2014 01/01/2015
Part: 7 General L.N. 129 of 2014 01/01/2015

Division: 1
Rule: 17 Interpretation of Part 7 L.N. 129 of 2014 01/01/2015
In this Part—
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.
Rule: 18 Assets, etc., must not be double counted in calculation of L.N. 129 of 2014 01/01/2015
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.
Rule: 19 Calculation of LCR on Hong Kong office basis L.N. 129 of 2014 01/01/2015
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.
Rule: 20 Calculation of LCR on unconsolidated basis L.N. 129 of 2014 01/01/2015
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.
Rule: 21 Calculation of LCR on consolidated basis L.N. 129 of 2014 01/01/2015
(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.
Rule: 22 Calculation of LCR on unconsolidated or consolidated L.N. 129 of 2014 01/01/2015

basis, etc. when there are different liquidity requirements
between Hong Kong and host countries
(1) Where—
(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) there are imposed by the relevant banking supervisory authority in the host country any liquidity
requirements for the equivalent of an LCR and applicable to the deposits and funding concerned; 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 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) there are not imposed by the relevant banking supervisory authority in the host country any liquidity

requirements as mentioned in subrule (2); or
(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 or apply those liquidity requirements to the
institution,
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 as mentioned in paragraph (a),
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) Where 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.
Rule: 23 Treatment of liquidity transfer restrictions in calculation L.N. 129 of 2014 01/01/2015
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.

Rule: 24 Treatment of liquidity transfer restrictions in calculation L.N. 129 of 2014 01/01/2015
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.
Part: 7 Requirements that Asset, etc., must Satisfy before it can be L.N. 129 of 2014 01/01/2015
Division: 2 Included in HQLA for Purposes of Calculation of LCR
Rule: 25 Requirements that must be satisfied before asset can be L.N. 129 of 2014 01/01/2015
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.
Rule: 26 Exclusion of non-qualifying asset from HQLA L.N. 129 of 2014 01/01/2015
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.
Rule: 27 Management of HQLA and related foreign exchange risk L.N. 129 of 2014 01/01/2015
(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.
Rule: 28 HQLA must have diversification of classes of assets, etc. L.N. 129 of 2014 01/01/2015
(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 the country in which the institution is
incorporated;
(e) qualifying debt securities issued by the sovereign or central bank of any country in which the institution
operates.
Rule: 29 General exclusion of assets from HQLA, etc. L.N. 129 of 2014 01/01/2015
(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).
Rule: 30 Specific exclusion of assets from HQLA, etc. L.N. 129 of 2014 01/01/2015
(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).
Rule: 31 Provisions supplementary to rule 25 L.N. 129 of 2014 01/01/2015
(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
(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
Part: 7 Determination of HQLA: General L.N. 129 of 2014 01/01/2015

Division: 3
Rule: 32 General requirements applicable to determination of L.N. 129 of 2014 01/01/2015

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).
Rule: 33 Calculation of total weighted amount of HQLA (without L.N. 129 of 2014 01/01/2015
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 = total weighted

HQLA 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% = max (level 2B assets
ceiling – 15/85* (level 1
assets + level 2A
assets), level 2B
assets – 15/60*
level 1 assets, 0);
adjustment for 40% = max ((level 2A assets
ceiling + 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
35(1)(b); and
level 2B assets = total weighted
amount of level 2B
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.
Rule: 34 Calculation of total weighted amount of HQLA (if there is L.N. 129 of 2014 01/01/2015
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
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
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.
Rule: 35 Haircuts L.N. 129 of 2014 01/01/2015
(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 under the asset class of level 1 assets, calculated by
multiplying together—
(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 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 1 under the asset class of level 2A assets,

calculated by multiplying together—
(ii) the post-haircut factor specified in column 2 of Table 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 1 under the asset class of level 2B assets,
calculated by multiplying together—
(ii) the post-haircut factor specified in column 2 of Table 1 in relation to each of those asset subclasses.
Table 1
Post-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 referred to in section 1(c) of Part 2 of 100%
Schedule 2
(d) marketable debt securities referred to in section 1(d) of Part 2 of 100%
Schedule 2
(e) marketable debt securities referred to in section 1(e) of Part 2 of 100%
Schedule 2
2. Level 2A assets
(a) marketable debt securities referred to in section 2(a) of Part 2 of 85%
Schedule 2
(b) marketable debt securities referred to in section 2(b) of Part 2 of 85%
Schedule 2
(c) covered bonds referred to in section 2(c) of Part 2 of Schedule 2 85%
3. Level 2B assets
(a) marketable debt securities referred to in section 3(a) of Part 2 of 50%
Schedule 2
(b) approved RMBS 75%
(2) Subject to subrule (3), the principal amount of assets that fall within each of the asset subclasses listed in Table 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 1 is the book value of the assets concerned (including any accrued interest
in the case of withdrawable central bank reserves).
Part: 7 Determination of HQLA: Requirements Applicable to L.N. 129 of 2014 01/01/2015

Division: 4 Category 1 Institutions that Use Foreign Currency-
denominated HQLA to Cover HKD LCR Mismatch
Rule: 36 Interpretation of Division 4 L.N. 129 of 2014 01/01/2015
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.
Rule: 37 Circumstances and requirements under which category 1 L.N. 129 of 2014 01/01/2015
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.
Rule: 38 Application of foreign exchange haircuts L.N. 129 of 2014 01/01/2015
(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 as applicable to those assets.
Table 2
Foreign Exchange Haircuts
Type of foreign currency Foreign exchange haircut

Level 1 assets denominated in US dollars 2%

Level 1 assets denominated in Euro, Japanese 8%
yen or pound sterling
Level 1 assets denominated in any other foreign 10%
currency that is freely convertible into Hong
Kong dollars
(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.
Part: 7 Calculation of Total Net Cash Outflows L.N. 129 of 2014 01/01/2015
Division: 5
Rule: 39 Interpretation of Division 5 L.N. 129 of 2014 01/01/2015
In this Division—
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;
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 facility (有承諾融通), in relation to a category 1 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;
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 that the asset
or exposure is not past due and has not been rescheduled;
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;
rescheduled (重組) has the meaning given by section 51(1) of the Capital Rules;
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 and that is payable on demand, or has a remaining term to maturity (or a
withdrawal notice period) within the LCR period, where—
(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);
trade-related contingency (貿易關聯或有項目) has the meaning given by section 2(1) of the Capital Rules;
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;
uncommitted facility (無承諾融通), in relation to a category 1 institution, means a facility granted by the institution

to its customer that—
(a) is for extending credit or providing liquidity to the customer; and
(b) is unconditionally revocable by the institution without prior notice to the customer;
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.
Rule: 40 Calculation of total net cash outflows L.N. 129 of 2014 01/01/2015
(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).
Rule: 41 Calculation of total expected cash outflows L.N. 129 of 2014 01/01/2015
(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 to those types of liabilities or
obligations.
Table 3
Outflow Rates for Calculation of Total Expected Cash Outflows Arising from On-balance Sheet
Liabilities or Off-balance Sheet Obligations Referred to in Rule 41(10)
Type of on-balance sheet liability or

Paragraph under rule 41(1) off-balance sheet obligation Outflow rate
Paragraph (b) Less stable retail deposits 10%
(subject to subrule (13))
Paragraph (c) Retail term deposits 5%
Paragraph (h) Debt securities and prescribed 100%
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)
Paragraph (o) Other contingent funding obligations
—
(a) trade-related contingencies; 3%
(b) guarantees and letters of credit 10%
unrelated to trade-related
contingencies;
(c) uncommitted facilities; 0%
(d) non-contractual contingent 100%
funding obligations arising
from—
(i) debt securities or
structured financial
instruments, in respect
of which a category 1
institution (or its
associated entity) 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 its

associated entity); 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
(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 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
(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.
Rule: 42 Calculation of total expected cash inflows L.N. 129 of 2014 01/01/2015
(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 to those types of cash
inflows.
Table 4
Inflow Rates for Calculation of Expected Cash Inflow

Applicable to Other Contractual Cash Inflows under Rule
42(2)(h)
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
50%
development banks, wholesale customers
(excluding small business customers), or any
other persons not falling within paragraph (a) or
(b)
(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 L.N. 129 of 2014 01/01/2015
Part: 8 General L.N. 129 of 2014 01/01/2015

Division: 1

Rule: 43 Interpretation of Part 8 L.N. 129 of 2014 01/01/2015
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.
Rule: 44 Assets, etc., must not be double counted in calculation of L.N. 129 of 2014 01/01/2015
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.
Rule: 45 Calculation of LMR on Hong Kong office basis L.N. 129 of 2014 01/01/2015
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.
Rule: 46 Calculation of LMR on unconsolidated basis L.N. 129 of 2014 01/01/2015
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.
Rule: 47 Calculation of LMR on consolidated basis L.N. 129 of 2014 01/01/2015
(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.
Part: 8 Calculation of Average LMR, Liquefiable Assets, L.N. 129 of 2014 01/01/2015
Division: 2 Qualifying Liabilities, etc.
Rule: 48 Calculation of average LMR in each calendar month L.N. 129 of 2014 01/01/2015
(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 that is gold bullion or a marketable debt security or prescribed instrument specified 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
(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.
Rule: 49 Requirements that must be satisfied before asset can be L.N. 129 of 2014 01/01/2015
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;
(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,
(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—
Rule: 50 Management of liquefiable assets and related risks by L.N. 129 of 2014 01/01/2015
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.
Rule: 51 General exclusion of assets from liquefiable assets, etc. L.N. 129 of 2014 01/01/2015
(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).
Rule: 52 Specific exclusion of assets from liquefiable assets, etc. L.N. 129 of 2014 01/01/2015
(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).
Rule: 53 Calculation of net weighted amount of qualifying liabilities L.N. 129 of 2014 01/01/2015
(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.
Schedule: 1 Grounds for Designating Authorized Institution as L.N. 129 of 2014 01/01/2015
Category 1 Institution and Exceptions to those Grounds
[rules 3 & 15]
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 Classes of Assets which may be Included in HQLA for L.N. 129 of 2014 01/01/2015
Calculating LCR and Qualifying Criteria Applicable to
those Classes
[rules 2, 17, 25 & 35]
Part 1
Interpretation of Schedule 2
1. Interpretation of Schedule 2
In this Schedule—
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;
credit risk (信用風險) has the meaning given by section 2(1) of the Capital Rules;
haircut (扣減) has the meaning given by rule 17;
IRB approach (IRB計算法) has the meaning given by section 2(1) of the Capital Rules;
local currency (本地貨幣) has the meaning given by section 2(1) of the Capital Rules;
probability of default (違責或然率) has the meaning given by section 139(1) of the Capital Rules;
standardized (credit risk) approach (標準(信用風險)計算法) has the meaning given by section 2(1) of the
Capital Rules;
withdrawable central bank reserves (可提取央行儲備) has the meaning given by rule 17.
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(2) of the Capital Rules; or
(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(2) of the Capital Rules.
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 corporates; and
(b) subject to sections 8 and 9 of Part 3 of this Schedule, RMBS.
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(2) 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(2)(b) of the Capital Rules in any case where the debt security is issued or
guaranteed by a public sector entity;
(iii) under section 56(4) 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 of the Capital Rules in any case where the debt security is issued or guaranteed
by a multilateral development bank;
(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 (except
that the debt security is issued by a bank which is a public sector entity).
(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 issued by the sovereign or central bank of a country does not fall within section
1(d) of Part 2 of this Schedule, unless the category 1 institution holding the debt security is incorporated in
that country or carries on a banking business, through a branch or subsidiary, in that country.
(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 the sovereign or central bank of a country in which the category 1 institution holding the
debt security is incorporated or carries on a banking business through a branch or subsidiary; and
(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.
(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(2) of the Capital Rules in any case where the
debt security is issued or guaranteed by a sovereign or central bank; and
(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
(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 (except
that the debt security is issued by a bank which is a public sector entity).
(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 India, it has
an ECAI issue specific rating that, if mapped to the scale of credit quality grades in Part 1 of Table C
(for a long-term ECAI issue specific rating) or Part 1 of Table E (for a short-term ECAI issue specific
rating) in Schedule 6 to the Capital Rules, would result in the debt security being assigned a credit
quality grade of 1;
(b) subject to subsection (2), if the debt security is issued by a corporate incorporated in India, it has an
ECAI issue specific rating that, if mapped to the scale of credit quality grades in Table C (for a long-
term ECAI issue specific rating) or Table E (for short-term ECAI issue specific rating) in Schedule 6
to the Capital Rules, would result in the debt security being assigned a credit quality grade of 1;
(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, 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);
(d) it is traded in large, deep and active markets, characterized by a low level of concentration, and where
(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 69(2) of the
Capital Rules to determine the ECAI issue specific rating of the debt security.
(3) A marketable debt security, for meeting the criterion specified in subsection (1)(e), must not have
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, if mapped to the scale of credit
quality grades in Table B (for a long-term ECAI issue specific rating) or Part 1 of Table E (for a short-
term ECAI issue specific rating) in Schedule 6 to the Capital Rules, would result in the covered bond
being assigned a credit quality grade of 1;
(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
grade required under paragraph (b);
covered bonds of that type can be monetized through direct sale or repo-style transactions; and
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 69(2) of the Capital Rules to
determine the ECAI issue specific rating of the covered bond.
(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 India, it has
an ECAI issue specific rating that, if mapped to the scale of credit quality grades in Part 1 of Table C
(for a long-term ECAI issue specific rating) or Part 1 of Table E (for a short-term ECAI issue specific
rating) in Schedule 6 to the Capital Rules, would result in the debt security being assigned a credit
quality grade of 2;
(b) subject to subsection (2), if the debt security is issued by a corporate incorporated in India, it has an
ECAI issue specific rating that—
(i) if mapped to the scale of credit quality grades in Part 1 of Table C (for a long-term ECAI issue
specific rating) or Part 1 of Table E (for a short-term ECAI issue specific rating) in Schedule 6 to
the Capital Rules, would result in the debt security being assigned a credit quality grade of 2; and
(ii) if mapped to the scale of credit quality grades in Part 2 of Table C (for a long-term ECAI issue
specific rating) or Part 2 of Table E (for a short-term ECAI issue specific rating) in Schedule 6 to
the Capital Rules, would result in the debt security being assigned a credit quality grade of 2 or
3;
(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
grade required under paragraph (a) or (b);
(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 69(2) of the
Capital Rules to determine the ECAI issue specific rating of the debt security.
(3) A marketable debt security, for meeting the criterion specified in subsection (1)(e), must not have
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 India, it has a long-term ECAI issue specific rating that, if mapped to
the scale of credit quality grades in Table B or Part 1 of Table C, as the case requires, in Schedule 6 to
the Capital Rules, would result in the RMBS being assigned a credit quality grade of 1;
(d) subject to paragraph (e) and subsection (2), if the RMBS is issued by a public sector entity, financial
institution or corporate incorporated in India, it has a long-term ECAI issue specific rating that, if
mapped to the scale of credit quality grades in Table B or Table C, as the case requires, in Schedule 6
to the Capital Rules, would result in the RMBS being assigned a credit quality grade of 1;
(e) it does not have any of the following ECAI issue specific ratings in the case of Table B or Part 1 of

Table C, as the case requires, in Schedule 6 to the Capital Rules—
(i) Standard & Poor’s Ratings Services AA-;
(ii) Moody’s Investors Service Aa3;
(iii) Fitch Ratings AA-;
(iv) Rating and Investment Information, Inc. AA-;
(v) Japan Credit Rating Agency, Ltd. AA-;
(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
(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 69(2) of the Capital Rules to determine the
ECAI issue specific rating of the RMBS.
(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—

Schedule: 3 Characteristic Requirements that Asset must Satisfy L.N. 129 of 2014 01/01/2015
before it can be Included in HQLA for Purposes of
Calculation of LCR
[rule 25]
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;
recognized exchange (認可交易所) has the meaning given by section 2(1) of the Capital Rules;
specific wrong-way risk (特定錯向風險) has the meaning given by section 226A of the Capital Rules.
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 Operational Requirements that Category 1 Institution and L.N. 129 of 2014 01/01/2015
Asset must Satisfy before Asset can be Included in HQLA
for Purposes of Calculation of LCR
[rules 25 & 26]
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: 5 Liquidity Conversion Factors Applicable to Assets and L.N. 129 of 2014 01/01/2015
Liabilities in Calculation of LMR
[rules 48 & 49]
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);
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), in relation to a marketable debt security
or prescribed instrument, means—
(a) the ECAI issue specific rating of the debt security or instrument that—
(i) if mapped to the scale of credit quality grades in Table A, Table B or Part 1 of Table C (in the
case of a long-term ECAI issue specific rating) in Schedule 6 to the Capital Rules, would result
in the debt security or instrument being assigned a credit quality grade of 1 or 2; or
(ii) if mapped to the scale of credit quality grades in Part 1 of Table E (in the case of a short-term
ECAI issue specific rating) in Schedule 6 to the Capital Rules, would result in the debt security
or instrument being assigned a credit quality grade of 1 or 2; or
(b) without limiting paragraph (a), if the debt security or instrument is issued by a corporate incorporated
in India, the ECAI issue specific rating of the debt security or instrument that—
(i) if mapped to the scale of credit quality grades in Part 2 of Table C (in the case of a long-term
or instrument being assigned a credit quality grade of 1, 2 or 3; or
(ii) if mapped to the scale of credit quality grades in Part 2 of Table E (in the case of a short-term
or instrument being assigned a credit quality grade of 1, 2 or 3;
qualifying ECAI issuer rating ( 合資格ECAI 發債人評級 ), in relation to the issuer or guarantor of a
marketable debt security or prescribed instrument, means—
(a) the ECAI issuer rating of the issuer or guarantor that, if mapped to the scale of credit quality grades in
Table A, Table B or Part 1 of Table C in Schedule 6 to the Capital Rules, would result in the debt
security or instrument being assigned a credit quality grade of 1 or 2; or
(b) without limiting paragraph (a), if the issuer or guarantor of the debt security or instrument is a
corporate incorporated in India, the ECAI issuer rating of the issuer or guarantor that, if mapped to the
scale of credit quality grades in Part 2 of Table C in Schedule 6 to the Capital Rules, would result in
the debt security or instrument being assigned a credit quality grade of 1, 2 or 3;
qualifying ECAI rating (合資格ECAI評級), in relation to a marketable debt security or prescribed instrument,
means—
(a) a qualifying ECAI issue specific rating assigned to the debt security or instrument; or
(b) a qualifying ECAI issuer rating assigned to the issuer or the guarantor of the debt security or
instrument.
2. Tables
Table A
Liquidity conversion
Item Liquefiable assets 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 100%

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
4. Net due from banks of a category 2 institution to be included in its liquefiable 80%
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)
5. Export bills—
(a) payable within one month and which are either drawn under letters of 90%
credit issued by banks or accepted and payable by banks; or
(b) covered by irrevocable re-discounting facilities approved by the 90%
Monetary Authority
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) issued or guaranteed by the central bank or central government of a
country, a multilateral development bank, or a relevant international
organization, where the debt security or instrument, or its issuer or
guarantor, has a qualifying ECAI rating, with a remaining term to
maturity of—
(i) not more than one year; 100%
(ii) more than one year; 95%
(c) with a qualifying ECAI issue specific rating, issued or guaranteed by
—
(i) a bank, other than those included in paragraph (a)(ii), with a
(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
(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) without a qualifying ECAI issue specific rating, issued or guaranteed
by—
(i) a bank, other than those included in paragraph (a)(ii), if—
(A) the debt security or instrument has a remaining term to 100%
maturity of not more than one month; or
(B) the bank has a qualifying ECAI issuer rating; 80%
(ii) a regional government of a country which has a qualifying ECAI 80%
issuer rating;

(e) not included elsewhere in this item, re-discountable with the 80%
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);
(f) RMBS, other debt securities or instruments specifically approved for 80%
inclusion by the Monetary Authority;
(g) not included elsewhere in this item with a remaining term to maturity 80%
of not more than one month
7. Residential mortgage loans in respect of which there has been issued by The Hong 90%
Kong Mortgage Corporation Limited an irrevocable commitment to purchase
which is approved by the Monetary Authority
Table B
Item Deduction from liquefiable assets factor
1. Debt securities or prescribed instruments with a remaining term to maturity of not 100%
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
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 factor
1. Total one-month liabilities of a category 2 institution to the Monetary Authority 100%
for the account of the Exchange Fund, or central banks
2. If a category 2 institution’s total one-month liabilities to banks exceed the total 100%
one-month liabilities of banks to the institution, the amount of its total one-month
liabilities to banks
3. Other one-month liabilities 100%
Table D
Item Deduction from qualifying liabilities factor
1. Total one-month liabilities of the Monetary Authority for the account of the 100%
Exchange Fund, or central banks to a category 2 institution (other than the amount
included in item 3 of Table A)
2. If a category 2 institution’s total one-month liabilities to banks exceed the total 100%
one-month liabilities of banks to the institution, the amount of the total one-month
liabilities of banks to it
3. The weighted amount, if any, of a category 2 institution’s net due from banks 100%
exceeding the 40% cap referred to in rule 48(7)
4. Eligible loan repayments 80%

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Chapter: 155Q Banking (Liquidity) Rules Gazette Number Version Date

Empowering section E.R. 1 of 2015 29/01/2015

(Cap 155, section 97H)

(Originally L.N. 129 of 2014)

Part: 1 Preliminary L.N. 129 of 2014 01/01/2015

Rule: 1 (Omitted as spent—E.R. 1 of 2015) E.R. 1 of 2015 29/01/2015

Rule: 2 Interpretation L.N. 129 of 2014 01/01/2015

(1) In these Rules—

Cap 155Q - Banking (Liquidity) Rules 1

Cap 155Q - Banking (Liquidity) Rules 2

Cap 155Q - Banking (Liquidity) Rules 3

Rule: 3 Designation of category 1 institution L.N. 129 of 2014 01/01/2015

Cap 155Q - Banking (Liquidity) Rules 4

Cap 155Q - Banking (Liquidity) Rules 5

(1) An authorized institution must calculate its LCR or LMR—

Cap 155Q - Banking (Liquidity) Rules 6

Cap 155Q - Banking (Liquidity) Rules 7

Part: 5 Reporting Requirements L.N. 129 of 2014 01/01/2015

Cap 155Q - Banking (Liquidity) Rules 8

Cap 155Q - Banking (Liquidity) Rules 9

Part: 7 Calculation of LCR L.N. 129 of 2014 01/01/2015

Part: 7 General L.N. 129 of 2014 01/01/2015

Rule: 17 Interpretation of Part 7 L.N. 129 of 2014 01/01/2015

Cap 155Q - Banking (Liquidity) Rules 10

Cap 155Q - Banking (Liquidity) Rules 11

Rule: 20 Calculation of LCR on unconsolidated basis L.N. 129 of 2014 01/01/2015

Rule: 21 Calculation of LCR on consolidated basis L.N. 129 of 2014 01/01/2015

Rule: 22 Calculation of LCR on unconsolidated or consolidated L.N. 129 of 2014 01/01/2015

Cap 155Q - Banking (Liquidity) Rules 12

Cap 155Q - Banking (Liquidity) Rules 13

Rule 23 applies, with all necessary modifications—

Cap 155Q - Banking (Liquidity) Rules 14

(1) A category 1 institution must—

Rule: 31 Provisions supplementary to rule 25 L.N. 129 of 2014 01/01/2015

Cap 155Q - Banking (Liquidity) Rules 15

Part: 7 Determination of HQLA: General L.N. 129 of 2014 01/01/2015

Rule: 32 General requirements applicable to determination of L.N. 129 of 2014 01/01/2015

Calculation of Total Weighted Amount of HQLA

Total weighted amount of = total weighted

Cap 155Q - Banking (Liquidity) Rules 16

(1) Subrule (2) applies to a category 1 institution if—

Cap 155Q - Banking (Liquidity) Rules 17

Rule: 35 Haircuts L.N. 129 of 2014 01/01/2015

(1) Subject to rule 38, for the purposes of rule 32—

Cap 155Q - Banking (Liquidity) Rules 18

Part: 7 Determination of HQLA: Requirements Applicable to L.N. 129 of 2014 01/01/2015

Rule: 36 Interpretation of Division 4 L.N. 129 of 2014 01/01/2015

Cap 155Q - Banking (Liquidity) Rules 19

Rule: 38 Application of foreign exchange haircuts L.N. 129 of 2014 01/01/2015

Foreign Exchange Haircuts

Type of foreign currency Foreign exchange haircut

Cap 155Q - Banking (Liquidity) Rules 20

Rule: 39 Interpretation of Division 5 L.N. 129 of 2014 01/01/2015

Cap 155Q - Banking (Liquidity) Rules 21

Cap 155Q - Banking (Liquidity) Rules 22

Cap 155Q - Banking (Liquidity) Rules 23

Cap 155Q - Banking (Liquidity) Rules 24

Cap 155Q - Banking (Liquidity) Rules 25

Cap 155Q - Banking (Liquidity) Rules 26