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Investor identification and OTC securities reporting

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  4. B. FAQs on Relevant Clients

B. FAQs on Relevant Clients

Q1 :

We are an RRI and our overseas affiliates route their clients’ securities orders to us for execution on SEHK’s trading system. Are the clients of our overseas affiliates “Relevant Clients” under the HKIDR and therefore BCAN is required to be tagged to those orders? 

A:

The term “Relevant Clients” generally refers to a party which has placed or proposes to place a securities order through a securities trading account with an RRI. Where an order is routed through an intermediating chain of brokers, “Relevant Client” is the first person in the chain who is not an RRI. Generally, the “Relevant Clients” in this case are the overseas affiliates of the RRIs instead of the clients of the overseas affiliates. Hence BCAN should be assigned to the overseas affiliates by the RRI and should be tagged to the orders placed by the overseas affiliates. The CID of the overseas affiliates (but not the CID of the clients of the overseas affiliates) should be collected and included in the BCAN-CID Mapping File. For details, please refer to paragraphs 51-58 of and Appendix B to the Consultation Conclusions. 

Q2 : In a trade give-up arrangement in which a fund manager places an order through its securities trading account maintained with an RRI and at the same time enters into arrangements with its prime broker(s) to take up the position and issue a swap to the fund upon completion of the trade order, who is the “Relevant Client” of the RRI, the fund manager or the prime broker? If the fund manager is the “Relevant Client” and the order is tagged with the BCAN of the fund manager, is there any need to amend the BCAN to that of the prime broker upon completion of the trade order? 

A: The HKIDR applies to the trading level for the securities market in Hong Kong but not to the settlement level. There is no requirement to assign BCANs to the beneficial owners of an executed trade if they are not the “Relevant Clients” of the RRI. In this case, the fund manager is the “Relevant Client” of the RRI and the fund manager’s BCAN should be tagged to its order placed with the RRI. The BCAN tagged to the order should not be changed throughout the trade execution, even though the executed trade is subsequently given up to a prime broker.

Q3 : We are the Hong Kong branch of a global financial institution, which is an RRI providing securities brokerage services for our overseas branches and overseas head office. The clients of our overseas branches/overseas head office place orders with the overseas branches/overseas head office, which route the order to the Hong Kong branch for execution on SEHK’s trading system. As the overseas branches and overseas head office do not have a separate legal entity status from the Hong Kong branch, are our overseas branches/overseas head office or the clients of our overseas branches/overseas head office “Relevant Clients” under the HKIDR?

A: For the purposes of the HKIDR and the OTCR, our policy intent is that an overseas branch or an overseas head office of an RRI should be treated as an overseas affiliate, provided that (i) the Hong Kong branch has opened and maintained separate securities trading accounts for its overseas branches/overseas head office and orders are placed through these accounts; and (ii) the CID of these overseas branches/overseas head office are distinguishable from one another (i.e. the name of the branch should be included in the CID). If these two criteria are met, in the above case, the “Relevant Client” is the overseas branches/overseas head office but not their clients. Respective BCANs should be assigned by the Hong Kong branch to the overseas branches and overseas head office, and CID of the individual overseas branch and overseas head office should be collected for submission to SEHK.

Q4 : We are the Hong Kong trading desk of an RRI which has shared/cross relationship with our Singaporean affiliate. Client accounts are opened and maintained by our Singaporean affiliate. Orders of these clients are placed through these client accounts and are booked with the Singaporean affiliate, which opens and maintains an omnibus securities trading account with the RRI. The clients are managed by the Hong Kong trading desk, which acts as the relationship manager and routes the orders to SEHK’s trading system. Who is our “Relevant Client”, our Singaporean affiliate or its clients? Is the answer different if the orders are placed to staff with both Hong Kong and Singapore licences (e.g. night desk)?

A: A “direct client” (or “Relevant Client”) is defined under paragraph 5.6(b)(v) of the Code of Conduct as the most immediate client of a relevant licensed or registered person (or RRI) which has placed or proposes to place an on-exchange order or off-exchange order through a securities trading account with that person. Therefore, if the RRI does not open and maintain securities trading accounts for the clients (in this case the client accounts are opened and maintained by the Singaporean affiliate), they are not “Relevant Clients” of the RRI. Instead, the Singaporean affiliate which opens and maintains an omnibus securities trading account with the RRI is the “Relevant Client” of the RRI. The same answer applies for a situation where such orders are placed to staff with both Hong Kong and Singapore licences. 

Last update: 21 Jan 2022

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