2A.3 Maintenance of Reserve Fund and Risk Base Capital Requirements

 2A.3.1    The Member to trade in futures contracts shall maintain a prudent amount of reserve fund as may be required by the Exchange.

 “Reserve fund” means a certain amount of the audited net profits of each year of the Member transferred out of the net profits after due provision has been made for taxation which the Member needs to maintain, so long as the base capital less unappropriated profits in the latest audited accounts of the Member which is incorporated in Singapore or the net head office funds of the Member which is a foreign company, is less than $5 million.

 

2A.3.2    In addition to Rule 2A.3.1, the Member to trade in futures contracts shall not cause or permit its adjusted net capital to fall below S$2 million or its adjusted net capital requirement, whichever is the higher, failing which the Member shall immediately notify the Exchange.

 

(1)   “adjusted net capital”, in relation to the Member means the net capital of the Member, less the following —

(a)  the amount by which any advance paid by the Member on cash commodity contracts and used in computing net capital exceeds 95% of the market value of the commodities covered by such contracts;

(b)  in the case of any inventory which is hedged by hedging positions in any market, the amount by which the value of the inventory used in computing the net capital exceeds 95% of the market value of such an inventory;

(c)  in the case of any inventory which is not hedged by any hedging positions in any market, the amount by which the value of the inventory in computing the net capital exceeds 80% of the market value of an inventory;

(d)  in the case of government securities used by the Member in computing the net capital, the amount by which the value of such security exceeds 100% of the market value of such security;

(e)  in the case of shares and other securities used by the Member in computing the net capital, the amount by which the value of the shares or securities exceeds 90% of the market value of such shares or securities;

(f)  for under-margined futures trading accounts —

(i)  the amount of money required for each account to meet the relevant maintenance margin requirements, if that amount shall have been outstanding after the trade date for more than 3 business days; or

(ii)  if there are no such relevant maintenance margin requirements, then when the original margin has been depleted by 50% or more, the amount of money required to restore the original margin if that amount shall have been outstanding after the trade date for more than 3 business days,

except that to the extent a deficit is excluded from current assets in accordance with sub-paragraph (2), such amount shall not also be deducted, and if a customer shall have deposited any asset other than cash into his account, the value attributable to the asset for purposes of this sub-paragraph shall be the value attributable to the asset pursuant to the relevant margin rules of the Exchange or the Relevant Clearing House, as the case may be;

(g)  the maintenance margin requirement on open futures contracts transactions held in the proprietary accounts of the Member which are not hedged; and

(h)  the total amount of money for which the Member is contingently liable under any security, guarantee or indemnity granted, other than a security, guarantee or indemnity granted by the Member for the purpose of securing, guaranteeing or indemnifying any obligation of the Member to —

(i)  the Exchange or the Relevant Clearing House; or

(ii)  any other member of a licensed broker or trader as margin for, or to guarantee or secure, futures contracts;

 

(2)   For the purposes of sub-paragraph (1) —

(a)  “current assets” means cash and other assets which are reasonably expected to be realised in cash or sold during the following 12 months and —

(i)  shall not include any unsecured futures trading account containing a debit balance which has remained unpaid for more than one business day;

(ii)  shall not include any unsecured advances, unsecured loans, and other receivables, except for dividends, interest and commissions due within 30 days and receivables from merchandising incurred in the normal course of business due within 90 days;

(iii)  shall not include any assets doubtful of collection or realisation except for any reserves established therefor;

(iv)  shall include receivables from the Exchange, the Relevant Clearing House, and other licensed broker or trader arising out of trading in futures contracts and securities which are listed on a securities exchange and have not been suspended; and

(v)  shall include or exclude such other items as the Exchange may specify;

(b)  “net capital”, in relation to the Member, means the amount by which the current assets of the Member exceed its liabilities, and in determining “net capital” —

(i)  unrealised profits shall be added and unrealised losses shall be deducted in the accounts of the Member, including unrealised profits and losses on fixed price commitments and forward contracts; and

(ii)  all long and all short futures contracts trading positions shall be marked to their market value;

(c)  a loan or advance or any other form of receivable shall not be considered “secured” unless the following conditions exist:

(i)  the receivable, which is to be considered only to the extent of the market value of such collateral after application of such percentage deductions as prescribed in sub-paragraph (1), is secured by collateral which is otherwise unencumbered and which can be readily converted into cash; and

(ii)  either —

(A)  the collateral is in the possession or control of the Member; or

(B)  the Member has a legally enforceable written security agreement executed by the debtor in its favour under which the Member shall have the power to readily sell or otherwise convert the collateral into cash;

(d)  for the purposes of computing “net capital”, the word “liabilities” does not include —

(i)  liabilities of the Member which are subordinated to the claims of all general creditors of the Member pursuant to a satisfactory subordination agreement, as defined in sub-paragraph (e);

(ii)  the amount of money, securities and property due to customers which are held in segregated accounts , where such money, securities and property held in segregated accounts have been excluded from current assets in computing net capital; and

(iii)  liabilities which would be classified as long-term liabilities in accordance with generally accepted accounting principles to the extent of the net book value of the plant, property and equipment which are used in the ordinary course of the Member’s business and which are not included in current assets;

(e)  for the purposes of sub-paragraph (d) (i), “satisfactory subordination agreement” means an agreement between the Member and its lender (referred to in this Rule 2A.3 as the subordinated creditor) which agreement shall be in such form and shall contain such terms as the Exchange may from time to time require but shall at least contain the following terms:

(i)  the subordinated creditor will not claim or receive from the Member, by set-off or in any other manner, any subordinated debt until all senior debt has been paid or except with the prior written approval of the Exchange;

(ii)  the subordination agreement shall provide that claims of the subordinated creditor are fully subordinated to the claims of all unsubordinated creditors;

(iii)  the subordination agreement shall have not less than 2 years to maturity at the time of adjusted net capital computation;

(iv)  the subordinated debt shall not be redeemed before the maturity of the subordination agreement without the prior written approval of the Exchange, and for this purpose, interest payments on the subordinated debt shall not be construed as early redemption of the subordinated debt;

(v)  the subordination agreement shall not be subject to cross-default or negative pledges or contain any term which would enable the subordinated creditor to demand the early or accelerated repayment of the subordinated debt;

(vi)  the subordination agreement shall have the option for the Member to defer interest payment on the subordinated debt;

(vii)  the subordinated debt shall automatically be converted into capital as a provision for losses arising from bad and doubtful debts if an appropriate reconstruction of the capital of the Member, which is acceptable to the Exchange, has not been undertaken;

(viii)  in the event of any payment or distribution of assets of the Member, whether in cash, in kind or in securities (referred to in this Rule 2A.3 as a distribution), upon any dissolution, winding-up, liquidation or reorganisation of the Member —

(A)  the senior creditors shall first be entitled to receive payment in full of the senior debt before the subordinated creditor receives any payment in respect of the subordinated debt;

(B)  any distribution to which the subordinated creditor would be entitled but for the provisions of the subordination agreement shall be paid or delivered by the liquidator, official assignee in bankruptcy or any other person making the distribution directly to the senior creditors rateably according to their senior debt until they have been paid in full (taking into account other distributions to the senior creditors); and

 

(ix)  if, notwithstanding sub-paragraphs (i) to (viii), any distribution is received by the subordinated creditor in respect of the subordinated debt, the distribution shall be paid over to the senior creditors for application rateably according to their senior debt until the senior debt has been paid in full (taking into account other distributions to the senior creditors) and until such payment in full, the distribution shall be held in trust for the senior creditors; and

(f)  in sub-paragraph (e) —

 ”senior creditor” means the creditors who for the time being hold or are entitled to the senior debt;

“senior debt” means the unpaid claims of all the creditors for the time being of the Member howsoever incurred.

 

(3)   In this paragraph and paragraph 3 —

“maintenance margin” means the amount of margin required to be deposited with:-

(a)  the Exchange or the Relevant Clearing House; or

(b)  any licensed broker or trader or other person,

as a margin for, or to guarantee or secure, futures contracts.

(4)           “adjusted net capital requirement” means the sum of —

(a)  2% of every amount of funds that a customer of the Member of a licence deposits with the Member that is in excess of the maintenance margins of that customer; and

(b)  4% of the maintenance margins of customers relating to all futures contracts.

 

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