This section discusses rules and procedures related to the (i) licensing of dealers; (ii) accounting treatment of investments in securities (with particular regard to valuation); (iii) tax treatment of securities income; and (iv) trading, clearing, and settlement of securities.

Bond Issuing Procedures

The Hong Kong Monetary Authority (HKMA) manages the issuance and trade of Exchange Fund Bills and Notes (EFBN). Linked below are the rules and regulations of the Hong Kong Exchanges and Clearing (HKEx).

Licensing

Licensing of securities and futures dealers, advisers, and representatives falls under the purview of the Securities and Futures Commission (SFC). Information on licensing-related matters can be found through the links to the SFC website provided below.

Mark-to-Market

Accounting Standards

Hong Kong, China’s financial reporting standards have converged fully with International Accounting Standards (IAS), effective 1 January 2005. Particularly relevant for market participants are Hong Kong Accounting Standards (HKAS) 32 and 39, which closely follow IAS 32 and 39. HKAS 32 relates to the disclosure and presentation of financial instruments, while HKAS 39 relates to the recognition and measurement of such instruments.

Financial institutions are required to make risk valuations using acceptable pricing methodologies to mark-to-market. Trading assets and liabilities classified as “Financial Asset or Financial Liability at Fair Value through Profit and Loss” and “Available-for Sale Financial Assets”, including all derivatives that are not hedges, are measured at fair market value. All gains and losses are recognized as they arise.

Fair market value is based on a three-tier value measurement: (i) for instruments traded in active markets, a quoted price is used; (ii) for instruments for which there is no active market, a recent, (or "precedent") market transaction is used; and (iii) for instruments without an active market or a recent market transaction, one of several valuation methods set out in HKAS 39 is used.

In general, Hong Kong, China does not impose a capital gains tax. Income earned from exchange trading and interest accruals is subject to a profit tax if it has been earned by way of trade, profession, or business within Hong Kong, China. The profits tax for corporations and unincorporated businesses is 16.5% and 15.0%, respectively.

Interest income from debt instruments is subject to the profits tax unless it is exempt under Section 26A of the Inland Revenue Ordinance. Tax-exempt securities include bonds issued by the Government, Exchange Fund Bills and Notes (EFBNs), and Hong Kong-dollar denominated supranational bonds. In April 2003, the profits tax was waived on the trading of bonds with maturities of more than seven years, and reduced by 50% on the trading of bonds with maturities of three to seven years.

All securities listed on the exchange are subject to a stamp duty at a rate of 0.1% on transaction value, applicable to both buyers and sellers. There is no withholding tax on interest income from debt instruments, or on capital gains from selling them. No tax is levied on the remittances of dividends and profits.