Chapter 4 Matters Subsequent to the Hedging Period and Liquidity Provision for Call (Put) Warrants |
| Article 14 | Issuers shall apply to the TWSE to open a segregated account at the time of their initial issue of domestic call (put) warrants and offshore call (put) warrants for which the underlying security is a domestic security. Where the issuer will be self-hedging or partially self-hedging, the account shall be used exclusively for establishing a hedge position after issuance of the warrants and for future performance of obligations when the investors exercise the warrants. Where the issuer entrusts another institution with hedging, the account shall be used for performance of obligations when the investors exercise the warrants, and the risk management institution is also required to open a segregated account with the issuer for the purpose of establishing a hedge position after issuance of the warrants.
The segregated accounts of issuers referred to in the preceding paragraph shall without exception be opened under securities dealer accounts. The account number of the aforesaid account of a domestic issuer shall be 888888-8, provided a foreign issuer applying to issue warrants through a branch office established in the territory of the ROC by a subsidiary which is either directly or indirectly wholly-owned shall open such account in the securities brokerage department of that branch office; the segregated hedge account opened with the issuer by the risk management institution shall be opened in the securities brokerage department. The above-mentioned accounts shall be reported to the TWSE in advance, and may only be used for trading in financial hedging instruments for hedging purpose and in call (put) warrants issued by the issuer itself. In addition, the securities in the segregated hedging account without exception may not be pledged.
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| Article 15 | Where the risk-management institution is a foreign institution and is concurrently performing risk management for more than one issuer, that institution shall, at the time of application for review in connection with market-listing of the call (put) warrants, provide documentation showing the amount of direct investment for which it has applied as a Qualified Foreign Institutional Investor; in addition, that amount, after deduction of the market value of the underlying securities of call (put) warrants for which it has already been entrusted with hedging, shall be larger than the market value of the underlying securities represented by the present issue of call (put) warrants which it is hedging.
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| Article 16 | The financial instruments employed by the issuer in warrant hedging shall be the underlying instruments, relevant securities, or financial derivatives.
An issuer's hedge positions in any domestically listed call (put) warrants, contract-based call (put) warrants, structured instruments, equity derivatives, or offshore call (put) warrants with the same underlying instruments may be mutually offset.
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| Article 16-1 | An issuer or the risk management institution it entrusts may engage in the sale of borrowed securities involving the underlying security in accordance with Article 82-2 of the Operating Rules of the TWSE or in the sale of securities borrowed from a securities firm or securities finance enterprise that conducts securities borrowing and lending business, that involve the underlying security.
Where the issuer employs short sales of the underlying securities as a hedging instrument in accordance with the preceding paragraph, said issuer shall open a margin account with another securities firm or with the securities finance enterprise of a non-affiliated enterprise and shall report the account information to the TWSE in writing.
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| Article 17 | Trading conducted by the dealing department of the issuer for its own account and hedge trading conducted by it in connection with call (put) warrants issued by it may not affect the fairness of market prices or harm shareholder equity, and an effective internal control system shall be established and executed in connection with such trading.
An issuer of call (put) warrants shall issue a letter of report to the TWSE by the 5th of each month, providing information on purchases and sales of the underlying securities of its issued warrants by its dealing department for the preceding month (including the trading day, the name of the security and the volume of the transaction).
The provisions of the preceding two paragraphs will apply mutatis mutandis to the risk management institutions engaged by issuers using outsourced risk management, and, in the event of a foreign issuer, to the dealing department of its branch office within ROC territory or the dealing department of a branch office established within ROC territory by a directly or indirectly wholly-owned subsidiary of such a foreign institution.
Except where regulations provide otherwise, during the duration of the call (put) warrants, there may be no inter-account transfers of the warrants' underlying security between the issuer's dealing department and positions in the security held in the issuer's hedge accounts.
The "dealing department" referred to in the preceding four paragraphs includes any unit or trading account that is equivalent to a dealing department.
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| Article 18 | (deleted)
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| Article 19 | The issuer shall supply a liquidity provision mechanism for the warrants it issues, either by acting as the liquidity provider itself or by engaging other liquidity providers. Directions for the operations of liquidity providers will be separately adopted by the TWSE.
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