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Title:

Operating Rules for Securities Firms Handling Margin Purchases and Short Sales of Securities  CH

Amended Date: 2019.02.12
   Chapter I General Principles
Article 1    These Rules are adopted pursuant to Articles 11, 14, 15 and 28 of the Regulations Governing the Conduct of Securities Trading Margin Purchase and Short Sale Operations by Securities Firms and Articles 2, paragraphs 5, 6 and 12, and Articles 3, 4 and 5 of the Standards Governing Eligibility of Securities for Margin Purchase and Short Sale.
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Article 2    A securities firm conducting margin purchase and short sale operations in securities trading shall do so in accordance with securities trading laws and regulations, these Rules, as well as other relevant bylaws, rules, public announcements, and circular letters of the Taiwan Stock Exchange Corporation (TWSE), Taipei Exchange (TPEx), and central securities depositories.
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Article 3    A securities firm applying for conducting margin purchase and short sale operations in securities trading shall fill out an application form and submit relevant documentation to the TWSE. The TWSE will forward the application to the competent authority for approval upon verifying that all qualification requirements and applicable provisions of these Rules are conformed to.
    Upon approval by the competent authority to conduct securities trading margin purchase and short sale business, a securities firm shall submit the following documents by letter to the TWSE for recordation two days before commencing such business:
  1. A photocopy of the permit from the competent authority.
  2. A description of the system of internal controls over securities trading margin purchase and short sale operations.
  3. A roster of the responsible and associated persons of the department in charge of these operations and documents certifying their qualifications.
    The responsible and associated persons under the third subparagraph of the preceding paragraph shall be registered with the TWSE before they may engage in such business. Any change of personnel in such positions shall be registered within five days.
    A securities firm which has been approved by the competent authority to conduct securities trading margin purchase and short sale business shall cease to engage in such business if its capital adequacy ratio is lower than 150% for 2 continuous months. However, repayment and satisfaction is not included. Until 3 months of continuous compliance and obtain the competent authority's further approval, a securities firm may re-open its business; for securities firms which have obtained the approval but yet to commence its business, the aforesaid rules shall also apply.
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Article 4    A securities firm shall confine its securities trading margin purchase and short sale operations for TWSE- or TPEx-listed securities to those funds and securities that are deliverable after execution of customer orders for normal-settlement brokerage trades on the automated trade matching system of the TWSE centralized securities exchange market or TPEx, for which the underlying securities are those publicly announced by the TWSE or TPEx as eligible for margin purchases and short sales.
    None of odd-lot or block trades or the trades specified in Article 74 of the Operating Rules of the Taiwan Stock Exchange Corporation (hereinafter, "TWSE Operating Rules") or Article 39 of the Taipei Exchange Rules Governing the Review of Securities for Trading on the TPEx (hereinafter, the "TPEx Trading Rules") are eligible for margin purchases or short sales.
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Article 5    A securities firm conducting securities trading margin purchase and short sale operations shall be subject to the requirements of the competent authority in relation to amount limit, duration, margin purchase leverage ratio, and short sale margin.
    The duration of a securities trading margin purchase and short sale is six months. A customer may apply for extension prior to the expiration of the duration. The number of such applications allowed is two. A securities firm shall review a customer's credit status before granting an extension.
    Upon accepting an application for the opening of a margin account, a securities firm shall sign application documentation for extending the duration of each margin purchase and short sale on a blanket basis with the customer. The application documentation must include the number of extensions available for selection and the follow-up to the evaluation result regarding applications for extension upon expiration. Upon execution, the said documentation shall apply to each subsequent margin purchase and short sale. Where a customer seeks to amend the number of extensions, it shall re-sign the application documentation. Notwithstanding, in the circumstance where the amendment is to reduce the number of extensions, and the margin purchase and short sale has been extended as requested, such margin purchase and short sale shall continue until the extension period expires.
    A securities firm that agrees to a customer's extension of each margin purchase and short sale shall grant a six months' extension for each such purchase and sale, and may not terminate an extension unless these Rules provide otherwise.
    Where a securities firm disagrees with an extension sought by a customer as in the preceding paragraph, or a margin purchase and short sale has been extended twice, said firm shall notify the customer in writing ten business days prior to the expiry.
    The duration of a margin purchase and short sale where the underlying securities are subject to a suspension of trading or transaction is extended until the resumption of their trading or transaction.
    The securities firm shall give a written notice to the customer of a margin purchase or short sale no later than 10 business days before the end of the duration as fixed by the competent authority under the preceding paragraph. Notwithstanding the foregoing, the notice is not required if, pursuant to the Operational Guidelines Governing Securities Firms and Securities Finance Enterprises Accepting Applications by Customers for Extending the Duration of Each Margin Purchase and Short Sale the customer has entered into application documentation for extending the duration of each margin purchase and short sale on a blanket basis and the securities firm has granted consent to the customer for such extension.
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Article 6    A securities firm shall fix, and file with the competent authority for recordation, the interest and fee rates with respect to the margin loan interest and short sale handling fees receivable from customers, as well as short sale proceeds and short sale margin interest payable to customers, for conducting securities trading margin purchase and short sale operations.
    Before providing securities borrowed through the TWSE securities lending system, securities borrowed from customers in money lending conducted in connection with securities business, securities borrowed from securities firms or securities finance enterprises conducting money lending in connection with securities business or conducting margin purchases and short sales of securities (“Borrowed Securities”), or its proprietary shares of securities (“Proprietary Securities”), to a customer for short selling, a securities firm shall determine the rate, calculation, and method of collection of the short sale fee with the customer, where the interest rate shall be below 20% per annum.
    Upon adjustment to any interest rates or fee rates described in the preceding two paragraphs, the adjusted interest or fee rates shall apply to any and all open positions in margin purchases and short sales as from the date of the adjustment.
    The payment and receipt of interests and fees are determined by the securities firm where the extension in paragraph 6 of the preceding article exceeds the duration of the margin purchase and short sale.
    A securities firm shall charge a short sale handling fee from customers for providing securities acquired through margin purchases to them for short selling, and shall charge a short sale fee from customers for providing Borrowed Securities or Proprietary Securities to them for short selling.
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Article 7    In conducting securities trading margin purchase and short sale operations, a securities firm may not use retained short sale proceeds and short sale margins except for the purposes listed below:
  1. As a source of funds for conducting margin purchase business.
  2. As collateral for refinancing of securities from securities finance enterprises.
  3. As a source of funds for conducting money lending in connection with securities business.
  4. As collateral for borrowing securities through the TWSE securities lending system.
  5. For deposit with bank.
  6. To purchase short-term bills.
    In conducting securities trading margin purchase and short sale operations, a securities firm may not use securities received from such operations except for the purposes listed below and shall deposit the securities with a central securities depository:
  1. As a source of securities for conducting short sale business.
  2. As collateral for refinancing of funds or securities from securities finance enterprises.
  3. As a source of lendable securities in conducting securities lending business.
  4. As collateral for borrowing securities through the TWSE securities lending system.
  5. To lend to a securities firm or securities finance enterprise conducting securities borrowing and lending business as a source of securities for conducting securities borrowing and lending business or securities margin purchase and short sale business.
  6. To lend through the TWSE securities borrowing and lending system.
  7. To participate in competitive auction lending transactions or negotiated lending transactions conducted by a securities finance enterprise.
   Chapter II Management of Margin Accounts for Margin Purchases and Short Sales
      Section 1 Securities eligible for margin purchases and short sales
Article 8    TWSE-listed ordinary shares satisfying the criteria below will be announced by the TWSE as eligible for margin purchases and short sales:
  1. The shares have been listed for at least six months.
  2. The net asset value per share at least reaches the par value, as specified in the latest financial report as at the date of review. Where the shares are of a primary TWSE-listed company with no par value or the net asset value per share is not NT$10, the financial reports published and filed in the last fiscal year show no accumulated losses.
  3. None of the following applies:
    1. Excessively intense share price volatility.
    2. Excessively concentrated equity ownership.
    3. Excessively irregular trade volume.
    With the exception of TPEx-listed managed stocks and stocks registered on the Emerging Stock Board, all TPEx listed common stock shares satisfying the criteria below will be announced by the TPEx as eligible for margin purchase and short sale.
  1. The shares have been listed on the TPEx for at least six months.
  2. The net asset value per share at least reaches the par value, as specified in the latest financial report as at the date of review. Where the shares are of a primary TWSE-listed company with no par value or the net asset value per share is not NT$10, the financial reports published and filed in the last fiscal year show no accumulated losses.
  3. The company has been incorporated and registered for at least three years. If the issuer is a transferee company of a demerger from a TWSE or TPEx listed company, the time of incorporation may be calculated from the time of establishment of the demerged division as shown in the financial data of the demerged parent company. If the issuer is an investment holding company or financial holding company, the time of incorporation may be calculated from the time of incorporation of its operating entity.
  4. Having a paid-up capital of NT$300 million or more, or a net worth of NT$600 million or more if it is a primary TPEx listed company whose shares have no par value or a par value other than NT$10 per share.
  5. Profitability:
    1. Having had no accumulated losses, and had operating profit and net income before tax totaling 3% or more of paid-up capital on a standalone or consolidated basis, in the latest financial year.
    2. It is a primary TPEx listed company whose shares have no par value or a par value other than NT$10 per share, had operating profit and net income before tax totaling 3% or more of shareholders' equity on a standalone or consolidated basis.
  6. None of the circumstances described in subparagraph 3 of the preceding paragraph applies.
    For purposes of these Rules, the term "net worth" means the balance sheet equity attributable to shareholders of the parent company.
    The financial data mentioned in paragraph 2 are as specified in the latest published financial reports as having been audited and certified, or reviewed, by the CPA.
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Article 9    Taiwan depository receipts satisfying the criteria below will be announced by the TWSE as eligible for margin purchase and short sale:
  1. The receipts have been listed for at least six months.
  2. The latest annual consolidated financial reports which have been audited and certified by the CPA or biannual consolidate financial reports which have been reviewed by the CPA, as prepared according to the laws and regulations of the country concerned and available on the date of review, show no accumulated losses.
  3. The beneficial ownership is not excessively concentrated, or the circumstance in paragraph 1, subparagraph 3, item 1 or 3 of the preceding article does not apply.
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Article 10    Beneficial certificates satisfying the following criteria will be announced by the TWSE as eligible for margin purchase and short sale: having been listed for at least six months, not being traded in foreign currency, the beneficial ownership not being excessively concentrated, and the circumstance in Article 8, paragraph 1, subparagraph 3, item 1 or 3 not being applicable.
    Beneficial certificates of securities investment trust exchange-traded funds ("ETF Beneficial Certificates") and beneficial certificates of futures trust exchange-traded funds will be announced by the TWSE or TPEx as eligible for margin purchase and short sale from the day their trading commences on the TWSE or TPEx. Offshore ETF Beneficial Certificates will be announced by the TWSE as eligible for margin purchase and short sale from the day their trading commences on the TWSE.
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Article 11    The date of review mentioned in Articles 8, 9, 12 and 19 denotes the last day of a six-month TWSE or TPEx listing period, or the following business day if falling on a non-business day.
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Article 12    The sampling period of excessively intense share price volatility or excessively irregular trade volume as mentioned in Article 8, paragraph 1, subparagraph 3, item 1 or 3 is 90 business days prior to the date of review (inclusive) for purposes of data gathering.
    The business days mentioned in the preceding paragraph are the trading days of the particular security.
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Article 13    As samples for review purposes of TWSE listed securities to which excessively intense share price volatility or excessively irregular trade volume as mentioned in Article 8, paragraph 1, subparagraph 3, item 1 or 3 occurs, listed common shares, Taiwan depository receipts, and beneficial certificates other than those whose trading method has altered are taken for comparison. As samples for review purposes of TPEx listed securities, TPEx listed common stock shares other than TPEx listed managed stocks and stocks registered on the Emerging Stock Board, and ETF Beneficial Certificates and beneficial certificates of futures trust exchange-traded funds are taken for comparison.
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Article 14    The share price volatility of TWSE or TPEx listed securities is deemed excessively intense as in Article 8, paragraph 1, subparagraph 3, item 1 under any of the following circumstances:
  1. The average of the daily price limit (absolute value) of the securities during the sampling period prescribed in Article 12 reaches at least the average of the daily price limit (absolute value) of the samples specified in the preceding article for the same period plus two standard deviations and exceeds 150% of the average of the daily price limit (absolute value) of the securities of the same industry in the same market.
  2. The ratio of the difference between the highest and lowest prices to the average price during the sampling period prescribed in Article 12 reaches at least the average of the ratio of the difference between the highest and lowest prices to the average price of the samples specified in the preceding article for the same period plus two standard deviations and exceeds 150% of the ratio of the difference between the highest and lowest prices to the average price of the securities of the same industry in the same market.
  3. Any of the following occurs in respect of the percentage premium or discount during the sampling period prescribed in Article 12 as calculated by the closing price of Taiwan depositary receipts and that of the exchange market of the contry of the shares represented by such receipts:
    1. The percentage premium of Taiwan depositary receipts on the business day immediately preceding the date of public notice of the Market Observation Post System exceeds 50%, and the closing price of Taiwan depositary receipts of the same day must be the highest of the closing prices for the last six business days (inclusive of the sixth business day), or higher than the opening reference price in the absence of a closing price for the last five business days (excluding the fifth business day).
    2. The percentage premium of Taiwan depositary receipts on the business day immediately preceding the date of public notice of the Market Observation Post System exceeds 50%, and the closing price of Taiwan depositary receipts of the same day must be the lowest of the closing prices for the last six business days (inclusive of the sixth business day), or lower than the opening reference price in the absence of a closing price for the last five business days (excluding the fifth business day).
  4. Other circumstances where the share price volatility may be deemed excessively intense.
    Any price change that is not attributed to a trade (such as ex-right, ex-dividend etc.) is disregarded during the period the standard in subparagraphs 1 and 3 of the preceding paragraph is being calculated or when the closing price standard is being compared over the last six business days (including the sixth business day) as mentioned in subparagraph 3 of the preceding paragraph, in respect of TWSE or TPEx listed securities.
    For the comparison in subparagraphs 1 and 2 of paragraph 1 of this article, securities of the same industry in a different market (listed or OTC) may be compared if there are no securities of the same industry in the same market. The comparison requirement does not apply if there are no securities of the same industry in a different market or the TWSE or TPEx listed securities do not fall in any industry.
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Article 15    The trade volume of TWSE or TPEx listed securities is deemed excessively irregular as in Article 8, paragraph 1, subparagraph 3, item 3 under any of the following circumstances:
  1. The turnover of the securities in the sampling period specified in Article 12 is at least 10 times the average turnover of the samples for the same period as mentioned in Article 13.
  2. The turnover of the securities in the sampling period specified in Article 12 is lower than 10% of the average turnover of the samples for the same period as mentioned in Article 13, and the trading volume in said period is less than 3,000 share certificates or 3,000 units.
  3. Other circumstances where the trade volume may be deemed excessively irregular.
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Article 16    The equity ownership of TWSE or TPEx listed shares is deemed excessively concentrated as in Article 8, paragraph 1, subparagraph 3, item 2 under any of the following circumstances:
  1. The number of shareholders holding between 1,000 and 50,000 shares is less than 500.
  2. The number of registered shares held by all the directors, supervisors, officers, and shareholders with more than 10% shares accounts for at least 75% of the company's TWSE or TPEx listed shares when the total number of issued shares of the company is not more than 50 million, at least 80% of the company's TWSE or TPEx listed shares when the total number of issued shares of the company is over 50 million and not more than 500 million, and 85% of the company's TWSE or TPEx listed shares when the total number of issued shares of the company is over 500 million.
  3. The number of registered shareholders of TPEx listed shares is less than 1,000.
  4. Other circumstances where the equity ownership may be deemed excessively concentrated.
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Article 17    The beneficial ownership of Taiwan depository receipts is deemed excessively concentrated as in Article 9, subparagraph 3 under any of the following circumstances:
  1. The number of holders of Taiwan depository receipts holding between 1,000 and 50,000 units is less than 500.
  2. The sum total, as entered in the Taiwan depository receipts holder register, of units of Taiwan depository receipts held by those whose Taiwan depository receipts holding exceeds 5% of the total number of issued units exceeds 80% of the total issue amount.
  3. Other circumstances where the beneficial ownership may be deemed excessively concentrated.
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Article 18    The beneficial ownership of beneficial certificates is deemed excessively concentrated as in Article 10, paragraph 1 under any of the following circumstances:
  1. The number of beneficiaries holding not more than 100,000 beneficial units is less than 1,000.
  2. The number, as entered in the beneficiary register, of units of beneficial rights held by beneficiaries whose beneficial rights holding exceeds 5% of the total amount of the fund exceeds 80% of the total amount of the fund.
  3. Other circumstances where the beneficial ownership may be deemed excessively concentrated.
    The preceding paragraph does not apply to ETF beneficial certificates, offshore ETF beneficial certificates, and futures ETF beneficial certificates.
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Article 19    For its review of the excessive concentration of equity or beneficial ownership mentioned in Articles 16 to 18, the TWSE or TPEx may request the TWSE or TPEx listed company, foreign issuer or securities investment trust enterprise ("SITE") to furnish information relevant to its equity or beneficial ownership of the review date.
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Article 20    The TWSE or TPEx will publicly announce TWSE or TPEx listed securities that conform to the following as eligible for margin purchases and short sales on the TWSE or TPEx listing date, unless the equity ownership of such securities is excessively concentrated. The relevant operating procedures are governed by Article 21, paragraph 2:
  1. The issuer of the TPEx listed shares that are eligible for margin purchases and short sales has applied for TWSE listing.
  2. The TWSE or TPEx listed company eligible to undertake margin purchases and short sales becomes a TWSE or TPEx listed financial holding company according to The Financial Holding Company Act.
  3. The TWSE or TPEx listed company eligible to undertake margin purchases and short sales becomes a TWSE or TPEx listed investment holding company through a 100% share exchange in accordance with the Business Mergers And Acquisitions Act.
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Article 21    The TWSE or TPEx will conduct another review on the last business day of each month in respect of securities where upon initial review the price fluctuation is found to be excessively volatile or the trade volume excessively irregular as in this section.
    Where it is found upon initial review that the equity or beneficial ownership of securities is excessively concentrated as mentioned in this section, the TWSE or TPEx will not conduct another review until after the TWSE or TPEx listed company, foreign issuer or SITE furnishes information showing that the equity or beneficial ownership of securities is no longer excessively concentrated.
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      Section 2 Suspension and resumption of margin purchases and short sales of securities
Article 22    The TWSE or TPEx will suspend the margin purchases and short sales of TWSE or TPEx listed securities that are otherwise eligible for margin purchases and short sales, from the business day after the date of public announcement, if any of the circumstances in Article 4, paragraph 1, subparagraphs 1 to 7, and subparagraph 11, and Article 5, paragraph 1, subparagraphs 1 to 3, and subparagraph 7 applies, unless the trading method has altered or trading has been halted with respect to TWSE or TPEx listed shares and Taiwan depository receipts as in subparagraph 1 below or the Surveillance Operations Oversight Committee of the TWSE or TPEx resolves on such suspension as in subparagraph 8 below:
  1. Where the trading method of TWSE or TPEx listed shares or Taiwan depository receipts alters, their trading is halted, or such shares or receipts, or beneficial certificates, are delisted from the TWSE or TPEx, margin purchases and short sales of such securities will be suspended as of the effective date of the event upon the public announcement by the TWSE and TPEx of such alteration or halt, with the suspension publicly announced concurrently; and upon the public announcement by the TWSE and TPEx of the TWSE and TPEx delisting of shares, Taiwan depository receipts and beneficial certificates, margin purchases and short sales of such securities will be suspended, with the suspension publicly announced concurrently. Notwithstanding, this does not apply where the trading is halted either under any of the circumstances in the proviso of Article 78 applies or due to a difference in rights and obligations between the existing stocks and new stocks after share exchange.
  2. The TWSE or TPEx will immediately announce publicly the suspension of margin purchases and short sales of the beneficial certificates concerned, should a SITE fail to make a report and publish the financial reports of any of its securities investment trust funds on schedule as required or the circumstance in Article 96, paragraph 1 of the Securities Investment Trust and Consulting Act apply to the SITE managing the securities investment trust fund.
  3. The TWSE or TPEx will immediately announce publicly the suspension of margin purchases and short sales of the beneficial certificates concerned, should a futures trust enterprise fail to make a report and publish the financial reports of any of its futures trust funds on schedule as required or the circumstance in Article 38, paragraph 1 of the Regulations Governing Futures Trust Enterprises apply to the futures trust enterprise managing the exchange-traded futures trust fund.
  4. The TWSE or TPEx will publicly announce the suspension of margin purchases and short sales of TWSE or TPEx listed shares with a net value per share below par value if, on the fifth business day after the deadline to publish and file the annual financial reports and financial reports for the first, second and third quarters of each fiscal year, a review of the latest financial reports that are published and filed as required reveals that the net value per share is below par value or, in the event of a TWSE or TPEx primary listed company with no face value or in the event of a par value per share other than NT$10, the financial reports indicate cumulative losses.
  5. The TWSE or TPEx will publicly announce the suspension of margin purchases and short sales of Taiwan depository receipts where the foreign securities they represent suffer cumulative losses if, on the last business day of the third month after the deadline to make a public notice and to make a filing with the competent authority, TWSE or securities market as required by the laws and regulations of the country of the foreign issuer and the country of listing, the latest annual consolidated financial reports audited and certified by the CPA or biannual consolidated financial reports reviewed by the CPA indicate cumulative losses.
  6. The TWSE will publicly announce, on the following business day, the suspension of margin purchases and short sales of the Taiwan depository receipts where the number of listed units is less than 60 million after redemption.
  7. The TWSE will publicly announce, on the following business day, the suspension of margin purchases and short sales of the shares or Taiwan depository receipts where the cumulative reported amount of defaulting single-day trades of TWSE listed securities is at least NT$200 million, or the cumulative reported amount of defaulting single-day trades of TPEx listed shares is at least NT$50 million, and if the balance of margin purchases or short sales of the day in question is at least 15% of the number of such TWSE or TPEx shares or units.
  8. The TWSE or TPEx will immediately announce publicly the suspension of margin purchases and short sales of the securities concerned if the Surveillance Operations Oversight Committee of the TWSE or TPEx so resolves or such margin purchases and short sales are otherwise inappropriate in the circumstances.
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Article 23    The margin purchases and short sales of TWSE or TPEx listed securities which have been suspended pursuant to the preceding article will resume under the following circumstances from the business day following the date of public announcement, except where the trading method has altered or trading has halted under subparagraph 1 of the preceding article, in which event the margin purchases and short sales will resume from the date the trading method or trading resumes, or where the Surveillance Operations Oversight Committee of the TWSE or TPEx has resolved to suspend the margin purchases and short sales, in which event the margin purchases and short sales will resume from the time the disposition period ends:
  1. The TWSE or TPEx will immediately announce publicly the resumption of margin purchases and short sales upon the elimination of the cause for suspension under subparagraph 1, 2, 3 or 8 of the preceding article.
  2. If the circumstance in subparagraph 4 of the preceding article occurs, the TWSE or TPEx will immediately announce publicly the resumption of margin purchases and short sales if, on the fifth business day after the deadline to publish and file the annual financial reports and financial reports for the first, second and third quarters of each fiscal year, a review of the latest financial reports that are published and filed as required reveals that the net value per share has restored to par value or above or, in the event of a TWSE or TPEx primary listed company with no face value or in the event of a par value per share other than NT$10, the financial reports indicate no cumulative losses.
  3. If the circumstance in subparagraph 5 of the preceding article occurs, the TWSE will immediately announce publicly the resumption of margin purchases and short sales of the Taiwan depository receipts if, on the last business day of the third month after the deadline to make a public notice and to make a filing with the competent authority, TWSE or securities market as required by the laws and regulations of the country of the foreign issuer and the country of listing, a review by the TWSE of the latest annual consolidated financial reports audited and certified by the CPA or biannual consolidated financial reports reviewed by the CPA indicates no cumulative losses.
  4. If the circumstance in subparagraph 6 of the preceding article occurs, the TWSE will announce publicly on the following business day the resumption of margin purchases and short sales of the Taiwan depository receipts after the number of listed units restores to 60 million or above.
  5. If the circumstance in subparagraph 7 of the preceding article occurs, the TWSE or TPEx will announce publicly on the following business day the resumption of margin purchases and short sales when for six consecutive business days there has been no cumulative reported amount of defaulting single-day trades that is at least NT$10 million, and the balance of margin purchases or short sales of the last of the above six business days is under 15% of the number of such TWSE or TPEx shares or units.
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Article 24    Where TWSE or TPEx securities are subject to suspension of margin purchases and short sales according to Article 22, subparagraph 4, the issuer may apply for resumption, with the latest financial reports that have been published and filed as required submitted. The TWSE or TPEx will then make an announcement on the MIS and review the application five days thereafter, and announce publicly the resumption of margin purchases and short sales from the fifth business day from the announcement if the net value per share reaches the par value or above or, where the TWSE or TPEx primary listed company has no face value or the par value per share is not NT$10, there are no cumulative losses suffered.
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Article 25    Where margin purchases and short sales of Taiwan depository receipts are suspended pursuant to Article 22, subparagraph 5, the foreign issuer may apply for resumption, with the latest annual consolidated financial reports audited and certified by the CPA or biannual consolidated financial reports reviewed by the CPA submitted. The TWSE will then make an announcement on the MIS and review the application five days thereafter, and announce publicly the resumption of margin purchases and short sales from the fifth business day from the date of public announcement if the review reveals no cumulative losses suffered.
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      Section 3 Adjustment to the margin purchase leverage ratio and short sale margin
Article 26    The TWSE or TPEx will review each day the prices and trade volumes of TWSE or TPEx securities eligible for margin purchase and short sale, and will reduce the margin purchase leverage ratio by 10% and raise the short sale margin by 10% on the following business day in the event of excessively intense share price volatility or excessively irregular trade volume for five consecutive business days or six out of the last ten business days, or in the event of excessively concentrated equity or beneficial ownership as disclosed by information relating to the equity of a TWSE or TPEx listed company or foreign issuer holding an ordinary shareholders' meeting or to the beneficial rights of a securities investment trust enterprise holding a fund beneficiaries meeting. Whether the above occurs contemporaneously or successively, the margin purchase leverage ratio will be reduced by 10% and the short sale margin raised by 10% only, upon such occurrence.
    The preceding paragraph does not apply to ETF beneficial certificates, offshore ETF beneficial certificates, and futures ETF beneficial certificates.
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Article 27    The sampling period in regard to excessively intense share price volatility or excessively irregular trade volume as prescribed in the preceding article is 30 business days prior to the date of review (inclusive) for purposes of data gathering.
    The business days in the preceding paragraph are calculated in accordance with Article 121, paragraph 2.
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Article 28    The scope of securities samples for excessively intense share price volatility or excessively irregular trade volume as mentioned in Article 26 is governed by Article 13 mutatis mutandis for purposes of comparison with underlying securities.
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Article 29    The excessively intense share price volatility mentioned in Article 26 is deemed to occur in respect of TWSE or TPEx securities that have a circumstance as described in Article 14, paragraph 1, subparagraphs 1 and 2, or a circumstance as described in paragraph 1, subparagraph 3 of the same article when compared to the securities samples mentioned in the preceding article during the sampling period under Article 27.
    Provisions of paragraphs 2 and 4 of Article 14 shall apply mutatis mutandis where sampling period and comparisons of securities samples in the preceding paragraph are excluded.
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Article 30    The excessively irregular trade volume mentioned in Article 26 is deemed to occur in respect of TWSE or TPEx securities that, when compared to securities samples mentioned in Article 28 during the sampling period under Article 27, have a circumstance described in Article 15, paragraph 1, or the turnover of the securities is 10% lower than the average turnover of the securities sample during the same period and the trading volume in said period is less than 1,000 share certificates or 1,000 units.
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Article 31    The excessively concentrated equity or beneficial ownership mentioned in Article 26 is deemed to occur in respect of TWSE or TPEx securities that have a circumstance under Article 16, paragraphs 1 to 3, or in respect of Taiwan depository receipts that have a circumstance under Article 17, paragraphs 1 and 2, or under Article 18, paragraphs 1 and 2, or when the TWSE or TPEx listed company, foreign issuer or SITE fails to furnish information relevant to its equity or beneficial ownership to the TWSE or TPEx within 20 days after an ordinary shareholders' meeting or fund beneficiaries meeting.
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Article 32    In the event of irregularity in the redemption of Taiwan depository receipts, the TWSE may decide to reduce the margin purchase ratio by 20% and raise the margin percentage for short sale by 20% on the following business day. Where irregularities are serious, there may be multiple decreases of margin purchase ratio and increases of margin percentage for short sale.
Article 33    For TWSE or TPEx securities eligible for margin purchase and short sale that have met the requirements under Article 6, paragraph 3 of the Taiwan Stock Exchange Corporation Directions for Announcement or Notice of Attention to Trading Information and Dispositions, or Article 6, paragraph 3 of the Taipei Exchange Operation Directions for Announcement or Notice of Attention to Trading Information and Dispositions, the TWSE or TPEx may during the disposition period reduce the margin purchase ratio to zero and raise the margin percentage for short sale by 10% to make the minimum margin percentage for short sale after the change not lower than 100%. Where changes have been made according to Article 26 or the preceding article, the relevant margin percentage for short sale may be further raised while the margin purchase ratio remains zero. The above applies in the circumstance where changes are made according to this article after more changes are made according to Article 26 or the preceding article.
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Article 34    When TWSE or TPEx securities eligible for margin purchase and short sale meet the following resumption conditions after their margin purchase ratio have been reduced by 10% and margin percentage for short sale have been raised by 10% according to Article 26, the TWSE or TPEx will resume the margin purchase ratio and margin percentage for short sale previously assigned for the securities on the following business day, except where changes were made due to excessively intense share price volatility, excessively irregular trade volume, excessively concentrated equity ownership or beneficial ownership that are occurring at the same time or one after another, in which case resumption will not happen unless the following conditions are met:
  1. The circumstances that cause excessively intense share price volatility have discontinued for six consecutive business days.
  2. The circumstances that cause excessively irregular trade volume have discontinued for six business days.
  3. In the event of excessively concentrated equity ownership or beneficial ownership, the TWSE or TPEx has determined that excessive concentration of equity ownership or beneficial ownership has discontinued after reviewing the information furnished by the TWSE or TPEx listed company, foreign issuer or SITE.
    In the event that Article 32 applies, the TWSE will resume the margin purchase ratio and margin percentage for short sale previously assigned for the securities on the following business day after the reason for change no longer existed.
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Article 35    In the event of suspension and resumption of margin purchases and short sales of securities and changes to margin purchase ratio and margin percentage for short sale in respect of TWSE or TPEx securities, the TWSE or TPEx will promptly make an announcement on the MIS. In the event of suspension of margin purchases and short sales of securities, excessively intense share price volatility, excessively irregular trade volume, excessively concentrated equity or beneficial ownership, decrease of margin purchase ratio and increase of margin percentage for short sale, the TWSE or TPEx will promptly specify the fact in the summary statement of balance of margin purchases and short sales.
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   Chapter III Opening and Management of Margin Accounts for Margin Purchases and Short Sales
Article 36    A securities firm shall enter into a margin agreement with, and open a margin account for, a customer before accepting any order from the customer to carry out a margin purchase or short sale of securities.
    A securities firm may allow a customer to open one and only one margin account.
    When securities firms accept margin account opening applications submitted on behalf of customers by custodian institutions for discretionary investment assets, a customer may not simultaneously open or maintain a margin account of its own and a discretionary investment margin account with the same securities firm.
    The margin agreement under the first paragraph shall be prepared by the TWSE in consultation with the TPEx and submitted to the competent authority for ratification.
Article 37    A customer shall meet the following qualifications to be able to submit a margin account opening application:
  1. The customer is a citizen of the Republic of China who is 20 years of age or older and who is not incapacitated, or a juristic person incorporated and registered under the law of the Republic of China.
  2. The customer has opened a consignment trading account for at least three months.
  3. The customer has settled 10 or more transactions of consignment trading during the most recent year with an accumulated transaction value of 50% of the amount limit for margin purchase applied for. This also applies to a consignment trading account opened for less than one year.
  4. The sum of the customer's income received and various other properties during the most recent year is at 30% of the amount limit for margin purchase applied for, except where the amount limit for margin purchase applied for is less than NT$500,000.
    Where a customer applying for opening of a margin account has one of the following circumstances, the amount limit for margin purchase approved for a margin account that has been opened shall be taken into account in the calculation of the amount limit for margin purchase applied for described in subparagraphs 3 and 4 of the preceding paragraph:
  1. The customer has opened more than five margin accounts.
  2. The customer has opened more than two margin accounts and the amount limit for margin purchase applied for plus the amount limit for margin purchase approved for margin accounts that have been approved has exceeded NT$300 million.
    When a customer is applying for a margin account, calculation of the amount limit for margin purchase applied for in according with paragraph 1, subparagraph 4 needs to include such amount limits for its other loan business with the same securities firm.
    If the customer applies for changes to amount limit during the term of a margin purchase and short sale contract or proceeds to renew the contract upon expiry of the term, the requirements under subparagraph 4 of paragraph 1, paragraph 2 and the preceding paragraph shall be complied with.
    Where necessary, the securities firm may raise the percentage set forth in paragraph 1, subparagraphs 3 and 4.
    In case of application for changes to amount limit or renewal of contract upon expiry, the securities firm may accept the request by way of communication or electronic means that would verify the identification of the applicant and its expression of intent.
Article 38    A call (or put) warrant issuer, or a securities firm or bank engaged in structured products business or engaged in trading equity derivatives, may, to meet hedging needs, open a margin account and engage in short selling of securities, to whom the provisions of paragraphs 1 to 5 of the preceding article do not apply.
    In respect of the consignment trading account with securities firm or bank, the account number should start with three digits "929", followed by a three-digit serial number, and then another digit as inspection number. In case of a branch of a foreign issuer of warrants in the territory of the Republic of China, however, the account number of its consignment trading account should start with five digits "95829", followed by a one-digit serial number, and then another digit as inspection number.
    Securities brokers may accept only requests from securities firm and bank for transactions involving securities sold short or covering short position and may accept its requests for redemption by delivery of spot securities.
    In the event of an error to a securities broker's consignment trading, it may declare an error account or correct the account number, except for errors caused by a securities firm's or bank's own hedging.
    An enterprise exclusively or concurrently engaged in futures proprietary trading (dealing) that is also a market maker for equity options or single stock futures may, for its risk mitigation or hedging needs, open a margin account with which to sell securities short, to whom the provisions of paragraphs 1 to 5 of the preceding article do not apply.
    The enterprise exclusively or concurrently engaged in futures proprietary trading (dealing) described in the preceding paragraph shall have its number to start with three digits "939", followed by a three-digit serial number, and then another digit as inspection number.
    In the case of a privately placed securities investment trust fund managed by a SITE, the custodian of the trust fund may apply to open a margin account, to whom the provisions of paragraph 1, subparagraphs 1 to 3 of the preceding article do not apply.
    In the case of a privately placed securities investment trust fund managed by a SITE, the outstanding balance of long or short margin positions, combined with other sales of borrowed securities may not exceed 50% of the size of the fund in each instance, and shall be controlled by the TWSE as a segregated account. If that limit is exceeded, the TWSE shall through the securities firm notify the SITE to lower the balance to 50% within two business days from the date on which it receives the notice from the securities firm. If the SITE fails to do so within the time limit, the TWSE may instruct the securities firm to dispose of the collateral on the next business day, by the mutatis mutandis application of Article 81, paragraph 3, to the extent required to achieve compliance.
    In the case of a discretionary investment account managed by an SITE or a securities investment consulting enterprise ("SICE"), or of discretionary investment business conducted by a securities broker concurrently operating an SICE, or of discretionary futures trading business operated by a managed futures enterprise, the custodian institution for discretionary investment assets may open a margin account on behalf of its customer. Customers with a discretionary investment account shall be governed by the provisions of paragraph 1, subparagraph 1 of the preceding article, and not by the provisions of paragraph 1, subparagraphs 2 or 3 of the preceding article. For the margin account, neither the outstanding balance of margin purchase positions nor the outstanding balance of short sale positions, combined with the outstanding balance of other sales of borrowed securities, may exceed 50% of the net asset value of the discretionary investment account, except in the case of discretionary futures trading business operated by a managed futures enterprise, for which neither the outstanding balance of margin purchase positions nor the outstanding balance of short sale positions, combined with the outstanding balance of other sales of borrowed securities, may exceed 20% of the net asset value of the discretionary investment account.
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Article 39    The assets under paragraph 1, subparagraph 4 of Article 37 shall be limited to those owned by the customer himself or herself, or his or her spouse, parent or adult child, and the following documentation shall be submitted:
  1. Photocopy of certificate of real property ownership, registration records, or tax return. The securities firm shall also perform a check of whether there are other encumbrances on the real property, and calculate the value.
  2. Documentation of deposits with a financial institution (e.g. certificate of deposit balance, passbook, certificate of deposit). The basis of calculation shall be the average balance within the past month.
  3. Proof of holdings in securities.
  4. Documentation of deposit balance in the gold account issued by a financial institution (e.g. gold passbook, or the certificate of balance for the gold passbook or gold account).
  5. Documentary proof of trust property for a money trust, securities trust or real estate trust issued by a trust enterprise (e.g., a reconciliation statement, list of trust assets, or certificate of trust property). Both the trustor and the beneficiary of the trust are restricted to the person who is the customer, and the trust property may consist only of real property, deposits at financial institutions, securities, or the balance of a gold account at a financial institution.
  6. Amount of collaterals of the customer's margin accounts with the same securities firm that is in excess of 130% of the account collateral maintenance ratio, excluding margin and short positions where settlement is not completed.
    When the customer is not the owner of assets shown on the provided proof of assets, the owner of the assets shall be a joint and several guarantor.
    In case of the customer's documentation proving his or her assets in the form described in subparagraph 6 of paragraph 1, the securities firm shall establish appropriate credit facility control and management measures.
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Article 40    Where a customer of a securities firm extending margin and stock loans has entered into a margin agreement with a securities finance enterprise via the securities firm, and where such agreement is not yet terminated, if such customer enters into a separate margin agreement with the securities firm within 6 months starting from the date on which it commences the margin and stock loaning business, the restrictions imposed by Articles 37 and 38 in relation to account opening thresholds do not apply.
    The same shall apply to a customer of a securities firm that is extinguished as a result of a merger/consolidation or transfer of the whole of its business or property where the customer enters into a new margin agreement with the surviving securities firm within 6 months starting from the next day of the record date for the merger/consolidation or of the last business day of the transferring securities firm.
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Article 41    A securities firm may not entertain an application to open a margin account from any customer to whom any of the circumstances below applies. If an account has already been opened, the securities firm shall promptly notify the customer to close out all outstanding margin purchases and short sales on the next business day and thereafter cancel the margin account; if the customer fails to close out all outstanding margin trades within this time limit, the securities firm shall, by the mutatis mutandis application of Article 81, paragraph 3, close out the trades for the customer starting from the next business day.
  1. The customer does not meet the account opening threshold requirements.
  2. The customer applies to open a margin account using the name of another person.
  3. Any circumstance under Article 76, paragraph 1 or 3, of the TWSE Operating Rules or Article 47, paragraph 1 or 2, of the TPEx Trading Rules applies to the customer. However, if any circumstance under Article 76, paragraph 3, subparagraph 1 of the TWSE Operating Rules or Article 47, paragraph 2, subparagraph 1 of the TPEx Trading Rules applies to the customer, and the information has been forwarded by the TWSE or the TPEx at 11:30 a.m. the given morning, the securities firm shall notify the customer on the following business day.
  4. A brokerage account previously opened by the customer at the securities firm has been cancelled.
  5. The customer falls in any of the circumstances listed below with the securities firm and the case has not been closed:
    1. Failure to perform a settlement obligation on time under Article 91 of the TWSE Operating Rules or Article 87 of the TPEx Trading Rules.
    2. Breach of the margin agreement it has entered into with the securities firm.
    3. Default under Article 33 of the Operating Rules for Securities Lending by Securities Firms.
    4. Violation under Article 28 of the Operating Rules for Securities Business Money Lending by Securities Firms.
    Provisions of the preceding paragraph shall apply mutatis mutandis in the event the customer is in one of the following circumstances:
  1. A juristic person has agreed for dissolution by resolution, is ordered for dissolution by competent authority, or is being dissolved as ordered in a court ruling, or is undergoing liquidation in accordance with the Company Act.
  2. A juristic person is being taken over or its debts are being cleared by the competent authority for the juristic person in accordance with the Banking Act, Insurance Act, Trust Law or other laws and regulations.
  3. A juristic person is ordered to suspend its business or its business license has been revoked by the competent authority for the juristic person.
  4. Money and/or securities in a margin account are the subject of a court ruling for provisional attachment or other compulsory execution.
  5. The customer is the subject of a court petition for reorganization, composition, or bankruptcy under the Company Act or the Bankruptcy Act, or has agreed to a composition, or is ordered for reorganization or bankruptcy by court ruling; or, if being a natural person, has commenced liquidation as ordered by court, and has not had its rights reinstated.
  6. The customer's assets are ordered to be confiscated or frozen during criminal proceedings.
  7. A clearinghouse for negotiable instruments has blacklisted the customer.
    Where the sum of financing sought by the customer and the assessed amount of its other loan business with the same securities firm does not exceed NT$500,000, the securities firm may not inquire about the credit information regarding negotiable instruments, provided where an inquiry discloses the customer has been discredited by the clearing house, the preceding paragraph will still apply.
    A securities firm may not entertain an application to open an account from a customer to whom any of the circumstances below applies at another securities firm, securities finance enterprise, or securities exchange, and where the case has not been closed. If an account has already been opened, the securities firm may not accept orders for margin purchase or short sale trades; after the customer has closed out its margin purchase and short sale trades, the securities firm shall immediately cancel the margin account:
  1. Breach of a margin agreement it has entered into with a securities firm or securities finance enterprise.
  2. Default under Article 33 of the Operating Rules for Securities Lending by Securities Firms.
  3. Violation under Article 28 of the Operating Rules for Securities Business Money Lending by Securities Firms.
  4. Event under Article 42, 45, or 49 of the TWSE Securities Borrowing and Lending Rules.
  5. Default or violation under the securities finance enterprise's securities settlement financing operating rules or securities lending operating rules.
    Where any circumstance in the preceding four paragraphs applies to a juristic person or its responsible person, the responsible person or any juristic person represented thereby is also prohibited from opening a margin account. An account that has already been opened shall be subject to the provisions of paragraph 1 and the preceding paragraph.
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Article 42    A customer who is a natural person applying to open a margin account shall personally furnish the original of his or her national ID card, sign a Margin Account Application Form (Appendix 1) and a margin agreement (Appendix 2) then and there, and also provide a specimen seal or signature card, a certificate of income and property, and trading records.
    Where the customer is a juristic person, the account opening procedures under the preceding paragraph shall be carried out by an authorized person who shall present a power of attorney, the original national ID cards of the authorized person and the customer's representative, the original incorporation/amendment registration form, and the original certification of incorporation.
    A photocopy of each of the identity documents and incorporation/amendment registration form and the original power of attorney under the preceding paragraph shall be retained on record, and the following statement shall be stamped on the photocopies: "The account opening application is confirmed to have been made in person by the applicant or a person authorized thereby; this is a true and faithful copy of the original."
    Where the customer in the first or second paragraph has opened a transaction account, the securities firm may process its account opening application by correspondence or electronic means that is sufficient to identify the customer as the applicant itself or its indication of intent.
    When processing an application to open a margin account, a securities firm shall perform a detailed and accurate credit check to verify that the customer meets the account opening threshold requirements. It shall expressly state on the Margin Account Application Form the details of the credit check method, credit information, and credit check findings, and prepare an account opening card specifying the date of account opening and the assigned account number. It shall transmit the account opening information, or account cancellation information if such is the case, on the current day to the computer database of the TWSE or TPEx.
    Where the customer is a juristic person, the securities firm shall also send a written request to the customer confirming that the customer has authorized the opening of the account. If, however, the customer empowers a custodian institution to open the account on its behalf, or submits proof that settlement is to be handled on its behalf by a custodian institution, it is not necessary to send a written request for confirmation.
Article 43    Where a customer opens a margin account and subsequently has no record of margin purchases or short sales for a period of three consecutive years or more, the securities firm shall promptly cancel the margin account and notify the customer of such cancellation.
    A customer terminating an existing margin account shall fill out an Application for Termination of Margin Account. The securities firm shall cancel the account once it has confirmed that the customer has settled all outstanding obligations relating to margin purchases and short sales. A securities firm may process an application for account cancellation by correspondence or electronic means that is sufficient to identify the customer as the applicant itself or its indication of intent.
Article 44    A securities firm shall set up a separate account ledger for each customer margin account, and record therein on a daily basis the following:
  1. Matters relating to margin purchases and short sales.
  2. Collateral.
  3. Any margin calls for, or disposal of, collateral.
    A securities firm shall, based on the account entry records under the preceding paragraph, prepare a reconciliation statement each month and deliver it to the customer, unless there is no record of margin trading for the given month and the customer moreover has not submitted a written request for a statement.
    Upon execution of a consent letter by the customer to allow collection, processing, use and international transmission of the customer's personal data by the TWSE, TPEx, or any institution designated by the competent authority in accordance with relevant laws and regulations, a securities firm shall promptly transmit the data concerning credit line, balance of margin purchases and short sales, and any changes therein, to the TWSE and TPEx computer database systems.
    When borrowing securities from other securities firms, securities finance enterprises and the TWSE securities lending system, a securities firm shall record the lendings, borrowings and returns of securities as well as the delivery of the performance bond.
Article 45    If a customer fails to promptly notify the securities firm in writing of any change to the information contained in the Margin Account Application Form with respect to the name, national ID number, or juristic person's uniform serial number, mailing address, or contact telephone number of the customer, agent, or representative, the securities firm may halt margin purchases and short sales by the customer.
Article 46    All notices that a securities firm is required to give to a customer under these Rules shall be delivered by mail, by e-mail subject to electronic signature requirements, or by personal delivery against a receipt signed by the customer.
    A securities firm must procure the written or electronic consent of the customer prior to giving notice by e-mail. Procedures concerning e-mails and electronic consents are governed mutatis mutandis by the requirements applicable to the delivery by a securities firm of securities trading reconciliation statements by e-mail.
    Deadlines notified by a securities firm to a customer by e-mail for actions to be taken are the same as those notified by mail.
    Where a notice mailed by a securities firm is not delivered in time as a result of failure by the customer to give notice of change as required under the preceding article or due to some other reason attributable to the customer, the notice shall be deemed effective from the day of the first delivery attempt by the post office.
    In the case of a notice given by personal delivery against a receipt signed by the customer, the customer's signature or seal impression on the receipt shall match the specimen signature or seal appearing on the margin agreement, and shall be dated personally by the customer.
     If the customer is a discretionary investment account, a securities firm shall give notice to the discretionary investment manager and the custodian institution of such account of matters required to be notified.
    Records of notification by a securities firm to its customers shall be retained for a minimum of one year or, in the event of a dispute, until the dispute is resolved.
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   Chapter IV Margin Trading Applications and Settlements
Article 47    A customer giving an order for a margin purchase or short sale shall fill out an order ticket marked "MARGIN PURCHASE" or "SHORT SALE"; after execution of the trade, the securities firm shall prepare a trading report marked with the same words and have it signed/sealed by the customer.
Article 48    For executed margin purchases and short sales, a securities firm shall calculate the balance of long and short positions in a customer's margin account after close of market each day. The customer shall settle with cash or spot securities any portion that is beyond the long position limit or short position limit.
    After a customer places an order for a short sale, if a rise in the price causes the customer's short balance to exceed the short position limit, the securities firm may lend the security to the customer for short selling within the extent of the daily price limit on the given day, provided that if short sales of ETF beneficial certificates with foreign component securities, offshore ETF beneficial certificates, or futures ETF beneficial certificates are not subject to a price limit, the securities firm may accommodate short sale of the securities within the extent of the highest trade price on the given day.
    When the market price per trading unit of a security sold short exceeds the short position limit, a customer may sell one trading unit short if the customer's margin account is clear of any short balance.
Article 49    Upon execution of a margin purchase or short sale, the securities firm shall, by 10 a.m. on the second business day after the trade date, collect from the customer a margin for the margin purchase, based on the balance of the trade price of the margin purchase less the dollar amount of the margin loan, or in the case of a short sale, a margin for the short sale, based on the trade price of the short sale multiplied by a required percentage (any amount less than NT$100 shall be calculated as NT$100).
Article 50    A securities firm providing a margin loan to a customer shall do so and perform settlement on behalf of the customer based on the amount of the margin loan as calculated by multiplying the trade price of the margin purchase by a required percentage (with any amount less than NT$1,000 excluded from calculation); all securities bought on margin shall serve as collateral.
    A securities firm lending a security to a customer for short selling shall do so and perform settlement on behalf of the customer based on the type and quantity of the security sold short in that trade; the proceeds from the short sale conducted by the customer with securities provided by the securities firm acquired through margin purchase shall serve as collateral after deducting the securities transaction tax, the short sale handling fee, and the securities firm handling fee; proceeds from the short sale conducted by the customer with Borrowed Securities or Proprietary Securities shall serve as collateral after deducting the securities transaction tax and securities firm handling fee.
    A securities firm borrowing securities from a securities firm or securities finance enterprise conducting money lending in connection with securities business shall deposit a performance bond with the TWSE in accordance with the Regulations Governing the Performance Bond for the Lending of Securities by Securities Firms and Securities Finance Enterprises.
Article 51    A securities firm shall, for a margin purchase, collect from the customer the interest on the margin loan at the stated interest rate, and, for a short sale, pay interest at the stated interest rate on the short sale margin and on the remainder of the proceeds from the short sale under paragraph 2 of the preceding article.
    The interest under the preceding paragraph shall accrue for the number of days from the second business day after the day on which the margin purchase or short sale is executed to the day before the payment day.
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Article 52    Where a securities firm charges a customer a short sale fee, expenses incurred from refinancing from a securities finance enterprise due to a shortfall in the security shall be borne by the securities firm.
    Where a securities firm charges a customer a short sale handling fee, the various fees and expenses required for any competitive bid loan, negotiated transaction, or purchase by tender offer conducted by a securities finance enterprise shall be borne by the customer. The securities firm shall further calculate pursuant to the following principles for short sellers the fees and expenses for each share of the security sold short based on the short balance for that security for which a short sale handling fee is charged, on the date the shortfall in the security occurs, and then collect payment from each short seller in the short sales in an amount determined by the number of shares it sells short:
  1. If the margin balance is larger than or equal to the short balance of the security for which a short sale handling fee is charged, and the balance of Borrowed Securities and Proprietary Securities is smaller than the balance of securities lent through securities lending, securities lent to securities firms and securities finance enterprises conducting money lending in connection with securities business, and securities lent through the TWSE securities lending system ("Lending Balance") plus the short balance for which a short sale fee is charged, the short seller does not have to bear the fees.
  2. If the margin balance is smaller than the short balance for which a short sale handling fee is charged, and the balance of Borrowed Securities and Proprietary Securities is larger than or equal to the Lending Balance plus the short balance for which a short sale fee is charged, the short seller shall bear the fees in full.
  3. If the margin balance is smaller than the short balance for which a short sale handling fee is charged, and the balance of Borrowed Securities and Proprietary Securities is smaller than the Lending Balance plus the short balance for which a short sale fee is charged, the short seller shall bear a proportion of the fees as calculated pursuant to the following formula:
    (short balance for which a short sale handling fee is charged - margin balance)/[(short balance for which a short sale handling fee is charged - margin balance) + (Lending Balance + short balance for which a short sale fee is charged) – (balance of Borrowed Securities and Proprietary Securities)]
    The securities firm may collect the fees and expenses receivable under the preceding paragraph by deducting the amount from the short sale collateral funds in the customer's margin account.
    During the suspension or halting of trading of the securities, if there is a difference in the number of the securities, the securities firm may borrow from the securities finance company. The securities finance company may purchase securities by tender offer according to Chapter 3 of the TWSE Rules Governing Purchase of Listed Securities by Reverse Auction or according to Chapter 3 of the TPEx Rules Governing Reverse Auction of TPEx Listed Securities in the event of inadequate sources of securities.
    For shares of securities obtained and distributable as a result of a securities finance enterprises conducting a purchase by tender offer, the securities firm shall distribute the shares to those short sellers who have a short balance for which a short sale handling fee is charged in the security, on the date the security falls short, in a quantity decided on a pro rata basis in accordance with the principles of paragraph 2 and rounded to an integral trading unit, for them to buy in to cover their short positions; any quantity remaining after the distribution shall further be distributed to these short sellers in the order of the size of the decimal portion of their respective distributable quantity, and if for a decimal number there are multiple short sellers, to one or more of them determined by drawing lots.
    Where two or more tender offer purchases are conducted [to cover securities shortfalls arising in the course of short sale operations], the dollar amounts of the purchases that are allocable to the short sellers shall be calculated by the weighted average method.
Article 53     A securities firm shall calculate, on a daily mark-to-market basis, the collateral maintenance ratio for each margin account as a whole and for each margin purchase and short sale in each margin account by the following formula:
collateral maintenance ratio = {market value of collateral securities for margin purchase(s) + initial collateral and short margin for short sale(s) + market value of securities deposited as collateral or other merchandise} ÷ {original margin purchase amount(s) + market value of underlying securities sold short} × 100 percent
    The market value of securities and other merchandise under the preceding paragraph shall be calculated based on the paragraph below , provided that for the six business days prior to an ex-rights or ex-dividend date for a TWSE or TPEx listed security pledged as collateral for a margin purchase, with the exception of in cases of a cash capital increase, the market value of the collateral security and the market value of TWSE or TPEx listed securities pledged as collateral shall be calculated based on the respective current day's closing price, minus the value of the cash dividend, or minus the value of the stock dividend calculated based on the current day's closing price.
  1. TWSE or TPEx listed book-entry central government bonds, local government bonds, corporate bonds, financial bonds: par value.
  2. TWSE or TPEx listed securities: the closing price of Taiwan Stock Exchange or Taipei Exchange.
  3. Gold that is registered for trading over the counter: the average price at closing based on the highest buying price quote and the lowest selling price quote ("the average closing price").
  4. An open-end type securities investment trust fund beneficiary certificate and futures trust fund beneficiary certificate: the net asset value per beneficiary unit of the prior business day.
    If the security the customer purchases on margin is subject to a 20 percent or more share dividend rate in gratuitous distribution of shares, or the issuer of the securities conducts a demerger and capital reduction, and after the capital reduction, the stock resumes trading and is TWSE or TPEx listed on the same day as the stock of the assignee company of the demerger, then unless the competent authority has otherwise imposed trading restrictions on the security, the newly issued rights shares or the stock of the assignee company of the demerger shall all be pledged as collateral, with the option of income tax deferral to be waived, and shall be transferred through book-entry by the central securities depository into the securities firm's segregated account for margin purchases and short sales, notwithstanding the provisions of Article 33 of the Regulations Governing Handling of Shareholder Services by Public Companies.
    The securities firm may not use the newly issued rights shares or the stock of the assignee company of the demerger under the preceding paragraph as a source of securities for lending in its conduct of securities trading short sale operations or as collateral for refinancing.
    The provisions of paragraph 2 shall not apply to newly issued rights shares or the stock of the assignee company of the demerger used as collateral. After the security is traded ex-rights, the market value of the newly issued rights shares shall be calculated as 70 percent of the closing price if they are TWSE or TPEx listed securities for margin purchase and short sale, or 50 percent of the closing price if they are not qualified according to Article 2 or 3 of the Standards Governing Eligibility of Securities for Margin Purchase and Short Sale, or are suspended according to Article 4 or 5 of the same Standards. After such shares have been transferred into the securities firm's segregated account for margin purchases and short sales, their market value is no longer required to be discounted.
    The market value of collateral securities for margin purchases and the original collateral and short margin for short sales, the market value of securities deposited as collateral or other merchandise referred to in paragraph 1 means the balance of the money, market value of securities and other merchandise in a customer margin account after deducting the short sale fee, competitive auction lending fee, negotiated lending fee, and fee for purchase of securities by tender offer [to meet a securities shortfall in short selling]; if there is any residual obligation after a settlement trade has been made or after the securities firm has disposed of the collateral, the residual obligation shall also be deducted.
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Article 54    Where the overall collateral maintenance ratio of the customer margin account is lower than 130 percent, the securities firm shall issue a margin call to the customer demanding the deposit, within two business days from the day the margin call is received, of additional margin collateral for the margin purchase or short sale that falls below the collateral maintenance ratio, to cover the margin deficiency.
    Margin deficiencies that a customer is required to cover under the preceding paragraph shall be calculated by the following formulas:
■ deficiency in margin for margin purchase = original margin purchase amount - (closing price on the day of calculation × number of shares purchased on margin × margin purchase leverage ratio) - (par value, closing price and average closing price of the day of calculation or net asset value per beneficiary unit of the prior business day × unit number of shares of the stock under paragraph 3 and securities deposited as collateral or other merchandise under Article 57 × margin purchase leverage ratio)
■ deficiency in margin for short sale = (closing price on the day of calculation × number of shares sold short × margin percentage required for short sale - initial margin for short sale) + (closing price on the day of calculation × number of shares sold short - original short sale proceeds) - (par value, closing price and average closing price of the day of calculation or net asset value per beneficiary unit of the prior business day × unit number of shares of the securities deposited as collateral under Article 57 or other merchandise).
    In the formula for calculating the deficiency for margin purchase under the preceding paragraph, if the stock under paragraph 3 of the preceding article or the securities deposited as collateral or other merchandise under Article 57 are categorized as book-entry central government bonds, local government bonds, corporate bonds, financial bonds, gold that is registered for trading over the counter, an open-end type securities investment trust fund beneficiary certificate and futures trust fund beneficiary certificate, its financing ratio shall be calculated based on the maximum financing ratio of TWSE or TPEx listings announced by the competent authority; for others that are not eligible for margin purchase or short sale under Article 2 or 3 of the Standards Governing Eligibility of Securities for Margin Purchase and Short Sale or are temporarily suspended under Article 4 or 5 of the same Standards, then the margin purchase leverage ratio shall be set at zero.
    Where trading of securities has been suspended or halted, the collateral maintenance ratio in paragraph 1 of the preceding article and the margin deficiencies required to cover in paragraph 2 of this article shall be calculated based on the closing price of the business day immediately before suspension or halting of trading.
    For purposes of calculation of the collateral maintenance ratio in the preceding article and the margin deficiencies that a customer is required to cover in paragraph 2 of this article, if a closing price is not available for the given day, it shall be calculated as the price determined by the following principles:
  1. When the highest buy price quoted as of market close on the given day is higher than the auction reference price at market opening on the TWSE or the basis price for the opening of trading on the TPEx, the highest buy price quoted will be the price.
  2. When the lowest sell price quoted as of market close on the given day is lower than the auction reference price at market opening on the TWSE or the basis price for the opening of trading on the TPEx, the lowest sell price quoted will be the price.
  3. When the above circumstances are not met, the auction reference price at market opening on the TWSE or the basis price for the opening of trading on the TPEx will be the price.
    The terms "the auction reference price at market opening" and "the basis price for the opening of trading" in the preceding paragraph shall have the meaning specified in Article 58-3, paragraph 4 of the TWSE Operating Rules, or Article 60-1 of the TPEx Trading Rules.
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Article 55    If, after a securities firm has issued a margin call demanding additional deposit to cover a margin deficiency in accordance with paragraph 1 of the preceding article, the customer fails to make the additional deposit, or makes deposit covering only part of it, within two business days from receipt of the margin call, unless agreed by both parties otherwise, the securities firm shall take the following measures:
  1. If the overall collateral maintenance ratio of the customer's margin account still falls below the required level on the given day, the securities firm shall dispose of the collateral by the mutatis mutandis application of Article 81, paragraph 3, starting from the next business day.
  2. If the overall collateral maintenance ratio of the customer's margin account is restored to 130 percent or higher on the given day, the securities firm may refrain for the time being from disposing of the collateral; provided that if the ratio again falls below the required level on any subsequent business day, and if the customer fails to make additional deposit on its own initiative to cover the deficiency that same afternoon, it shall dispose of the collateral by the mutatis mutandis application of Article 81, paragraph 3, starting from the next business day.
  3. If prior to disposal of collateral pursuant to the provisions of the preceding subparagraph, the customer makes successive deposits sufficient to cover the deficiency stated in the margin call, the securities firm shall expunge the record of the margin call.
  4. If the overall collateral maintenance ratio of the customer's margin account is restored to 166 percent or higher, the securities firm shall expunge the record of the margin call.
    The collateral disposed of under the preceding paragraph shall be the collateral for a given margin purchase or short sale in the customer's margin account for which a margin call has been issued demanding additional deposit of collateral to meet the collateral maintenance ratio. Any surplus amount after the disposal shall be returned. If the disposal proceeds are insufficient to satisfy the obligation, or if, for said collateral for margin purchases and/or short sales that is disposed of, brokerage trading orders have been placed at auction reference price at market opening of the current trading session or at basis price for the opening of trading, ± 10 percent, before market opening for six consecutive days (brokerage trading orders may be placed at market price instead during intraday trading hours other than a given period before market opening and after close of market), and the trades thus cannot be fully executed, the deficiency shall be offset by other funds in the margin account. If there is still a deficiency remaining after such offsetting, the securities firm shall request the customer to make up the remaining deficiency on the next business day.
    When a securities firm disposes of the collateral for margin purchases and/or short sales in customer margin accounts where a margin call has been issued demanding additional deposit of collateral to meet the collateral maintenance ratio, and where the customers concerned have failed to make the additional deposit within the specified time limit, the securities firm may take the newly issued rights shares or the stock of the assignee company of the demerger of those customers that are in amounts of less than one trading unit and combine them into trading units for the purpose of disposal.
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Article 56    If a deficiency occurs with respect to the overall collateral maintenance ratio of a customer's margin account as a result of settlement of any part of the transaction of margin purchase and short sale, the securities firm shall retain as collateral all or part of the funds and/or securities payable within the extent necessary to maintain the 130 percent collateral maintenance ratio.
Article 57    A customer may deposit the following securities or other merchandise as additional collateral for the short sale margin and any deficiency the customer is required to cover under Article 54
  1. TWSE or TPEx listed book-entry central government bonds, local government bonds, corporate bonds, financial bonds.
  2. TWSE or TPEx listed securities whose trading method has not altered or managed stocks for OTC trading, excluding ETF beneficial certificates being traded in foreign currency.
  3. Gold that is registered for trading over the counter.
  4. If an open-end type securities investment trust fund beneficiary certificate and futures trust fund beneficiary certificate, it must be denominated in NT dollars and of a domestically offered and domestically invested securities investment or a domestically offered and domestically invested futures trust fund which is offered to the general public, including those purchased in the name of a securities firm as the customer.
    The aforesaid securities deposited or other merchandise eligible for margin purchase and short sale as additional collateral may not:
  1. be less than one trading unit if being TWSE or TPEx listed securities and gold;
  2. be less than one trading unit, if being an open-end type securities investment trust fund beneficiary certificate and futures trust fund beneficiary certificate.
  3. be any registered shares issued to and acquired by shareholders or capital contributors as a result of capital increase out of earnings, or capital increase through contribution by company employees out of their bonuses to the industry in which they are serving, or capital increase by a venture capital company out of undistributed earnings, as effected in accordance with Article 13 of the Statute (Act) for Encouragement of Investment or Article 16 or 17 of the Statute (Act) for Upgrading Industries, that have not been transferred and reported for tax purposes.
    Where the securities firm accepts the deposit by the customer of securities or other merchandise that are not owned by the customer as in the first paragraph, as additional collateral to offset against the margin requirement, it shall additionally submit the household registration record and consent letter obtained from the owner.
    If the securities deposited as collateral to offset against a margin requirement under paragraphs 1 and 3 are subject to a 20 percent or more share dividend rate in gratuitous distribution of shares, or the issuer of the securities conducts a demerger and capital reduction, and after the capital reduction, the stock resumes trading and is TWSE or TPEx listed on the same day as the stock of the assignee company of the demerger, the provisions of paragraphs 3, 4, and 5 of Article 53 shall apply to the newly issued rights shares or to the stock of the assignee company of the demerger for which the circumstances set forth in paragraph 2, subparagraph 3 do not exist, and the consent letter under the preceding paragraph shall specify the waiver of the option of income tax deferral.
    A securities firm that accepts a customer using open-end type securities investment trust fund beneficiary certificates for margin purchase and short sale as additional collateral under the name of the securities firm, shall keep a registration log for management purposes and inform relevant information to the Taiwan Depository and Clearing Corporation ("TDCC"); book-entry operations for centrally deposited securities do not apply.
    A securities firm that accepts a customer using book-entry central government bonds for margin purchase and short sale as additional collateral, shall open a collateral account at the Book-Entry Central Government Securities Clearing Bank for margin sale transfer.
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Article 58    Where a customer applies by means other than in person to use securities, other merchandise, or securities investment trust fund beneficiary certificates purchased in the name of the securities firm in its central securities depository account established and maintained with a securities firm to deposit as additional collateral to offset against a short sale margin requirement or a deficiency it is required to cover under Article 54, the provisions of the preceding article shall still apply, and it is required that the customer sign a letter of consent for carrying out the operation of depositing securities or other merchandise as additional collateral by means other than in person and that the securities firm keep it on record after verification.
    When a customer submits an offsetting application by telephone as described in the preceding paragraph, the securities firm shall verify the identity of the customer and synchronously record the telephone call. The telephone recording shall be kept at its place of business and preserved for at least one year, or in the event of any dispute, until the dispute has been resolved.
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Article 59    The securities deposited or other merchandise to offset against margin requirements under the preceding article shall be valued as follows:
  1. book-entry central government bonds : valued at 90 percent of their par value.
  2. local government bonds, corporate bonds, financial bonds: valued at 70 percent of their par value.
  3. TWSE or TPEx listed securities eligible for margin purchase or short sale: valued at 70 percent of the auction reference price at market opening on the day or the basis price at the commencement of trading of that day when they are deposited.
  4. Securities not qualified according to Article 2 or 3 of the Standards Governing Eligibility of Securities for Margin Purchase and Short Sale, or suspended according to Article 4 or 5 of the same Standards: valued at 50 percent of the auction reference price at market opening or the basis price at the commencement of trading on the day they are deposited.
  5. Gold that is registered for trading over the counter: valued at 70 percent of the average market price on the business day prior to the margin purchase and short sale day.
  6. An open-end type securities investment trust fund beneficiary certificate and futures trust fund beneficiary certificate: valued at 70 percent of the net asset value per beneficiary unit on the business day prior to the margin purchase and short sale day.
    The provisions of Article 54, paragraph 5 apply to the terms "the auction reference price at market opening" and "the basis price for the opening of trading" in the preceding paragraph.
    For the purpose of calculating the overall account collateral maintenance ratio for a customer's margin account, the securities firm is not required to discount the value of securities deposited or other merchandise to offset against margin requirements.
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Article 60    If any of the following circumstances applies to any securities deposited or other merchandise by a customer to offset against its margin requirements, the securities firm shall deduct the value of such securities or other merchandise when calculating the collateral maintenance ratio under Article 53, and shall promptly notify the customer to replace such securities within three business days from receipt of the notice with cash of equivalent value or other securities eligible for use as additional collateral in offsetting against margin requirements:
  1. there is any defect in the rights or any other legal dispute.
  2. the provisions of Article 57 are not complied with.
    If any of the following circumstances applies to any securities deposited or other merchandise by a customer to offset against its margin requirements, upon notice by the securities firm, a customer shall replace the securities with equivalent cash or other securities or merchandise eligible for margin requirements within the following period:
  1. TWSE or TPEx listed securities, book-entry central government bearer bonds, local government bonds, corporate bonds, financial bonds, gold that is registered for trading over the counter: Upon the approval and public announcement by TWSE or TPEx of the termination of listing on the TWSE or TPEx, a securities firm shall give notice to a customer requesting it to make replacement 10 business days prior to the termination of listing. However, the aforesaid does not apply if (1) the proviso of Article 35-2 applies to the listed securities and (2) an open-end type fund beneficiary certificate for trading over the counter.
  2. Book-entry central government bearer bonds, local government bonds, corporate bonds, financial bonds: 10 business days prior to the date of partial redemption payment.
  3. For merger of an open-end type securities investment trust fund beneficiary certificate and futures trust fund beneficiary certificate: 10 business days prior to the termination of the trust contract or the expiration date of the extension period. However, if the surviving open-end type securities investment trust fund after merger is qualified under Article 57 requirements, the aforesaid is not applicable.
    In the event of suspension or halting of trading of any securities deposited by a customer to offset against its margin requirements, no replacement is required.
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Article 61    If there is any change in price resulting in an increase in the amount of the collateral value minus the obligations in the customer's margin account, the securities firm may not for that reason only deliver to the customer any cash, securities or other merchandise equivalent in amount to such increase, or use the amount to offset against the margin purchase margin or short sale margin.
Article 62    A customer giving an order to sell stock to settle (repay) a margin purchase or to buy stock to settle (repay) a short sale shall fill out an order ticket marked RETURN OF MONEY or RETURN OF STOCK, as the case may be; the securities firm receiving the order shall first check and verify that the type and quantity of shares under the settlement trade correspond to those on record for the original margin purchase or short sale before accepting the sell or buy order.
    Upon execution of the settlement trade under the preceding paragraph, the securities firm shall prepare a trade report marked RETURN OF MONEY or RETURN OF STOCK, as the case may be, and have it signed/sealed by the customer.
    If the execution of the settlement trade specified in the customer's order under paragraph 1 fails to fully satisfy the customer's obligation, the securities firm shall notify the customer to settle the remaining obligation by the second business day after the trade date, or directly use the money in the customer's margin account to offset against the remaining obligation.
Article 63    A customer applying to settle a margin purchase with cash or a short sale with spot securities shall deliver the money or securities by 12 noon of the current day, and shall fill out an Application to Settle a Margin Purchase with Cash or Application to Settle a Short Sale with Spot Securities and submit the application to the securities firm. Upon verification of the accuracy of the content, the securities firm shall deliver the short sale proceeds and short sale margin to the customer by the second following business day, or in the case of securities bought on margin or securities deposited or other merchandise as collateral, or securities investment trust fund beneficiary certificates purchased not in the name of a securities firm, where the customer has maintained a depository account or a book-entry central government securities account, transfer the securities to the account by the second following business day, or in the case of withdrawal of spot securities by the customer, deliver the securities by the third following business day.
    A customer applying to settle a short sale with spot securities which are borrowed from the same securities firm through securities lending business as the source of securities, the short sale collateral, short sale margin, or securities eligible to be deposited as collateral by securities firms for conducting securities lending business may, with the customer’s consent, be pledged as collateral of the securities concerned and not be subject to the requirement for transfer through book-entry in the preceding paragraph. Any balance after the pledge as collateral shall be returned pursuant to the preceding paragraph unless the securities firm and customer agree otherwise.
    The matters mentioned in the preceding paragraph that are subject to the customer’s consent and agreement with the customer shall be recorded by the securities firm.
    During the suspension or halting of trading of the underlying securities in margin purchase and short sale, the customer may apply to settle a short sale by cash payment or delivery of spot securities.
    Except under any of the following circumstances, the customer may not apply to use third-party securities as spot securities to settle a short sale:
  1. during a period in which trading has been suspended or halted in the underlying securities of the short sale.
  2. where an order for margin purchase has been placed to settle the short sale at the maximum price of the auction reference price at market opening on the TWSE or the basis price for the opening of trading on the TPEx on the same day and cannot be executed before the start of the trading session of the sixth business day prior to the book closure date of the underlying securities.
Article 64    Where a customer applies to settle a margin purchase with cash or a short sale with spot securities by means other than in person, the provisions of the preceding article shall still apply, except that the customer's signature or seal is not required on the settlement application form if the customer has already submitted a signed Letter of Consent That Applications to Settle with Cash or Spot Securities Do Not Require a Signature/Seal, and if the securities firm has kept it on record after verification.
    When a customer makes an application as described in the preceding paragraph by way of telephone, the securities firm shall verify the identity of the customer or its authorized agent and synchronously record the telephone call. When an application is made by way of telecommunication or through electronic means, the securities firm shall verify the customer's expression of intent and the identify of the customer or its authorized agent and keep the records. The telephone and telecommunication recording shall be kept at its place of business. In case of electronic recording, information stored on electronic media shall always be ready to be converted into written form. Records shall be preserved for at least 1 year, or in the event of any dispute, until the dispute has been resolved.
    The authorized agent in the preceding paragraph shall be issued a letter of authorization by the customer, stating that the authorized agent may act for and on behalf the customer in handling matters relating to settlement with cash or spot securities.
    Where a customer has submitted a signed Letter of Consent That Applications to Settle with Cash or Spot Securities Do Not Require a Signature/Seal under paragraph 1, except in the circumstance mentioned in paragraph 2 of the preceding article, the short sale collateral price and short sale margin returnable by the securities firm to the customer shall be deposited into the same bank deposit account used for book-entry settlement of the customer's trading orders, and the securities bought on margin and/or the securities deposited or other merchandise as collateral returnable by the securities firm to the customer shall be transferred into the customer's book-entry custody account or a book-entry central government securities account. Securities or other merchandise deposited as collateral that are not owned by the customer shall be returned through book-entry transfer.
    Securities firms that accept a customer using securities investment fund beneficiary certificates purchased in the name of the securities firm to settle a margin sale, shall operate according to Article 57, paragraph 5. The return transfer in the preceding paragraph is not applicable.
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Article 65    Securities firms shall process collections and payments from and to the customer such as use of cash or spot securities to settle a margin purchase or short sale and margin calls through securities delivery account.
Article 66    During the period when a securities finance enterprise is engaging in a competitive bid borrowing, negotiated borrowing, or purchase by tender offer to cover a security that falls short of short sale needs, a securities firm may temporarily suspend the short selling of that security, and may also refrain from processing cash settlement of any margin purchase of that security, except in the case of settling a margin purchase at maturity, or where a customer is applying to settle a margin purchase with cash and will use the receivable securities to settle a short sale.
    Where a securities firm conducts securities margin purchase and short sale business, and the combined total balance of short sales of any given type of securities plus the balance of loans of that type of securities extended in securities lending business and the Lending Balance in Article 7, paragraph 2, subparagraphs 5 to 7 reaches the combined total balance of margin purchases and the sum of Borrowed Securities and Proprietary Securities, the securities firm, during the resulting period of cessation of provision of short sales, may not withdraw the Proprietary Securities that have been used as a source of securities for short sale business.
    A securities firm that has provided Borrowed Securities or Proprietary Securities to a customer for short selling may not request the customer to repay the short sale upon the lender’s request for early repayment.
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Article 67    A securities firm may seek refinancing from a securities finance enterprise of any funds and securities that it needs in conducting securities trading margin purchase and short sale business.
    The securities firm is still required to fulfill its clearing and settlement obligations with the TWSE or the TPEx with respect to the funds or securities refinanced under the preceding paragraph.
    The securities firm shall prepare daily statements according to the following categories, and carry out clearing and settlement operations in accordance with the provisions of the TWSE Operating Rules, the TPEx Trading Rules, the Rules Governing Payment and Settlement Operations for Securities Traded on the TPEx, and the operating rules of the central securities depository:
  1. For margin purchases and short sales executed on behalf of securities finance enterprises, the securities firm shall prepare a separate Table of Applications for Margin Purchases and Short Sales by Securities Finance Enterprises, and reconcile the information therein with the records of the securities finance enterprises.
  2. For margin purchases and short sales executed with its own funds, the securities firm shall prepare a separate Itemized Table of Margin Purchases and Short Sales by Securities Firm.
  3. For trades executed with the refinancing from securities finance enterprises, the securities firm shall prepare a separate Table of Applications by Securities Firm for Refinancing in Margin Purchases and Short Sales, and reconcile the information therein with the records of the securities finance enterprises.
    Upon entering the information respectively under the subparagraphs of the preceding paragraph into the mainframe computer of the central securities depository by the specified time limit and upon entering the prepared summary statements into the mainframe computer of the TWSE or TPEx, the securities firm shall print out a Delivery List or Payment and Settlement List containing the information entered.
Article 68    A securities firm shall maintain accurate and detailed records of and receipt/payment vouchers for funds and securities received and paid in conducting the business of securities trading margin purchase and short sale and refinancing from securities finance enterprises, and shall prepare the following statements on a daily basis:
  1. Daily operations statement of margin purchases and short sales.
  2. Summary statement and itemized statement of increments, settlement, and balances of margin purchases and short sales.
  3. Itemized statement of receipts, deliveries, disposals, and uses of collateral for margin purchases and short sales.
  4. Statement of settlement with cash and spot securities.
  5. Summary statement of margin calls and deposits.
  6. Itemized statement of deposits of securities or other merchandise as collateral.
  7. Itemized statement of refinancing applications and settlements.
  8. Itemized statement of refinancing balance.
  9. Itemized statement of collateral for refinancing.
  10. Summary statement and itemized statement of increments, settlement, and balances of margin purchases and short sales.
  11. Itemized statement of performance bond.
Article 69    A securities firm shall on daily basis transmit information regarding the authorized limits on margin purchases and short sales, transaction details and balances for each customer to the TWSE or the TPEx, which shall compile such information and publish the balances of margin purchase and short sales before the next day's market opening.
   Chapter V Settlement by Offsetting of Margin Purchases and Short Sales in Margin Trading
Article 70    Notwithstanding the provisions of Article 63, the customer is required to sign a consent letter to grant a general authorization (Appendix 3) with the securities firm before it may perform a settlement of a TWSE or TPEx listed security bought on margin and sold short on the same day through an offset of margin purchasing and short selling ("Settlement"). After the securities firm's completion of margin purchase and short sale on the same day, a net settlement is allowed for offsetting a portion of the settlement obligation under the margin purchase against an equal amount of the settlement obligation under the short sale, in which case the securities firm shall produce an Application to Settle Margin Purchases with Cash and an Application to Settle Short Sales with Spot Securities on behalf of the customer for each individual transaction.
    If the customer having signed the consent letter under the preceding paragraph does not wish to have netting settlement thereunder carried out, the customer shall give a written instruction to the securities firm before close of market on the day on which the trades are executed.
    No interest may be accrued on the margin purchase and short sale with respect to the portions that are offset by netting under paragraph 1; nevertheless, the handling fee or short sale fee for that portion of the short sale shall still be calculated and collected/paid.
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Article 71    A customer's Settlement shall be included in the single-day trading limit, except the amount of any reverse order to purchase and short-sell securities with the margin loan, and the amount offset shall not be credited back for revolving uses on the same day.
    If the securities firm, pursuant to relevant regulations, does not establish a single-day trading limit for the customer and the customer engages in the Settlement, it shall separately establish a Settlement limit and comply with the following rules:
  1. The monetary amounts of opposite offsetting orders executed in the Settlement may not exceed the Settlement limit; new positions of margin purchases, short sales and cancelled orders shall not be included in the Settlement limit, and that the amount offset may not be credited back for revolving use on the same day.
  2. If the customer is qualified to engage in both the Settlement and day trades of securities, the day trading limit shall include the Settlement limit. The total sum of sell orders for day trades plus the monetary amounts of opposite executed in the Settlement may not exceed the day trading limit.
  3. The monetary amounts of opposite offsetting orders by a customer executed in the Settlement during after-hours fixed-price trading shall be included in the calculation toward the Settlement limit or the day trading limit, provided, however, the monetary amount of unexecuted opposite offsetting orders of the Settlement during normal trading hours is not included.
Article 72    The securities firm shall evaluate whether to increase or decrease a customer's single-day trading limit or Settlement limit based on the profit or loss of the customer's Settlement, after the closing of the market each business day. If the customer is also qualified to engage in day trades of securities, the profits and losses of day trades and Settlement shall be combined, and whether to increase or decrease the single-day trading limit, Settlement limit or day trading limit shall be assessed.
Article 73    If the customer's cumulative loss from the Settlement of the previous month reaches half of its single-day trading limit or Settlement limit, the securities firm shall suspend such customer's Settlement. If the customer is also qualified to engage in day trades of securities, its profit and loss from the Settlement of the previous month shall be included in the calculation toward the profit and loss of day trades of securities. If the cumulative losses of the two combined reach half of its single-day trading limit or day trading limit, such customer shall be suspended from Settlement and day trading. The securities firm shall re-evaluate the customer's single-day trading limit, Settlement limit or day trading limit after the customer has submitted proof of adequate financial capability, unless the customer is a professional institutional investor.
Article 74    The Settlement shall be stayed ipso facto for the period when a security is suspended from margin purchases and/or short sales by the announcement of the TWSE or TPEx or by the securities firm as required.
Article 75    Securities firms engaging in margin-purchasing and short-selling securities shall suspend short sales and lending of securities immediately if the sum of the balance of short sales of each security plus the balance of borrowing of securities, lending of securities to securities firm or securities finance enterprise engaging in borrowing of securities, balance of securities lending at the TWSE securities lending system, and balance of securities borrowed through lending auction or lending negotiation reaches the combined total of the amounts in each of the following paragraphs:
  1. The margin loan balance.
  2. The proprietary securities.
  3. The securities borrowed from the TWSE securities lending system.
  4. The securities borrowed from customer in the borrowing of securities.
  5. The securities borrowed from securities firm or securities finance enterprise engaging in borrowing of securities or dealing with margin purchases and short sales.
    The ceiling of securities loans of daily offsetting of margin purchases and short sales for securities firms shall be calculated by deducting the sum of the items under paragraph 2 "Minus" from the sum of the items under paragraph 1 "Plus" (based on business day):
  1. Plus
    1. The margin loan balance on the previous day:
      1. The margin loan balance.
      2. The balance of the proprietary securities.
      3. The balance of the securities borrowed from the TWSE securities lending system.
      4. The balance of the securities borrowed from customer in the borrowing of securities.
      5. The balance of the securities borrowed from securities firm or securities finance enterprise engaging in borrowing of securities or dealing with margin purchases and short sales.
    2. The purchased, borrowed or settled securities on the current day:
      1. The margin purchases.
      2. The proprietary securities settled on the current day.
      3. The securities borrowed from the TWSE securities lending system.
      4. The securities borrowed from customer in the borrowing of securities.
      5. The securities borrowed from securities firm or securities finance enterprise engaging in borrowing of securities or dealing with margin purchases and short sales.
    3. Covering of securities borrowing on the current day:
      1. The redemption by delivery of spot securities.
      2. The redemption by delivery of securities by customer borrowing securities.
      3. The redemption by delivery of proprietary securities.
      4. The redemption by delivery of securities by securities firm or securities finance enterprise engaging in borrowing of securities.
      5. The redemption by delivery of securities by borrower borrowing securities from the TWSE securities lending system.
  2. Minus
    The outstanding securities loan on the previous day.
    1. The balance of short sales.
    2. The balance of securities lent in the borrowing of securities.
    3. The balance of securities lent to securities fir or securities finance enterprises engaging in borrowing of securities.
    4. The balance of securities lent in the TWSE securities lending system.
   Chapter VI Handling of Share Transfers in Margin Purchases and Short Sales
Article 76    Securities eligible for margin purchases and short sales shall be suspended from being sold short for four days commencing from the sixth business day prior to such book closure; if a short sale has already been made, it shall be covered and closed out by the sixth business day (inclusive) prior to the book closure of the issuing company; where the security has been lent, the securities firm may request early repayment and shall reclaim the security before the last day for assignment (inclusive). A customer applying to settle a short sale with spot securities which are borrowed from the same securities firm through securities lending business as the source of securities shall file its application no later than the seventh business day (inclusive) prior to book closure; the application may be rejected where the securities firm has no source of securities. Provided, this shall not apply where the issuing company closes its books for a reason as follows:
  1. convening of a special shareholders' meeting.
  2. a reason that will not affect the exercise of shareholders' rights.
    Where a business day under the preceding paragraph is a trading day, but the commencement date of book closure of the issuing company is scheduled to fall on a date from (and inclusive of) the second settlement day after the last trading day before the Lunar New Year Holidays to (and inclusive of) the second trading day following the Lunar New Year Holidays, the following provisions shall apply.
  1. When the commencement date of book closure is scheduled to fall on the second settlement day after the last trading day before the Lunar New Year Holidays, then the first settlement day after the last trading day is included in the calculation of "business days."
  2. When the commencement date of book closure is scheduled to fall during the Lunar New Year Holidays or on the first trading day following the Lunar New Year Holidays, then the two settlement days after the last trading day are both included in the calculation of "business days."
  3. When the commencement date of book closure is scheduled to fall on a weekend or other regular holiday after the first trading day following, or on the second trading day following, the Lunar New Year Holidays, then the first settlement day after the last trading day is included in the calculation of "business days."
Article 77    For any beneficial interest certificates that are eligible for margin purchases and short sales, if, after a general meeting of beneficial owners has been duly convened under the securities investment trust contract, any of the following circumstances consequently applies, margin purchases and short sales of those beneficial interest certificates shall be temporarily suspended from the second business day following the public announcement by the TWSE; provided, this restriction shall not apply to close-out trades. If a margin purchase or short sale has already been made, the trade shall be covered and closed out by repaying the margin loan or returning the borrowed securities by the first business day before delisting.
  1. where the general meeting of beneficial owners resolves to change to an open-end fund.
  2. where the beneficial interest certificates are open for redemption, and as a result the size of the fund reaches the standard for delisting.
    If a customer fails to liquidate a margin purchase or short sale within the time limit under the preceding paragraph, the securities firm may dispose of its collateral beginning from the next business day by the mutatis mutandis application of Article 81, paragraph 3. However, this shall not apply if the customer has, within the time limit under the preceding paragraph, completed a mandate contract requesting the securities firm to perform redemption on its behalf after delisting.
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Article 78    When the TWSE or TPEx has ratified and publicly announced the delisting from the stock exchange or termination of TPEx trading of a collateral eligible for margin purchase and short sale transactions, a securities firm shall request customers to cover and close out any margin purchases or short sales of such collateral by repaying the margin loans or returning the borrowed securities by the tenth business day before the delisting or the termination of TPEx trading. If a customer fails to cover and close out any margin purchase or short sale by repaying the margin loan or returning the borrowed security within the deadline, unless agreed by both parties otherwise, the securities firm shall dispose of said collateral on the following business day. Any surplus amount after the disposal shall be returned. If the disposal proceeds are insufficient to satisfy the obligation; or if, for said collateral for margin purchases and/or short sales that is disposed of, brokerage trading orders have been placed at auction reference price at market opening of the current trading session or at basis price for the opening of trading, ± 10 percent, before market opening for six consecutive days (brokerage trading orders may be placed at market price instead during intraday trading hours other than a given period before market opening and after close of market), and the trades thus cannot be fully executed; or if the collateral cannot be disposed of on account of a suspension of trading under Article 50 or 50-3 of the Operating Rules of the TWSE or Article 12-1 of the TPEx Rules Governing Securities Trading on the TPEx; or if, after reverse auction is conducted in respect of the collateral in accordance with Article 81, paragraph 5, the proceeds do not sufficiently cover the obligation, then the deficiency shall be offset by other funds in the margin account. If there is still a deficiency remaining after such offsetting, the securities firm shall request the customer to make up the remaining deficiency on the next business day. However, these provisions shall not apply under any of the following circumstances:
  1. The issuing company has applied for conversion of its TPEx listed securities to TWSE listed securities.
  2. The securities of a TWSE or TPEx listed company are delisted due to the company's merger, and the surviving company uses the securities which are eligible for margin purchase and short sale transactions for payment of all or part of the consideration to shareholders of the non-surviving company.
  3. The securities of a TWSE or TPEx listed company are delisted due to a share conversion, and the shares after conversion are still eligible for margin purchase and short sale transactions.
    or where securities of both the surviving and non-surviving TWSE or TPEx listed companies in a merger are eligible for margin purchase and short sale transactions.
    After termination of the contract for trading of Over-the-Counter (OTC) securities eligible for margin purchase and short sale to be converted as TWSE listed securities, the customer shall proceed to settlement of the balance of its existing margin purchases and short sales within the time limits for margin purchase and short sale. If prior to listing of these securities to be eligible for margin purchase and short sale, the customer acquired these securities through margin purchase or short sale, redemption shall be made by cash or by delivery of spot securities, respectively.
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Article 79    On the business day preceding book closure of an issuing company or the interest payment date of open-end fund beneficiary certificates, a securities firm shall prepare a share transfer list with respect to the security of the issuing company held in customer margin accounts, specifying those shares that are purchased on margin and those that are deposited as collateral to offset against margin collateral requirements, and send the share transfer and interest claim list, together with the data file, to the central securities depository to carry out share transfer procedures with the issuing company or its shareholder services agent on behalf of the customers. Provided, where the issuing company closes its books because of a special shareholders meeting, the number of shares of the issuing company's stock held in customer margin accounts that are purchased on margin shall, for the purposes of share transfers, be calculated by the securities firm in accordance with the provisions of the Rules Governing the Calculation of Number of Shares of Margin Buyers for the Purposes of Share Transfers Upon Special Shareholders Meetings.
    A customer using book-entry central government bonds to settle a margin sale may engage a securities firm to collect interest payment via the Book-Entry Central Government Securities Clearing Bank, and transfer the interest payment less any withholding tax deducted as agreed by both parties back to the customer prior to the business day following the interest payment date.
   Chapter VII Default and Extraordinary Event Procedure
Article 80    Failure by a customer to make timely deposit of margin purchase margin or short sale margin under Article 19 constitutes an event of default, in which case the securities firm shall immediately proceed by the mutatis mutandis application of Article 19 of the Taiwan Stock Exchange Corporation Rules Governing Brokerage Contracts of Securities Brokers and Article 7 of the GreTai Securities Market Account Opening Contract for Trading of Securities on the TPEx; also, on the basis of the securities firm's report, the TWSE or TPEx will forward notice to all securities finance enterprises and securities firms.
    In the event of any default by the customer as specified under the preceding paragraph, and a balance remains in the customer’s margin account, the securities firm shall, at the latest on the following business day, proceed by the mutatis mutandis application of the handling method under Article 81, paragraph 3 hereof to settle the account, and shall cancel the margin account; if there is no balance, the margin account shall be cancelled.
    If any of the following circumstances applies to a customer, and a balance remains in the customer's margin account, the securities firm shall immediately notify the customer to close out all margin purchase and short sale trades on the next business day, after which it shall cancel the customer's margin account; if the customer fails to close out all margin trades within this time limit, the securities firm shall, by the mutatis mutandis application of Article 81, paragraph 3, close out the trades for the customer starting from the next business day:
  1. Failure to perform a settlement obligation on time under Article 91 of the TWSE Operating Rules or Article 87 of the TPEx Trading Rules; provided that this does not apply to an event of default under paragraph 1.
  2. Default under Article 58 of the Operating Rules of the Taiwan Futures Exchange Corporation.
  3. Default under Article 33 of the Operating Rules for Securities Lending by Securities Firms.
  4. Violation under Article 28 of the Operating Rules for Securities Business Money Lending by Securities Firms.
    If an event of default under paragraph 1 or 3 occurs to a discretionary investment account, the preceding three paragraphs shall apply, unless the cause is unauthorized trading, in which case the provisions of Article 91-1 of the TWSE Operating Rules or Article 87-5 of the TPEx Trading Rules shall be followed.
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Article 81    Where any of the following circumstances applies to a customer, the securities firm may, within the extent required to satisfy the obligation, dispose of the balance in the customer's margin account in accordance with the provisions of paragraph 3, unless agreed otherwise by both parties. If there is any surplus remaining after the obligation is satisfied by proceeds of the disposition, it shall be returned to the customer. If the proceeds of the disposal are insufficient to fully satisfy the obligation, or if, for the balance in the margin account being disposed of, brokerage trading orders have been placed at auction reference price at market opening of the current trading session or at basis price for the opening of trading, ± 10 percent, before market opening for six consecutive days (brokerage trading orders may be placed at market price instead during intraday trading hours other than a given period before market opening and after close of market), and the trades thus cannot be fully executed, the securities firm shall request the customer to satisfy the remaining obligation within a specified time limit and, if the customer fails to the remaining obligation within such specified time limit, the securities firms shall report the case to the TWSE or the TPEx as an event of default and cancel the customer's margin account accordingly. The TWSE or the TPEx shall promptly forward the message to securities finance enterprises and to all securities firms engaged in margin purchase and short sale business:
  1. Failure to make up a deficiency in accordance with Article 55, paragraph 2.
  2. Failure to settle an obligation in accordance with Article 62, paragraph 3.
  3. Failure to make up a deficiency in accordance with Article 78, paragraph 1.
    Where any of the following circumstances applies to a customer on a margin purchase or short sale, unless agreed otherwise by both parties according to subparagraphs 2 and 3, the securities firm shall return any surplus amount after the disposal of the collateral for the margin purchase or short sale. If the disposal proceeds are insufficient to satisfy the obligation; or where either subparagraph 2 or subparagraph 3 applies to the customer, if brokerage trading orders for said collateral have been placed at auction reference price at market opening of the current trading session or at basis price for the opening of trading, ± 10 percent, before market opening for six consecutive days (brokerage trading orders may be placed at market price instead during intraday trading hours other than a given period before market opening and after close of market), and the trades thus cannot be fully executed; or if, after reverse auction is conducted in respect of the collateral in accordance with paragraph 4, the proceeds do not sufficiently cover the obligation, the securities firm shall use other funds in that customer's margin account to offset against the obligation. If there is still a deficiency remaining after such offsetting, the securities firm shall request the customer to make up the deficiency on the next business day. If the deficiency is not fully made up, the securities firm may, within the extent required to satisfy the obligation, dispose of the balance in the customer's margin account in accordance with the provisions of paragraph 3. If there is any surplus remaining after the obligation is satisfied by proceeds of the disposition, it shall be returned to the customer. If the proceeds of the disposal are insufficient to fully satisfy the obligation, or if, for said collateral for the margin purchase and/or short sale that is disposed of, brokerage trading orders have been placed at auction reference price at market opening of the current trading session or at basis price for the opening of trading, ± 10 percent, before market opening for six consecutive days (brokerage trading orders may be placed at market price instead during intraday trading hours other than a given period before market opening and after close of market), and the trades thus cannot be fully executed, the securities firm shall request the customer to satisfy the remaining obligation within a specified time limit, and, if the obligation remains unsatisfied after the time limit, shall report the case to the TWSE or the TPEx as an event of default and cancel the customer's margin account accordingly. The TWSE or the TPEx shall promptly forward the message to securities finance enterprises and to all securities firms engaged in margin purchase and short sale business:
  1. Failure to settle a short sale in accordance with Article 76.
  2. Failure to settle a margin purchase or short sale at maturity.
  3. Failure to replace securities or other merchandise deposited as additional collateral against margin requirements as required under Article 60.
    Where any circumstances under paragraphs 1 and 2 apply to a customer, the securities firm shall, starting the next business day and on the TWSE centralized exchange market or through the TPEx trade system or through tender offer or competitive auction, place an order with another securities broker to dispose of the customer's collateral and securities or other merchandise deposited through a Margin Trading Default Processing Account opened by it. If a customer uses book-entry central government bearer bonds, local government bonds, corporate bonds, financial bonds to settle a margin sale , a securities firm may negotiate the price and dispose the aforesaid with a bonds dealer; if a customer uses open-end fund beneficiary certificates to settle a margin sale, a securities firm may dispose the aforesaid by buying back from a securities investment trust enterprise.
    If a customer fails to return the securities for satisfaction of the loan according to Article 76, the securities firm shall proceed with disposition from the next business day. The securities firm may conduct reverse auction in accordance with the preceding paragraph if the subject security cannot be disposed of on account of a suspension of trading under Article 50 or 50-3 of the Operating Rules of the TWSE or Article 12-1 of the TPEx Rules Governing Securities Trading on the TPEx.
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Article 82     Based on the event of default, a securities firm may, for a period starting from the day of default to the day of payment by a customer, charge the customer a margin purchase default penalty in the amount of the shortfall to be made up multiplied by 10 percent of the stated interest rate on the margin loan, or a short sale default penalty in the amount of the shortfall to be made up multiplied by 10 percent of the short sale fee rate or equivalent to a one-time handling fee based on the stated amount of the short sale handling fee.
Article 83    A securities firm to which the TWSE or TPEx has forwarded a message that a customer is in default with a securities finance enterprise, another securities firm, or a futures commission merchant shall take the following measures as the circumstances merit:
  1. Where a customer is in default under Article 80, paragraph 1 hereof, Article 76, paragraph 3, subparagraph 1 or 3 of the TWSE Operating Rules, or Article 47, paragraph 2, subparagraph 1 or 3 of the TPEx Trading Rules, the securities firm shall immediately notify the customer (provided that if the default information is forwarded by the TWSE or the TPEx at 11:30 a.m. on the given morning, the securities firm shall notify the customer on the next business day) to close out all outstanding margin purchases and short sales on the next business day and thereafter cancel the margin account. Where the customer fails to close out all outstanding margin trades within the time limit, the securities firm shall, by the mutatis mutandis application of Article 81, paragraph 3, close out the trades for the customer starting the next business day.
  2. Where a customer is in default under Article 81, paragraph 1 or 2 hereof, or in any of the circumstances listed below, the securities firm may not accept any order from the customer to carry out a margin purchase or short sale, and shall cancel the customer's margin account promptly after the customer has closed out all outstanding margin purchases and short sales:
    1. Default under Article 33 of the Operating Rules for Securities Lending by Securities Firms.
    2. Violation under Article 28 of the Operating Rules for Securities Business Money Lending by Securities Firms.
    3. Default or violation under the securities finance enterprise's operating rules for margin purchases and short sales, operating rules for securities settlement financing, or operating rules for securities lending.
     If a customer's participation in securities borrowing and lending transactions is halted or terminated due to any event under Article 42, 45, or 49 of the Taiwan Stock Exchange Corporation Securities Borrowing and Lending Rules, the securities firm shall handle the matter pursuant, mutatis mutandis, to subparagraph 2 of the preceding paragraph.
    Unless the cause is unauthorized trading and handling measures are not required to be taken, if any event of default under the preceding two paragraphs occurs to a discretionary investment account or to a customer's own account, the provisions of the preceding two paragraphs shall apply to the customer' own account and any other discretionary investment account of the customer.
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Article 84    When a securities firm conducts margin purchase and short sale business, during the valid period of a margin purchase or short sale relationship, if trading in the securities market is completely suspended or trading of a certain type of securities is suspended due to a natural disaster or other extraordinary event as determined by the competent authority and the time for resumption of transactions has not been decided, the securities firm shall notify its customers to close out margin purchases and short sales in the following manners within the agreed period:
  1. For securities acquired through margin purchase, redeem the securities by cash and withdraw the securities.
  2. For securities sold through short sale, cover the short sale with spot securities, and withdraw the monetary proceeds from the short sale and the margin. However, if unable to cover the short sale with spot securities, the securities firm may apply to the TWSE or TPEx to purchase the securities through public tender offer. The cost of the tender offer shall be borne by the short sale customer.
   Chapter VIII Risk Control
Article 85    When a securities firm deals with margin purchases and short sales, the total amount of margin purchases or short sales of securities provided to its customers, plus securities lent to the securities firms or securities finance enterprise engaging in borrowing of securities, or securities lent at the TWSE securities lending system, or securities lent for lending auction or lending negotiation ("Lent Securities") may not exceed 250% of its worth, respectively.
    Where a securities firm maintains a regulatory capital adequacy ratio of 250% or above for three consecutive months, the total amount of margin purchases or short sales of securities which it conducts from and to customers, plus the Lent Securities, may not exceed 400% of its net worth, respectively.
    Where, after the preceding paragraph is complied with, a securities firm maintains a regulatory capital adequacy ratio lower than 250% for two consecutive months and the total amount of its margin purchases from or short sales to customers, plus the Lent Securities, exceeds 250% of its net worth, it shall cease to conduct margin purchases from, short sales to or lending securities to customers. When such total amount falls below 250% of its net worth or its regulatory capital adequacy ratio remains 250% or above for three consecutive months, the preceding two paragraphs will apply, respectively.
    When a securities firm conducts margin purchases and short sales of securities, the sum of the total amount of its margin purchases from customers plus the total financing amount of money lent in connection with securities business may not exceed 400% of its net worth; the sum of the total amount of short sales to customers plus the total dollar amount of securities lent in connection with borrowing of securities business may not exceed 400% of its net worth.
Article 86    When a securities firm conducts margin purchases and short sales of securities, the total amount of its margin purchases of each security may not exceed 10% of its net worth.
    When a securities firm conducts margin purchases and short sales of securities and securities lending and borrowing, the sum of the total amount of its short sales and the securities lent with respect to each security may not exceed 5% of its net worth.
Article 87    The net worth of a financial institution operating as a securities firm concurrently is calculated based on the exclusively appropriated working capital, provided it may not exceed the maximum net worth of the securities firm in the same period as specified in the preceding two articles and the limit prescribed by the competent authority.
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Article 88    When conducting margin purchases and short sales of securities, a securities firm shall implement an internal control over the amount limit for margin purchase and short sale applicable to its customers and establish the operating procedures for management of amount limit for margin purchase and short sale applicable to its customers, which shall cover, to a minimum extent, the following:
  1. Method of assessment of a customer's maximum amount for margin purchase and short sale. The amount approved to the customer for other loan business should also be taken into consideration in the assessment. There should be requirements that establish the sum of funds or securities financed to a single customer in the overall loan business should not exceed a certain percentage of its net worth. If the amount of margin purchases or short sales conducted by a single customer exceeds NT$300 million or 1 percent of the securities firm's net worth, whichever is higher, a proposal shall be submitted to the board of directors for approval.
  2. Method of assessment of a customer's maximum amount for margin purchase and short sale of individual securities. The amount approved to the customer for other loan business should also be taken into consideration in the assessment.
  3. Method of identifying high risk securities or high risk customers. Establishment of special procedure for supervision and approval/determination of the amount limit for margin purchase and short sale applicable to high risk securities or high risk customers.
  4. Method to determine the amount limit for sources of securities available for a customer's short sales based on a fair and reasonable principle and to avoid circumstances where the same customer acquires most securities from the sources. Special care is required in the case of securities for which the TWSE or the TPEx allocates the amount limit.
Article 89    In assessing a customer's maximum amount for margin purchase and short sale, if the securities firm is fully aware that or reasonably determines certain customers are related to each other, i.e. they are related in terms of credit risks (e.g. acting as trading agent on another's behalf), it should control and manage the amount limit for margin purchase and short sale and the amounts of other loan business available to these customers.
    Control and management of loan amount limit for customers related to each other as described in the preceding paragraph apply to a customer's opening of a new account, contract renewal and changes to amount limit, as well as changes to amount limit for another customer related to the customer or addition of a customer related to the customer.
   Chapter IX Supplementary Provisions
Article 90    Where the net worth of a securities firm exceeds the limit prescribed under Articles 85 and 86 for more than thrice within a period of six months, the TWSE or the TPEx will immediately request it to cure and take action as follows against the responsible person of the department committing the violation:
  1. Where the number of times of violation reaches four, the firm concerned will be requested to give a warning to the responsible person of the department concerned.
  2. Where the number of times of violation reaches five, the responsible person of the department concerned will be suspended from performing business for a month.
  3. In the event of an excessive number of times of violation or the violation is material, the TWSE or the TPEx may impose heavier punishment on the president, responsible person of the violating department, and the handling personnel.
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Article 91    A violation of any provision hereof by a securities firm or its responsible person or employee may be dealt with by the TWSE or the TPEx under its applicable rules and regulations.
    When a responsible or associated person charged with the operations of securities trading margin purchases and short sales violates any provision hereof or any other relevant provision, such person may not engage in those operations during the period in which the violation is subject to a disposition.
Article 92    These Rules are drafted by the TWSE in conjunction with the TPEx and shall take effect after having been submitted to and approved by the competent authority. Subsequent amendments thereto shall be effected in the same manner.