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Taiwan Stock Exchange Corporation Guidelines for the Exercise of Call (Put) Warrants  CH

Amended Date: 2014.07.15
1     Guidelines for the Exercise of Call (Put) Warrants by Holders and Their Mandated Securities Firms:
  1. A warrant holder may not request to exercise the call (put) warrants until the second business day after the date on which they are purchased, and after it has been confirmed that the warrants have been transferred into a central securities depository account.
  2. The Taiwan Stock Exchange Corporation ("TWSE") has engaged the Taiwan Depository and Clearing Corporation ("TDCC") to handle matters in connection with the exercise of call (put) warrants. The daily cut-off time for TDCC acceptance of applications input by securities firms to exercise warrants is 2:30 p.m.
  3. A securities broker may perform matters in connection with the exercise of call (put) warrants on the holder's behalf only after the holder has filled out an "Application Form for the Exercise of Call (Put) Warrants", and shall do so in accordance with the instructions therein.
  4. If a holder requests the exercise of a warrant, and the performance method for the warrant is "delivery of securities provided that the holder may choose cash settlement", the holder shall specify the method for performance at the time it requests exercise.
  5. There are three performance methods for the exercise of call (put) warrants for which a holder requests exercise:
    1. Delivery of securities.
    2. Cash settlement.
    3. Call (put) warrants for which the performance method is delivery of securities provided that the issuer (or warrant holder) may choose cash settlement.
    When the method for performance upon exercise as referred to in the preceding paragraph is cash settlement, the amount of the cash settlement shall be calculated on the basis of the closing price of the underlying security on the day of the exercise date. If the exercise date is the expiration date of the warrants, the amount of the cash settlement shall be calculated on the basis of the simple arithmetic mean trade price of the underlying securities during the 60 minutes prior to market close, or the underlying settlement index; if there is no trade price for the underlying securities during the 60 minutes prior to market close, then the calculation shall be based on the most recent trade price. If the circumstance under Article 58-3, paragraph 5 of the TWSE Operating Rules exists, the calculation shall also incorporate the trade price or index from during the postponement period. The aforementioned underlying settlement index shall be calculated pursuant to Article 10, subparagraph 6 of the TWSE Rules Governing Review of Call (Put) Warrant Listings. But, for call (put) warrants for which the underlying assets are foreign securities or foreign indices, the amount of the cash settlement shall be calculated based on the most recent closing price of the underlying securities prior to 6 p.m. on the expiration date of the warrants, converted into New Taiwan Dollars based on the closing mid-price of the Bank of Taiwan spot exchange rate on the given day, or calculated based on the most recent closing index value of the underlying index.
    In addition to the cash settlement method of performance referred to in the preceding paragraph, if a warrant holder fails to apply for exercise in a timely manner when a warrant has exercise value at expiration, the issuer may adopt the "automatic cash settlement if in-the-money at expiration" method and automatically perform cash settlement based on the simple arithmetic mean trade price of the underlying securities during the 60 minutes prior to market close on the warrant's expiration date. If there is no trade price for the underlying securities during the 60 minutes prior to market close, then the calculation shall be based on the most recent trade price. If the circumstance under Article 58-3, paragraph 5 of the TWSE Operating Rules exists, the calculation shall also incorporate the trade price or index from during the postponement period.
    If the call (put) warrant for which a holder requests exercise involves one of the following three performance methods, the securities firm must collect in advance from the holder any funds or securities required for exercise performance:
    1. Call (put) warrants involving "delivery of securities".
    2. Warrants involving "delivery of securities provided that the issuer may choose cash settlement".
    3. Warrants involving "delivery of securities provided that the holder may choose cash settlement", and for which the holder has already designated "delivery of securities".
    For warrants for which the method for performance upon exercise is "delivery of securities provided that the issuer may choose cash settlement" (i.e. subparagraph 2 above), if the issuer selects "cash settlement" or the holder's distribution involves "cash settlement", the securities firm shall, on the first business day after the date on which the holder requests exercise, refund the funds it collected in advance.
    For a capped call warrant or capped put warrant, the day on which the closing price of the underlying securities or the closing index of the underlying index reaches the capped call (or put) price or index is deemed the warrant's last trading day Such warrants reach maturity on the second business day thereafter, and without exception the automatic cash settlement performance method is adopted based on the closing price of the underlying securities or the closing index of the underlying index on the last trading day of the warrant.
    For a callable bull contract or callable bear contract, or a callable bull or bear contract whose period of validity is extendable, the day on which the closing price of the underlying securities or the closing index of the underlying index reaches the knock-out price or index is deemed the contract's last trading day. The contract reaches maturity on the second business day thereafter, and the automatic cash settlement performance method is adopted based on the simple arithmetic mean trade price of the underlying securities or the underlying settlement index on the first business day following the last trading day of the contract. If there is no trade price for the underlying security, the auction base price for the opening of trading of the underlying security on the expiration date of the contract shall be used. If the trading of the underlying security is halted or suspended on the first business day following the last trading day of the contracts or on the expiration date, the closing price of the underlying security on the last trading day of the contracts shall be used. The aforementioned underlying settlement index shall be calculated pursuant to Article 10, subparagraph 6 of the TWSE Rules Governing Review of Call (Put) Warrant Listings.
  6. A securities firm shall carry out receipt/payment operations separately for different warrant holders and for funds in connection with the exercise of different warrants. The securities firm, after collecting funds paid in advance by a warrant holder, shall deposit them in the segregated account for receipt and payment of funds in connection with the exercise of warrants (not the settlement account) at its bank. The securities firm shall transfers funds payable to the holder only after it has completed receipt/payment operations with the TWSE on the second business day following the date on which the holder requests exercise.
  7. The receipt/payment operations between a securities firm and the TSEC for funds in connection with exercise by a warrant holder are performed based on the balance after netting of receivables and payables, provided that if the securities firm is the same securities firm that is mandated by the issuer, it shall carry out separately with the TSEC the receipt/payment of, and may not subject to netting, funds of which it conducts receipt/payment on behalf of the issuer with the TWSE, and funds in connection with exercise by the holder.
    Funds in connection with the exercise of warrants may not be offset, between a holder and a securities firm, or between a securities firm and the TWSE, against the settlement price of securities traded on a centralized securities exchange market.
  8. The securities firm mandated by a holder of call (put) warrants shall, by 3:30 p.m. on the day exercise is requested, retrieve, through a computer connection with the Taiwan Depository and Clearing Corporation (TDCC), and print out a summary statement of the total volume of call (put) warrants for which the holder has requested exercise that day, carry out settlement of accounts.
  9. The standards by which the TWSE calculates, upon maturity of a call (put) warrant the performance method for which is "cash settlement", whether the warrant possesses exercise value are as follows:
    1. Call warrants
    2. In the case of non-index warrants, they possess exercise value if the result of the following calculation is greater than zero: (settlement price - exercise price) × number of underlying securities - (settlement price - exercise price) × number of underlying securities × securities transaction tax rate.
      In the case of index warrants, they possess exercise value if the result of the following calculation is greater than zero: (settlement index - strike index) × corresponding amount per index point × number of units of warrants × exercise ratio - (settlement index - strike index) × corresponding amount per index point × number of units of warrants × exercise ratio × securities transaction tax rate.
    3. Put warrants
    4. In the case of non-index warrants, they possess exercise value if the result of the following calculation is greater than zero: (exercise price - settlement price) × number of underlying securities - (exercise price - settlement price) × number of underlying securities × securities transaction tax rate.
      In the case of index warrants, they possess exercise value if the result of the following calculation is greater than zero: (strike index - settlement index) × corresponding amount per index point × number of units of warrants × exercise ratio - (strike index - settlement index) × corresponding amount per index point × number of units of warrants × exercise ratio × securities transaction tax rate.
    Calculation of the securities transaction tax rate shall be based on the tax rate set forth in the Securities Transaction Tax Act, and collected accordingly.
    Guidelines for calculation of the exercise value calculations above are as follows:
    1. The exercise processing fee collected by a securities firm is not deducted from the basis for exercise value calculation. Therefore, when the amount receivable by the holder as a result of exercise, after subtraction of the transaction tax, is less than the exercise processing fee calculated pursuant to Article 14 of the TWSE Rules Governing Trading of Call (Put) Warrants, the exercise processing fee collected by the securities firm may not be higher than the amount receivable by the holder as a result of exercise.
    2. The TDCC, after accepting a securities firm's application requesting to exercise a call (put) warrant for which the performance method is "cash settlement", will review and approve the application in accordance with the standards for calculating exercise value. When the call (put) warrant for which the securities firm requests exercise has no exercise value according to the calculation formulas above, the TDCC will reverse it.
  10. Any exercise of a call (put) warrant at a holder's request or the automatic exercise of a call (put) warrant on a holder's behalf by the TWSE must be done through a securities firm that has entered into a contract for market use with the TWSE. If an account balance of call (put) warrants of a warrant holder is recorded in a central securities depository account opened by a TDCC participant that has not entered into a contract for market use with the TWSE, the holder may request exercise only after it transfers the call (put) warrants into a central securities depository account opened by a securities firm that has entered into a contract for market use with the TWSE. For warrants subject to automatic exercise, however, the TWSE will still carry out exercise even if the abovementioned transfer has not been carried out.
  11. The quantity of any exercise of a call (put) warrant by the holder must be one trading unit or an integer multiple thereof.
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2     Guidelines for the Exercise of Call (Put) Warrants by Issuers and Their Mandated Securities Firms:
  1. The securities firm mandated by the issuer of call (put) warrants shall, by 3:30 p.m., retrieve, through a computer connection with the TDCC, and print out a summary statement of the total volume of call (put) warrants for which the holder has requested exercise that day and the volume for which the issuer has applied for cancellation, and immediately notify the issuer.
  2. Upon notification by the issuer, the securities firm mandated by an issuer of warrants for which the method for performance upon exercise is "delivery of securities provided that the issuer may choose settlement in cash" must, by 4:30 p.m. on the day on which the holder requests exercise, input the volume for which the issuer desires cash settlement through the TDCC network connection. After the cut-off time, all performance will be done by "delivery of securities".
  3. Pursuant to Article 14 of the TWSE Rules Governing Trading of Call (Put) Warrants, liquidity providers of call (put) warrants shall apply to the TWSE for a central securities depository account before applying to list the warrants on an exchange. Except for call (put) options in that account for which exercise may not be requested, the TWSE shall, at expiration of the call (put) warrants, use that account to carry out book-entry transfer matters in connection with cancellations.
  4. Pursuant to Article 14 of the TWSE Rules Governing Trading of Call (Put) Warrants, issuers of call (put) warrants and risk management institutions shall apply to the TWSE for a central securities depository account before applying to list the warrant on the exchange. The TWSE may use that account to carry out securities transfer for performance upon exercise.
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3     For domestic call (put) warrants for which the underlyings are foreign securities or foreign indices, the issuer of the warrants shall, before 6 p.m. on the warrant expiration date, report the following information on the internet information reporting system designated by the TWSE:
  1. The most recent closing price of the underlying securities or the most recent closing index value of the underlying index.
  2. The closing mid-price of the Bank of Taiwan spot exchange rate on the given day.
  3. The amounts of the most recent closing price and the newest strike price of the underlying securities, respectively converted into New Taiwan Dollars at the exchange rate provided in the preceding subparagraph.