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Title:

Guidelines Governing the Creation of Customer Ledgers of Securities Firms' Settlement Accounts  CH

Amended Date: 2016.07.14
   Chapter 1 General Provisions
Article 1    These Guidelines are established in accordance with the proviso of Article 92, Paragraph 1 of the Operating Rules ("Operating Rules") of the Taiwan Stock Exchange Corporation ("TWSE") and the proviso of Article 82, Paragraph 3 of the Taipei Exchange Rules Governing Securities Trading on the TPEx ("TPEx Trading Rules").
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Article 2    Pursuant to Article 38, Paragraph 2 of the Regulations Governing Securities Firms, a securities firm that retains customers' settlement funds in the securities firm's settlement account ("Settlement Account") with customers' consent shall comply with securities exchange laws and regulations and the rules, regulations, public notices and letter directives of the TWSE, TPEx and Taiwan Securities Association ("TSA").
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Article 3    A securities firm that retains customers' settlement funds in the securities firm's Settlement Account with customers' consent shall set up a separate account ledger for each customer, record therein the itemized receipts and payments of funds on a daily basis, and retain the record.
    A securities firm that retains customers' settlement funds in the securities firm's Settlement Account with customers' consent shall open a special NTD current account in the name of its head office, and may open only one such account with the same bank.
    The contract between the securities firm and the bank for the retention of customers' settlement funds in the Settlement Account shall state the following:
  1. No cash withdrawal from the Settlement Account is permitted. Transfers of funds are limited to accounts with account numbers agreed upon in advance between the securities firm and the bank and, if to be made to a customer, are limited to securities book-entry accounts opened by the customer for TWSE or TPEx securities trading ("Securities Book-entry Accounts") or one savings account of the customer itself as agreed upon with the customer ("Customer Savings Account"). With the exception of a customer's Securities Book-entry Accounts and the Customer Savings Account, all agreed accounts and account numbers shall be reported in writing to the TWSE and TPEx in advance; changes shall be notified to the TWSE and TPEx immediately by the securities firm and the bank.
  2. Where the total amount transferred from the Settlement Account to the Securities Book-entry Account or Customer Savings Account of the same customer in one day reaches NTD50 million, the bank shall immediately notify the TWSE and TPEx. The bank shall also notify the TWSE and TPEx immediately if withdrawal against the preceding subparagraph is involved in a transfer of funds, in addition to refusing to pay.
  3. No overdraft, pledge, or exercise of other rights in respect of the Settlement is permitted.
  4. The securities firm agrees the bank may furnish information concerning transactions in the account mentioned in the preceding paragraph as required by the Financial Supervisory Commission, TWSE and TPEx for the inspection of the securities firm's business.
Article 4    Customers' settlement funds retained in a securities firm's Settlement Account shall be separate from and independent of the latter's own assets and may not be utilized for purposes other than paying monies due from customers.
    No creditor of a securities firm's liabilities in said firm's own assets may claim to attach or exercise other rights in customers' settlement funds retained in the securities firm's Settlement Account and the relevant investment objects.
    Customers' settlement funds retained in a securities firm's Settlement Account are account-specific trust assets held for the benefit of customers and shall be immediately returned to customers when the securities firm petitions for bankruptcy or commences liquidation.
Article 5    The bank in Article 3 of these Guidelines shall meet the following conditions:
  1. If it is an R.O.C. bank (including subsidiaries of a foreign bank that are organized and registered in the R.O.C. under the Company Act), its equity ratio, tier 1 capital ratio and capital adequacy ratio shall conform to the following conditions:
    1. They may not be lower than the minimum ratio prescribed in Article 5, Paragraph 1, Subparagraphs 1 and 2 of the Regulations Governing the Capital Adequacy and Capital Category of Banks.
    2. The minimum ratio prescribed in the preceding item may not be lower than the increased ratio after a raise by the Financial Supervisory Commission pursuant to Article 5, Paragraph 2 of the Regulations Governing the Capital Adequacy and Capital Category of Banks.
  2. In the event of a branch in the R.O.C. of a foreign bank, the credit ratings of its head office shall meet any of the following standards:
    1. Long-term obligations are rated BBB- or above and short-term obligations A-3 or above by Standard & Poor's Ratings Services.
    2. Long-term obligations are rated Baa3 or above and short-term obligations P-3 or above by Moody's Investors Service, Inc.
    3. Long-term obligations are rated BBB- and short-term obligations F3 by Fitch Ratings Ltd.
    4. Long-term obligations are rated twBBB- and short-term obligations twA-3 by Taiwan Ratings Corporation.
    5. Long-term obligations are rated BBB- (twn) and short-term obligations F3 (twn) by Fitch Ratings Limited, Taiwan Branch.
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Article 6    A securities firm that retains customers' settlement funds in the Settlement Account with customers' consent shall conform to the following conditions and qualification requirements except where, in the event of non-compliance with Subparagraph 2, it has made specific improvement and obtained the approval of the competent authority:
  1. The net value specified in the latest financial reports duly audited or approved by the CPA may not be lower than the paid-in capital.
  2. Legal compliance:
    1. Not having been subject to the disposition in Article 66, Subparagraph 1 of the Securities and Exchange Act or in Article 100, Paragraph 1, Subparagraph 1 of the Futures Exchange Act in the last three months.
    2. Not having been subject to the disposition in Article 66, Subparagraph 2 of the Securities and Exchange Act or in Article 100, Paragraph 1, Subparagraph 2 of the Futures Exchange Act in the last six months.
    3. Not having been subject to the disposition of the competent authority in the form of business termination in the past year.
    4. Not having been subject to the disposition of the competent authority in the form of revocation or nullification of the business permit in the last two years.
    5. Has established a legal compliance unit and supervisor in accordance with the internal control system establishment guidelines of various service enterprises in the securities and futures markets.
  3. The regulatory capital adequacy ratio reported in the half-year period prior to application has been over 150%.
    Prior to retaining customers' settlement funds, the securities firm shall submit the following documents with the commencement date stated to the TWSE, with a copy to the TPEx. The TWSE is deemed to agree to the retention if it does not indicate any disagreement within 10 business days:
  1. Minutes of the directors' meeting where it is resolved that the securities firm may retain customers' settlement funds.
  2. A written description of the internal control system through which the proposal for the securities firm to retain customers' settlement funds is raised to and approved by the board of directors.
  3. Contract for the opening of a special account for the securities firm to retain customers' settlement funds.
  4. Ledger account contract executed between the securities firm and each bank.
  5. Latest CPA-audited or -approved financial reports.
  6. Documents relevant to legal compliance.
  7. Regulatory capital adequacy ratio reported in the last half-year period.
  8. Affidavit that the bank receiving and paying the retained settlement funds of customers satisfies all qualification requirements set forth in the preceding article.
    Any addition of or change in the information in Subparagraph 4 of the preceding paragraph after the securities firm begins to retain customers' settlement funds shall immediately be reported to the TWSE in writing, with a copy provided to the TPEx.
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Article 7    Where the head office of a securities firm has trading halted or restricted by the TWSE pursuant to the Operating Rules or by the TPEx pursuant to the TPEx Trading Rules, the securities firm shall immediately cease to retain customers' settlement funds and shall, before the following business day, transfer the funds back to the customers' Securities Book-entry Accounts or Customer Savings Account for ledger settlement.
    When the securities firm ceases to retain customers' settlement funds, it shall give immediate notice to the TWSE and TPEx in writing, reporting on how the circumstance in the preceding paragraph is handled.
Article 8    At the end of the period for which trading is halted or restricted pursuant to the preceding article, the securities firm may submit the documents listed in Article 6 and make a report to the TWSE in writing, with a copy provided to the TPEx, and then resume the retention of settlement funds.
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Article 9    A securities firm may, subject to the customer's instructions, use the Settlement Account to receive and pay the business payments listed below, in NTD only:
  1. Accept orders to trade in securities on the TWSE
  2. Accept orders to trade in securities at its place of business
  3. Margin purchase and short sale of securities
  4. Exercise call (put) warrants
  5. Consignment and re-consignment trading of foreign securities
  6. Agency service regarding trading in foreign bonds
  7. Securities lending
  8. Securities business money lending
  9. Wealth management
  10. Securities dealing at the securities firm's place of business
  11. Securities underwriting
  12. Discretionary investment by way of authorization or trust
  13. Other business as approved by the competent authority
    The securities firm shall be responsible for the amount of losses arising out of operational negligence in conducting the above businesses, without prejudicing the customer's rights and interests.
Article 10    A securities firm that retains funds in the Settlement Account with customers' consent may charge a management fee from customers at a rate to be determined by it with the customers.
    The ownership of bank interest that is incurred from funds retained in the Settlement Account with customers' consent is expressly set out in the contract for the retention of customers' funds in the Settlement Account. The securities firm shall withhold taxes and issue withholding statements according to the Income Tax Act and applicable provisions with the customers as the taxpayer, in the year in which the income occurs.
Article 11    A securities firm that retains customers' funds in the Settlement Account with customers' consent shall establish an effective internal control system and, upon confirmation of the legal compliance supervisor and audit supervisor, present said system to the board of directors for approval.
    The above-mentioned internal control system shall specify the responsible departments of the securities firm, procedures whereby the securities firm ceases to retain customers' settlement funds and resumes retention, transfer of sources of customers' funds, term of settlement and payment of interest, the handling of management fees and taxes, management of customers' receipts and payments and debits and credits (including review and operating procedures for payment, deposit and and reclaim of funds for customers, Settlement Account risk control procedures,and review and operating procedures for agreement and amendment with respect to the Customer Savings Account), notification and audit mechanism regarding customers' reclaim of funds, records required to be retained of customers' enquiries about their funds, premature termination of contract by customers, account management and data transmission regarding receipt and payment of funds, and other matters required by the competent authority to be included.
   Chapter 2 Separate Management of Customer Rights and Interests
Article 12    The securities firm shall review the Securities Book-entry Accounts opened by customers as required for securities trading on the TWSE or TPEx before it may execute with customers the contract for the retention of customer funds in the Settlement Account.
    A template of the above-mentioned contract shall be created by the TSA, presented to the competent authority for reference, and state the following:
  1. Scope of retention of the customer funds
  2. Scope of payment service provided to the customer and the order in which it is rendered
  3. Terms of settlement and payment of interest
  4. Procedures for the customer's reclaim of its funds
  5. Ways for the customer to inquire about its funds
  6. The securities firm shall retain receipt and payment records regarding funds in the customer's ledger
  7. Schedule of the securities firm's management fees
  8. Effective date of the contract and ways to handle amendments and termination of the contract
  9. Pursuant to the Personal Information Protection Act and relevant laws and regulations, the customer agrees the securities firm may furnish information pertaining to the customer's ledger to the TWSE, TPEx and other institutions designated by the competent authority
  10. Dispute resolution
Article 13    Any change to the name, I.D. number or uniform business number, business license number, address or mailing address of the customer itself or its agent or representative as stated in the contract for the retention by the securities firm of the customer's funds in the Settlement Account shall be notified by the customer to the securities firm in an appropriate manner.
Article 14    A securities firm that retains funds in the Settlement Account with customers' consent shall set up a separate account ledger for each customer and record therein the following for each item on a daily basis:
  1. Transfers of sources of the customer's funds to such account
  2. Transfers of interest incurred from funds in the customer's ledger
  3. Transfers for the customer of monies payable by the customer
  4. Transfers of funds reclaimed by the customer
  5. Transfers of funds in the event of premature termination of the contract by the securities firm or customer
    The securities firm shall retain records of receipts and payments of the above-mentioned funds and the relevant supporting documents, and prepare and send to the customer on a monthly basis a statement for reconciliation according to the detailed daily account entries.
Article 15    A securities firm that retains funds in the Settlement Account with customers' consent shall keep detailed records and prepare the following report and statement on a daily basis:
  1. Daily report on the receipts and payments of funds in the customer's ledger in the securities firm's Settlement Account
  2. Statement of receipts and payments of funds in individual customer ledgers in the securities firm's Settlement Account
    The above report and statement may be stored in electronic media after completion. Such media must be equipped with functions disallowing alteration and cancellation and enabling conversion into written form at any time.
    The securities firm shall send the daily report mentioned in the first paragraph of the previous day to the TWSEbefore 10 A.M. each day.
    Reports and statements, supporting documents and other documents relating to the creation of customer ledgers in a securities firm's Settlement Account shall be retained for at least five years or for any longer period of time prescribed by other applicable laws and regulations, provided in the event of a dispute, they shall be retained until the dispute is eliminated.
Article 16    Where the same customer has opened a trading account with the head office or different branches of a securities firm, the securities firm may create a separate ledger for such customer in the name of the securities firm's head office, by the category of financial institution.
Article 17    A securities firm shall pay any monies payable by a customer with the funds in the Settlement Account first. Where the securities firm has created a separate ledger for such customer under each customer funds retention account opened by the customer with different financial institutions, the securities firm shall pay the above-mentioned monies with the amount specified in each ledger, then with funds in the savings account opened by the customer with a financial institution designated by the securities firm in the event of a deficiency; if said monies are still not covered in full by such funds in the savings account, the securities firm shall immediately notify the customer.
Article 18    A securities firm shall retain the relevant record when a customer applies in the agreed manner for reclaim of its funds retained.
    When the securities firm is to transfer the customer's funds above, it shall transfer themwithin the agreed period to the customer's Securities Book-entry Account or Customer Savings Account only.
    In the event of a change to the Customer Savings Account in the preceding paragraph, the customer shall make an application for change by himself.
    A securities firm shall, on a daily basis, notify customers that applyon the day for reclaim of funds totaling NTD1 million or above in a lump sum or cumulatively, by text, or by telephone with the audio recording retained; a text notice shall state that an immediate reply is requested in the event of queries.
Article 19    Article 7, Paragraph 1 is applicable mutatis mutandis where a customer requests a securities firm in the agreed manner to terminate the retention of funds or whether the contract for the retention of customer funds by a securities firm in the Settlement Account is terminated ipso facto by the cancellation of a consignment trading account.
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   Chapter 3 Risk Control and Management
Article 20    Where the regulatory capital adequacy ratio of a securities firm that retains funds in the Settlement Account with customers' consent has fallen below 120% for two consecutive months, the TWSE shall request the securities firm to cease to retain customer funds, in which event the securities firm shall transfer the retained funds back to the customers' Securities Book-entry Accounts or Customer Savings Accounts to settle the customer ledgers. Only when it has reported a regulatory capital adequacy ratio of 150% or above for three consecutive months may the securities firm make a report to the TWSE in writing, with a copy furnished to the TPEx, according to Article 6, and then resume the retention.
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Article 21    Where the net value of a securities firm as specified in its latest CPA-audited and -approved financial reports is lower than its paid-in capital, or where the securities firm, its responsible person or an employee is in gross violation of these Guidelines, and no cure is made upon notice given by the TWSE or TPEx, the TWSE or TPEx may request the securities firm to cease to retain customer funds, in which event the securities firm shall transfer the retained funds back to the customers' Securities Book-entry Accounts to settle the customer ledgers. Only when its financial condition is improved or violation cured specifically may the securities firm present a statement to the TWSE or TPEx, then submit the documents listed in Article 6 and make a report to the TWSE in writing, with a copy furnished to the TPEx, and resume the retention.
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   Chapter 4 Supplementary Provisions
Article 22    Any violation of these Guidelines by a securities firm or its responsible person or employees is governed by the applicable rules of the TWSE, TPEx and TSA.
Article 23    These Guidelines are drafted by the TWSE jointly 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.