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Amendments

Title：

Regulations Governing Securities Finance Enterprises  CH

Amended Date： 2018.02.12 
Article Content Chapter Content Search Article No. Search Legal Basis Subordinate Legislation Amended Article Legislative History Chinese

Title： Regulations Governing Securities Finance Enterprises(2015.11.26)
Date：
Article 12     The margin for short sales, and the replenishment of shortfalls pursuant to the preceding article may, be paid in the form of securities or other commodities.
    The types of securities or commodities and the standard of payment in the preceding paragraph shall be prescribed by the securities finance enterprise and reported to the competent authority for approval.
Article 13     When a margin purchaser or short seller fails to satisfy a margin call pursuant to Article 11 or has failed to satisfy a call after the stipulated date, the securities finance enterprise shall dispose of their collateral immediately. However, this rule does not apply if the two parties have stipulated otherwise.
Article 14     When a change in prices results in an increase, after deduction of the principal's debt, in the net collateral value in a principal's margin account, a securities finance enterprise handling margin purchases and short sales may not transfer the increased value to the principal in the form of funds, securities, or commodities, nor may it use such value to offset a margin purchase margin or short sale margin.
Article 15     A securities finance enterprise that handles securities trading margin purchases and short sales may not utilize the securities collateral it obtains for any purpose but the following:
  1. As a source of securities for short sales or refinancing.
  2. As collateral for refinancing with another securities finance enterprise.
  3. As a source of securities to be loaned in a securities borrowing and lending transactions.
  4. As collateral for securities borrowed through the TWSE securities borrowing and lending system.
  5. To lend to a securities firm or another securities finance enterprise 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 another securities finance enterprise.
    A securities finance enterprise that handles margin purchases and short sales of securities may not use proceeds from short sales or margins for short sales that it retains on deposit for any purpose other than those listed below:
  1. As a source of funds for margin purchase or refinancing business.
  2. As collateral for refinancing with another securities finance enterprise.
  3. As a source of funds for financing for settlement of securities trades.
  4. As collateral for securities borrowed through the TWSE securities borrowing and lending system.
  5. Bank deposit.
  6. For the purchase of short-term bills.
    Where utilizing securities pursuant to the provisions of paragraph 1, the securities finance enterprise shall be responsible for delivering the same category of securities when the margin purchase or short sale position is closed.
    Securities finance enterprises shall pay interest to short sellers on the proceeds from short sales and on short sale margin. The interest rate shall be prescribed by the securities finance enterprise and reported to the competent authority for approval.
Article 17     Securities finance enterprises handling margin purchases and short sales of securities shall establish operating rules for margin purchase and short sale business and implement the same with the competent authority's approval.
    The operating rules referred to in the preceding Paragraph shall include the following items:
  1. The opening of the margin account.
  2. The application for the margin purchase or short sale and repayment.
  3. The calculation, replenishment, and disposition of collateral.
  4. The transfer of securities or commodities for collateral.
  5. Obtaining securities to cover shortfalls arising in connection with short sales.
  6. The transfer of title to securities provided as collateral for margin purchases and to securities or commodities paid in as additional collateral.
  7. Other items required by the competent authority.
    Securities finance enterprises shall comply with the operating rules referred to in paragraph 1 in handling securities trading margin purchase and short sale business.
Article 18     Securities finance enterprises handling margin purchases and short sales of securities shall establish early warning and allocation guidelines for the handling of margin purchases and short sales in accordance with the operating rules referred to in the preceding article, and shall publicly disclose on a daily basis information on credit extended in connection with margin purchases and short sales.
    The early warning and allocation guidelines referred to in the preceding paragraph shall provide for safety stock amounts and calculation formulas for loans of each security, and when the balance of loans of that security plus the safety stock amount of that security reaches the combined total of the amounts of that security under each of the following subparagraphs, loans of that security shall be suspended:
  1. The margin purchase balance.
  2. The securities finance enterprise's proprietary securities.
  3. Securities borrowed from the TWSE securities borrowing and lending system.
  4. Securities borrowed from customers.
  5. Securities borrowed from securities firms or other securities finance enterprises that conduct securities borrowing and lending business or securities margin purchase and short sale business.
    When a principal first purchases securities by margin purchase and on the same day sells short the same kind of securities in an amount not greater than the amount purchased by margin purchase, the requirement of the preceding paragraph regarding safety stock may be exempted.
Article 34     Securities settlement financing refers to the business of a securities financing enterprise in providing cash financing for settlement of purchases of securities by a customer, after having obtained collateral provided by the customer.
    The purpose of the financing, the scope of collateral for the financing, the amount of financing, collateral limit, and the financing ratio and financing period that apply when a securities financing enterprise provides securities settlement financing shall be regulated by the competent authority.
Article 38     Counterparties with whom a securities finance enterprise may engage in securities borrowing and lending transactions shall be limited to the following:
  1. Customers who have had an established a brokerage contract with the securities finance enterprise for a period of 3 months or more.
  2. Securities firms or other securities finance enterprises that conduct securities borrowing and lending business or securities margin purchase and short sale business.
  3. Other counterparties who are approved by the competent authority.
    "Securities borrowing and lending" in the preceding paragraph refers to business in which a securities finance enterprise borrows securities from, or lends securities to, a customer, a securities firm, or another securities finance enterprise, with a stipulation for repayment of securities of the same kind and quantity.
    When a securities finance enterprise handles securities borrowing and lending through an agent securities firm, it shall sign an agency agreement with that securities firm and submit the agreement to the competent authority for approval.
    When the securities firm of the preceding paragraph is authorized by the competent authority to engage in securities borrowing and lending business, the securities finance enterprise shall terminate the agency relationship with the securities firm. For an unsettled balance on a securities borrowing transaction by a customer for which the securities firm acted as agent prior to the termination, however, the securities firm may continue to act as agent until the full settlement of the balance.
Article 39     The scope of subject securities for securities borrowing and lending by securities finance enterprises is limited to the following:
  1. Securities eligible for margin purchase and short sale transactions.
  2. Other securities that are approved by the competent authority.
    The sources of securities for securities borrowing and lending by securities finance enterprises are limited to the following:
  1. The securities finance enterprise's own holdings.
  2. Securities borrowed from the TWSE securities borrowing and lending system.
  3. Securities collateral for margin purchases obtained through securities margin purchase and short sale business.
  4. Securities borrowed from customers.
  5. Securities borrowed from a securities firm or other securities finance enterprise that conducts securities borrowing and lending business or securities margin purchase and short sale business.
Article 40     The term of a securities lending transaction may be no longer than 6 months at most from the initial date of the lending transaction.
     Before the expiration of the term under the preceding paragraph, the term of the loan may be extended with the consent of both the borrowing and lending parties. Such an extension may not exceed 6 months, and no more than two extensions may be granted. Neither party may demand alteration of any other terms or conditions of the loan.
Article 41     When a securities finance enterprise engages in securities borrowing and lending transactions, the borrowing and lending parties shall sign a securities borrowing and lending agreement, and open accounts for securities borrowing and lending transactions.
    The content of the securities borrowing and lending agreement of the preceding paragraph shall be formulated by the securities finance enterprise and submitted to the competent authority for approval.
    The following matters shall be expressly stated in the securities borrowing and lending agreement:
  1. The term of the loan.
  2. Loan fees.
  3. The use of the loaned securities.
  4. The methods of custody and redelivery of the securities and terms and conditions in regard to early redelivery.
  5. The types of collateral, substitution of collateral, and calculation of collateralization rates and maintenance levels.
  6. The return of collateral when value exceeds requirements and the offsetting of excess collateral against other requirements.
  7. The calculation and payment of interest on cash collateral.
  8. Compensation of entitlements.
  9. The handling of defaults.
  10. Handling of customer information.
  11. Causes for termination of the agreement.
Article 43     A securities finance enterprise engaging in securities borrowing and lending business shall collect collateral from customers at the collateral ratio required by the competent authority, or require the customer to provide a bank guarantee.
    The collateral referred to the preceding paragraph shall be limited to the following types:
  1. Cash.
  2. Book-entry central government bonds.
  3. Securities eligible for margin purchase and short sale transactions.
    A securities finance enterprise shall mark to market daily the ratio of the value of collateral deposited by each customer to the dollar amount of the securities loaned to that customer. When that ratio is below the prescribed percentage, it shall immediately issue a margin call requiring the customer to replenish the shortfall within a prescribed period of time.
    The method of calculation of the value of the collateral, the substitution of collateral, the collateralization rate, and the time limit for replenishment of collateral shall be formulated by the securities finance enterprise and submitted to the competent authority for approval.
     A securities finance enterprise that borrows securities from a customer or securities firm or other securities finance enterprise shall allocate on a monthly basis a performance bond that accounts for a certain percentage of the total monetary amount of the borrowed securities.
     The performance bond under the preceding paragraph shall be deposited with the TWSE. The regulations governing the deposit, custody, payment, and return of the performance bond shall be jointly drafted by the TWSE and TPEx, and submitted to the competent authority for final approval.
Article 44     When a securities finance enterprise engages in securities borrowing and lending and a customer exceeds the deadline for replenishing the collateral or fails to return the securities by the stipulated date, the securities finance enterprise shall thereupon dispose of the customer's collateral. However, this rule does not apply if the two parties have stipulated otherwise.
Article 45     When a securities finance enterprise engages in securities borrowing and lending, the following may not be the subject of borrowing or lending nor may they be accepted as collateral:
  1. Securities that are subject to a pledge.
  2. Shares or other equity-type securities of the securities finance enterprise itself that it has acquired through share buybacks, gifts from others, merger, transfer of business, or otherwise.
Article 46     When a securities finance enterprise engages in securities borrowing and lending, the use of its securities shall be restricted to the following:
  1. For use by customers in brokered sales of the securities through a securities firm.
  2. For redelivery by customers of spot securities borrowed in short sales.
  3. For performance by customers of settlement on call/put warrants, equity options, and other equity-type financial instruments.
  4. For use by customers in in-kind creation or redemption of exchange traded fund (ETF) units or offshore ETF units.
  5. For use by securities finance enterprises and customers for redelivery of borrowed securities or as compensation for securities entitlements.
  6. For use by securities finance enterprises as a source of securities for securities margin purchase and short sale business.
  7. For use by securities finance enterprises as a source of securities for the return of customer collateral in connection with securities trading margin purchase and short sale business.
  8. For use by securities finance enterprises in covering shortfalls of securities occurring in short sale business.
  9. To lend to a securities firm or another securities finance enterprise as a source of securities for conducting securities borrowing and lending business or securities margin purchase and short sale business.
  10. To lend through the TWSE securities borrowing and lending system.
  11. To participate in competitive auction lending transactions or negotiated lending transactions conducted by another securities finance enterprise.
  12. Other uses as approved by the competent authority.
Article 48     A securities firm conducting securities borrowing and lending business shall cease lending a given type of securities immediately when for that type of securities, the aggregate total of the outstanding balance of shares it lends to securities borrowers in conducting securities borrowing and lending business, plus the outstanding balance of shares it lends to short sellers in conducting securities margin purchase and short sale business, plus the safety stock amount under Article 18, paragraph 2, reaches the aggregate total under all subparagraphs of paragraph 2 of Article 39.
Article 49     Where a securities finance enterprise engages in securities borrowing and lending transactions, if the lender is unable to obtain any stock dividends, cash dividends, or any other entitlements, the borrower shall repay the same to the lender, or otherwise make repayment in cash as may be agreed between the two parties.
Article 50     When a securities finance enterprise engages in securities borrowing and lending transactions, the borrower may redeliver the borrowed securities early at any time during the stipulated term of the loan.
    When a securities finance enterprise engages in securities borrowing and lending transactions, the consent of the borrower must first be obtained before early redelivery of the borrowed securities may be requested of the borrower.
Article 51     A securities finance enterprise that engages in securities borrowing and lending shall establish operating rules for such business and submit them to the competent authority for approval.
    The operating rules referred to in the preceding paragraph shall expressly state the following matters:
  1. Opening of securities borrowing and lending transaction accounts.
  2. Applications for loans of securities and their redelivery.
  3. Types of eligible collateral and its substitution.
  4. Calculation, replenishment, and disposition of collateral.
  5. Method of obtaining shortfalls in loaned securities.
  6. Transfer of title to securities collateral.
  7. Deposit of the performance bond.
  8. Other matters that shall be included pursuant to the regulations of the competent authority.
    The securities finance enterprise shall carry out securities borrowing and lending transactions in accordance with the operating rules of the first paragraph.
Article 53     A securities finance enterprise engaging in securities borrowing and lending business shall publish the following information at its place of business or on its website and transmit such information to the TWSE and the TPEx:
  1. Types and amounts of securities borrowed and loaned each day.
  2. Securities borrowing and lending fees and service charges.
  3. Other information for which the competent authority required disclosure.
Article 66     These Regulations shall enter into force from the date of issuance, with the exception of the following articles as amended and issued on 26 November 2015: Articles 12 to 14, 17, and 34, which shall enter into force from 30 November 2015, and Articles 15, 18, 38 to 41, 43 to 46, 48 to 51, and 53, which shall enter into force from 1 February 2016.