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Relevant Laws

Title：Operating Rules for Securities Firms Handling Margin Purchases and Short Sales of Securities (2023.08.17)
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.
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 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 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.
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.
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 other than those listed on the Taiwan Innovation Board, primary listed on the Taiwan Innovation Board 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.
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.
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 2.
    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.
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.