These Regulations are established pursuant to Article 11, paragraph 6 of the Regulations Governing Securities Borrowing and Lending by Securities Firms, Article 23, paragraph 3 of the Regulations Governing the Conduct of Securities Trading Margin Purchase and Short Sale Operations by Securities Firms, and Article 43, paragraph 6 of the Regulations Governing Securities Finance Enterprises.
A securities firm or securities finance enterprise which borrows securities for conducting securities borrowing and lending business or margin purchases and short sales in securities trading (hereinafter, "Borrowed Securities" or "Securities Borrowing") shall pay a performance bond to the Taiwan Stock Exchange Corporation ("TWSE") at 10% of the total amount of Borrowed Securities which is calculated based on the closing price of the end of the preceding month, within three business days of the end of each month.
Where the performance bond lodged by the securities firm or securities finance enterprise is less than the 10% of the total amount of Borrowed Securities above, the securities firm or securities finance enterprise shall make up the shortfall to the TWSE before it may borrow additional securities and extend the transaction.
The performance bond shall be in the form of cash in New Taiwan dollars or bank guarantee only and kept by the TWSE in the interest of the lender.
The total amount of Borrowed Securities as referred to in paragraph 2 is calculated on the basis of the auction reference price at market opening of the date of the lending and borrowing transaction, and marked-to-market daily by the TWSE based on the closing price.
A securities firm or securities finance enterprise lodging the performance bond in cash shall deposit by way of a virtual account the bond by wire transfer in the bank account designated by the TWSE and make a report in the securities firm's securities lending system, according to the Instructions on Performance Bond Virtual Account Remittance(Appendix 1).
Where a securities firm or securities finance enterprise lodges the performance bond in the form of bank guarantee, it shall submit an application accompanied by an original of the certificate of guarantee to the TWSE after completing the guarantee procedure with the bank, and the TWSE shall enter the name of the bank, and amount and maturity date of the guarantee, before the guarantee may be used for Securities Borrowing.
A bank guarantee denominated in New Taiwan dollars may not be used as collateral from the third business day prior to the maturity date. In the event of more than one bank guarantee, with different maturity dates involved, the closest maturity date shall prevail.
A bank that issues the guarantee in paragraph 2 may not be an affiliate of, or belong to the same financial holding company as, a party to the lending and borrowing transaction, and shall have at least one of the following credit ratings; the TWSE may reject or accept the guarantee depending on the guaranteeing bank's risk status:
- Taiwan Ratings Corp. long-term issuer credit rating of twA or above.
- Fitch Ratings Limited, Taiwan Branch domestic long-term rating of A (twn) or above.
- Moody's Investors Service long-term credit rating of A or above.
- Standard & Poor's Corp. long-term credit rating of A- or above.
- Fitch Inc. long-term credit rating of A or above.
A securities firm or securities finance enterprise lodging a higher amount of performance bond than as prescribed in Article 2 may apply for reclaiming the excess portion within the prescribed timeframe through the securities firm's securities lending system. The account in which the refund is to be deposited shall be registered with the TWSE in advance.
In the event of Securities Borrowing by a securities firm or securities finance enterprise under any of the following circumstances, the TWSE will, from the next business day, deliver to the lender the cash performance bond lodged by the borrowing securities firm for the lender or the guarantee amount disbursed by the guaranteeing bank, unless the parties agree otherwise:
- unable to return the securities within the agreed time, upon expiration or where the securities are to be returned early as agreed by the parties or as required;
- failing to pay compensation for securities entitlements by the due date; or
- failing to pay the relevant dues as agreed.
These Regulations shall take effect after having been submitted to, approved and published by the competent authority. Subsequent amendments thereto shall be effected in the same manner.