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Title:

Operating Rules for Securities Firms Handling Margin Purchases and Short Sales of Securities  CH

Amended Date: 2023.12.28 (Articles 8, 13, 20, 57, 78 amended,English version coming soon)
Current English version amended on 2023.08.17 
Categories: Securities Exchange Market > Margin Transaction
   Chapter III Opening and Management of Margin Accounts for Margin Purchases and Short Sales
Article 36    A securities firm shall enter into a margin agreement with, and open a margin account for, a customer before accepting any order from the customer to carry out a margin purchase or short sale of securities.
    A securities firm may allow a customer to open one and only one margin account.
    When securities firms accept margin account opening applications submitted on behalf of customers by custodian institutions for discretionary investment assets, a customer may not simultaneously open or maintain a margin account of its own and a discretionary investment margin account with the same securities firm.
    The margin agreement under the first paragraph shall be prepared by the TWSE in consultation with the TPEx and submitted to the competent authority for ratification.
Article 37    A customer shall meet the following qualifications to be able to submit a margin account opening application:
  1. The customer is a citizen of the Republic of China who is 20 years of age or older and who is not incapacitated, or a juristic person incorporated and registered under the law of the Republic of China.
  2. The customer has opened a consignment trading account for at least three months.
  3. The customer has settled 10 or more transactions of consignment trading during the most recent year with an accumulated transaction value of 50% of the amount limit for margin purchase applied for. This also applies to a consignment trading account opened for less than one year.
  4. The sum of the customer's income received and various other properties during the most recent year is at 30% of the amount limit for margin purchase applied for, except where the amount limit for margin purchase applied for is less than NT$500,000.
    Where a customer applying for opening of a margin account has one of the following circumstances, the amount limit for margin purchase approved for a margin account that has been opened shall be taken into account in the calculation of the amount limit for margin purchase applied for described in subparagraphs 3 and 4 of the preceding paragraph:
  1. The customer has opened more than five margin accounts.
  2. The customer has opened more than two margin accounts and the amount limit for margin purchase applied for plus the amount limit for margin purchase approved for margin accounts that have been approved has exceeded NT$300 million.
    When a customer is applying for a margin account, calculation of the amount limit for margin purchase applied for in according with paragraph 1, subparagraph 4 needs to include such amount limits for its other loan business with the same securities firm.
    If the customer applies for changes to amount limit during the term of a margin purchase and short sale contract or proceeds to renew the contract upon expiry of the term, the requirements under subparagraph 4 of paragraph 1, paragraph 2 and the preceding paragraph shall be complied with.
    Where necessary, the securities firm may raise the percentage set forth in paragraph 1, subparagraphs 3 and 4.
    In case of application for changes to amount limit or renewal of contract upon expiry, the securities firm may accept the request by way of communication or electronic means that would verify the identification of the applicant and its expression of intent.
Article 38    A call (or put) warrant issuer, exchange traded note issuer, and securities firm or bank engaged in structured products business or engaged in trading equity derivatives, may, to meet hedging needs, open a margin account and engage in short selling of securities, to whom the preceding article does not apply.
    In respect of the consignment trading account with a domestic securities firm or bank, the account number should start with three digits "864", followed by a three-digit serial number, and then another digit as inspection number. In case of a branch of a foreign issuer of warrants in the territory of the Republic of China or a foreign exchange traded note issuer, however, the account number of its consignment trading account should start with five digits "95864", followed by a one-digit serial number, and then another digit as inspection number.
    The consignment trading account number of a domestic call (or put) warrant issuer to which the reduced tax rate and hedging requirement, etc. in Article 2-3 of the Securities Transaction Tax Act apply shall start with three digits "929", followed by a three-digit serial number, and then another digit as inspection number; the consignment trading account of a branch of a foreign issuer of warrants in the territory of the Republic of China shall start with five digits "95829", followed by a one-digit serial number, and then another digit as inspection number.
    Securities brokers may accept only requests from securities firm and bank for transactions involving securities sold short or covering short position and may accept its requests for redemption by delivery of spot securities.
    In the event of an error to a securities broker's consignment trading, it may declare an error account or correct the account number, except for errors caused by a securities firm's or bank's own hedging.
    An enterprise exclusively or concurrently engaged in futures proprietary trading (dealing) that is also a market maker for equity options or single stock futures may, for its risk mitigation or hedging needs, open a margin account with which to sell securities short, to whom the preceding article does not apply.
    The enterprise exclusively or concurrently engaged in futures proprietary trading (dealing) described in the preceding paragraph shall have its number to start with three digits "939", followed by a three-digit serial number, and then another digit as inspection number.
    In the case of a privately placed securities investment trust fund managed by a SITE, the custodian of the trust fund may apply to open a margin account, to whom the provisions of paragraph 1, subparagraphs 1 to 3 of the preceding article do not apply.
    In the case of a privately placed securities investment trust fund managed by a SITE, the outstanding balance of long or short margin positions, combined with other sales of borrowed securities may not exceed 50% of the size of the fund in each instance, and shall be controlled by the TWSE as a segregated account. If that limit is exceeded, the TWSE shall through the securities firm notify the SITE to lower the balance to 50% within two business days from the date on which it receives the notice from the securities firm. If the SITE fails to do so within the time limit, the TWSE may instruct the securities firm to dispose of the collateral on the next business day, by the mutatis mutandis application of Article 81, paragraph 3, to the extent required to achieve compliance.
    In the case of a discretionary investment account managed by an SITE or a securities investment consulting enterprise ("SICE"), or of discretionary investment business conducted by a securities broker concurrently operating an SICE, or of discretionary futures trading business operated by a managed futures enterprise, the custodian institution for discretionary investment assets may open a margin account on behalf of its customer. Customers with a discretionary investment account shall be governed by the provisions of paragraph 1, subparagraph 1 of the preceding article, and not by the provisions of paragraph 1, subparagraphs 2 or 3 of the preceding article. For the margin account, neither the outstanding balance of margin purchase positions nor the outstanding balance of short sale positions, combined with the outstanding balance of other sales of borrowed securities, may exceed 50% of the net asset value of the discretionary investment account, except in the case of discretionary futures trading business operated by a managed futures enterprise, for which neither the outstanding balance of margin purchase positions nor the outstanding balance of short sale positions, combined with the outstanding balance of other sales of borrowed securities, may exceed 20% of the net asset value of the discretionary investment account.
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Article 39    The assets under paragraph 1, subparagraph 4 of Article 37 shall be limited to those owned by the customer himself or herself, or his or her spouse, parent or adult child, and the following documentation shall be submitted:
  1. Photocopy of certificate of real property ownership, registration records, or tax return. The securities firm shall also perform a check of whether there are other encumbrances on the real property, and calculate the value.
  2. Documentation of deposits with a financial institution (e.g. certificate of deposit balance, passbook, certificate of deposit). The basis of calculation shall be the average balance within the past month.
  3. Proof of holdings in securities.
  4. Documentation of deposit balance in the gold account issued by a financial institution (e.g. gold passbook, or the certificate of balance for the gold passbook or gold account).
  5. Documentary proof of trust property for a money trust, securities trust or real estate trust issued by a trust enterprise (e.g., a reconciliation statement, list of trust assets, or certificate of trust property). Both the trustor and the beneficiary of the trust are restricted to the person who is the customer, and the trust property may consist only of real property, deposits at financial institutions, securities, or the balance of a gold account at a financial institution.
  6. Amount of collaterals of the customer's margin accounts with the same securities firm that is in excess of 130% of the account collateral maintenance ratio, excluding margin and short positions where settlement is not completed.
    When the customer is not the owner of assets shown on the provided proof of assets, the owner of the assets shall be a joint and several guarantor.
    In case of the customer's documentation proving his or her assets in the form described in subparagraph 6 of paragraph 1, the securities firm shall establish appropriate credit facility control and management measures.
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Article 40    Where a customer of a securities firm extending margin and stock loans has entered into a margin agreement with a securities finance enterprise via the securities firm, and where such agreement is not yet terminated, if such customer enters into a separate margin agreement with the securities firm within 6 months starting from the date on which it commences the margin and stock loaning business, the restrictions imposed by Articles 37 and 38 in relation to account opening thresholds do not apply.
    The same shall apply to a customer of a securities firm that is extinguished as a result of a merger/consolidation or transfer of the whole of its business or property where the customer enters into a new margin agreement with the surviving securities firm within 6 months starting from the next day of the record date for the merger/consolidation or of the last business day of the transferring securities firm.
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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.
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Article 42    A customer who is a natural person applying to open a margin account shall personally furnish the original of his or her national ID card, sign a Margin Account Application Form (Appendix 1) and a margin agreement (Appendix 2) then and there, and also provide a specimen seal or signature card, a certificate of income and property, and trading records.
    Where the customer is a juristic person, the account opening procedures under the preceding paragraph shall be carried out by an authorized person who shall present a power of attorney, the original national ID cards of the authorized person and the customer's representative, the original incorporation/amendment registration form, and the original certification of incorporation.
    A photocopy of each of the identity documents and incorporation/amendment registration form and the original power of attorney under the preceding paragraph shall be retained on record, and the following statement shall be stamped on the photocopies: "The account opening application is confirmed to have been made in person by the applicant or a person authorized thereby; this is a true and faithful copy of the original."
    Where the customer in the first or second paragraph has opened a transaction account, the securities firm may process its account opening application by correspondence or electronic means that is sufficient to identify the customer as the applicant itself or its indication of intent.
    When processing an application to open a margin account, a securities firm shall perform a detailed and accurate credit check to verify that the customer meets the account opening threshold requirements. It shall expressly state on the Margin Account Application Form the details of the credit check method, credit information, and credit check findings, and prepare an account opening card specifying the date of account opening and the assigned account number. It shall transmit the account opening information, or account cancellation information if such is the case, on the current day to the computer database of the TWSE or TPEx.
    Where the customer is a juristic person, the securities firm shall also send a written request to the customer confirming that the customer has authorized the opening of the account. If, however, the customer empowers a custodian institution to open the account on its behalf, or submits proof that settlement is to be handled on its behalf by a custodian institution, it is not necessary to send a written request for confirmation.
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 44    A securities firm shall set up a separate account ledger for each customer margin account, and record therein on a daily basis the following:
  1. Matters relating to margin purchases and short sales.
  2. Collateral.
  3. Any margin calls for, or disposal of, collateral.
    A securities firm shall, based on the account entry records under the preceding paragraph, prepare a reconciliation statement each month and deliver it to the customer, unless there is no record of margin trading for the given month and the customer moreover has not submitted a written request for a statement.
    Upon execution of a consent letter by the customer to allow collection, processing, use and international transmission of the customer's personal data by the TWSE, TPEx, or any institution designated by the competent authority in accordance with relevant laws and regulations, a securities firm shall promptly transmit the data concerning credit line, balance of margin purchases and short sales, and any changes therein, to the TWSE and TPEx computer database systems.
    When borrowing securities from other securities firms, securities finance enterprises and the TWSE securities lending system, a securities firm shall record the lendings, borrowings and returns of securities as well as the delivery of the performance bond.
Article 45    If a customer fails to promptly notify the securities firm in writing of any change to the information contained in the Margin Account Application Form with respect to the name, national ID number, or juristic person's uniform serial number, mailing address, or contact telephone number of the customer, agent, or representative, the securities firm may halt margin purchases and short sales by the customer.
Article 46    All notices that a securities firm is required to give to a customer under these Rules shall be delivered by mail, by e-mail subject to electronic signature requirements, or by personal delivery against a receipt signed by the customer.
    A securities firm must procure the written or electronic consent of the customer prior to giving notice by e-mail. Procedures concerning e-mails and electronic consents are governed mutatis mutandis by the requirements applicable to the delivery by a securities firm of securities trading reconciliation statements by e-mail.
    Deadlines notified by a securities firm to a customer by e-mail for actions to be taken are the same as those notified by mail.
    Where a notice mailed by a securities firm is not delivered in time as a result of failure by the customer to give notice of change as required under the preceding article or due to some other reason attributable to the customer, the notice shall be deemed effective from the day of the first delivery attempt by the post office.
    In the case of a notice given by personal delivery against a receipt signed by the customer, the customer's signature or seal impression on the receipt shall match the specimen signature or seal appearing on the margin agreement, and shall be dated personally by the customer.
     If the customer is a discretionary investment account, a securities firm shall give notice to the discretionary investment manager and the custodian institution of such account of matters required to be notified.
    Records of notification by a securities firm to its customers shall be retained for a minimum of one year or, in the event of a dispute, until the dispute is resolved.
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