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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 V Settlement by Offsetting of Margin Purchases and Short Sales in Margin Trading
Article 70    Notwithstanding the provisions of Article 63, the customer is required to sign a consent letter to grant a general authorization (Appendix 3) with the securities firm before it may perform a settlement of a TWSE or TPEx listed security bought on margin and sold short on the same day through an offset of margin purchasing and short selling ("Settlement"). After the securities firm's completion of margin purchase and short sale on the same day, a net settlement is allowed for offsetting a portion of the settlement obligation under the margin purchase against an equal amount of the settlement obligation under the short sale, in which case the securities firm shall produce an Application to Settle Margin Purchases with Cash and an Application to Settle Short Sales with Spot Securities on behalf of the customer for each individual transaction.
    If the customer having signed the consent letter under the preceding paragraph does not wish to have netting settlement thereunder carried out, the customer shall give a written instruction to the securities firm before close of market on the day on which the trades are executed.
    No interest may be accrued on the margin purchase and short sale with respect to the portions that are offset by netting under paragraph 1; nevertheless, the handling fee or short sale fee for that portion of the short sale shall still be calculated and collected/paid.
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Article 71    A customer's Settlement shall be included in the single-day trading limit, except the amount of any reverse order to purchase and short-sell securities with the margin loan, and the amount offset shall not be credited back for revolving uses on the same day.
    If the securities firm, pursuant to relevant regulations, does not establish a single-day trading limit for the customer and the customer engages in the Settlement, it shall separately establish a Settlement limit and comply with the following rules:
  1. The monetary amounts of opposite offsetting orders executed in the Settlement may not exceed the Settlement limit; new positions of margin purchases, short sales and cancelled orders shall not be included in the Settlement limit, and that the amount offset may not be credited back for revolving use on the same day.
  2. If the customer is qualified to engage in both the Settlement and day trades of securities, the day trading limit shall include the Settlement limit. The total sum of sell orders for day trades plus the monetary amounts of opposite executed in the Settlement may not exceed the day trading limit.
  3. The monetary amounts of opposite offsetting orders by a customer executed in the Settlement during after-hours fixed-price trading shall be included in the calculation toward the Settlement limit or the day trading limit, provided, however, the monetary amount of unexecuted opposite offsetting orders of the Settlement during normal trading hours is not included.
Article 72    The securities firm shall evaluate whether to increase or decrease a customer's single-day trading limit or Settlement limit based on the profit or loss of the customer's Settlement, after the closing of the market each business day. If the customer is also qualified to engage in day trades of securities, the profits and losses of day trades and Settlement shall be combined, and whether to increase or decrease the single-day trading limit, Settlement limit or day trading limit shall be assessed.
Article 73    If the customer's cumulative loss from the Settlement of the previous month reaches half of its single-day trading limit or Settlement limit, the securities firm shall suspend such customer's Settlement. If the customer is also qualified to engage in day trades of securities, its profit and loss from the Settlement of the previous month shall be included in the calculation toward the profit and loss of day trades of securities. If the cumulative losses of the two combined reach half of its single-day trading limit or day trading limit, such customer shall be suspended from Settlement and day trading. The securities firm shall re-evaluate the customer's single-day trading limit, Settlement limit or day trading limit after the customer has submitted proof of adequate financial capability, unless the customer is a professional institutional investor.
Article 74    The Settlement shall be stayed ipso facto for the period when a security is suspended from margin purchases and/or short sales by the announcement of the TWSE or TPEx or by the securities firm as required.
Article 75    Securities firms engaging in margin-purchasing and short-selling securities shall suspend short sales and lending of securities immediately if the sum of the balance of short sales of each security plus the balance of borrowing of securities, lending of securities to securities firm or securities finance enterprise engaging in borrowing of securities, balance of securities lending at the TWSE securities lending system, and balance of securities borrowed through lending auction or lending negotiation reaches the combined total of the amounts in each of the following paragraphs:
  1. The margin loan balance.
  2. The proprietary securities.
  3. The securities borrowed from the TWSE securities lending system.
  4. The securities borrowed from customer in the borrowing of securities.
  5. The securities borrowed from securities firm or securities finance enterprise engaging in borrowing of securities or dealing with margin purchases and short sales.
    The ceiling of securities loans of daily offsetting of margin purchases and short sales for securities firms shall be calculated by deducting the sum of the items under paragraph 2 "Minus" from the sum of the items under paragraph 1 "Plus" (based on business day):
  1. Plus
    1. The margin loan balance on the previous day:
      1. The margin loan balance.
      2. The balance of the proprietary securities.
      3. The balance of the securities borrowed from the TWSE securities lending system.
      4. The balance of the securities borrowed from customer in the borrowing of securities.
      5. The balance of the securities borrowed from securities firm or securities finance enterprise engaging in borrowing of securities or dealing with margin purchases and short sales.
    2. The purchased, borrowed or settled securities on the current day:
      1. The margin purchases.
      2. The proprietary securities settled on the current day.
      3. The securities borrowed from the TWSE securities lending system.
      4. The securities borrowed from customer in the borrowing of securities.
      5. The securities borrowed from securities firm or securities finance enterprise engaging in borrowing of securities or dealing with margin purchases and short sales.
    3. Covering of securities borrowing on the current day:
      1. The redemption by delivery of spot securities.
      2. The redemption by delivery of securities by customer borrowing securities.
      3. The redemption by delivery of proprietary securities.
      4. The redemption by delivery of securities by securities firm or securities finance enterprise engaging in borrowing of securities.
      5. The redemption by delivery of securities by borrower borrowing securities from the TWSE securities lending system.
  2. Minus
    The outstanding securities loan on the previous day.
    1. The balance of short sales.
    2. The balance of securities lent in the borrowing of securities.
    3. The balance of securities lent to securities fir or securities finance enterprises engaging in borrowing of securities.
    4. The balance of securities lent in the TWSE securities lending system.
    In the calculation of the ceiling of securities loans in the preceding paragraph, no securities firm may, in the absence of an authorized limit on short sales, engage first in a short sale then a margin purchase for set-off.