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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 VI Handling of Share Transfers in Margin Purchases and Short Sales
Article 76    Securities eligible for margin purchases and short sales shall be suspended from being sold short for four days commencing from the sixth business day prior to such book closure; if a short sale has already been made, it shall be covered and closed out by the sixth business day (inclusive) prior to the book closure of the issuing company; where the security has been lent, the securities firm may request early repayment and shall reclaim the security before the last day for assignment (inclusive). A customer applying to settle a short sale with spot securities which are borrowed from the same securities firm through securities lending business as the source of securities shall file its application no later than the seventh business day (inclusive) prior to book closure; the application may be rejected where the securities firm has no source of securities. Provided, this shall not apply where the issuing company closes its books for a reason as follows:
  1. convening of a special shareholders' meeting.
  2. a reason that will not affect the exercise of shareholders' rights.
    Where a business day under the preceding paragraph is a trading day, but the commencement date of book closure of the issuing company is scheduled to fall on a date from (and inclusive of) the second settlement day after the last trading day before the Lunar New Year Holidays to (and inclusive of) the second trading day following the Lunar New Year Holidays, the following provisions shall apply.
  1. When the commencement date of book closure is scheduled to fall on the second settlement day after the last trading day before the Lunar New Year Holidays, then the first settlement day after the last trading day is included in the calculation of "business days."
  2. When the commencement date of book closure is scheduled to fall during the Lunar New Year Holidays or on the first trading day following the Lunar New Year Holidays, then the two settlement days after the last trading day are both included in the calculation of "business days."
  3. When the commencement date of book closure is scheduled to fall on a weekend or other regular holiday after the first trading day following, or on the second trading day following, the Lunar New Year Holidays, then the first settlement day after the last trading day is included in the calculation of "business days."
Article 77    For any beneficial interest certificates that are eligible for margin purchases and short sales, if, after a general meeting of beneficial owners has been duly convened under the securities investment trust contract, any of the following circumstances consequently applies, margin purchases and short sales of those beneficial interest certificates shall be temporarily suspended from the second business day following the public announcement by the TWSE; provided, this restriction shall not apply to close-out trades. If a margin purchase or short sale has already been made, the trade shall be covered and closed out by repaying the margin loan or returning the borrowed securities by the first business day before delisting.
  1. where the general meeting of beneficial owners resolves to change to an open-end fund.
  2. where the beneficial interest certificates are open for redemption, and as a result the size of the fund reaches the standard for delisting.
    If a customer fails to liquidate a margin purchase or short sale within the time limit under the preceding paragraph, the securities firm may dispose of its collateral beginning from the next business day by the mutatis mutandis application of Article 81, paragraph 3. However, this shall not apply if the customer has, within the time limit under the preceding paragraph, completed a mandate contract requesting the securities firm to perform redemption on its behalf after delisting.
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Article 78    When the TWSE or TPEx has ratified and publicly announced the delisting from the stock exchange or termination of TPEx trading of a collateral eligible for margin purchase and short sale transactions, a securities firm shall request customers to cover and close out any margin purchases or short sales of such collateral by repaying the margin loans or returning the borrowed securities by the tenth business day before the delisting or the termination of TPEx trading. However, these provisions shall not apply under any of the following circumstances:
  1. The issuing company has applied for conversion of its TPEx listed securities to TWSE listed securities.
  2. The securities of a TWSE or TPEx listed company are delisted due to the company's merger, and the surviving company uses the securities which are eligible for margin purchase and short sale transactions for payment of all or part of the consideration to shareholders of the non-surviving company.
  3. The securities of a TWSE or TPEx listed company are delisted due to a share conversion, and the shares after conversion are still eligible for margin purchase and short sale transactions.
    If a customer fails to cover and close out any margin purchase or short sale by repaying the margin loan or returning the borrowed security within the deadline, unless agreed by both parties otherwise, the securities firm shall dispose of said collateral on the following business day. 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; or if the collateral cannot be disposed of on account of a suspension of trading; or if, after reverse auction is conducted in respect of the collateral in accordance with Article 81, paragraph 5, the proceeds do not sufficiently cover the obligation, then 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.
    After termination of the contract for trading of Over-the-Counter (OTC) securities eligible for margin purchase and short sale to be converted as TWSE listed securities, the customer shall proceed to settlement of the balance of its existing margin purchases and short sales within the time limits for margin purchase and short sale. If prior to listing of these securities to be eligible for margin purchase and short sale, the customer acquired these securities through margin purchase or short sale, redemption shall be made by cash or by delivery of spot securities, respectively.
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Article 79    On the business day preceding book closure of an issuing company or the interest payment date of open-end fund beneficiary certificates, a securities firm shall prepare a share transfer list with respect to the security of the issuing company held in customer margin accounts, specifying those shares that are purchased on margin and those that are deposited as collateral to offset against margin collateral requirements, and send the share transfer and interest claim list, together with the data file, to the central securities depository to carry out share transfer procedures with the issuing company or its shareholder services agent on behalf of the customers. Provided, where the issuing company closes its books because of a special shareholders meeting, the number of shares of the issuing company's stock held in customer margin accounts that are purchased on margin shall, for the purposes of share transfers, be calculated by the securities firm in accordance with the provisions of the Rules Governing the Calculation of Number of Shares of Margin Buyers for the Purposes of Share Transfers Upon Special Shareholders Meetings.
    A customer using book-entry central government bonds to settle a margin sale may engage a securities firm to collect interest payment via the Book-Entry Central Government Securities Clearing Bank, and transfer the interest payment less any withholding tax deducted as agreed by both parties back to the customer prior to the business day following the interest payment date.