Chapter 1 General Principles
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| Article 1 | These Rules are adopted pursuant to Articles 82-2 and 109 of the Operating Rules of the TSEC. |
| Article 2 | The term "securities borrowing and lending" or "securities loan" transaction means a transaction in which a lender agrees to lend securities and the borrower to return securities of the same type and quantity. |
| Article 3 | A lender may charge a securities lending fee for lending securities to a borrower. |
| Article 4 | A lender shall warrant that the securities it offers for lending, and a borrower that the securities or bank guarantee it provides to secure a loan, are free and clear of all liens, claims, and encumbrances of any nature whatsoever, and that if any defect is found or any legal dispute arises, a replacement shall be made on the next business day following a notice to that effect. |
Chapter 2 TSEC Securities Lending System
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| Article 5 | The securities lending system of the TSEC provides a facility for securities borrowing and lending transactions, in which only the following designated institutional participants may be the borrower or lender:
1. Lenders: insurance companies, banks, trust investment companies, securities firms, securities investment trust enterprises (funds publicly offered or privately placed thereby), exclusively operated futures commission merchants, securities finance enterprises, designated offshore foreign institutional investors, government funds, trust enterprises (designated trust agreements thereof), and such others as approved by the competent authority.
2. Borrowers: banks, securities firms, securities investment trust enterprises (funds publicly offered or privately placed thereby), futures dealers, securities finance enterprises, designated offshore foreign institutional investors, and such others as approved by the competent authority. |
| Article 6 | Borrowers and lenders shall sign a Securities Borrowing and Lending Authorization Agreement with a securities firm, open a securities borrowing and lending account, a central securities depository account, and a financial institution deposit account, and report to and obtain approval from the TSEC before they may engage the securities firm to execute securities borrowing and lending transactions.
A Securities Borrowing and Lending Authorization Agreement, the format of which is shown in Appendix 1 hereto, shall contain the following particulars:
1. The borrower or lender agrees that securities borrowing and lending transactions shall be made under the Securities Borrowing and Lending Authorization Agreement, the Master Securities Borrowing and Lending Agreement signed between the securities firm and the TSEC, as well as the TSEC Securities Borrowing and Lending Rules and other applicable regulatory stipulations and rules.
2. The securities firm may from time to time submit information on the accounts opened by the borrower or lender, statements of transactions and inventory of securities, securities borrowing and lending positions, or any other relevant information to, or make it available for review by, the TSEC.
3. The securities firm shall report to the TSEC by mail if the borrower or lender defaults on any obligation required under a securities borrowing or lending transaction or breaches any representations, and in such an event shall take such actions as may be instructed by the TSEC and may rescind or terminate the Authorization Agreement. |
| Article 6-1 | A securities firm shall sign a Master Securities Borrowing and Lending Agreement with the TSEC before it may accept authorization to handle securities borrowing or lending matters on behalf of a borrower or lender.
The Master Securities Borrowing and Lending Agreement, the format of which is shown in Appendix 2 hereto, shall contain the following particulars:
1. Securities borrowing and lending transactions between the securities firm and the TSEC, between the TSEC and a borrower or lender, and between a borrower and a lender shall all be made under the Master Securities Borrowing and Lending Agreement as well as the TSEC Securities Borrowing and Lending Rules and other applicable regulatory stipulations and rules.
2. The securities firm shall sign a Securities Borrowing and Lending Authorization Agreement with a borrower or lender before it may accept authorization to handle securities borrowing or lending transaction matters on behalf of the borrower or lender, and the securities firm may continue to act in such capacity only while the Authorization Agreement remains effective.
3. When handling securities borrowing or lending transaction matters on behalf of a borrower or lender, the securities firm shall exercise the due care of a good administrator. A securities firm handling securities borrowing or lending transaction matters under these Rules shall exercise the same degree of care as it does in handling its own affairs.
4. When placing an order for a fixed-price or competitive bid securities lending transaction on behalf of a customer, the securities firm shall confirm the content of the order and cause to be deposited in advance the eligible securities to be lent or the collateral against the securities borrowing. Unless the transaction is not successfully executed, the securities firm may not, with respect to the deposited securities or collateral, make any offset, seizure, retention or make any other claim or do any other thing that may impede payment or settlement in that loan transaction.
5. Upon execution of a fixed-price or competitive bid transaction through matching by the TSEC, the loan relationship between the borrower and the lender shall be established and become effective. Should the borrower or lender default on or breach any of its obligations or representations, it shall pay as stipulated a default penalty to the TSEC and be liable for damages, and in such a case the TSEC shall assume rights and obligations such as demanding payment on the default, or advancing the payment and seeking recovery.
6. Upon execution of a negotiated transaction through negotiation between a borrower and a lender, the borrower and the lender shall solely be responsible for all rights and obligations arising from, and assume all default and recovery risks associated with the loan relationship, and the TSEC shall in no event be held liable for the performance of any obligation arising therefrom. The lender and borrower shall forthwith through a securities firm report to the TSEC the terms and conditions of the negotiated transaction, and the TSEC shall provide a transaction confirmation and give notifications for the handling of the book-entry delivery and the subsequent return of the underlying securities. |
| Article 7 | A securities firm or securities finance enterprise intending to carry on securities borrowing and lending business pursuant to the Regulations Governing Securities Lending by Securities Firms or the Regulations Governing Securities Finance Enterprises, shall sign a Securities Borrowing and Lending Agreement with the TSEC and open a securities borrowing and lending account before it may carry out securities borrowing and lending transactions through the TSEC securities lending system. |
| Article 8 | The underlying securities in securities borrowing and lending transactions means securities eligible for margin purchase and short sale transactions, securities eligible to be underlying securities in the issuance of call (put) warrants, or underlying securities on which any of the following derivative instruments have been issued:
1. Equity options.
2. Exchange traded funds (ETFs).
3. Domestic and overseas convertible and exchangeable corporate bonds
4. Overseas depositary receipts.
The underlying securities in securities borrowing and lending transactions, as described in the preceding paragraph, shall be as publicly announced by the TSEC and subject to any further adjustment by the TSEC having regard to market conditions. |
| Article 9 | The business hours in which securities borrowing and lending services are available through the TSEC securities lending system shall start from 9 am and end at 3 pm. |
| Article 10 | The quantity specified in an application for a securities borrowing or lending transaction shall be as follows:
1. Lending quantity: 10 or more trading units of the underlying securities.
2. Borrowing quantity: at least one trading unit of the underlying securities. |
| Article 11 | Securities loans shall be divided, by type of transaction, into the following three categories:
1. Fixed-price transaction: a transaction in which a borrower or lender makes an application at a rate declared by the TSEC, and the transaction is executed through a matching process as stated in Article 14.
2. Competitive bid transaction: a transaction in which a borrower or lender initiates a quote of a rate for borrowing or lending securities, at an interest rate of not more than 20 percent per annum and with a minimum tick of 0.1 percent for quotes, and the transaction is executed through a matching process as stated in Article 16.
3. Negotiated transaction: a transaction in which a borrower and a lender negotiate and agree between themselves on the rate at which the transaction is executed, at an interest rate of not more than 20 percent per annum and with a minimum tick of 0.01 percent. |
| Article 12 | An application to borrow securities through a fixed-price transaction or competitive bid transaction shall be valid only for the day on which the application is made, while an application to lend securities through such a transaction shall remain valid until cancelled. |
| Article 13 | An application to lend or borrow securities through a fixed-price transaction, any change or withdrawal of such an application, and the book-entry transfer of the securities shall be handled in the following manner:
1. In the case of an application to lend securities, change or withdrawal thereof, and book-entry transfer of the securities:
(1) A lender applying to lend securities shall first through a securities firm enter the account number, title of the securities, recall notification period, and quantity into the TSEC securities lending system.
(2) Upon receipt of the application, the TSEC will notify a central securities depository over a computer network to check the securities in the lender's central securities depository account and put the securities on hold to make them available for lending; the application will be invalid if the lender does not have enough securities in its central securities depository account.
(3) An application that is valid will make the securities available for lending at the fixed rate, and shall remain valid until executed, changed, or withdrawn, or if partially executed, remain valid with respect to the unexecuted portion.
(4) With respect to any unexecuted portion of the application, the lender may at any time, through the securities firm, reduce the lending quantity through the TSEC securities lending system, whereupon the TSEC will give notice of the reduction in lending quantity to the central securities depository to make a corresponding change to the quantity of securities put on hold in the lender's central securities depository account.
(5) With respect to any unexecuted portion of the application, the lender may at any time, through the securities firm, withdraw its application through the TSEC securities lending system, whereupon the TSEC will forthwith notify the central securities depository to release the securities on hold pending lending in the lender's central securities depository account.
(6) Upon execution of a transaction through a matching process with respect to the application, the TSEC will forthwith notify the central securities depository to transfer the securities by book-entry from the central securities depository account of the lender into that of the borrower.
2. In the case of an application to borrow securities, or change or withdrawal thereof:
(1) A borrower applying to borrow securities shall first through a securities firm enter the account number, title of the securities, quantity, return date, recall notification period, and statement of collateral to be provided, into the TSEC securities lending system.
(2) The application will become effective upon confirmation by the TSEC of the accuracy of the information on collateral entered for the application and of the satisfaction of the required collateral percentage of 140 percent, and upon successful putting of securities collateral on hold.
(3) Upon posting of collateral in a sufficient amount, the borrower may at any time through the securities firm apply to change the quantity, return date, or to withdraw the application through the TSEC securities lending system with respect to any unexecuted portion of the application.
(4) Upon the borrower's withdrawal of an application with respect to the unexecuted portion, the TSEC will forthwith notify the central securities depository to release the securities collateral on hold in the borrower's central securities depository account. |
| Article 14 | In fixed-price transactions, borrowing applications are matched against lending applications that state the same terms and conditions with respect to the recall notification period, on a transaction-by-transaction basis and in an order of priority determined as follows:
1. With respect to applications for securities borrowing:
(1) Where the quantity from all lending applications does not exceed that from all borrowing applications, transactions will be executed for all lending applications.
(2) Where the quantity from all lending applications exceeds that from all borrowing applications, the lending applications will be matched in a random order determined by computer.
2. With respect to applications for securities lending:
(1) Where the quantity from all borrowing applications does not exceed that from all lending applications, transactions will be executed for all borrowing applications.
(2) Where the quantity from all borrowing applications exceeds that from all lending applications, the borrowing applications will be matched in the order of the time they are entered. |
| Article 15 | An application to lend or borrow securities through a competitive bid transaction, any change or withdrawal of such an application, and the book-entry transfer of securities shall be handled in the following manner:
1. In the case of an application to lend securities, change or withdrawal thereof, and book-entry transfer of securities:
(1) A lender applying to lend securities shall first through a securities firm enter the account number, title of securities, quantity, recall notification period, and lending quote into the TSEC securities lending system.
(2) Upon receipt of the application, the TSEC will notify a central securities depository over a computer network to check the securities in the lender's central securities depository account and put the securities on hold to make them available for lending; the application will be invalid if the lender does not have enough securities in its central securities depository account.
(3) An application that is valid will make the securities available for lending at the rate specified in the lending quote and shall remain valid until executed, changed, or withdrawn, or if partially executed, remain valid with respect to the unexecuted portion.
(4) With respect to any unexecuted portion of the application, the lender may at any time, through the securities firm, reduce the lending quantity or the rate in the lending quote through the TSEC securities lending system, whereupon the TSEC will give notice of the reduction in lending quantity to the central securities depository to make a corresponding change to the quantity of securities put on hold in the lender's central securities depository account.
(5) With respect to the unexecuted portion of the application, the lender may at any time, through the securities firm, withdraw its application through the TSEC securities lending system, whereupon the TSEC will forthwith notify the central securities depository to release the securities on hold pending lending in the lender's central securities depository account.
(6) Upon execution of a transaction through a matching process with respect to the application, the TSEC will forthwith notify the central securities depository to transfer the securities by book-entry from the central securities depository account of the lender into that of the borrower.
2. In the case of an application to borrow securities, or change or withdrawal of such an application:
(1) A borrower applying to borrow securities shall first through a securities firm enter the account number, title of securities, borrowing quote, quantity, return date, recall notification period, and statement of collateral to be provided, into the TSEC securities lending system.
(2) The application will become effective upon confirmation by the TSEC of the accuracy of the information on collateral entered for the application and of the satisfaction of the required collateral percentage of 140 percent, and upon successful putting of securities collateral on hold.
(3) Upon posting of collateral in a sufficient amount, the borrower may at any time through the securities firm apply to change the quantity, rate specified in the borrowing quote (the time of change is deemed the new order time), return date, or to withdraw the application through the TSEC securities lending system with respect to any unexecuted portion of the application.
(4) Upon the borrower's withdrawal of an application with respect to the unexecuted portion, the TSEC will forthwith notify the central securities depository to release the securities collateral on hold in the borrower's central securities depository account. |
| Article 16 | In competitive bid transactions, borrowing applications are matched against lending applications that state the same terms and conditions with respect to the recall notification period, on a transaction-by-transaction basis and in an order of priority determined according to the following principles:
1. In the case of an application to borrow securities, if the borrowing quote entered is at a rate higher than or equal to the lowest rate among all lending quotes, the borrowing quantity will be matched against one or more of the lending quotes available from among the lenders, determined in ascending order of rate, until the borrowing quantity is reached; if the borrowing quantity is reached at a rate at which the total quantity from all lending quotes at that rate is higher than the quantity needed to be borrowed, one or more of those lending quotes will be selected on a random basis for matching, until the needed quantity is reached.
2. In the case of an application to lend securities, if the lending quote entered is at a rate lower than or equal to the highest rate among all borrowing quotes, the lending quantity will be matched against one or more of the borrowing quotes available from among the borrowers, determined in descending order of rate, until the lending quantity is reached; if the lending quantity is reached at a rate at which the total quantity from all borrowing quotes at that rate is higher than the quantity offered for lending, one or more of those borrowing quotes will be selected for matching, on a transaction-by-transaction basis and in the order of the time they are entered, until the needed quantity is reached. |
| Article 16-1 | Where a borrower applying to borrow securities through a fixed-price or competitive bid transaction designates the securities borrowed in the present transaction to be used for return of another securities borrowing transaction record of the borrower, the borrower, notwithstanding the provision of Article 29 to the contrary, need not provide collateral for the present borrowing application, and upon execution of the present transaction through the matching process, the TSEC will notify the central securities depository to use the present securities borrowing to return the securities borrowed in the other transaction, as instructed by the borrower.
The quantity of securities in a borrowing application under the preceding paragraph shall be not more than the quantity of securities not yet returned for the designated securities borrowing transaction record, and such a transaction must be conducted through the same securities borrowing account at the same securities firm.
A securities borrowing transaction record designated by a borrower to be returned as described in paragraph 1 must be a transaction for which no application has been submitted under Article 18, paragraph 3 to renew the loan. |
| Article 17 | A negotiated transaction shall be conducted in the following manner:
1. A borrower and a lender shall between themselves negotiate and agree on the terms and conditions of a securities loan that cover, with respect to the securities to be loaned, the type, quantity, lending rate, loan period, and with respect to the collateral to be provided, the type, terms and conditions, and how entitlement compensation will be made, and shall enter into a Negotiated Securities Loan Transaction Agreement (format as shown in Appendix 3 hereto), under which the borrower shall provide collateral to the lender.
2. The borrower and the lender shall respectively request a securities firm to enter on their behalf a report on the execution of the borrowing transaction and a report on the execution of the lending transaction through the TSEC securities lending system, specifying therein such information as the title of the securities, borrowing/lending quantity, rate for the transaction, return date, securities book-entry transfer date, collateral percentage, the borrower's securities borrowing and lending account and that of the lender, where the securities book-entry transfer date may be either the report date or the next following business day; and the borrower and the lender may file their respective reports through the same or through different securities firms.
3. Where the report date is specified as the securities book-entry transfer date in the lending transaction report, the TSEC will thereupon notify the central securities depository to put the securities on hold to make them available for lending; the lending transaction report will be invalid if the lender does not have sufficient securities on deposit in its central securities depository account.
4. No change may be made to the borrowing/lending terms and conditions once the TSEC confirms that those in the borrowing transaction report are consistent with those in the lending transaction report. If the securities book-entry transfer date is the next business day following the report date, the lender and the borrower may, acting jointly, apply to withdraw that negotiated transaction report at any time from the TSEC's confirmation until before 10 a.m. on the securities book-entry transfer date.
5. Where the securities book-entry transfer date is the report date, the TSEC upon confirmation will notify the central securities depository to transfer the securities.
6. Where the securities book-entry date is the next business day following the report date, the TSEC will issue a notice to the central securities depository at 10:30 a.m. on that day, advising it to transfer the securities; the negotiated transaction report will be invalid if the lender does not have sufficient securities on deposit in its central securities depository account, in which case the TSEC will not execute the transaction and will thereupon issue a notice to the lender and borrower through their securities firm(s). |
| Article 17-1 | If in a negotiated transaction report the next business day following the report date is specified as the securities book-entry transfer date, if a circumstance arises that the borrower needs to sell the borrowed securities before they are transferred into its central securities depository account, it may only do so though the securities firm which has filed the borrowing transaction report on its behalf.
If after the borrower has executed the sale of securities under the preceding paragraph, the transfer of securities for the negotiated transaction fails to be completed by the due date, making the borrower unable to satisfy its delivery obligation with the securities firm handling the sell order, the TSEC will, depending on which party is to be held responsible for such failure, suspend or terminate the lender's or borrower's participation in securities borrowing and lending transactions, or otherwise announce a default on the part of the lender or borrower. |
| Article 18 | The maximum period of a securities loan may not exceed 6 months starting from the date of execution of the loan transaction.
The borrower may return the borrowed securities any time during the agreed period.
If the lender does not make a recall request during the term of the loan, the borrower may, at any time during the period from the tenth business day before expiration of the loan term to the expiration date, submit a notice through the TSEC to the lender requesting renewal of the loan; the lender shall be deemed to have refused to grant consent if it does not otherwise indicate upon receipt of the notice.
The request for renewal of a loan under the preceding paragraph may be granted with one and only one extension of not more than 6 months, and with no term or condition of the loan changed except for the loan period. |
| Article 19 | A borrower in a fixed-price or competitive bid transaction shall return the securities in the following manner:
1. Return of the securities on the due date: the TSEC will, ten business days prior to the scheduled return date, notify the borrower through the securities firm to return the securities.
2. Return of the securities before the due date: the borrower may return the securities, in whole or in part, at any time from the next business day following the borrowing date to the due date.
3. Request by the lender for early return of securities: the lender, if it wishes to request early return of the securities, shall give notice to the borrower through the TSEC no later than one, three, or ten business days before the early return date, in accordance with the terms and conditions under which the borrowing/lending application is made; the borrower may return the securities, in whole or in part, at any time from the next business day following the receipt of the notice to the early return date.
Upon notification from the borrower through the securities firm via the TSEC securities lending system, the TSEC will notify the central securities depository to effect a book-entry transfer of the securities to be returned, from the central securities depository account of the borrower back to that of the lender, with a notice to the borrower and the lender through their securities firms.
The borrower's obligation to return the securities ends only when the borrowed securities and any rights arising from such securities during the borrowing period have all been returned or paid to the lender. |
| Article 20 | A borrower in a negotiated transaction shall return the securities in the following manner:
1. Return of the securities on the due date: the TSEC will, ten business days before the scheduled return date, notify the borrower through the securities firm to return the securities.
2. Return of the securities before the due date: the borrower and the lender may between themselves agree on the return of securities at any time before the due date, and the two parties shall through their securities firms report to the TSEC on the change of return date.
Upon notification from the borrower through the securities firm via the TSEC securities lending system, the TSEC will notify the central securities depository to effect a book-entry transfer of the securities to be returned, from the central securities depository account of the borrower back to that of the lender, with a notice to the borrower and the lender through their securities firms. |
| Article 21 | The TSEC shall make the following information available for query over a computer network or the Internet:
1. With respect to fixed-price transactions:
(1) The fixed rate.
(2) Execution information: display the total volume of executed transactions in each security.
(3) Lending information: display the total volume of unexecuted lending orders for each security.
(4) Borrowing information: display the total volume of unexecuted borrowing orders for each security.
2. With respect to competitive bid transactions:
(1) Execution information: upon order matching and execution of each transaction, display the title of the security, quantity, and rate, and the total volume of executed transactions in that security.
(2) Lending information: display the lending quantity and rate of the best five lending quotes in each security, and the total lending volume in that security.
(3) Borrowing information: display the borrowing quantity and rate of the best five borrowing quotes in each security, and the total borrowing volume in that security.
3. With respect to negotiated borrowing transactions: a balance table of securities on loan.
The TSEC will publish the balance table of securities on loan on a daily basis, wherein the balances of securities on loan in fixed-price and competitive bid transactions may be calculated in aggregate with the balances in the balance table of securities on loan for negotiated transactions.
The TSEC may adjust the information items as necessary based on market conditions. |
| Article 22 | The securities collateral received by the TSEC in conducting securities borrowing and lending transaction business shall be delivered to the custody of the central securities depository.
Upon the execution of a securities loan transaction, the central securities depository shall make a notation specifying how the borrowed securities may be used. However, the same shall not apply to securities borrowed through a securities borrowing and lending account of a securities firm or of a securities finance enterprise.
No securities with respect to which a notation has been made under the preceding paragraph may be transferred or withdrawn, except for the following purposes:
1. For sale through a securities firm so authorized.
2. For returning securities borrowed or for compensating for securities entitlements.
3. For returning spot securities borrowed in short sales.
4. For purposes associated with the exercise of call (put) warrants, equity options, and other equity-type financial instruments.
5. For use in the in-kind creation or redemption of exchange traded fund (ETF) units.
6. For such other purposes as may be approved by the TSEC. |
| Article 23 | The TSEC shall not entertain an application to open a securities borrowing and lending account if any of the following circumstances applies to the lender or borrower:
1. Noncompliance with the provisions of Article 5 or 49.
2. Opening of the securities borrowing and lending account under the name of another person.
3. Termination of the securities trading brokerage contract entered into with the securities firm.
A borrower or lender may open only one securities borrowing and lending account at a single business place of a securities firm. However, this restriction does not apply where it is provided the borrower or lender is allowed to open two or more trading accounts at a single place of business of a securities broker.
Where any circumstance set forth in the subparagraphs of paragraph 1 applies after a securities borrowing and lending account has been opened, the TSEC shall forthwith suspend that party's participation in securities borrowing and lending transactions and notify it to satisfy all outstanding obligations, upon closing of which the TSEC shall cancel that securities borrowing and lending account.
Where securities borrowed by a borrower are subject to a court ruling for provisional attachment, provisional injunction, or compulsory execution, the provisions of Article 41, paragraph 2 shall apply mutatis mutandis, and upon closing of all transactions, the TSEC may cancel its securities borrowing and lending account. |
| Article 24 | A borrower or lender applying to open a securities borrowing and lending account shall complete the account opening process through an authorized person as specified in an attached letter of authorization, and the securities firm receiving the application shall forward the relevant documents to the TSEC. Upon the photocopies thereof shall be affixed the corporate seal and the seal of the statutory representative of the applicant company and be inserted the words "Identical to the Original". The TSEC shall additionally send a written request to the account applicant for confirmation that the account is being opened on the applicant's behalf under the power of attorney or authorization.
The securities firm shall transmit to the computer system of the TSEC any information with respect to the account opened by the lender or borrower, or cancellation of the account, or any changes therein. |
| Article 25 | If there is any change to the information contained in a Securities Borrowing and Lending Account Application Form with respect to the company's name, name or national ID number of its agent or responsible person, government uniform invoice number of a profit-seeking enterprise or tax withholding agent, withholding tax rate, bank account number, address or mailing address, contact telephone number, or e-mail address, such change shall be entered, through the securities firm, into the TSEC securities lending system, with a written notice to the TSEC.
If the applicant for conducting securities borrowing and lending transactions fails to give such a notice, the TSEC shall proceed using the original recorded information, and the applicant shall be solely responsible for any legal issues that may arise and may not raise any objection whatsoever afterwards.
Where the TSEC gives a notice by postal mail, if the notice is unable to be served due to a change of address or mailing address for which the borrower or lender fails to give notice under the provisions above, or otherwise due to a reason attributable to the borrower or the lender, such notice shall become effective as of the date of the first delivery attempt by the post office. |
| Article 26 | Any money or securities due from the TSEC to a borrower or lender shall be delivered by book-entry transfer, among which the money, except for cash collateral, which shall be handled pursuant to Article 31, shall be transferred by the TSEC to the financial institution account designated by the securities firm and then retransferred by the securities firm into the deposit account opened by the lender or borrower with a financial institution, whereas the securities shall be transferred by the central securities depository directly to the central securities depository account of the borrower or lender. |
| Article 27 | A lender or borrower giving an order to a securities firm to lend, borrow, or return securities shall fill out an order ticket marked "LEND", "BORROW", or "RETURN", and upon successful execution of the borrowing or lending transaction, the securities firm shall, based upon the transaction information on record with the TSEC, prepare and issue a securities borrowing/lending report marked "LEND", "BORROW", or "RETURN" and any other supporting documents, in the form and content as separately announced by the TSEC.
The provisions of Article 75 of the TSEC Operating Rules shall apply mutatis mutandis with respect to the preceding paragraph.
The TSEC shall, by means of file transfer, notify the securities firm of the borrower regarding the required collateral percentage, collateral maintenance ratio, and minimum collateral percentage.
In the case of any ex-rights or ex-dividend notification or any relevant calculation statements, the TSEC shall deliver a copy to all related borrowers and lenders through their respective securities firms.
Upon repayment and closing of a securities loan transaction, the TSEC shall, after settlement of accounts, prepare statements of the lending fee, lending income, return of collateral, and net receipt or payment of money, and deliver a copy thereof to the borrower and the lender through their securities firms. |
| Article 28 | A borrower or lender applying to terminate its securities borrowing and lending account shall fill out an Application for Termination of Securities Borrowing and Lending Account, the format of which is shown in Appendix 5 hereto, and the TSEC may not consent to process the account cancellation unless it has confirmed that all of the borrower or lender's securities borrowing and lending transactions have been closed out and settled. |
| Article 29 | A borrower applying to borrow securities in a fixed-price or competitive bid transaction shall provide collateral, which may take the following forms only:
1. Cash.
2. Securities eligible for margin purchases and short sales.
3. Bank guarantee.
4. Book-entry central government bonds.
The collateral referred to in the preceding paragraph shall be provided in the following manner:
1. Cash: to be transferred directly by the borrower to a cash collateral account at a bank as designated by the TSEC.
2. Securities eligible for margin purchases and short sales: upon application by the borrower through the securities firm, the TSEC will notify the central securities depository to put the securities collateral on hold.
3. Bank guarantee: upon completion of guarantee procedures with a bank, the borrower shall file an application through the securities firm and submit the original bank letter of guarantee to the TSEC.
4. Book-entry central government bonds: the borrower shall create and register a pledge on the bonds in favor of the TSEC.
Upon execution of the securities loan transaction, the TSEC shall notify the central securities depository to transfer the borrower's securities collateral to the TSEC as security for the loan.
The TSEC may refuse to accept any collateral enumerated in subparagraph 2 of paragraph 1 if it deems appropriate to do so having considered the market liquidity or risk status of such collateral. |
| Article 30 | At the time of filing an application to borrow securities through fixed-price or competitive bid transaction, a borrower shall provide collateral to the TSEC in an amount of no less than a required collateral percentage of the market value of the securities to be borrowed, calculated based upon the opening reference price of those securities on the then current day, and upon execution of the transaction, the collateral maintenance ratio for that transaction, along with that for any other securities borrowing transactions of the borrower, shall be calculated on a daily marked-to-market and transaction-by-transaction basis; if any collateral maintenance ratio falls below the minimum collateral percentage of 120 percent, then upon notification from the TSEC to the securities firm acting on behalf of the borrower, the borrower shall provide additional collateral on the next business day following the notification date to bring the collateral maintenance ratio back to the required collateral percentage.
The collateral maintenance ratio shall be calculated as follows:
1. The collateral maintenance ratio is equal to the total collateral value of the collateral minus the securities lending fees payable, then divided by the total value covered by the collateral, and then multiplied by 100 percent.
2. The total collateral value of the collateral is equal to the most recent closing price or most recent next-day's reference price of the securities collateral, or the par value of the book-entry central government bonds, as the case may be, multiplied by the quantity and further by a valuation percentage, then plus the total cash collateral and total bank guarantee.
3. The total value covered by the collateral is equal to the most recent closing price or most recent next-day's reference price of the securities borrowed multiplied by the quantity covered by the collateral, plus total cash dividends to be returned.
4. The quantity covered by the collateral is equal to the quantity of securities borrowed, plus the quantity of stock dividends to be returned after the ex-rights date.
The market value of securities referred to in the preceding paragraph shall be calculated based on the most recent closing price or most recent next-day's reference price, provided that for the three business days prior to any ex-dividend or ex-rights date for a security that is provided as collateral, its market value shall be calculated based upon the respective current day's closing price or next day's reference price, minus the value of the dividend, or minus the value of the right determined based on the current day's closing price or the next day's reference price.
The collateral valuation percentage for securities eligible for margin purchases and short sales shall be 70 percent if they are exchange-listed securities, or 60 percent if they are over-the-counter securities; it shall be 90 percent for book-entry central government bonds.
The collateral valuation percentages described in the preceding paragraph may be subject to adjustment by the TSEC having regard to the market liquidity or risk status of the collateral. |
| Article 31 | If the fixed-price or competitive bid transaction contemplated by an application for securities borrowing is not executed, then upon application by the borrower, the TSEC shall return the collateral provided by the borrower in the following manner:
1. In the case of cash, a transfer will be made on the next business day directly into a bank account designated by the borrower.
2. In the case of stock exchange-listed or OTC-listed securities, a notice will be issued directly to the central securities depository to remove the "on hold" status.
3. In the case of a bank guarantee, the original guarantee documentation will be returned to the borrower on the next business day.
4. In the case of book-entry central government bonds, a registration will be made on the current day canceling the creation of the pledge. |
| Article 32 | A borrower in a fixed-price or competitive bid transaction may apply to withdraw any portion of the provided collateral that is in excess of the required collateral percentage.
When applying to make such a withdrawal, the borrower shall submit an application through its securities firm via the TSEC securities lending system; upon receipt of the application, the TSEC shall process it pursuant to Article 31 applied mutatis mutandis. |
| Article 33 | A borrower in a fixed-price or competitive bid transaction applying to replace collateral shall do so through its securities firm via the TSEC securities lending system, and shall provide the additional collateral before applying to withdraw the originally posted collateral of equivalent or lower value (in the case of securities collateral, the value shall be discounted at the collateral valuation percentage based upon the opening reference price for the current day on the exchange market).
Where upon review the securities collateral or bank guarantee provided by the borrower is found no longer qualified as eligible collateral, the TSEC shall forthwith notify the borrower to replace it on the next business day. |
| Article 34 | The TSEC shall pay interest on the cash collateral provided by a borrower in a fixed-price or competitive bid transaction, at an interest rate determined based upon the demand deposit interest rate of the bank of the TSEC.
When the interest rate described in the preceding paragraph is adjusted, the adjusted interest rate shall be used, as of the date of adjustment, to calculate the interest payable with respect to the then outstanding portion of the borrowing transaction. |
| Article 35 | A borrower in a fixed-price or competitive bid transaction shall, through a securities firm and through the TSEC securities lending system, repay the lender in the following manner any cash dividends, stock dividends, or other benefits that the lender would have received if it had not lent the securities:
1. In the case of cash entitlements:
(1) The TSEC will, no later than five business days before the distribution date, notify the borrower through its securities firm.
(2) The borrower shall through its securities firm deposit cash into a bank account designated by the TSEC and enter the information into the TSEC securities lending system for confirmation purposes on the distribution day, and the TSEC will afterwards, on that day or on the next business day, transfer the money to the lender through its securities firm.
2. In the case of securities entitlements:
(1) The TSEC will notify the lender through its securities firm after the holder-of-record date, and the lender shall, within three business days starting from the date of the notice from the TSEC, decide at its option whether securities or cash of equivalent value shall be returned, and then enter the information into the TSEC securities lending system, whereupon the TSEC will notify the borrower through its securities firm advising of the fact, and give further notice to the borrower through the securities firm three business days prior to the distribution date, advising that the TSEC will cause securities to be returned if the lender fails to exercise that option within the time limit.
(2) The borrower shall, in the case of returning securities, give a notice through its securities firm and through the TSEC securities lending system, to the central securities depository within three business days starting from the distribution date, instructing it to effect a book-entry transfer of the securities to the lender from the borrower's central securities depository account, or in the case of returning cash of equivalent value, make the return on the distribution date in the same manner as cash entitlements, in an amount determined based upon the ex-rights reference price.
3. In the case of rights to subscribe to newly issued securities:
(1) The TSEC will, five business days prior to the end of the period for subscribing to securities in a new issue, notify the lender through its securities firm, and the lender shall, three business days prior to the end of the subscription period, declare its intention to subscribe, if so desired, by giving notice through its securities firm to the TSEC and, also through its securities firm, deposit the money into the TSEC-designated bank account, to be transferred through the TSEC securities lending system to the borrower to subscribe to the securities, or to buy in the securities in the market, for the account of the lender.
(2) The TSEC will, no later than three business days prior to the distribution date for the newly issued securities, give a notice to the borrower through its securities firm advising that the borrower must, within three business days starting from the distribution date, give a notice through the securities firm via the TSEC securities lending system to the central securities depository to effect a book-entry transfer of the securities to the lender from the borrower's central securities depository account.
(3) The lender shall be deemed as having waived the right to subscribe to the newly issued shares if it tardily declares its intention to subscribe, or fails to declare its intention to subscribe, or if it, having so declared, fails to pay the subscription price within the time limit.
In a negotiated transaction, the borrower and the lender shall between themselves negotiate and agree on how to deal with any cash entitlements, securities entitlements, subscription rights for newly issued securities, and other benefits that the lender would have received if it had not lent the securities, as well as on the exercise of any rights on the shares. In the case of securities entitlements that require a book-entry transfer, the transfer shall be made through the TSEC securities lending system. |
| Article 36 | A borrower shall through its securities firm enter into the TSEC securities lending system the information on any unsold portion of securities it has borrowed, within 10 business days after the holder-of-record date for any distribution of cash or securities entitlements on such securities. |
| Article 37 | The TSEC shall, on the business day preceding an issuing company's book closure date, prepare a title transfer list and electronic data file incorporating information on the securities of that issuing company that have been posted as collateral, and deliver the same to the central securities depository to effect the title transfers with the issuing company or its stock registrar and transfer agent on behalf of the relevant parties.
A securities firm or securities finance enterprise that has posted as collateral for a securities borrowing transaction made through the TSEC securities lending system the collateral securities it had previously received, shall replace the same four business days before the book closure date, so that the operations described in the preceding paragraph may be carried out accurately; the securities firm or securities finance enterprise shall be solely held responsible for any dispute regarding shareholders' rights that may arise if it fails to make such replacement.
A lender in a fixed-price or competitive bid transaction wishing to exercise the voting rights attached shall make a recall request prior to the holder-of-record date for the shareholders' meeting and in accordance with the recall notification period under the original lending terms; the TSEC will forward the request to the borrower through the securities firm. |
| Article 38 | The terms and conditions, required collateral percentage, collateral maintenance ratio, and minimum collateral percentage with respect to the collateral for a negotiated transaction shall be negotiated and agreed, and the collateral transferred, between the lender and the borrower themselves. |
| Article 39 | If any of the following circumstances applies to the borrower in a fixed-price or competitive bid transaction, the TSEC shall, as from the next business day, dispose of the collateral and buy back or borrow securities in the market to return the securities for the account of the borrower, or if having failed to buy back or borrow the securities within three business days starting from the date of the circumstance, repay the loan by paying cash of equivalent value determined based upon the closing price on the exchange market on the third business day:
1. Where the borrower fails to return the securities within the specified time limit when the loan matures or when the lender makes a recall request.
2. Where the borrower fails to pay entitlement compensation to the lender by the payment date for such entitlement compensation.
3. Where the borrower fails to cover any collateral shortfall or to provide eligible collateral in a replacement by the specified date and time.
4. Where the borrower fails to pay any fee by the due date.
Any processing fees incurred in connection with a disposition under the preceding paragraph shall be borne by the borrower. |
| Article 40 | In the case of disposition of securities collateral, the TSEC may instruct a securities firm to place a sell quote on the TSEC market or on an OTC market, and if the quote is not executed, to keep quoting until execution.
In the case of disposition of cash collateral, the money will be used to buy back the securities or to offset against related expenses, whereas, in the case of a bank guarantee, the TSEC shall directly seek recovery from the guaranteeing bank.
In the case of disposition of securities collateral, the disposition shall be made through the Taiwan Stock Exchange Corporation Account for Events of Default opened by the TSEC with a securities firm.
The borrower may not raise any objection as to the time and price at which the TSEC disposes of the collateral.
The TSEC shall seek recovery from the borrower for any portion of the amount in arrears that is not covered after the disposition of the collateral, as well as for any fees and costs arising from or in connection with the handling of related matters. |
| Article 41 | If in a fixed-price or competitive bid transaction any circumstance described in the subparagraphs of Article 39, paragraph 1 applies to the borrower, or the circumstance described in Article 39, paragraph 1, subparagraph 4 applies to the lender, the TSEC may suspend that party's participation in securities borrowing and lending transactions.
If upon disposition by the TSEC of the borrower's collateral, the borrower's obligation is still not fully satisfied, the TSEC may close out any other securities borrowing and lending transaction(s) of the borrower and use the resultant proceeds to cover the shortfall, with any amount remaining thereafter to be returned to the borrower; if the borrower's obligation is still not fully satisfied, and if the borrower fails to fully satisfy the obligation within the time limit specified in a notice from the TSEC, such failure shall constitute an event of default, in which case the TSEC shall terminate the borrower's participation in securities borrowing and lending transactions. |
| Article 42 | If in a negotiated transaction the circumstance described in Article 39, paragraph 1, subparagraph 1 or 4 of these Rules applies to the borrower, or the circumstance described in subparagraph 4 thereof applies to the lender, the TSEC may suspend that party's participation in securities borrowing and lending transactions; if that party fails to perform the obligation upon notification from the TSEC, the TSEC may terminate that party's participation in securities borrowing and lending transactions.
Where a borrower in a negotiated transaction is unable, even at a limit-up price, to buy securities in the market to return the borrowed securities when required, or in the case of such a borrower being an offshore foreign institutional investor, the borrowed securities are subject to a ratio cap on foreign capital investments as fixed by the competent authority in charge of the relevant industry, such that the circumstance in Article 39, paragraph 1, subparagraph 1 of these Rules applies, the loan may be repaid in cash if so agreed between the lender and the borrower, in which case they shall forthwith file a report, accompanied by relevant factual evidence, to the TSEC to close out the securities loan.
Upon any event of default in a negotiated transaction, the parties shall forthwith report to the TSEC on the handling of the event of default. |
| Article 43 | If any of the circumstances described in Article 39, paragraph 1 applies to the borrower or lender in a fixed-price or competitive bid transaction, the TSEC, in addition to taking any action in a prescribed manner, may charge an additional loan service fee in the amount of 10 percent of the securities lending fee. The TSEC will be entitled to an additional delay interest on any advances made by the TSEC arising from the taking of relevant actions, calculated at the rate of 5 percent per annum for the period from the advance payment date to the date the advance is repaid. |
| Article 44 | The securities lending fee for a fixed-price or competitive bid transaction, to be collected/paid through the securities firm upon returning of borrowed securities and closing of the transaction, shall be calculated on a daily marked-to-market and on a transaction-by-transaction basis as the sum of the products obtained by multiplying the daily closing price of the underlying securities by the quantity covered by the collateral and then further multiplying by the lending rate. If no closing price is available, the most recent closing price shall be used in the calculation.
The borrowing period shall begin on the date the securities are borrowed and end on the day preceding the date they are returned. If the return date does not fall on a business day, the next business day shall be treated as the return date. The preceding paragraph shall apply mutatis mutandis to the calculation of securities lending fees for holidays.
Where in the fixed-price or competitive bid transaction the lender agrees to renew the loan, the securities lending fee shall continue to accrue until, and be collected/paid upon, closing of the transaction by return of the securities.
Where the borrower in a fixed-price or competitive bid transaction returns early a portion of the borrowed securities during the life of the loan, it shall on the next business day settle all lending fees and charges already incurred in relation to the securities borrowing transaction. Where the borrower in a negotiated transaction returns early a portion of the borrowed securities during the life of the loan, it shall on the next business day settle all processing fees and loan service fees in relation to the securities returned.
The calculation and payment of the securities lending fee on a negotiated transaction shall be negotiated and agreed upon between the borrower and the lender themselves, notwithstanding the provisions of Article 27, paragraph 5. |
| Article 45 | A securities firm shall charge processing fees for providing securities borrowing and lending transaction services, while the TSEC shall charge loan service fees for providing borrowing and lending services on the securities market.
The processing fees and loan service fees, and their rates, for securities borrowing and lending transactions shall be determined by the TSEC in conjunction with the securities association and shall be adopted upon submission to and approval by the competent authority. |
| Article 46 | The TSEC, in view of the risk of loss that it may incur as a result of handling matters related to Article 39, shall set aside a reserve fund from, and of a certain percentage of the loan service fee received; in the event of any shortfall, it shall be paid from the TSEC's own funds. |
| Article 47 | Where upon review an underlying security is no longer found eligible, the TSEC may demand all borrowers with respect to that security to close out their transactions by returning the securities.
Where an underlying security is determined as being subject to suspension of trading, delisting from an exchange/OTC market, merger or consolidation, capital reduction, or any other cause that may affect the lender's shareholder rights, the TSEC may demand the borrower to close out the transaction by returning the securities by the sixth business day following the book closure date or the date the cause takes effect.
If during the life of a securities loan agreement, because of a natural disaster or other emergency, trading on the securities market is suspended across the board or is suspended for a security underlying the agreement, and the time for resumption of trading has not been determined, the TSEC may notify the borrower to return the borrowed security within a stated period of time, failing which the securities loan transaction may be closed out in any of the following manners:
1. The borrower submits an application to the TSEC, which, together with all such applications from other borrowers of the same security, will then be collectively forwarded by the TSEC to a securities firm engaged by the TSEC to apply for purchase of the underlying security through a reverse auction, with any expenses arising from the reverse auction to be borne on a pro rata basis by all applicant borrowers.
2. The lender and borrower may agree to close out the transaction by payment of cash. |
| Article 48 | Except as otherwise stated in Article 41or 42, where a party to a securities loan transaction violates or breaches these Rules, the Master Securities Borrowing and Lending Agreement, the Securities Borrowing and Lending Authorization Letter, or any applicable regulations, rules, announcements, or circular letters, the TSEC may suspend that party's participation in securities borrowing and lending transactions or notify it to make corrections, depending upon the seriousness of the matter.
If the party to the securities loan transaction fails to make corrections as instructed by the TSEC in the notice, the TSEC may terminate that party's participation in securities borrowing and lending transactions. |
| Article 49 | A party whose participation in securities borrowing and lending transactions is terminated by the TSEC pursuant to Article 41, 42, or 48, may resume its participation in securities borrowing and lending transactions only after the lapse of one year following the full satisfaction or performance of its obligations or completion of corrections. |
Chapter 3 Settlement-Driven Securities Borrowing
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Section 1 Securities Firms
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| Article 50 | Where a securities firm is unable to perform its securities settlement obligations due to an error with respect to a transaction effected by the securities firm for the account of a customer or for its own account, due to a customer's failure to meet its settlement obligation when due, as a result of any of the events set forth in Article 109, paragraph 1 of the TSEC Operating Rules occurring to the securities delivered by the securities firm to settle a transaction, or for any other legitimate reason, the securities firm shall borrow securities to meet the settlement obligations upon completion of the reporting or application procedures required by the Operating Rules. |
| Article 51 | A securities firm applying to borrow securities shall deposit collateral with the TSEC in the amount of 120 percent of the closing price of the securities on the borrowing transaction date, multiplied by the borrowing quantity applied for, and shall act in accordance with the TSEC Guidelines for Settlement-Driven Securities Borrowing and Covering of Cash Collateral Shortfall by Securities Firms.
Where the securities firm has neither delivered the securities payable to settle the obligation within the time required by Article 104 of the Operating Rules, nor completed the reporting or application procedures, if the securities firm is not required by the Guidelines described in the preceding paragraph to provide additional checks, then the TSEC may borrow securities for the account of the securities firm, with a notice to it on the next day, in which case the securities firm shall not raise any objection to the securities lending fee thus incurred. |
| Article 52 | Lendable securities shall be restricted to those securities listed on a centralized exchange market and shown in the custody accounts at the central securities depository. An owner of such securities wishing to lend the securities shall fill out a lend order instructing its securities firm, or a bank approved by the competent authority to operate custody business and acting as its custodian, to enter relevant information into a computerized securities borrowing and lending system for a lending quote, and may change or cancel the quote at any time before the conclusion of the lending transaction.
The lending order under the preceding paragraph shall specify the title and quantity of securities to be lent as well as the lending quote and shall be made in a form determined by the TSEC.
The quantity under the preceding paragraph shall be quoted on a per trading unit basis as provided in Article 60 of the TSEC Operating Rules, and the lending rate shall be no more than 7 percent of the closing price of the securities.
In the event that loaned securities go ex-rights or ex-dividend, the borrowing securities firm shall compensate the lender in cash in the amount of the value of the rights or dividends on the securities, as calculated by the TSEC. |
| Article 53 | The application of a securities firm to borrow securities shall, starting from the next business day following the borrowing application date, be matched through the computerized securities borrowing and lending system against one or more of the lending quotes available from among all lenders, in ascending order of lending rate, until the borrowing quantity is reached; if the borrowing quantity is reached at a rate at which the total quantity from all lending quotes at that rate is higher than the quantity needed to be borrowed, one or more of those lending quotes will be selected on a random basis for matching, until the needed quantity is reached.
The securities lending fee incurred on a given type of securities shall be shared by all securities firms applying to borrow that type of securities, on a pro rata basis according to the quantity in their respective borrowing applications. |
| Article 54 | The securities borrowed shall be returned on a daily basis starting from the next business day following the lending date.
After it has borrowed securities, a borrowing securities firm shall within the required or agreed time limit buy in or supplement securities for the purpose of returning the securities borrowed, and until it has fully bought in or supplemented the securities, shall reborrow securities on each successive business day to meet the requirement to return the securities under the preceding paragraph.
The securities the borrowing securities firm buys in or supplements within the required or agreed time limit shall be returned through the central securities depository.
Upon notification from the central securities depository advising that the returned securities are successfully transferred by book-entry, the TSEC will pay the lender the securities lending fee out of the collateral to be returned, through the securities firm of the lender or through a bank approved by the competent authority to operate custody business and acting as its custodian, and refund to the borrowing securities firm the balance of the collateral remaining after deduction of the securities lending fee, or notify it to withdraw the non-cash collateral.
The securities firm of the lender, or the bank approved by the competent authority to operate custody business and acting as its custodian, shall advise the lender of the status of the securities lent and returned, and may charge the lender a service fee at a rate of not more than 10 percent of the securities lending fee. |
| Article 55 | If on a day on which a borrowing securities firm reborrows securities for a securities loan not yet returned, the remaining balance of the collateral deposited is lower than 107 percent of the amount requiring collateralization as calculated by multiplying the outstanding balance of the securities borrowing transaction by the closing price of the securities on the current day, then the securities firm shall, by 10 am on the next business day following the reborrowing date, make additional deposit to bring the level to 120 percent of the amount of collateralization required for the reborrowing date.
Where the borrowing securities firm fails to deposit the collateral required under the preceding paragraph, or is unable to return the borrowed securities for a cause attributable to itself, the TSEC will buy in the securities in the market and return them to the lender. The prices needed and all expenses incurred shall first be paid out of the balance of the collateral already deposited, and in the event of any shortfall, then be recovered from the borrowing securities firm; any amount remaining thereafter will be refunded to the borrowing securities firm.
If the securities firm defaults on its settlement obligations, the TSEC will forthwith suspend the securities firm's participation in securities borrowing and lending transactions. |
| Article 55-1 | A borrowing securities firm may, by 6 pm on the next business day following the borrowing transaction date, or by 10 am on the next business day following the reborrowing date described in paragraph 1 of the preceding article, as the case may be, apply to satisfy the requirement for collateral or for covering the collateral shortfall arising from the reborrowing of securities, by a bank guarantee or by a pledge of book-entry central government bonds (hereinafter collectively referred to as "non-cash collateral").
Where a borrowing securities firm provides non-cash collateral to satisfy the requirement for collateral or for covering the collateral shortfall arising from the reborrowing of securities, if the cash portion of the total collateral deposited is insufficient to cover the daily deduction of securities lending fee, it shall transfer on a daily basis the amount of the securities lending fee to a TSEC-designated account, which amount to be forwarded by the TSEC to the lender through its securities firm. |
| Article 55-2 | A borrowing securities firm providing pledged book-entry central government bonds to meet the requirement for collateral or to cover a collateral shortfall arising from a reborrowing of securities, shall first effect a restricted transfer registration with a clearing bank, and then transfer the bonds into a book-entry central government bond account designated by the TSEC by 10 am on the second business day following the borrowing transaction date, or by 10 am on the next business day following the reborrowing date, as the case may be.
The posted book-entry central government bonds shall be valued at 90 percent of their face value. |
| Article 55-3 | A borrowing securities firm providing a bank guarantee to meet the requirement for collateral or to cover a collateral shortfall arising from a reborrowing of securities, shall first complete the guarantee procedures with a bank, and then submit the original bank letter of guarantee to the TSEC by 10 am on the second business day following the borrowing transaction date, or by 10 am on the next business day following the reborrowing date, as the case may be. |
| Article 55-4 | A borrowing securities firm may use one or more book-entry central government bonds and/or bank guarantees to serve as non-cash collateral for one or more securities borrowing transactions. |
| Article 55-5 | The prices needed for and all expenses incurred from the buy-in of securities in the market by the TSEC for returning the borrowed securities pursuant to Article 55, paragraph 2 shall first be paid out of the cash collateral, and in the event of any shortfall, the TSEC will then dispose of the posted non-cash collateral or otherwise exercise any rights to seek repayment or cover necessary payments; the procedures for disposing of the posted non-cash collateral shall be as follows:
1. In the case of a bank guarantee used as non-cash collateral, the TSEC shall seek recovery directly from the guaranteeing bank.
2. In the case of book-entry central government bonds pledged as collateral, the TSEC shall dispose of the bonds through the Taiwan Stock Exchange Corporation Account for Events of Default it maintains with a securities firm.
3. All expenses arising from or in connection with the disposition of the non-cash collateral shall be borne by the borrowing securities firm.
4. The proceeds from the disposition of the non-cash collateral after deducting the amount in arrears shall be returned to the borrowing securities firm; if the proceeds of the disposition are insufficient to cover the amount in arrears, the TSEC shall seek recovery from the securities firm for the insufficient amount. |
Section 2 Securities Finance Enterprises
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| Article 56 | Where a securities finance enterprise's short balance with respect to a security it sells short and otherwise borrows, plus any balance of refinancing of that security it extends to others, exceeds the total number of shares of that security it owns, it borrows through the stock exchange securities lending system, and it obtains from the operation of margin purchase and short sale business and the business of providing refinancing to others, if the shortfall is still not fully covered after it has sought refinancing from other securities finance enterprises, it shall initiate competitive bidding for loans from owners of that security as from 8 am on the next business day, and if a shortfall still exists, shall arrange for negotiated transaction with any specific persons no later than 2 pm on that day.
If the shares of a security obtained following the procedures described in the preceding paragraph are still insufficient in amount, the securities finance enterprise shall through a securities firm conduct a purchase of shares by reverse auction at the TSEC by 2:30 pm on the same day.
When the issuing company of a security closes its books, except where the book closure is made for the purpose of convening a special shareholders' meeting, or for any other reason that will not affect the exercise of shareholders' rights, any borrowing of securities through competitive bidding and negotiated transaction, and purchasing of securities by reverse auction, under the preceding two paragraphs shall be suspended for that security on the second business day prior to the first day of the book closure. |
| Article 57 | A securities finance enterprise wishing to borrow securities through a competitive bidding process shall submit an application to the TSEC and thereafter, by 9 am on the competitive bid loan application date, have a staff member enter into the TSEC competitive bid loan system the information on that competitive bid loan, including the type of securities to be borrowed, quantity, time, and highest acceptable rate; the TSEC will publish such information from 9 am on that day on its Market Information System.
The highest acceptable rate for the borrowing of a security through competitive bidding process, as described in the preceding paragraph, shall in no case be more than 7 percent of the closing price of that security on the date on which the security falls short of short sale needs; the borrowing quantity will be matched against one or more of the competitive bids available on that day, determined in ascending order of rate, until the borrowing quantity is reached; if the borrowing quantity is reached at a rate at which the total number of shares offered for lending from all competitive bids at that rate is higher than the number of shares needed to be borrowed through the competitive bidding process, one or more of those competitive bids will be selected for matching, in order of the time they are entered, until the needed quantity is reached. |
| Article 58 | A securities owner wishing to participate in the competitive bidding process for a competitive bid loan shall fill out a bid order and submit it through a securities firm. If it is submitted in person, the bid order shall be filled out and signed/sealed by the securities owner; if it is submitted over the telephone, the securities broker shall synchronously record the telephone conversation, and in doing so shall comply with the provisions of Article 80, paragraphs 4 to 6 of the TSEC Operating Rules, and the bid order shall be completed by the associated person handling the bid order. The bid order shall specify the name of principal, brokerage account number, title of securities, lending quantity, and lending rate; and the securities offered to participate in the competitive bidding process may only be securities it has deposited in a custody account at the central securities depository. The securities firm, when accepting the bid order request, shall put the lendable securities on hold (except for those securities that have been lent out on the previous business day), and after the acceptance shall record the time and serial number on the bid order, and enter the information on the bid order in sequence into the TSEC competitive bid loan system.
The timeframe for entering information, as described in the preceding paragraph, shall start from 9 am and end at 12:10 pm on the application date of the competitive bid loan, and all bids will be opened automatically at 12:30 pm; upon completion of the bid opening procedure, the TSEC will publish on the Market Information System the lending rate(s) and number of shares of the winning bid(s).
The order confirmation and winning bid confirmation in relation to the competitive bid loan will be printed out through the printer of the securities firm handing the bid order, and the TSEC will provide a function to query for winning bid(s) from 2 pm. |
| Article 59 | A securities finance enterprise, by 2 pm on the competitive bid loan application date, shall deposit cash collateral with the TSEC in the amount of 120 percent of the closing price of that security on that day multiplied by the number of shares of the winning bid(s).
Upon delivery of cash collateral by the securities finance enterprise, the TSEC will give notice to the central securities depository advising it to transfer the shares of security underlying the winning lending bid(s) to the securities finance enterprise's dedicated account at the central securities depository on the next business day following the competitive bid loan application date (the next business day hereinafter referred to as "the lending date").
Certificates of deposit or pledged book-entry central government bonds may be posted in lieu of the cash collateral described in the preceding paragraph, to be valued at 90 percent of the face value of the non-cash collateral.
The lent securities shall be returned to the lender through the central securities depository on the next business day following the lending date; provided, however, that securities borrowed through competitive bid loan on the first settlement day that follows the last trading day before the Lunar New Year holiday, shall be returned on the second trading day after the Lunar New Year holiday.
By 10 am on the next business day following the lending date, the securities finance enterprise shall pay the securities lending fee (securities lending fee = lending rate x quantity) to the lender through the lender's securities firm, whereupon the TSEC will return the cash collateral to the securities finance enterprise.
The securities firm of the lender may charge the lender a service fee at a rate of not more than 10 percent of the lending fee. |
| Article 60 | If a securities finance enterprise by the due date is unable to return the securities lent by a securities owner through competitive bid loan, the TSEC will use the cash collateral to buy in securities of the same type for return to the lender, with any amount remaining thereafter to be refunded to the securities finance enterprise; provided, that if the cash collateral is insufficient to buy in securities in the full amount, the TSEC will instead deliver the cash collateral to the lender.
If the securities finance enterprise under the preceding paragraph has pledged book-entry central government bonds as collateral in lieu of cash collateral, it may neither refuse to accept nor raise any objection as to how or at what price the TSEC disposes of the pledge to the extent that the disposition is made in a manner complying with the letter of consent (see attachment) provided by the securities finance enterprise. |
| Article 61 | Where with respect to a given security there are two or more securities finance enterprises initiating a competitive bid loan, the loans will be simultaneously brought to one single competitive bid auction based upon the aggregate quantity requested, with the aggregate lending fee to be shared on a pro rata basis among those securities finance enterprises according to their respective bid-winning quantities multiplied by the average fee calculated based upon the aggregate bid-winning quantity.
If a shortfall exists after the competitive bidding process under the preceding paragraph, each securities finance enterprise will be distributed a quantity decided on a pro rata basis according to their respective quantity specified in the application for competitive bid loan, rounded to an integral unit of trading; any quantity remaining thereafter will further be distributed to securities finance enterprises in the order of the size of the decimal number of their respective distributable quantity, and if for a decimal number there are multiple securities finance enterprises, to one or more of them determined by drawing lots. |
| Article 62 | A securities finance enterprise effecting a negotiated transaction to borrow a security shall execute the transaction at a rate of not more than 10 percent of the closing price of the security on the date on which the securities shortfall takes place.
A negotiated transaction shall be conducted in the following manner, unless there is a necessary reason to do otherwise:
1. A securities owner wishing to participate in the negotiated transaction may engage a securities firm to carry out the transaction on its behalf. An order ticket for the negotiated transaction shall be filled out and signed/sealed by the securities owner if it is submitted in person; if it is submitted over the telephone, the securities broker shall synchronously record the telephone conversation, and in doing so shall comply with the provisions of Article 80, paragraphs 4 to 6 of the TSEC Operating Rules, and the order ticket shall be completed by the associated person handling the order ticket. The order ticket shall specify the name of principal, brokerage account number, title of securities, lending quantity and lending rate; and the securities offered to participate in the negotiated transaction may only be securities it has deposited in a custody account at the central securities depository.
2. Upon receipt of the order request, the securities broker shall put the lendable securities on hold (excluding those securities that have been lent out on the previous business day).
3. Upon conclusion of the negotiated transaction, the securities finance enterprise shall enter the name of the lender, brokerage account number, title of securities, lending quantity, and lending rate into the TSEC's negotiated lending transaction system by 2 pm on that day, and, together with the details of the securities on hold, fax the same to the TSEC, and the TSEC upon confirmation will give a notice to the central securities depository, instructing it to transfer the lent securities to the securities finance enterprise's dedicated account on the next business day.
4. The cash collateral shall be deposited at a level as negotiated and agreed between the securities finance enterprise and the lender.
5. The securities lent by the lender shall be returned through the central securities depository on the second business day following the date of the negotiated transaction.
6. The securities finance enterprise shall pay the securities lending fee (securities lending fee = agreed lending rate x quantity) to, and reclaim the cash collateral from the lender by 10 am on the second business day following the date of the negotiated transaction.
If there is a necessary reason to do otherwise, as referred to in the preceding paragraph, a negotiated transaction shall be conducted in the following manner and under the supervision of personnel sent by the TSEC:
1. The securities owner agreeing to lend the security shall deliver endorsed certificates of the security and a securities lending list, along with a complete set of attachments, to the securities finance enterprise, or transfer the security by book-entry to the securities finance enterprise's dedicated account at the central securities depository, by 2:00 pm on the current day; the securities finance enterprise shall prepare and deliver a receipt to the lender by 12 noon on the next business day following the date of the negotiated loan.
2. The cash collateral shall be deposited at a level as negotiated and agreed between the securities finance enterprise and the lender.
3. The securities finance enterprise shall return the securities borrowed under negotiated transaction and pay the securities lending fee (securities lending fee = agreed lending rate x quantity) to, and reclaim the cash collateral from the lender by 2 pm on the second business day following the date of the negotiated loan. |
| Article 63 | If during the period a securities finance enterprise is borrowing a security to cover a shortfall driven by short sale needs, a securities firm also applies for refinancing of that security from the securities finance enterprise, the securities finance enterprise shall allocate the shares of that security it has obtained from borrowing through competitive bid transaction and/or negotiated transaction in accordance with the Operating Rules for Securities Finance Enterprises Offering Refinancing to Securities Firms. |
| Article 64 | None of the securities to which one of the following circumstances applies are allowed for competitive bid transactions and negotiated transactions:
1. Securities of less than one unit of trading.
2. 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 capital 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, or for which the option of tax deferral has not been waived.
A securities owner offering securities for lending shall warrant that the securities to be lent are free and clear of all liens, claims, and encumbrances of any nature whatsoever, and that in the case of any defect or legal dispute arising in this respect, upon notification from the securities finance enterprise to that effect, it shall replace the disputed securities with those of the same type and quantity, failing which it shall return the securities lending fee and further be held liable for any loss thus incurred. |
Chapter 4 Supplementary Provisions |
| Article 65 | Any matters not set forth herein shall be governed by applicable laws and regulations as well as the bylaws and rules of the TSEC. |
| Article 66 | These Rules, and any amendments hereto, shall be implemented by public announcement of the TSEC upon submission to and ratification by the competent authority. |