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Amendments

Title：

Taiwan Stock Exchange Corporation Guidelines for Creation and Redemption of Beneficial Certificates  CH

Amended Date： 2024.02.23 (Articles 6, 7 amended,English version coming soon)
Current English version amended on 2022.07.20 
Categories： Securities Exchange Market > Trading > Beneficial Certificates
Article Content Content Search Article No. Search Legal Basis Subordinate Legislation Amended Article Legislative History Chinese

Title： Taiwan Stock Exchange Corporation Guidelines for Creation and Redemption of Exchange Traded Funds(2011.08.19)
Date：
2       Definitions:
  1. The term “participating dealer”refers to a securities firm that has signed a participant agreement with a securities investment trust enterprise (hereunder referred to as “SITE” that issues exchange-traded fund (ETF) beneficial certificates for the operation of creation and redemption of the ETF beneficial certificates for its own account or on behalf of its customers.
  2. The term “custodian institution”refers to a financial institution that has signed a trust agreement with a SITE that issues ETF beneficial certificates.
  3. The term “applicant”refers to a customer who engages in creation or redemption of ETF beneficial certificates through the account opened in a participating dealer or a participating dealer that engages in creation or redemption of ETF beneficial certificates for its own account.
  4. The term “portfolio composition file, or PCF”refers to a list prepared and published by a SITE each day based on the reference data of underlying index forwarded by the index provider, which indicates the portfolio of securities and estimated cash component that would be required to apply for in-kind creation or redemption of one creation unit of beneficial certificate on the next trading day.
  5. The term “in-kind creation”refers to the participating dealer for its own account or on behalf of its customer delivering a portfolio of securities and the cash component per basket required for one creation unit as published on the PCF as notified by the SITE, or their integer multiples to the SITE in exchange for ETF beneficial certificates.
  6. The term “in-kind redemption”refers to the participating dealer for its own account or on behalf of its customer delivering ETF beneficial certificates to the SITE in exchange for a portfolio of securities and cash component per basket as published on the PCF as notified by the SITE for one creation unit or its integer multiples.
  7. The term "cash creation" refers to the participating dealer for its own account or on behalf of its customer delivering cash to the SITE in exchange for ETF beneficial certificates; the calculation basis for the monetary amount and units of the creation shall comply with the trust agreement.
  8. The term "cash redemption" refers to the participating dealer for its own account or on behalf of its customer delivering ETF beneficial certificates to the SITE in exchange for cash; the calculation basis for the monetary amount of the redemption shall comply with the trust agreement.
  9. The term "ETF with domestic component securities" refers to an ETF in which the component securities of its underlying index are all domestic securities.
  10. The term "ETF with foreign component securities" refers to an ETF in which the component securities of its underlying index contain one or more foreign securities, or to an ETF as specified under Article 37, paragraph 4 of the Regulations Governing Securities Investment Trust Funds (“linked ETF”).
  11. The term “aggregate creation”refers to the situation where no more than three applicants who, based on their mutual agreement, combine their individual holding of securities into a portfolio of securities required for one creation unit as published on the PCF or its integer multiples, designate one among them as payer of cash payment required, and jointly appoint one participating dealer (if one of the applicants is a participating dealer with a proprietary trading said applicant shall be the participating dealer) to create ETF beneficial certificates from a SITE.
  12. The term “minimum in-kind creation ”refers to the situation where a participating dealer may, with the consent of the SITE, create the beneficial certificates of ETF with domestic components securities for its own account by delivering at least ninety percent (90%) of the kind of securities required with more than ninety percent (90%) of the aggregate market value of creation basket for the in-kind creation, and paying a deposit for the shortfall, and then purchasing or borrowing the insufficient quantity of securities on the next trading day and delivering the securities to the custodian institution.
  13. The term “cash in-lieu”refers to the practice where the in-kind creation or redemption of ETF beneficial certificates by an applicant may be tendered in cash as determined by the SITE if a specific security included in the portfolio of securities as published on the PCF is in any of the following situations:
    1. The applicant is restricted by law to hold or transfer said specific security.
    2. The trading of said security has been stopped on the exchange.
    3. Said security may be substituted by cash as published on PCF by the SITE.
    4. The SITE does not own said security or has insufficient shares of the security and is unable to borrow sufficient shares to deliver to the applicant when the applicant redeems the ETF beneficial certificates in-kind.
    5. Said security cannot be settled in the foreign market by the applicant, and is approved by the management company for its in-kind creation.
    6. Situations in which the trust agreement of the ETF provides that cash in-lieu is permitted.
  14. The term “cash payment”refers to the amount equivalent to the cash component multiplied by the number of creation or redemption units; if the cash payment is positive, it means the applicant should pay the amount to the SITE when creating ETF beneficial certificates or the SITE should pay the amount to the applicant when the applicant redeems ETF beneficial certificates; if the cash payment is negative, it means the SITE should pay the amount to the applicant when the applicant creates ETF beneficial certificates or the applicant pays the amount to SITE when it redeems ETF beneficial certificates.
  15. The term “shortfall”refers to the securities in the portfolio of securities published on the PCF not delivered by a participating dealer when it transacts on “minimum in-kind creation ”basis.
4     Operating principles for participating dealers carrying out creation and redemption of beneficial certificates of ETFs with foreign component securities for its own account or on behalf of its customers
  1. The domestic securities to be delivered by the applicant may not be bought on margin and reports of trading errors or correction of account errors may not be submitted with respect to the domestic securities bought on the day of application.
  2. A participating dealer carrying out creation and redemption of beneficial certificates for ETFs with foreign component securities on behalf of customers shall comply with the following provisions:
    1. If the applicant uses the balance bought through a single account in ordinary trading on the previous trading day to meet the need for the beneficial certificates required for the redemption of beneficial certificates of ETFs with foreign component securities, the participating dealer shall, on the day of application, collect in advance on the application date the price required to be paid for the balance of such ETFs bought by the applicant.
    2. When accepting a customer’s order to create or redeem ETFs, the participating dealer may collect in advance the cash difference and other relevant charges or payments as calculated by the SITE. After ascertaining the actual payment due, the participating dealer should notify the applicant to make additional payment if the pre-collected payment is insufficient or to receive a refund if the pre-collected payment is excessive.
    3. The participating dealer shall open a separate segregated deposit account with its clearing bank specifically for the deposit and payment of amounts collected in advance in association with the redemption operations under Point IV, paragraph 2, subparagraph (1) hereof, and of cash payments and other relevant charges or payments in association with creation or redemption operations under Point IV, paragraph 2, subparagraph (2) hereof.
  3. The provisions of paragraphs 7, 8, and 9 under Point III shall apply mutatis mutandis where a participating dealer carries out creation or redemption of beneficial certificates of ETFs with foreign component securities for its own account or on behalf of its customers.