Taiwan Stock Exchange - Rules & Regulations Directory

Amendments

Title:
Taiwan Stock Exchange Corporation Securities Borrowing and Lending Rules(2017.02.06)

Article 9
    Any rights and obligations that may arise between an SBL participant and its securities firm, between the SBL participant and the TWSE, and between the securities firm and the TWSE, out of a securities borrowing or lending transaction shall be subject to and governed by these Securities Borrowing and Lending Rules, other applicable rules and circular letters, and also the Master Securities Borrowing and Lending Agreement, the Securities Borrowing and Lending Authorization Agreement, and other applicable agreement documents.
    An SBL participant participating in securities borrowing and lending trading shall comply with the laws and regulations of the industry's regulatory authority and competent securities authority.

Article 10-1
    A securities firm and futures commission merchant applying for opening of a securities borrowing and lending account pursuant to Article 8, paragraph 2 shall do so based on the securities trading account numbers specified in the Guidelines for the Opening of Securities Borrowing and Lending Accounts by Securities Firms and Futures Commission Merchants (Appendix 1) and conduct securities borrowing and lending transactions with the designated loaned securities for their designated lending purposes.

Article 14-2
    Where the cause in Article 26, paragraph 1, subparagraph 4, item B or C for the compulsory early return of securities applies to subject securities in securities borrowing and lending transactions, no additional loaning of such securities is permitted from the 10th business day prior to the date prescribed by the TWSE for the return of securities in satisfaction of the loan or from the date of announcement of the above cause.

Article 26
    In a fixed-price or competitive bid transaction, the subject securities shall be returned within the following timeframe, and in the following manner, as the case may be:
  1. Return of securities on due date: the TWSE will, 10 business days prior to the scheduled return date, notify the borrower through the securities firm to return the subject securities.
  2. Return of securities before due date: the borrower may return the subject securities, in whole or in part, at any time from the next business day following the borrowing date.
  3. Lender's request for early return of securities: the lender may claim return of subject securities in whole or in part on any date which is one, three, or 10 business days prior to the date to be scheduled as the early return date in accordance with the terms and conditions under which the borrowing/lending application is made; the borrower shall return the subject securities as requested, in one or more batches, starting from the next business day following the receipt of the notice.
  4. Compulsory early return of securities:
    1. When upon review the subject securities are no longer found eligible or are halted from lending transactions, the TWSE may notify the borrower to return securities in satisfaction of the loan within a specified period of time.
    2. If the issuer of the subject securities undergoes a merger or consolidation, capital reduction, or any other event affecting the exercise of shareholder's rights by the lender, the borrower shall return securities in satisfaction of the loan by the sixth business day before the book closure date.
    3. If the subject securities are the subject of an announcement of suspension of trading, where the time for resumption of trading is not specified, or of delisting from the TWSE or GTSM, the borrower shall return securities in satisfaction of the loan within a period of time specified by the TWSE.
    4. If due to a natural disaster or other emergency, the trading on the securities market is suspended across the board and the time for resumption of trading is not specified, the borrower shall return securities in satisfaction of the loan within a period of time specified in a TWSE announcement.
    Upon receipt of a regulatory report on securities return filed by the borrower through its securities firm via the TWSE securities lending system, the TWSE will notify the central securities depository to effect a book-entry transfer of the securities to be returned, from the CSD account of the borrower back to that of the lender, with a notice to the borrower and the lender respectively through their securities firms.
    The borrower's obligation, liability, and duty arising from its borrowing of securities are not satisfied unless and until all subject securities borrowed, all entitlements incurred during the borrowing period, and all relevant fees and expenses are fully returned or paid.

Article 31-1
    A securities firm or borrower in a fixed-price or competitive bid transaction shall remit payments to the bank account, in the form of a virtual account, designated by the TWSE, according to the Instructions on the Remittance of Securities Borrowing and Lending Payments to Virtual Accounts (Appendix 2):
  1. Cash collateral, or additional cash collateral to cover a shortfall, as provided by a securities borrower pursuant to Article 33-1, paragraph 1.
  2. Compensation for cash entitlements, payments for subscription to newly issued shares, and securities lending fees delivered by a securities firm on behalf of an SBL participant, as calculated according to Article 31, paragraphs 4 and 5.

Article 33
    A borrower placing an order with a securities firm to submit a quote for borrowing securities through a fixed-price or competitive bid transaction shall satisfy the requirement of providing sufficient eligible collateral, which may take the following forms only:
  1. Cash, which may only be New Taiwan Dollars. However, a designated offshore foreign institutional investor or a securities borrowing and lending account of a securities firm or of a securities finance enterprise may provide foreign currency as collateral. The types of foreign currency are limited to the United States Dollar (USD), Euro (EUR), Japanese Yen (JPY), British Pound (GBP), Australian Dollar (AUD), and Hong Kong Dollar (HKD).
  2. Collateral securities, which may only be securities eligible for margin purchases and short sales.
  3. Bank guarantee issued by a Taiwan bank or a Taiwan branch of a foreign bank, which bank is accredited by the TWSE.
  4. Book-entry central government bonds.
    The collateral under the preceding paragraph shall be provided in the following manner:
  1. Cash: to be credited by the borrower through book entry transfer directly to a cash collateral account at a bank as designated by the TWSE.
  2. Collateral securities: the TWSE will, based on the name and quantity of the collateral securities entered into the system by the securities firm on behalf of the borrower, give notice to the central securities depository over a computer network instructing it to transfer the borrower-specified collateral securities from the borrower's CSD account to the TWSE custodial account exclusively used for collateral securities against securities borrowing, thereby transferring the collateral securities to the TWSE to serve as security against the loan. The same shall also apply where the borrower uses collateral securities to cover a collateral shortfall.
  3. Bank guarantee: upon completion of guarantee procedures with a bank, the borrower shall file an application through the securities firm and deliver the original bank letter of guarantee to the TWSE.
  4. Book-entry central government bonds: the borrower shall create and register a pledge on, or register a title transfer of, the bonds in favor of the TWSE.
    The TWSE may reject any collateral that would otherwise be eligible under paragraph 1 if it so deems appropriate having regard to its market liquidity or risk status; if any such collateral has been accepted and received as security for a loan, the TWSE may notify the relevant borrower to replace the collateral.

Article 33-1
    When placing an order with a securities firm to submit a quote for borrowing securities through a fixed-price or competitive bid transaction, a borrower shall provide collateral to the TWSE in an amount equivalent to the current day's auction reference price at market opening or base price for first trading of the subject securities multiplied by the quoted quantity and further by the original margin (140 percent). From the day on which the securities loan transaction is executed, the total collateral value for the given securities borrowing transaction shall be marked to market daily using the current day's closing price, and a ratio shall then be calculated by dividing the total collateral value thus obtained, after deduction of relevant fees and expenses required for the borrowing of securities, by the sum of the total value of the subject securities plus total cash dividends; if the ratio thus obtained falls below the maintenance margin (120 percent), then upon receipt of a notice from the TWSE as forwarded by the securities firm, the borrower shall provide additional collateral on the next business day to cover the shortfall, so that the collateral value will be brought back to the original margin level or above.
    The term "total collateral value" referred to in the preceding paragraph shall be equal to the sum of the current day's closing price of collateral securities multiplied by quantity and further by a valuation percentage, plus the par value of book-entry central government bonds multiplied by quantity and further by a valuation percentage, plus the total cash collateral, and plus the total bank guarantee amount.
    The value of a cash collateral provided or an additional cash collateral provided to cover a shortfall, by a borrower in foreign currency pursuant to paragraph 1, is the value as converted into New Taiwan Dollars at the buying rate upon closing of the previous business day of a bank designated by the TWSE.
    Of the "total collateral value" referred to in paragraph 2, the foreign currency collateral value is the value as converted into New Taiwan Dollars at the buying rate at 3:30 pm of the current day of a bank designated by the TWSE. Fractions of a dollar do not count
    If a circumstance arises where a collateral security is traded ex-rights or ex-dividend, with the exception of cash capital increases, then for the 3 business days prior to the ex-rights or ex-dividend date, the collateral value shall be calculated using the respective current day's closing price minus the value of the dividend or the value of the rights, as the case may be.
    If the closing price referred to in paragraphs 1, 2 and 5 of this article and in Articles 44 and 47 is not available for the given day, the closing price shall be determined by one of the following principles:
  1. When the highest bid price at market close on the day the security is loaned is higher than the auction reference price at market opening or the base price for first trading, the highest bid price will be the closing price.
  2. When the lowest ask price at market close on the day the security is loaned is lower than the auction reference price at the opening of market or base price for first trading, the lowest ask price will be the closing price.
  3. When neither of the above circumstances applies, the auction reference price at market opening or the base price for first trading will be the closing price.
    The valuation percentage for collateral securities shall be 70 percent for -listed securities, 60 percent for GTSM-listed securities, and 90 percent for book-entry central government bonds. The valuation percentages may be adjusted by the TWSE with regard to market liquidity or risk status.
    In a negotiated transaction, the lender and the borrower shall negotiate and agree between themselves on the terms and conditions, and the margins required, as to the collateral and shall between themselves arrange for the furnishing of the collateral.

Article 33-2
    If the fixed-price or competitive bid transaction contemplated by a quote for securities borrowing is not executed, then upon application by the borrower, the TWSE shall return the collateral furnished by the borrower in the following manner:
  1. In the case of cash, a money transfer will be made on the next business day directly into a bank account designated by the borrower. A foreign currency collateral shall be returned in the original foreign currency, and the borrower may not apply for converting said collateral into New Taiwan Dollars.
  2. In the case of collateral securities, a notice will be given to the central securities depository to transfer the collateral securities from the TWSE custodial account exclusively used for collateral securities against securities borrowing, back to the borrower's CSD account.
  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, if they were provided as collateral through creation of a pledge, the creation of the pledge will be deregistered on the current day, or if they were provided as collateral through transfer of ownership, a notice will be given to the clearing bank to register a re-transfer in favor of the borrower.

Article 33-3
    A borrower in a fixed-price or competitive bid transaction may apply to withdraw any excess collateral for which the pledged collateral value exceeds the original margin requirement.
    Where a borrower applies for withdrawing a foreign currency cash collateral, the value of said collateral is the value as converted into New Taiwan Dollars at the buying rate upon closing of the previous business day of a bank designated by the TWSE. Fractions of a dollar do not count.
    To apply to withdraw any excess collateral, the borrower shall instruct a securities firm to submit a withdrawal application on its behalf via the TWSE securities lending system; upon receipt of the application, the TWSE will proceed pursuant to the preceding article as applied mutatis mutandis.

Article 36
    A borrower in a fixed-price or competitive bid transaction shall, through a securities firm and via the TWSE 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 subject securities:
  1. In the case of cash entitlements:
    1. The TWSE will, no later than 5 business days before the distribution date, notify the borrower through its securities firm.
    2. The borrower shall through its securities firm credit the cash amount to the TWSE's designated bank account, and have the securities firm enter the information on the return of entitlements into the TWSE securities lending system, on the same day when the distribution is made, and the TWSE upon confirmation of accuracy will afterwards, either on that day or on the next business day, transfer the amount to the lender through its securities firm. Notwithstanding, distribution will be postponed to the day trading resumes or to the next business day in the event the securities market is closed due to an act of God on the distribution day.
  2. In the case of securities entitlements:
    1. The TWSE will notify the lender through its securities firm after the holder-of-record date, and if the lender, within 3 business days starting from the date of the notice from the TWSE, enters a message into the TWSE securities lending system indicating its option to have securities or cash of equivalent value returned, the TWSE will give notice to the borrower through its securities firm to that effect, and give further notice to the borrower through the securities firm 3 business days prior to the distribution date. The TWSE will cause securities to be returned if the lender fails to enter the message indicating its option within the time limit.
    2. To return securities, the borrower shall give notice through its securities firm and via the TWSE securities lending system to the central securities depository within 3 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 CSD account, or in the case of returning cash of equivalent value, effect 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 TWSE will, 5 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, 3 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 TWSE and, also through its securities firm, credit the money to the TWSE's designated bank account, to be further transferred via the TWSE securities lending system and through the securities firm to the borrower, for the latter to subscribe to the securities, or otherwise to buy in the securities in the market, for the account of the lender.
    2. The TWSE will, no later than 3 business days prior to the distribution date for the newly issued securities, give notice to the borrower through its securities firm and the borrower must, within 3 business days starting from the distribution date, give notice through the securities firm via the TWSE securities lending system to the central securities depository to effect a book-entry transfer of the securities to the lender from the borrower's CSD account.
    3. The lender shall be deemed to have waived the right to subscribe to the newly issued shares if it tardily declares or fails to declare its intention to subscribe or if it, having so declared, fails to pay the subscription price within the required time limit.
     To exercise the right to subscribe the newly issued securities stated in the Subparagraph 3, Paragraph 1 of this Article, a borrower in a fixed-price or competitive bid transaction shall ask for returning the securities before the last holder-of-record date and actively join the subscription, if the subscribed shares are the preferred shares of a issuing company or the newly issued shares of a company that is not listed on the Taiwan Stock Exchange, nor traded on the Taipei Exchange; failing to do so, the lender shall be deemed to have waived the right to subscribe to the newly issued shares.
    In a negotiated transaction, the borrower and the lender shall negotiate and agree between themselves on how to deal with any cash entitlements, securities entitlements, and subscription rights for newly issued securities that the lender would have received if it had not lent the securities, as well as on the exercise of any rights attaching to shares. In the case of securities entitlements, the TWSE will calculate the amount by reference to the number of subject securities borrowed and not yet returned by the borrower, exclusive, however, of any securities entitlements not yet repaid or returned by the borrower. If any such securities entitlements require a book-entry transfer, the transfer shall be made through the TWSE securities lending system.

Article 48
    A securities firm shall charge processing fees for providing securities borrowing and lending transaction services, and the TWSE 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 TWSE in conjunction with the securities association and shall be adopted upon submission to and approval by the competent authority.
    The processing fees and loan service fees mentioned in the preceding paragraph are charged according to the TWSE Securities Lending System Processing Fees and Loan Service Fees Schedule (Appendix 3).

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