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Title:

Taiwan Stock Exchange Corporation Rules Governing Review of Call (Put) Warrant Listings  CH

Amended Date: 2019.05.03 
Categories: Primary Market > Review
   Chapter 1 General Principles
Article 1    These Rules are promulgated pursuant to Article 140 of the Securities and Exchange Act and Article 10, paragraph 1 of the Regulations Governing the Issuance of Call (Put) Warrants by Issuers ("Issuance Regulations").
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Article 2    The term "call (put) warrant" as used in these Rules refers to securities issued by a third party, other than the issuer of the underlying securities, for which the holder of the issued call (put) warrant has the right, within a prescribed period of time or by a prescribed expiration date, to buy from or sell to the issuer the underlying securities at a given strike price, or to take a cash settlement in lieu of the price difference [between the strike price and the actual price of the securities].
   Chapter 2 Issuer Qualifications and Applications
Article 3    Applicants seeking approval by the Taiwan Stock Exchange Corporation (hereafter, "the TWSE") for qualification as a call (put) warrants issuer shall prepare an Application for Approval as a Qualified Call (Put) Warrants Issuer, filled out in full and with the required documents attached for submission to the TWSE. Following review and approval of the application by the TWSE in accordance with the Issuance Regulations, these Rules, and the TWSE Procedures for Review of Call (Put) Warrant Listings, the TWSE shall submit the application, along with the TWSE review opinion, to the competent authority for review.
    The TWSE Procedures for Review of Call (Put) Warrant Listings referred to in the preceding paragraph shall be adopted by the TWSE, and enforced after ratification by the competent authority.
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Article 4    A domestic issuer applying to the TWSE for accreditation as a qualified issuer of call (put) warrants shall conform to Article 3, paragraph 1 and Article 5, paragraph 2 of the Issuance Regulations.
    A foreign issuer applying to the TWSE for accreditation as a qualified issuer of call (put) warrants shall conform to Article 3, and Article 5, paragraphs 3 and 4, of the Issuance Regulations.
    The TWSE may withhold approval for an application made to it for accreditation as a qualified issuer of call (put) warrants upon discovering that the application fails to conform to the preceding two paragraphs or that any of the circumstances in the subparagraphs of Article 7 of the Issuance Regulations applies.
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Article 5    (Deleted)
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Article 6    Where the issuer entrusts another institution with hedging operations, the risk management institution shall have a net worth of at least NT$1 billion as stated in its financial report and shall have a credit rating that conforms to Article 5, paragraph 3, subparagraph 2 of the Issuance Regulations.
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Article 7    Where the issuer or the risk-management institution is a foreign institution or the subsidiary of an ROC financial holding company, it may obtain a credit rating as a group holding company, and the holding company may provide an unconditional and irrevocable guaranty, however, the credit rating of the holding company must conform to Article 5, paragraph 3, subparagraph 2 of the Issuance Regulations.
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   Chapter 3 Issuance, Listing, and Cancellation of Call (Put) Warrants
Article 8    When any circumstance set forth in the subparagraphs below occurs after an issuer obtains qualification approval, its issuance of call (put) warrants shall be suspended, and resumed only after such circumstances are rectified. The issuance of any warrants already approved but not yet issued shall be suspended, and the suspension shall be reported to the competent authority; the validity of any call (put) warrants already issued shall not be affected:
  1. The issuer fails to conform to paragraph 1 or the latter part of paragraph 2, Article 3 of the Issuance Regulations;
  2. The issuer fails to conform to any of the financial conditions in Article 5, paragraph 2, subparagraphs 1 and 2, or paragraph 3, subparagraphs 1, 2 and 5, of the Issuance Regulations, or its latest financial report as having been reviewed by a CPA fails to conform to the above provisions;
  3. The operation of warrants business fails to conform to any of the circumstances in Article 5, paragraph 2, subparagraphs 4 to 7 of the Issuance Regulations, or a branch unit as mentioned in Article 5, paragraph 3, subparagraph 5 of the Issuance Regulations fails to conform to the aforementioned provisions.
  4. Any of the circumstances in Article 7, subparagraphs 3 to 10 of the Issuance Regulations applies to the issuer.
    If any of the events listed in the subparagraphs below occurs after an issuer has obtained qualification approval, the issuer shall be restricted from applying for issuance of call (put) warrants for 1 year. The issuance of warrants already approved but not yet issued shall be suspended, and the suspension shall be reported to the competent authority for recordation. However, the validity of call (put) warrants already issued shall not be affected:
  1. The issuer is ranked in Level 5 for the most recent year, or in Level 4 for the most recent 2 years, in the assessment conducted pursuant to the Operational Guidelines for Assessment of Securities Firms Risk Management System.
  2. The issuer has violated Article 17, paragraph 1 herein or provisions of the TWSE Operation Directions Governing Liquidity Providers of Call (Put) Warrants, and it has been sanctioned within the most recent year by the TWSE and the Taipei Exchange ("TPEx") by imposition of penalties in a cumulative amount of NT$300,000 or more or by restriction of application for issuance of call (put) warrants two times.
  3. The issuer has been restricted by the TWSE from applying for issuance of call (put) warrants because of an irregularity in the quotation system of its call (put) warrant liquidity provider in the current year, and it still has failed to take corrective action.
    Directions for handling irregularities in the quotation system of a call (put) warrant liquidity provider shall be separately prescribed by the TWSE.
    The TWSE may report an issuer in writing to the competent authority for recordation if the issuer fails to issue any call (put) warrants for 1 year or more, or if the issuer has been under suspension from call (put) warrants issuance pursuant to paragraph 1 for 1 year or more and still fails to take corrective action.
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Article 8-1     In the case of a foreign issuer, after obtaining qualification from the competent authority as an issuer of call (put) warrants, the issuer shall each year provide a written report to the TWSE, with relevant documentation attached, within 3 days after receiving its credit rating from the credit rating institution, and shall do the same at any time during the intervening periods when there is a change in its credit rating.
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Article 9    After the issuer receives approval as a qualified issuer of call (put) warrants and wishes to apply to the TWSE for listing of a planned call (put) warrants issue, the issuer shall apply to the TWSE with an Application for Listing of Call (Put) Warrants (Attachment) filled out in full and with the required documents attached. Following TWSE approval of the issuer's issuance plan, the TWSE will immediately issue a letter of approval, with a copy to the competent authority, provided that depending on the issuer's financial and business condition, the status of the underlying instrument, the number of call (put) warrants already listed on the market with identical or similar types of underlying instruments and their expiration dates and distributions, the TWSE may withhold approval, limit the number of warrants to be listed, or impose other conditions.
    For listed warrants, in the event that the outstanding issuance units reach 80 percent or more of the actual total number of issuance units, the issuer may apply to the TWSE for a follow-on issue of call (put) warrants. The application shall be made within 2 business days from the next business day following the date of the event's occurrence but at least 10 business days before the last trading day for the warrants. The term "actual total number of issuance units," as used above, means the number arrived at by adding the total number of issuance units of the initial issue and the number of issuance units of each subsequent follow-on issue together and then deducting the accumulated number of issuance units cancelled and exercised.
    After receiving a TWSE approval letter and submitting a copy to the competent authority, the issuer may entrust an underwriter with underwriting of the issue or it may sell the warrants itself, and shall provide a prospectus to the subscribers. But this provision shall not apply to a follow-on issuance of call (put) warrants.
    The guidelines for information to be published in public offering prospectuses will be adopted by the TWSE in accordance with Article 13 of the Issuance Regulations and shall take force upon ratification by the competent authority.
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Article 10    For applications for TWSE approval for listing of call (put) warrants, when the underlying securities are domestic stocks, they shall conform to each of the following conditions:
  1. Market value: NT$10 billion or more.
  2. The volume of shares traded during the most recent 3 calendar months shall account for 20 percent of the total of outstanding shares, or the average monthly volume of shares traded in the most recent 3 months shall reach 100 million shares or more.
  3. The financial report for the most recent period, attested or audited by a certified public accountant, shall show no losses, or shall show no accumulated deficit if losses exist.
    When the underlying instrument in an application for TWSE approval for listing of call (put) warrants is a Taiwan depositary receipt, it shall meet each of the following requirements:
  1. Units listed: 100 million units or more.
  2. In the most recent 3 months the ratio of the number units traded to the number of units listed shall reach 20 percent or more.
    Conformance of underlying instrument with the standards of the preceding two paragraphs shall be based on quarterly TWSE announcements, provided that if during the period for announcement the financial report required to be submitted by the issuer of the underlying security under Article 36 of the Securities and Exchange Act does not conform with subparagraph 3 of paragraph 1, the TWSE will announce cancellation of the given security's qualification as the underlying of a call (put) warrant.
    In applications to the TWSE for approval for listing of call (put) warrants, when the underlying security of the warrants is a domestic stock and the financial statement of the issuer of such stock for the most recent period audited or attested by a certified public accountant shows losses, there shall also be a statement of the reason for issuing warrants based on the underlying security.
    In applications to the TWSE for approval for listing of call (put) warrants, when the underlying of the warrants is a domestic beneficial certificate or a domestic index, such underlying shall be limited to ETFs, futures ETFs, offshore ETFs, or indexes as announced by the TWSE.
    In applications to the TWSE for approval for listing of call (put) warrants, if the underlying of the warrants is a foreign security or a foreign index, the underlying shall comply with the requirements prescribed in Article 8, subparagraph 3 of the Issuance Regulations and may not include TAIEX and related financial instruments as created by domestic or foreign institutions, unless such index is one created by the TWSE or TPEx jointly with a foreign institution not with Taiwan stock as the major component. If the underlying is a foreign stock, the market capitalization of the issuing company of the underlying security may not be equal to or less than US$500 million, and the volume of shares traded during the most recent 3 calendar months shall reach 20 percent or more of the total issued shares, or the average monthly volume of shares traded in the most recent 3 months shall reach 100 million shares or more. If the underlying is a foreign depositary receipt, the volume of units traded during the most recent 3 calendar months shall reach 20 percent or more of the listed units.
    In applications to the TWSE for approval for listing of call (put) warrants, if the underlying of the warrants is a future, it must be a non-stock future listed and traded on the Taiwan Futures Exchange.
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Article 11    An application for TWSE listing approval for an issue of call (put) warrants shall conform to each of the following conditions:
  1. The issue shall comprise 5 million to 50 million issuance units. The price per issuance unit shall be not less than NT$0.6. The issuer itself determines the number of shares, units, index points, futures points or baskets thereof represented by one issuance unit. One index point or one futures point corresponds to NT$1. In the case of a follow-on issue of call (put) warrants, the price per issuance unit shall be the closing price on the date of the application for follow-on issue, and the number of shares, units, index points, futures points or basket thereof represented per issuance unit shall be the newest multiplier.
  2. Period of validity:
    1. Calculated inclusively from the date of listing, the period of validity shall be no less than 6 months and no more than 2 years;
    2. For issuance of call (put) warrants with futures as the underlying instrument (hereinafter "Futures Call (Put) Warrants"), callable bull contracts or callable bear contracts, the period of validity shall be no less than 3 months and no more than 2 years. If the period of validity is extended, the extension period shall be no less than 3 months and no more than 1 year, calculated inclusively from the next day following the original last trading day.
    3. In the case of a follow-on issue of call (put) warrants, the period of validity shall be calculated inclusively from the date of listing of the follow-on issue to the expiration date of the warrants.
  3. Restriction on total issuance volume of the underlying represented by a warrant:
    1. When the underlying instrument is a domestic stock, the total number of shares of the underlying security represented by the domestic warrant issuance units of the call (put) warrants and the shares of the same underlying security represented by other existing call (put) warrants already listed on the TWSE may not exceed 22 percent, or 30 percent in the event of a follow-on issuance of call (put) warrants, of the total number of outstanding shares of the domestic issuing company after deduction of each of the following types of shareholdings. Where the issuer and any of its overseas subsidiaries (whose warrant issuing operations are guaranteed or secured by the mother company) issue offshore call (put) warrants for which the underlying instrument is a domestic stock, the total number of shares of the underlying security represented by the issuance units of the offshore call (put) warrants, combined with the number of the same underlying securities represented by other existing call (put) warrants issued overseas, may not exceed three percent of the total number of outstanding shares of the issuing company after deduction of each of the following types of shareholdings:
      1. The total percentage of shares held by directors and supervisors under statutory shareholding ratio requirements.
      2. Already pledged securities.
      3. The number of centrally deposited shares mandatory for newly listed companies.
      4. Shares already repurchased under the Rules Governing Share Repurchase by TWSE Listed and GTSM Listed Companies and not yet cancelled.
      5. Shares with restrictions on listing or trading imposed by the competent authority.
    2. If the underlying instrument is a foreign stock, the combined total of the number of shares of the underlying security represented by domestic issuance units of the call (put) warrants and of the same underlying security represented by other existing call (put) warrants already listed on the TWSE may not exceed 15 percent of the total number of shares already issued by the issuer of the underlying securities.
    3. When the underlying instrument is an exchange-traded securities investment trust fund (ETF) or futures ETF announced by the TWSE, the total number of shares of the underlying security represented by the issuance units of the call (put) warrants and the shares of the same underlying security represented by other existing call (put) warrants already listed on the TWSE, combined with those issued overseas by the issuer or its correspondent institution overseas and representing the same underlying, may not exceed the total number of beneficial interest units already issued by the fund, provided that this shall not affect the validity of any call (put) warrants already issued. When the underlying instrument is an offshore ETF as announced by the TWSE, the total number of units of the underlying security represented by the issuance units of the call (put) warrants and the units of the same underlying represented by other existing call (put) warrants already listed on the TWSE may not exceed the total number of units of that fund offered and sold domestically within the ROC territory.
    4. If the underlying instrument is a foreign ETF, the combined total of the number of beneficial units of the underlying security represented by the issuance units of the call (put) warrants and the number of beneficial units of the same underlying security represented by other existing call (put) warrants already listed on the TWSE may not exceed 50 percent of the total number of the beneficial units already issued.
    5. When the underlying instrument is Taiwan Depository Receipts, the total number of units of the underlying represented by the domestic issuance units of the call (put) warrants and the units of the same underlying represented by other existing call (put) warrants already listed on the TWSE may not exceed 22 percent, or 30 percent in the event of a follow-on issuance of call (put) warrants, of the already listed units of the receipts.
    6. If the underlying instrument is a foreign depositary receipt, the combined total of the number of units of the underlying security represented by the domestic issuance units of the call (put) warrants and the number of units of the same underlying security represented by other existing call (put) warrants already listed on the TWSE, may not exceed 15 percent of the total number of the depositary receipt units already listed on the TWSE.
  4. When the underlying instrument is an index, future, ETF, futures ETF, or offshore ETF, if an authorization is required to be obtained, consent shall be obtained from the institution creating the fund's underlying index or the exchange. But this provision shall not apply to a follow-on issuance of call (put) warrants.
  5. For issues of index call (put) warrants, Futures Call (Put) Warrants, callable bull contracts and callable bear contracts, and extendable callable bull contracts and callable bear contracts, and for domestic call (put) warrants for which the underlying assets are foreign securities or foreign indexes, investors may not apply for exercise of such warrants until the maturity date. Warrants for which the underlying assets are foreign securities or foreign indexes may not be of the capped/knock-out type.
  6. The underlying settlement index of the index call (put) warrants shall be calculated based on the following methods:
    1. If the period of validity expires, it shall be calculated based on the simple arithmetic mean of the underlying index during the 30 minutes before market close. If the circumstance under Article 58-3, paragraph 5 of the TWSE Operating Rules exists, the calculation shall also incorporate the index from during the postponement period. For extendable callable bull contracts or extendable callable bear contracts, the settlement basis is adjusted based on the return rate of the underlying total return index on the warrant expiration date, through the calculation of "closing index of the underlying index on the business day preceding the date of warrant issuance × return rate." The aforementioned return rate shall be calculated as "underlying total return index on the warrant expiration date ÷ underlying total return index on the business day preceding the date of warrant issuance." If it is an extension period that expires, for the aforementioned business day preceding the date of warrant issuance, the business day preceding the extension period shall be substituted.
    2. If the closing index of the underlying index reaches the cap/knock-out point level and expires before the maturity date:
      1. For capped call warrants or capped put warrants, it shall be calculated based on the closing index of the underlying index on the last trading day of the warrants.
      2. For callable bull contracts or callable bear contracts, it shall be calculated based on the simple arithmetic mean of the underlying index on the business day following the last trading day of the warrants.
      3. For extendable callable bull contracts or extendable callable bear contracts, the settlement basis is adjusted based on the return rate of the underlying total return index on the business day following the last trading day of such warrant, through the calculation of "closing index of the underlying index on the business day preceding the date of warrant issuance × return rate." The aforementioned return rate shall be calculated as "underlying total return index on the business day following the last trading day of such warrant ÷ underlying total return index on the business day preceding the date of warrant issuance." In the event of early expiration before the maturity date of an extension period, for the aforementioned business day preceding the date of warrant issuance, the business day preceding the extension period shall be substituted.
  7. The underlying futures settlement price of futures call (put) warrants shall be calculated based on the following principles:
    1. If the validity period expires, it shall be calculated based on the simple arithmetic mean trade price of the underlying futures from 1 p.m. to 1:30 p.m.
    2. If the simple arithmetic mean trade price of the underlying futures reaches the capped call (or put) point during the last minute before 1:30 p.m., and therefore expires early:
      1. For capped call (put) warrants, the settlement price shall be calculated based on the simple arithmetic mean trade price of the underlying futures during the last minute before 1:30 p.m. on the last trading day of the warrant.
      2. For a callable bull contract or callable bear contract, the settlement price shall be calculated based on the simple arithmetic mean trade price of the underlying futures from 9 a.m. to 1:30 p.m. on the next business day after the last trading day of the warrant.
    3. With respect to the mean price referred to in the preceding two items, if during the given period there is no trade price, the settlement price shall be calculated based on the most recent trade price before the given period; if there is no trade price that day, the calculation shall be based on the opening reference price of that day.
  8. The issuance of call (put) warrants shall be handled as follows:
    1. The capped call price or point shall be set at no less than 150 percent of the strike price or point; the capped put price or point shall be set at no more than 50 percent of the strike price or point.
    2. Callable bull contracts or callable bear contracts, and extendable callable bull contracts or extendable callable bear contracts:
      1. The bull/bear contract knock-out price or point shall be set within a range between the closing price of the underlying securities, the closing index of the underlying index, or the daily settlement price of the underlying futures on the preceding business day and the strike price or the strike point (inclusive thereof)
      2. The bull contract knock-out price or point shall be set at no more than 90 percent of the closing price of the underlying securities, the closing index of the underlying index, or the daily settlement price of the underlying futures on the preceding business day; the bear contract knock-out price or point shall be set at no less than 110 percent of the closing price of the underlying securities, the closing index of the underlying index, or the daily settlement price of the underlying futures on the preceding business day.
      3. For extendable callable bull/bear contracts, the bull contract or knock-out price or point shall be set at no more than 70 percent of the closing price of the underlying securities,, the closing index of the underlying index, or the bear contract knock-out price or point shall be set at no less than 130 percent of the closing price of the underlying securities or the closing index of the underlying index.
      4. The issuer shall also set reset conditions. Any adjustment from resetting of the strike price and knock-out price, or the strike point and knock-out point, shall take effect from the first day of TWSE listing, and the price or point thereof shall still be required to conform with the requirements set out above.
    3. In the case of a follow-on issue of call (put) warrants, the knock-out price or point is the newest knock-out price or point for the warrants, and the issuer shall not set reset conditions.
    4. On the last trading day for extendable contracts, when the knock-out price or point of an extendable callable bull contract reaches no more than 80 percent of the closing price of the underlying security or the closing index of the underlying index, or when the knock-out price or point of an extendable callable bear contract reaches no less than 120 percent of the closing price of the underlying security or the closing index of the underlying index, the issuer shall extend the period of validity of such contract.
    5. The issuance price of callable bull contracts or callable bear contracts shall be calculated as follows: the difference between the price of the underlying securities, the underlying index, or the daily settlement price of the underlying futures and the strike price or the strike point × exercise ratio + funding cost.
    6. The funding cost is calculated as: funding cost annual rate × strike price or point × (days to expiration ÷ 365) × exercise ratio
    7. The principles for handling early expiration:
      1. Capped call warrants or capped put warrants: When the closing price of the underlying securities or the closing index of the underlying index reaches the cap price or point, or the simple arithmetic mean trade price of the underlying futures reaches the cap price or point during the last minute before 1:30 p.m., the current day will be deemed the last trading day for the warrants, and they will expire on the second following business day, requiring automatic settlement in cash based upon the closing price of the underlying securities, the closing index of the underlying index, or the simple arithmetic mean trade price of the underlying futures during the last minute before 1:30 p.m., on the last trading day for the warrants.
      2. Callable bull contracts or callable bear contracts, and extendable callable bull contracts or extendable callable bear contracts: When the closing price of the underlying securities or the closing index of the underlying index reaches the bull/bear contract knock-out price or point, or the simple arithmetic mean trade price of underlying futures reaches the bull/bear contract knock-out price or point during the last minute before 1:30 p.m., the current day will be deemed the last trading day of the contracts, and they will expire on the second following business day, requiring automatic settlement in cash based upon the simple arithmetic mean trade price of the underlying securities, the underlying settlement index, or the settlement price of the underlying futures on the business day next following the last trading day. If there is no trade price for the underlying securities, then it will be calculated based upon the auction reference price at market opening of the underlying securities on the expiration date of the contracts. If trading of the underlying securities, or the underlying futures is halted or suspended on the business day next following the last trading day of the warrants and on the expiration date thereof, then it will be calculated based upon the closing price of the underlying securities, or the daily settlement price of the underlying futures on the last trading day of the contracts.
      3. The underlying settlement index and the underlying futures settlement price mentioned above shall be calculated in accordance with the provisions of subparagraphs 6 and 7.
    8. The daily settlement price of the underlying futures mentioned in this subparagraph means the settlement price set by the TAIFEX based on the trading rules for the respective futures contracts.
  9. The issuance plan shall contain the following terms and conditions:
    1. The issuance date and the period of validity.
    2. Detailed information on the underlying instrument or basket of instruments. When the underlying instrument is a domestic stock and the financial statement of the issuer of such stock for the most recent period audited or attested by a certified public accountant and shows losses on the stock, there shall also be a statement of the reason for issuing warrants based on the underlying securities; when the underlying instrument is a foreign stock or a foreign depositary receipt, there shall be a statement of the status of liquidity of the foreign stock or foreign depositary receipt; when the underlying instrument is a future, there shall also be a statement of the name and delivery month of the futures contract.
    3. The type of call (put) warrant, the volume of issuance units and total value of the issue. In the case of an issue of extendable callable bull contracts or extendable callable bear contracts, the type of warrant shall be annotated with the wording "extendable". In the case of a follow-on issue of call (put) warrants, the total number of units already issued shall additionally be specified.
    4. Terms of issuance, including issuance price, strike price or strike point, exercise period, and number of shares, beneficial units, depository receipt units, index points or futures points represented per issuance unit. In the case of extendable callable bull or bear contracts the information set forth in item 4 of the preceding subparagraph shall be stated. In the case of a follow-on issue of call (put) warrants, the strike price or strike point is the newest strike price or strike point for the warrants.
    5. The method by which the issuance price is calculated, including the price or point, strike price or strike point level, the period of validity, the interest rate, the rate of fluctuation of the underlying instrument and other elements used in the calculation, and a table of comparison with other warrants in the preceding year with the same underlying instrument. In the case of an issue of callable bull contracts or callable bear contracts, the issuance price shall be calculated in accordance with item e of the preceding subparagraph. But this provision shall not apply to a follow-on issue of call (put) warrants.
    6. Issuance of capped call or put warrants (or callable bull or bear contracts) shall conform to the provisions of the preceding five items and, in addition, the issuance plan shall specify the cap or knock-out price or point and also matters prescribed in item f of the preceding subparagraph in a prominent typeface. In the case of extendable contracts, the issuance plan shall also state the matters required for extension under Article 7, subparagraph 3 of the TWSE Procedures for Review of Call (Put) Warrant Listings.
    7. Items that shall be included in the issuance plan in accordance with Article 8 of the TWSE Directions for Call (Put) Warrant Liquidity Provider Operations.
    8. Procedures for exercising the option and the terms for cancellation of already-exercised call (put) warrants.
    9. Strategies for offsetting foreseeable risks.
    10. The policy of the issuer regarding adjustment of the strike price of the call (put) warrant and related items along with the distribution of dividends and bonuses, increases or decreases in capitalization, stock splits or consolidations, and handling of other related matters by the issuing company of the underlying securities, or the distribution of dividends and handling of other matters by the securities investment trust enterprise in relation to the underlying ETF, the handling of related matters by the futures trust enterprise in relation to the underlying futures ETF, or by the offshore fund management institution or its designated institution in relation to the underlying offshore ETF. Where the issuer does not make such adjustments in accordance with the TWSE reference formula, that fact shall be noted in bold lettering in the issuance prospectus. If the underlying is a foreign security, the issuer shall itself determine the formula for adjustment.
    11. Methods of handling when there is a merger by the company issuing the underlying securities, or alteration in the stock trading method, halt of trading, suspension of sale, or de-listing; or when there is delisting when the securities investment trust enterprise of the underlying ETF, or the futures trust enterprise of the underlying futures ETF, undergoes dissolution or bankruptcy, or its approval is revoked; or when the beneficial certificates, fund shares, or investment units of the underlying offshore ETF are delisted by public announcement of the TWSE; or when the index provider announces suspension of the compilation of the underlying index; or when the underlying future is subject to a halt of trading, suspension of trading, or delisting imposed by the TAIFEX.
    12. Methods of handling market listing of the call (put) warrants, or suspension of trading, de-listing or halt of trading of the warrants by the TWSE.
    13. Definition of exercise value upon expiration of the period of validity:
      1. For call (put) warrants with domestic securities, indices or futures as the underlying instruments, there is exercise value if the simple arithmetic mean trade price of the underlying securities, underlying settlement index or settlement price of the underlying futures during the 60 minutes before market close is higher (lower) than the strike price or strike point of the call (put) warrant. If there is no trade price for the underlying securities during the 60 minutes before market close, then the calculation shall be based on the most recent trade price. If the circumstance under Article 58-3, paragraph 5 of the TWSE Operating Rules exists, the calculation shall also incorporate the trade price or index from during the postponement period. The aforementioned underlying settlement index and settlement price of the underlying futures shall be calculated in accordance with subparagraphs F and G.
      2. For call (put) warrants with foreign securities or a foreign index as the underlying, there is exercise value if the most recent closing price of the underlying securities or the most recent closing value of the underlying index is higher (lower) than the strike price or strike point of the call (put) warrant.
      3. Where the terms of exercise require cash settlement, the warrant holder shall be deemed to have exercised the warrant and to have given notice to that effect.
    14. Terms stipulating that the warrant issuer may not substitute another warrant with a period of validity longer than that of the original warrant, or any other security, for the originally issued warrant.
    15. Procedures for delivery and payment when the warrant holder exercises the option.
    16. Terms stipulating that where settlement after exercise of the option referred to in the preceding item shall be done in cash, the cash settlement amount shall be calculated based on the closing price of the underlying securities on the exercise date. If the exercise date is the expiration date of the warrants, the cash settlement amount shall be calculated on the basis of the simple arithmetic mean trade price of the underlying securities, underlying settlement index or settlement price of the underlying futures during the 60 minutes prior to market close. If there is no trade price for the underlying securities during the 60 minutes prior to market close, then the calculation shall be based on the most recent trade price. If the circumstance under Article 58-3, paragraph 5 of the TWSE Operating Rules exists, the calculation shall also incorporate the trade price or index from during the postponement period. The aforementioned underlying settlement index and settlement price of the underlying futures shall be calculated in accordance with the subparagraphs F and G. However, when the underlying asset is a foreign security or foreign index, the provisions of the TWSE Guidelines for the Exercise of Call (Put) Warrants shall be followed.
    17. Terms stipulating the methods for handling distribution of securities centrally deposited in the Taiwan Depository and Clearing Corporation account where the issuer fails to perform its delivery of the underlying securities or the cash price differential within the prescribed time period.
    18. Clarification of whether or not there are plans for a reverse issue of call (put) warrants against the same underlying instrument within the coming 3 months.
    19. Source of data and method of disclosure for the halt of trading, suspension of trading, or delisting, of foreign underlying securities by the securities exchange on which the security is traded, or for the suspension of compilation of foreign underlying foreign index as announced by the index provider.
  10. When an issuer issues domestic call (put) warrants for which the underlying assets are foreign securities or foreign indexes, it shall disclose, from the applied-for issue date through the maturity date of the warrants, on its company website and the TWSE-designated information reporting website, the up-to-date trading information of the underlying securities or indexes and the public announcements made by the issuing companies of the underlying securities. When such public announcement occurs during the trading hours [of the TWSE], the warrant issuer shall immediately enter the information; when such public announcement occurs during the non-trading hours [of the TWSE], the warrant issuer shall enter the information prior to the beginning of trading hours on the next business day following the occurrence. The warrant issuer shall enter the following information publicly announced by the issuing companies of the underlying securities:
    1. The annual and semi-annual consolidated financial reports (where the consolidated financial reports are not required, enter the individual financial reports), and the first-quarter and third-quarter financial reports prepared in accordance with the laws and regulations of the issuing company's home country or country of listing.
    2. Public announcement of dividend distribution for the current fiscal year; proposal of the dividend distribution has been passed by the board of directors and ratified at the shareholders meeting.
    3. Public announcement of acquisition or disposal of assets.
    4. Public announcement of the record date fixed for distribution of dividends, bonuses, or other benefits.
    5. Material information published by the issuing company in accordance with the laws and regulations of its home country or country of listing.
    6. Other matters that are required to be publicly announced under the rules of the TWSE.
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Article 12    Where any of the following conditions apply, the TWSE may withhold approval for an application for market listing of a projected issue of call (put) warrants:
  1. The required application documents submitted by the issuer are incomplete, and it has failed to supplement the required documents by the deadline prescribed by the TWSE.
  2. The particulars of the issuer's application do not conform to laws and regulations, or the issuer has made false and misleading presentations in the application.
  3. The issuer or an affiliated company of the issuer has, during the month preceding application, released information or predictions relating to the price of the underlying instrument of its projected warrants issue.
  4. When the underlying instrument of the projected issue of warrants is a domestic stock, and the issuer or its directors, supervisors, managers, employees, or shareholders hold 10 percent or more of the issuer's shares, or any of the above hold 10 percent or more of the shares of another company, and are at the same time a director, supervisor, manager, or shareholder with a stake of 10 percent or more in the issuing company of the underlying security or any of the issuing companies of the basket of underlying listed securities. But this provision shall not apply to a follow-on issue of call (put) warrants.
  5. When the combined total of the issue price of the currently listed, GTSM listed, and GTSM contract-based call (put) warrants issued domestically by the issuer whose term of validity has not yet expired, and the call (put) warrants issued overseas whose term of validity has not yet expired, and the projected issue of call (put) warrants, together with the amount of the guarantee or the assets provided as collateral for the overseas subsidiary's offshore call (put) warrant issuing business is subject to any of the following conditions:
    1. For a domestic issuer:
      1. For an issuer assessed under the Operation Directions for Securities Firm Risk Management Assessment Systems and given a level 1 rating, when its combined total exceeds 70 percent of its net eligible regulatory capital.
      2. For an issuer assessed under the Operation Directions for Securities Firm Risk Management Assessment Systems and given a level 2 rating, when its combined total exceeds 60 percent of its net eligible regulatory capital.
      3. For an issuer assessed under the Operation Directions for Securities Firm Risk Management Assessment Systems and given a level 3 rating, when its combined total exceeds 40 percent of its net eligible regulatory capital.
      4. For an issuer assessed under the Operation Directions for Securities Firm Risk Management Assessment Systems and given a level 4 rating, when its combined total exceeds 30 percent of its net eligible regulatory capital.
      5. For an issuer that has not been assessed under the Operation Directions for Securities Firm Risk Management Assessment Systems, when its combined total exceeds 40 percent of its net eligible regulatory capital.
    2. A foreign issuer's combined total exceeds 60 percent of its eligible net regulatory capital adequacy requirement.
    The above-mentioned eligible net regulatory capital adequacy requirement shall be calculated based on the methods set forth within the Rules Governing Securities Firms, for Taiwan issuers.
    The aforesaid eligible net regulatory capital of a foreign issuer is calculated by (the allocated operating capital in the most recent financial reports of its branch office(s) within the Republic of China ("ROC") or branch office(s) established within the ROC by its wholly owned subsidiaries) x (net available funds multiplier).
  6. When a foreign issuer applies for issuing call (put) warrants, the dollar amount of the hedging funds required to be remitted to the ROC (i.e. the remittance amount less the amount not required for the current hedging) or the collateral supplied to provide a guarantee of performance, in a form such as certificates of deposit or government bonds pledged to the TWSE or a performance guaranty agreement issued by a financial institution, is less than 20 percent of the market value of the underlying securities represented by the non-matured listed or GTSM listed call (put) warrants (including the current issue). In addition, where a letter of undertaking stating that the premiums collected for the given issue of warrants will only be remitted into Taiwan after the expiration of the period of validity of the warrant or proof of an existing line of credit at a Taiwan bank in an amount equivalent to the premiums collected on the given issue have not been issued.
  7. There are irregular fluctuations in the price of the underlying security within the 3 months prior to the date of application, and a penalty has been imposed in accordance with the TWSE Rules Governing Implementation of the Stock Market Monitoring System, or the underlying security has been the subject of a notice of attention by the TWSE on 2 of the preceding 6 business days.
  8. There is any other factor arising out of the nature of the enterprise or exceptional circumstances that may be deemed to adversely affect the applicant's performance of the option or the price of the underlying instrument.
  9. On the day of application, any financial or business indicator of the issuer of the underlying securities is marked with a warning in the Key Financials Section of the TWSE Market Observation Post System (MOPS), provided that this does not apply in the case of a follow-on issue of call (put) warrants.
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Article 12-1     After an issuer has obtained competent authority approval as a qualified call (put) warrants issuer, the TWSE may assess and give ratings to, and also manage, the issuer. Regulations governing issuer ratings will be separately adopted by the TWSE.
Article 12-2     An issuer may apply to cancel the non-outstanding issuance units when 1 month has elapsed after the initial listing of its call (put) warrants, but the remaining issuance units after cancellation may not be less than 10 percent of the total number of issuance units of the initial issue.
     With respect to call (put) warrants for which the underlying securities are domestic stocks or Taiwan depositary receipts (TDRs), under the circumstances that the total number of shares of the underlying security represented by the issuance units of the call (put) warrants reaches 20 percent or more of the total number of outstanding shares of the issuing company after deduction of all types of shareholdings set out in Article 11, subparagraph 3, or 20 percent or more of the listed units of TDRs, if, within 2 months before the expiration date of the warrants, the outstanding issuance units constitute less than 5 or 10 percent respectively of the actual total number of issuance units, the issuer shall, within 2 business days from the next business day following the date of the event's occurrence, apply for cancellation of issuance units of the warrants to the extent necessary until the outstanding issuance units constitute 20 percent or 30 percent respectively of the actual total number of issuance units. This provision does not apply, however, to warrants that are issued by an issuer pursuant to the rules governing ratings of issuers of call (put) warrants, or extendable callable bull contracts or extendable callable bear contracts.
     The "actual total number of issuance units" referred to in the preceding paragraph shall be calculated pursuant to Article 9, paragraph 2.
Article 12-3    When an issuer applies to issue extendable callable bull contracts and extendable callable bear contracts, it shall, after obtaining approval from the TWSE, conduct such issuance pursuant to Article 7 of the TWSE Procedures for Review of Call (Put) Warrant Listings.
    The issuer shall adjust the strike price or point on the day preceding the extension period, to collect the relevant funding cost for the extension period, and deduct the funding cost already collected for the period from the business day following the original last trading day to the original maturity date, for the purpose of ensuring that the strike value before the extension plus the aforementioned deducted funding cost equals the strike value after the extension plus the funding cost for the extension period. If the underlying is an index, the settlement basis shall be adjusted based on the return rate of the underlying total return index on the day preceding the extension period, through the calculation of "closing index of the underlying index on the business day preceding the date of warrant issuance × return rate." The aforementioned return rate shall be calculated as "underlying total return index on the day preceding the extension period ÷ underlying total return index on the business day preceding the date of warrant issuance." In the event of multiple extensions of periods of validity, for the aforementioned business day preceding the date of warrant issuance, the day preceding the previous extension period shall be substituted.
    If the underlying is a security or index, the strike price or point shall be adjusted based on the following methods; the knock-out price or point shall be adjusted according to the fluctuations of the strike price or index before and after the extension:
  1. Strike price of callable bull contracts after extension = strike price before extension × (1 - funding cost annual rate before extension × number of days from original last trading day until original maturity date ÷ 365) ÷ (1 - funding cost annual rate after extension × number of days in the extension period÷365 ).
  2. Strike price of callable bear contracts after extension = strike price before extension × (1 + funding cost annual rate before extension × number of days from original last trading day until original maturity date ÷ 365) ÷ (1 + funding cost annual rate after extension × number of days in the extension period ÷ 365 ).
  3. Strike point of callable bull contracts after extension = [strike point before extension × (1 - funding cost annual rate before extension × number of days from original last trading day until original maturity date ÷ 365) + closing index of underlying index on the day preceding the extension period - index after adjustment of settlement basis] ÷ (1 - funding cost annual rate after extension × number of days in the extension period ÷ 365 ).
  4. Strike point of callable bear contracts after extension = [strike point before extension × (1 + funding cost annual rate before extension × number of days from original last trading day until original maturity date ÷ 365) + closing index of underlying index on the day preceding the extension period - index after adjustment of settlement basis] ÷ (1 + funding cost annual rate after extension × number of days in the extension period ÷ 365 ).
Article 13    In the case of a call (put) warrant listing where the issuer has obtained approval documents from the TWSE, the issuer shall sign a listing agreement with the TWSE, and shall announce market listing of the warrants after the listing agreement has taken effect.
    After the listing agreement referred to in the preceding paragraph has taken effect, the TWSE may, under the following conditions, void the agreement, and report to the competent authority for recordation:
  1. Where, prior to market listing, there is a discovery by the TWSE that any of the subparagraphs of Article 8, paragraph 1 is not conformed to.
  2. The issuer applies to void the agreement.
    For call (put) warrants already issued pursuant to the preceding paragraph, the issuer shall return the price with statutory interest included within 10 days from receipt of TWSE notice of approval for voidance of the listing agreement.
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Article 13-1    When an underlying foreign security represented by listed call (put) warrants is announced as delisted by the securities exchange on which the security is traded, or when an underlying foreign index represented by the warrants is announced by the index provider as suspended from compilation, the issuer shall immediately report by letter to the TWSE, and the TWSE shall publicly announce the delisting of the call (put) warrants, and report to the competent authority for recordation.
Article 13-2    When the underlying foreign securities represented by listed call (put) warrants is suspended or halted from trading by the securities exchange on which the security is traded, the warrant issuer shall report to the TWSE, and the TWSE may announce the suspension or halt of trading of warrants, and report for the competent authority's recordation; the same applies to the resuming of halted trading.
   Chapter 4 Matters Subsequent to the Hedging Period and Liquidity Provision for Call (Put) Warrants
Article 14    Issuers shall apply to the TWSE to open a segregated account at the time of their initial issue of domestic call (put) warrants and offshore call (put) warrants for which the underlying security is a domestic security. Where the issuer will be self-hedging or partially self-hedging, the account shall be used exclusively for establishing a hedge position after issuance of the warrants and for future performance of obligations when the investors exercise the warrants. Where the issuer entrusts another institution with hedging, the account shall be used for performance of obligations when the investors exercise the warrants, and the risk management institution is also required to open a segregated account with the issuer for the purpose of establishing a hedge position after issuance of the warrants.
    The segregated accounts of issuers referred to in the preceding paragraph shall without exception be opened under securities dealer accounts. The account number of the aforesaid account of a domestic issuer shall be 888888-8, provided a foreign issuer applying to issue warrants through a branch office established in the territory of the ROC by a subsidiary which is either directly or indirectly wholly-owned shall open such account in the securities brokerage department of that branch office; the segregated hedge account opened with the issuer by the risk management institution shall be opened in the securities brokerage department. The above-mentioned accounts shall be reported to the TWSE in advance, and may only be used for trading in financial hedging instruments for hedging purpose and in call (put) warrants issued by the issuer itself. In addition, the securities in the segregated hedging account without exception may not be pledged.
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Article 15    Where the risk-management institution is a foreign institution and is concurrently performing risk management for more than one issuer, that institution shall, at the time of application for review in connection with market-listing of the call (put) warrants, provide documentation showing the amount of direct investment for which it has applied as a Qualified Foreign Institutional Investor; in addition, that amount, after deduction of the market value of the underlying securities of call (put) warrants for which it has already been entrusted with hedging, shall be larger than the market value of the underlying securities represented by the present issue of call (put) warrants which it is hedging.
Article 16    The financial instruments employed by the issuer in warrant hedging shall be the underlying instruments, relevant securities, or financial derivatives.
    An issuer's hedge positions in any domestically listed call (put) warrants, contract-based call (put) warrants, structured instruments, equity derivatives, or offshore call (put) warrants with the same underlying instruments may be mutually offset.
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Article 16-1    An issuer or the risk management institution it entrusts may engage in the sale of borrowed securities involving the underlying security in accordance with Article 82-2 of the Operating Rules of the TWSE or in the sale of securities borrowed from a securities firm or securities finance enterprise that conducts securities borrowing and lending business, that involve the underlying security.
    Where the issuer employs short sales of the underlying securities as a hedging instrument in accordance with the preceding paragraph, said issuer shall open a margin account with another securities firm or with the securities finance enterprise of a non-affiliated enterprise and shall report the account information to the TWSE in writing.
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Article 17    Trading conducted by the dealing department of the issuer for its own account and hedge trading conducted by it in connection with call (put) warrants issued by it may not affect the fairness of market prices or harm shareholder equity, and an effective internal control system shall be established and executed in connection with such trading.
    An issuer of call (put) warrants shall issue a letter of report to the TWSE by the 5th of each month, providing information on purchases and sales of the underlying securities of its issued warrants by its dealing department for the preceding month (including the trading day, the name of the security and the volume of the transaction).
    The provisions of the preceding two paragraphs will apply mutatis mutandis to the risk management institutions engaged by issuers using outsourced risk management, and, in the event of a foreign issuer, to the dealing department of its branch office within ROC territory or the dealing department of a branch office established within ROC territory by a directly or indirectly wholly-owned subsidiary of such a foreign institution.
    Except where regulations provide otherwise, during the duration of the call (put) warrants, there may be no inter-account transfers of the warrants' underlying security between the issuer's dealing department and positions in the security held in the issuer's hedge accounts.
    The "dealing department" referred to in the preceding four paragraphs includes any unit or trading account that is equivalent to a dealing department.
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Article 18    (deleted)
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Article 19    The issuer shall supply a liquidity provision mechanism for the warrants it issues, either by acting as the liquidity provider itself or by engaging other liquidity providers. Directions for the operations of liquidity providers will be separately adopted by the TWSE.
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   Chapter 5 Handling of Violations
Article 20    Except where the circumstances set forth under Article 11, subparagraph I, item r exist, when an issuer, prior to application to the TWSE for issuance of call (put) warrants, releases or divulges information on its own initiative about the application of the warrants issue, the TWSE may send a letter requiring the issuer to give attention and make rectification. Where, due to the circumstance set forth in this paragraph, the issuer has been required by a letter from the TWSE to give attention and make rectification in the past year, the TWSE may additionally impose a breach penalty of NT$30,000 to NT$100,000; where the violation is serious in nature, the TWSE may also restrict the issuer from applications for issuance of warrants for a period of 1 month.
    When the media have made a concrete announcement or disclosure of information related to the underlying securities of a particular warrants issue in the week prior to the issuer's application, the TWSE will not approve the application for issuance and market listing.
    Where an issuer or a risk management institution engaged by it produces a defective report, public announcement, or disclosure of required matters with regard to an application for qualification as a call (put) warrant issuer, issuance of warrants, or relevant matters during or subsequent to the warrant duration period, the TWSE may issue a letter requiring the issuer to give attention and make rectification. Where, due to the circumstance set forth in this paragraph, the issuer has been required by a letter from the TWSE to make rectification in the past year, the TWSE may additionally impose a breach penalty of NT$30,000 to NT$100,000; where the violation is serious in nature, the TWSE may also restrict the issuer from applications for issuance of warrants for a period of 1 month.
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Article 21    Where any of the circumstances under Article 13, paragraph 2 apply with respect to the issuer, the TWSE may restrict the issuer from further applications for call (put) warrant issues during the subsequent 1-month period.
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Article 22    Where the issuer applies for call (put) warrants issuance with the TWSE and subsequently, as a means of promoting the items under application, releases or cites unconfirmed information relating to the underlying instruments, the TWSE may withhold approval for the issuance and listing of the given warrants issue and may restrict the issuer from submitting further applications for warrants issues during the succeeding 1-month period.
Article 23     (deleted)
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Article 24    Where an issuer or the risk management institution it entrusts violates the provisions of Article 17, paragraph 1, the TWSE may send a letter requiring the issuer to give attention and make rectification. If, due to the circumstance set forth in this article, the issuer has been required by a letter from the TWSE to give attention and make rectification in the past year, the TWSE may additionally impose a breach penalty of NT$30,000 to NT$100,000; where the violation is serious in nature, the TWSE may also restrict the issuer from applications for issuance of warrants for a period of 1 month.
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Article 25    Where an issuer violates the provisions of Article 13-1 or 13-2, the TWSE may impose a breach penalty of NT$100,000. If, due to the circumstance set forth in this article, the issuer has been imposed breach penalty by the TWSE in the past year, the TWSE may impose another breach penalty of NT$500,000; where the violation is serious in nature, the TWSE may also restrict the issuer from applications for issuance of warrants for a period of 1 to 3 months.
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Article 26    Where the TWSE issues a letter to an issuer requiring attention and rectification, imposes a breach penalty on an issuer, restrains an issuer from applying for issuing warrants for a prescribed period of time, or suspends issuance, the TWSE shall submit a copy to the competent authority. An issuer subject to suspension may not resume its issuance until it completes rectification and obtains the written approval of the TWSE with a copy submitted to the competent authority.
    Where an issuer is subject to a suspension by the TWSE of issuance under a circumstance in Article 8, paragraph 1, the suspension period must have expired, and the TWSE must have notified the issuer in writing of its approval, with a copy to the competent authority, if the circumstance concerned has been specifically rectified, before issuance may resume. The rectification is subject to approval of the competent authority if the disposition is imposed by the competent authority.
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   Chapter 6 Supplementary Provisions
Article 27    These Rules shall take effect after having been submitted to and approved by the competent authority. Subsequent amendments thereto shall be effected in the same manner.