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Directions for the Internal Control of Securities Borrowing and Lending Transactions by Securities Firms  CH

Amended Date: 2006.03.21 
Categories: Securities Exchange Market > Borrowing of Securities
1     For purposes of these Directions, "securities borrowing and lending" means the securities borrowing and lending transactions under the "TWSE Securities Borrowing and Lending Rules."
2     Securities borrowing and lending by a securities firm is subject to due authorization from the board of directors and relevant departments.
3     A securities firm shall make an assessment of the legal risks that may arise from its securities borrowing and lending transactions.
4     A securities firm engaging in securities borrowing and lending shall establish internal control procedures and internal rules for securities borrowing and lending and relevant restrictions and limitations, and keep records of such transactions separate from other transactions.
5     A securities firm acting as lender in a securities lending negotiation shall, in addition to carefully assessing the various risks that the borrower may cause, include the trading limit, types of collateral, calculation of the mandatory coverage ratio, minimum collateral ratio and collateral maintenance ratio, provision of additional collateral, disposition of collateral in the event of default, mark-to-market operations, and other operational regulations in the lender's internal rules for securities borrowing and lending.
6     A securities firm shall have in place appropriate regulations on the authorization, approval, limits and stop-loss restrictions in regard to securities borrowing and lending traders.
7     Securities borrowing and lending traders in the middle offices of a securities firm (internal control, risk management, etc.) shall not concurrently hold positions in the back offices (accounting and clearing, central custody), and vice versa.
8     A securities firm engaging in securities borrowing and lending shall make a daily assessment of the fair value of the securities and collaterals being borrowed and lent and keep the assessed information. If no quoted prices in active markets are available, the firm shall estimate and assess the fair value using reliable methods. There shall be appropriate procedures for handling changes in the fair value or material changes between major assumptions and initial expectations.
9     A securities firm engaging in securities borrowing and lending shall keep the relevant operational documents as required.
10     The internal audit unit shall establish internal auditing directions pursuant to the above Directions, conduct monthly as well as randomized internal audits to ensure that all control directions are being followed as required, and keep a record of the internal audits.
11     These Directions shall take effect after having been submitted to and approved by the competent authority. Subsequent amendments thereto shall be effected in the same manner.