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Title:

Taiwan Stock Exchange Corporation Rules Governing Review of Listing of Exchange Traded Notes  CH

Announced Date: 2018.09.10 
Categories: Primary Market > Review
Article 1     These Rules are established in accordance with Article 140 of the Securities and Exchange Act, and Article 14, paragraph 2 of the Regulations Governing the Issuance of Exchange Traded Notes by Securities Firms (the "Issuance Regulations").
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Article 2     For purpose of these Rules, exchange traded notes (ETNs) refer to securities that are issued by securities firm and are traded in the securities exchange market for which the securities firm pays such compensations linked to the performance of the underlying indexes tracked by the securities upon maturity, and for subscription and sellback of which investors should pay cash.
    For the ETNs that track a multiple of the performance or a multiple of the inverse performance of the underlying indexes, the name of the ETNs shall specify the single-day multiples of performance or multiples of inverse performance of the underlying indexes being tracked.
Article 3     For purpose of these Rules, underlying indexes refer to the indexes tracked by ETNs.
    For purpose of these Rules, indicative value refers to the value of ETNs calculated based on price movement, accrued income, and amounts payable by investors of the underlying indexes of the ETNs.
    For purpose of these Rules, number of issued units refers to the number of units in inventory for market making, plus the number of units held by investors.
Article 4     Before applying for issuance of ETNs, a securities firm shall receive an approval letter for acceptance of qualifications of the underlying indexes of the ETNs. When applying for determination of qualifications of the underlying indexes of the ETNs, the securities firm shall submit the application form for acceptance of qualifications of underlying indexes of ETNs, stating the particulars to be specified, and the enclosed documents to the TWSE. The TWSE will review the application in accordance with the Issuance Regulations, these Rules, the TWSE Procedures for Review of Listing of Exchange Traded Notes, and the TWSE's other applicable regulations. If the TWSE accepts the application after the review, it will issue an approval letter for acceptance of qualifications of the underlying index, with a copy to the competent authority.
    A securities firm that is in the circumstances provided in Article 20 or 21 or is otherwise prohibited by the TWSE from applying for listing of its ETNs shall not file an application for determination of qualification of the underlying indexes of the ETNs to the TWSE during the restriction period.
    The Procedures for Review of Listing of Exchange Traded Notes will be established by the TWSE and come into force after being approved by the competent authority for recordation.
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Article 5     Underlying indexes of ETNs shall meet the conditions specified in Article 2 of the Issuance Regulations.
    A compiler of the underlying indexes shall meet all of the following conditions:
  1. Has five or more years of experience in compiling indexes, and the ability to establish and review index compilation rules, and to maintain or update on a daily basis the files for the components of the index. If the compiler is a securities firm, bank, or an interested party of the securities firm, the compiler must establish a comprehensive firewall system for the index compilation rules, file maintenance, and related operations.
  2. Has the ability to calculate index value, or enters into contracts with market information suppliers to calculate index value.
  3. Has the ability to transmit the index value to make it widely known in the market, or enters into contracts with two or more market information suppliers for the transmission of the index value.
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Article 6     The components of the underlying index shall meet all the following qualifications:
  1. Meet one of the following qualifications:
    1. Listed for trading on the TWSE exchange.
    2. Listed for trading on the GreTai Securities Market.
    3. Listed and traded on a foreign centralized securities market or over-the-counter market approved by the competent authority, and compliant with regulations regarding the types and scope of foreign securities which a securities firm may invest as determined by the competent authority.
    4. Listed for trading on the Taiwan Futures Exchange.
    5. Traded on a foreign futures exchange, or being futures trading that futures trust funds may invest as approved by the competent authority and futures-related spot commodities, and comply with the regulations governing the scope of utilization of funds by securities firm.
    6. Being other instruments approved by the competent authority.
  2. The components of the index shall have the following properties:
    1. The components of the index shall be sufficiently dispersed. Indexes composed of securities shall contain more than 10 component securities, with the component of the highest weighted percentage accounting for not more than 30% of the index.
    2. The components of the index shall have a certain degree of liquidity.
    The above properties do not apply to an underlying index in the preceding paragraph approved by the competent authority to be not dispersed in accordance with Article 2 of the Issuance Regulations.
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Article 7     Within three months of being notified by the TWSE in writing of issue of the approval letter for acceptance of qualifications of the underlying indexes, the securities firm shall report its issuance of ETNs to the competent authority. Failure to apply for issuance within the above time will invalidate its approval letter for acceptance of qualifications of the underlying indexes, except where a request for extension with a legitimate reason is made, in which case the TWSE may agree to extend the deadline for three months which will be a one-time only extension.
Article 8     When applying for listing of ETNs to the competent authority, the securities firm shall act in accordance with Article 6 of the Issuance Regulations by submitting the application form for listing of ETNs, and the application form for issuance of (additional) ETNs by securities firm, published by the competent authority, stating the particulars to be specified, and the enclosed documents to the TWSE. The TWSE will review the application in accordance with the Issuance Regulations, these Rules, the TWSE Procedures for Review of Listing of Exchange Traded Notes, and the TWSE's other applicable regulations. If the TWSE determines the listing criteria have been met, it will issue an approval letter for listing, including the review opinion, which will be forwarded to the competent authority.
    When a securities firm is to issue ETNs, if, between the date of its most current financial report and balance sheet it has submitted and when the application takes effect, the securities firm has an event which has a material impact on shareholders' rights and interests or securities prices under Article 36, paragraph 3, subparagraph 2 of the Securities and Exchange Act, has major changes to its finance or business, or there are changes to the information contained in the application or documents attached thereto which would have a major impact in the issuance plan, the securities firm shall ask a certified public accountant (CPA), providing him or her with expert opinion as appropriate for the nature of the changes, to indicate the impact on the issuance plan and notify the TWSE of the impact in writing. The TWSE will issue its opinion letter, indicating its comments, to the competent authority.
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Article 9     When applying for listing of ETNs to be issued, a securities firm shall meet the following requirements:
  1. The securities firm shall meet the requirements in Article 4 of the Issuance Regulations.
  2. The total value of the issue exceeds NT$200 million and the number of issued units exceeds five million in this application.
  3. The sum of the total value of valid issue in this application and the total value of valid issue in all prior accepted applications does not exceed fifty percent (50%) of the net worth of the securities firm in the most recent CPA-certified financial report.
  4. The listing period shall be more than one years and less than 20 years.
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Article 10     When applying for listing of ETNs to be issued, a securities firm shall submit an issuance plan which shall including the following information:
  1. Name of the ETNs.
  2. Issue date.
  3. Issue period, indicating the maturity date.
  4. Number of units in the valid issue. For issuance of additional units, the number of units in the previous issue, each of all prior issues, and this additional issue shall be specified.
  5. Issue price, including unit price, minimum trading units, and other trading information.
  6. Description of underlying indexes, including how indexes are compiled and calculated. For compilation of price indexes, how dividends will be distributed for the ETNs or how indicative value is adjusted upon distribution of dividends for component securities shall be described.
  7. Date on which repayment upon maturity and interim distribution of proceeds will take place and how it will happen. In the case of repayment upon maturity, information shall cover how repayment is made upon maturity, repayment schedule, and procedure for delisting, and specify the value of repayment shall be calculated based on the indicative value published after market on the last trading day, the last trading day shall be the second business day prior to the maturity day, the delisting day shall be the next business day after the maturity day, and other related information.
  8. Description of investor's fees, including details of management fees charged by securities firm, and how the fees are calculated and collected.
  9. How the estimated indicative value and after-market indicative value are calculated.
  10. How ETNs are issued. The information shall state whether underwriting or dealing will take place. In case of underwriting, how underwriting will proceed shall be specified.
  11. Which exchange where the ETNs will be listed.
  12. Purpose of funds.
  13. Hedging strategies.
  14. Risk management measures.
  15. Investor's risk.
  16. How investors subscribe and sell back ETNs to securities exchange market and the procedure. The information shall cover at least the statement that the sellback price shall be the indicative value published after market on the date of request, minimum sellback units, and schedule for distribution of funds and securities.
  17. Conditions on which the securities firm exercises early redemption (or mandatory redemption), suspends or resume subscription and stop subscription, and notification method. The information shall state that the last trading day is the next business day after the date when the conditions of early redemption (or mandatory redemption) are met, value of redemption is calculated based on the indicative value published after market on the last trading day, repayment schedule, and other related information.
  18. Procedure for withdrawal or revocation of validity of application by the competent authority, delisting procedure and actions to be taken. The information shall cover conditions of delisting, and the statement that the last trading day is the next business day of the day when the delisting conditions are met, and the value of repayment is calculated based on the indicative value published after market on the last trading day, in the event the compiler of the underlying indexes announces to stop compile the indexes, or terminate the index license agreement, the securities firm shall prepare a repayment plan and letter to be submitted to the TWSE, and other related information.
  19. The securities underwriter, if applicable, and liquidity provider and their obligations and responsibilities.
  20. ETNs shall be delivered through the book-entry system in accordance with Article 8 of the Securities and Exchange Act, and no physical securities will be printed.
  21. Other required information.
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Article 11     When a securities firm that applies for listing of ETNs to be issued is in any of the following circumstances, the TWSE may reject its application and report the rejection to the competent authority for recordation.
  1. Not all required application documents are submitted, and the failure is not corrected within the time period specified by the TWSE.
  2. The application is in violation of law or is involved in falsehood or concealment.
  3. The securities firm has the circumstances described in Article 8 of the Issuance Regulations.
  4. The securities firm has the circumstances described in Articles 20 and 21 or is otherwise prohibited by the TWSE from applying for listing of its ETNs and the restriction remains valid.
  5. Other circumstances for which the TWSE advises against listing of its ETNs.
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Article 12     When issuing ETNs, a securities firm, after its application to the competent authority takes effect, shall prepare the application for listing of its ETNs at the exchange and required documents and forms to be submitted to the TWSE to apply for listing and trading prior to issuance of ETNs.
    If, after the review of the documents and forms, the TWSE has determined all required documents have been submitted and the applicant does not have any circumstances under Article 11 of the Issuance Regulations, the TWSE shall sign a listing contract with the securities firm and report the case to the competent authority for recordation. If, however, the above requirements are not met, the TWSE may reject its application for listing and report the rejection to the competent authority for recordation.
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Article 13     If, after a securities firm and the TWSE have signed a listing contract and before listing and trading of the ENTs begin, one of the following circumstances is found with supporting fact and evidence, the TWSE may revoke the listing contract that has taken effect, and report the revocation to the competent authority for recordation:
  1. The securities firm has the circumstances under Article 11 of the Issuance Regulations for which the competent authority revokes or withdraws its valid application.
  2. Other circumstances for which the TWSE advises against listing of its ETNs.
    For the issued ETNs in the preceding paragraph, the securities firm shall return the price, plus interest incurred in accordance with law, within 10 days of receipt of the TWSE's notice to rescind the listing contract.
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Article 14     When issuing ETNs or issuing additional ETNs, the securities firm, after its application to the competent authority takes effect, may appoint a securities underwriter to underwrite the ETNs or engage in the dealing, and deliver the prospectus and summary prospectus to the securities underwriter and investors, except when investors buy the ETNs at the securities exchange market.
    Templates of the prospectus and summary prospectus in the preceding paragraph will be established jointly by the TWSE and Taipei Exchange, and shall come into force after being approved by the competent authority.
Article 15     The securities firm shall deposit the performance bond based on the ETNs issued and outstanding on the last business day of the previous month by the 10th day of a month.
    The performance bond in the preceding paragraph shall be deposited in such manner as described in the Regulations Governing Performance Bond Required for Issuance and Additional Issuance of Exchange Traded Notes by Securities Firm, jointly established by the TWSE and Taipei Exchange.
Article 16     When applying for issuance and listing of additional ETNs, if the average number of issued units during the five business days prior to the application date accounts for more than eighty percent (80%) of the number of units in valid issues, the securities firm may submit the application form for issuance and listing of additional ETNs and the application form for issuance of (additional) ETNs by securities firm, published by the competent authority, stating the particulars to be specified, and complete the payment of the performance bond, if required, and the enclosed documents to the TWSE. The TWSE may issue an approval letter for listing, which will be forwarded to the competent authority.
    When applying for listing of additional ETNs to be issued, a securities firm shall meet the following requirements:
  1. More than one million additional units will be issued.
  2. The securities firm shall not have the circumstances under Article 11.
    When a securities firm is to issue additional ETNs, if, between the date of its most current financial report and balance sheet it has submitted and when the application takes effect, the securities firm has an event which has a material impact on shareholders' rights and interests or securities prices under Article 36, paragraph 3, subparagraph 2 of the Securities and Exchange Act, has major changes to its finance or business, or there are changes to the information contained in the application or documents attached thereto which would have a major impact in the issuance plan, the securities firm shall ask the CPA, providing him or her with expert opinion as appropriate for the nature of the changes, to indicate the impact on the issuance plan and notify the TWSE of the impact in writing. The TWSE will issue its opinion letter, indicating its comments, to the competent authority.
    A securities firm which applied for listing of additional ETNs to be issued and is required to deposit a performance bond shall deposit the performance bond in accordance with the Regulations Governing Performance Bond Required for Issuance and Additional Issuance of Exchange Traded Notes by Securities Firm in the preceding paragraph.
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Article 17     Investors may request the securities firm to sell back the ETNs they hold in accordance with the prospectus. Upon receipt of the investor's request, the securities firm shall process the request at the information reporting website designated by the TWSE.
    In the event of a circumstance under the early redemption clause in the prospectus of ETNs, or a circumstance of delisting determined by the TWSE, the securities firm shall send a letter enclosed with the delisting schedule and related documents to the TWSE on the next business day, and redeem the units held by investors and repay the price to them in accordance with the schedule set forth in the prospectus and the roster of holders of ETNs provided by the centralized depository enterprise.
    Where ETNs are repaid upon maturity in accordance with their prospectus, the securities firm shall send a letter enclosed with a delisting schedule and related documents to the TWSE, and redeem the units held by investors in accordance with the schedule set forth in the prospectus and the roster of holders of ETNs provided by the centralized depository enterprise.
Article 18     To issue ETNs, a securities firm shall perform hedging and establish risk management measures, and apply for a hedging account with the TWSE prior to the initial listing and trading of the ETNs to be issued.
    In no circumstance shall a securities firm engage in any activities that may impact the fair market prices or jeopardize investors' rights and interests when trading the ETNs it has issued, and shall establish and implement an effective internal control system.
Article 19     Where a securities firm acts as the liquidity provider for the ETNs it has issued, and also acts as the liquidity provider for exchange traded funds, it shall create a Chinese wall to segregate information within the organization to prevent conflict of interests, and shall not engage in any activities that may impact the fair market prices or jeopardize investors' rights and interests, and shall establish and implement an effective internal control system.
Article 20     Where a securities firm is in breach of the terms and conditions stated in the issuance plan or prospectus for ETNs, which has caused a major impact in the investors' rights and interests, the TWSE may impose a default penalty in the amount of NT$30,000 to NT$500,000 against it and prohibit it from further applying for acceptance of qualifications of indexes or listing of ETNs during the 12 months that follow.
Article 21     In the event of a securities firm's violation of Article 18, paragraph 2, or Article 19, the TWSE may send a written notice to request its correction. If, however, the same securities firm has received the TWSE's notices to request its correction of the same violation twice or more times in the most recent year, the TWSE may separately impose a default penalty of NT$10,000 to NT$30,000 against it. In case of a serious violation, the TWSE may prohibit it from applying for acceptance of qualifications of indexes or listing of ETNs during the 12 months that follow.
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Article 22     A securities firm against which the TWSE has imposed a default penalty shall pay the default penalty to the Finance Department of the TWSE within five days of receipt of the TWSE's notice.
Article 23     These Rules shall come into force after having been submitted to and approved by the competent authority, and appendixes relating to these Rules shall be implemented after having been submitted to and signed by the TWSE's general manager for approval. Subsequent amendments thereto shall be effected in the same manner.