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Article 1
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These Rules are enacted in accordance with the order of 30 March 2023 No. Financial-Supervisory-Securities-Firms-1120335161 of the Financial Supervisory Commission (Competent Authority).
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Article 2
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The provision, custody, receipt and delivery, disposal, and matters for compliance in connection with the domestic securities used by overseas Chinese and foreign nationals as collaterals for offshore investment activities are governed by, in addition to these Rules, securities exchange laws and regulations, Regulations Governing Investment in Securities by Overseas Chinese and Foreign Nationals (Investment Regulations), and the relevant bylaws, rules, public announcements, and directives of the Taiwan Stock Exchange Corporation (TWSE), Taipei Exchange (TPEx), and Taiwan Depository & Clearing Corp. (TDCC).
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Article 3
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When using domestic securities as collaterals for offshore investment activities, overseas Chinese and foreign nationals should appoint an offshore collateral manager to handle verification of eligibility, portfolio, replacement, mark to market, booking, notice of addition, and instructions on default penalty with respect to the collaterals.
An offshore institution acting as a collateral manager in accordance with the preceding paragraph should appoint a collateral custodian meeting the requirements under Article 5, paragraph 1, subparagraph 3 as its agent for custody, receipt and delivery, and disposal of the domestic securities collaterals. A first-time collateral manager should appoint a collateral custodian to complete online registration with the TWSE.
A collateral custodian appointed to handle custody of domestic securities collaterals in accordance with the preceding paragraph should file an application, accompanied with relevant documents, to the TWSE.
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Article 4
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For purpose of these Rules, offshore investment activities referred to in these Rules are limited to the following activities performed by overseas Chinese and foreign nationals outside the Republic of China:
- Transactions of offshore derivatives.
- Borrowing of offshore securities.
- Borrowing of funds in foreign currency.
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Article 5
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Participants in the use of domestic securities as collaterals for offshore investment activities by overseas Chinese and foreign nationals shall meet the following qualification requirements:
- Collateral providers: Those who have registered for investment in domestic securities in accordance with Article 10 of the Investment Regulations, or approved by the Competent Authority or the TWSE for investment in domestic securities, and are the foreign institutional investors under Article 3, paragraph 2 of the Investment Regulations.
- Collateral receivers: Those who have met the requirements in the preceding paragraph, are a provider of funds in the borrowing of funds in foreign currency in the third paragraph of the preceding article, and are approved by offshore financial Competent Authority to do business as a bank or securities firm.
- Collateral custodians: Only the banks or securities firms that have been approved by the Competent Authority to provide custodian services, and have acted as an agent for offshore overseas Chinese and foreign nationals in their registration of investment in domestic securities.
- Collateral managers: Only those who have been approved by offshore financial Competent Authority to provide banking services.
Overseas Chinese or foreign nationals who act as providers of funds for borrowing of funds in foreign currency in the second subparagraph of the preceding paragraph should issue a statement undertaking they have met the qualifications in the preceding paragraph to be provided to the custodian appointed under Article 17 of the Investment Regulations (Investment Custodian) for verification by the collateral custodian.
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Article 6
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Overseas Chinese and foreign nationals who use domestic securities as collateral may only use the TWSE-listed and TPEx-listed securities allowed for margin purchase and short sale as collaterals for offshore investment activities.
Overseas Chinese and foreign national may not use domestic securities received from borrowing of securities as collaterals for offshore investment activities.
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Article 7
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When receiving collaterals in accordance with these Rules, a collateral custodian should, by 5 P.M. of the business day immediately following receipt of the collaterals, submit a checklist online to the TWSE, stating the collateral provider, collateral receiver, and collateral manager have complied with the requirements under these Rules, provided the above requirement shall not apply to participants who have previously submitted the above compliance checklist to the TWSE.
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Article 8
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Where overseas Chinese and foreign nationals use domestic securities as collaterals for offshore investment activities, the provider of these collaterals should state the funds received from these offshore investment activities will be used in foreign currency outside the Republic of China and will not involve in any activities in the Republic of China. This statement should be provided to the Investment Custodian for verification by the collateral custodian.
The restriction in the preceding paragraph shall not apply to receipts and payments of funds in New Taiwan Dollar involved in the disposal of domestic securities collateral by collateral provider, collateral receiver, and collateral custodian in accordance with Article 13.
Before receiving collaterals, a collateral custodian should verify the collateral provider and collateral receiver have issued statements in accordance with the first paragraph above and Article 5, paragraph 2.
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Article 9
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A collateral custodian should open its own custodial book-entry account with TDCC for custody of collaterals for this business and should report the account to the TWSE after account opening.
The collateral custodian should separate the collaterals in its custody from its own assets and should never use the collaterals for any other purpose.
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Article 10
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A collateral custodian should, on the business day before the book closure date of the issuer’s shares, prepares and submits to TDCC a register of collaterals submitted by collateral providers indicating collateral providers as owners/providers of the collaterals in accordance with the regulations of TDCC.
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Article 11
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Where overseas Chinese and foreign nationals use domestic securities as collaterals for offshore investment activities, the collateral provider should, within 15 days after the end of each month, prepare and submit a statement showing the following information about the collaterals provided in accordance with these Rules as of the end of the previous month to Investment Custodian for reporting to the Department of Foreign Exchange, Central Bank of the Republic of China, and should simultaneously provide the information to the TWSE for filing purpose:
- Name of the collateral provider, collateral receiver, and collateral manager.
- Name, quantity, and market value of the domestic securities collaterals, and value of the collateral.
- Dollar amount of collaterals required for related offshore investment activities, total value of the collaterals, start date and end date of the contract, and type of contract.
- Other information designated by the Department of Foreign Exchange, Central Bank of the Republic of China.
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Article 12
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In the event of a default in the offshore investment activities performed by overseas Chinese and foreign nationals with domestic securities as collaterals, the collateral custodian should, at the collateral manager’s instruction, dispose of the collaterals and report to the TWSE prior to the disposal. The report should include without limitation to information about the collateral provider, collateral receiver, collaterals subject to disposal and quantity of these collaterals, etc.
When disposing of collaterals in accordance with the above regulations, the collateral custodian should open a collateral disposal account with the securities firm’s head office. Only one trading account may be opened with the same securities firm. The account number should be 9498XX-inspection code, with the ID code being 401.
When being requested by the collateral custodian to sell the collaterals through the trading account for the purpose of disposal as described in the preceding paragraph, the securities firm may only sell spot securities and is not subject to the requirements in the first half pf Article 79-1 of the TWSE Operating Rules and the first half of Article 63-1 of the Taipei Exchange Rules Governing Securities Trading on the TPEx, and may not trade the securities or make an allocation after trading of securities with the securities firm’s omnibus trading account.
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Article 13
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The income from a collateral custodian’s disposal of collaterals should be first used for repayment of the obligations agreed between the collateral provider and collateral receiver by transferring an amount in New Taiwan Dollar equivalent to the value of the obligations to the NTD account opened by the collateral receiver in accordance with Article 18 of the Investment Regulations by the end of the business day immediately after receipt of the income.
The NTD amount used for repayment of the obligations in foreign currency in the preceding paragraph shall be deemed as inward remittance of the collateral receiver’s investment capital and outward remittance of the collateral provider’s investment capital or profits. The Investment Custodian of the collateral provider and collateral receiver should report the outward and inward fund transfers as of the previously day to the Department of Foreign Exchange, Central Bank of the Republic of China on a daily basis in accordance with Article 22 of the Investment Regulations.
In the event there are remaining funds after the income received from the collateral custodian’s disposal of the collateral has been used for repayment of the obligations in foreign currency in the first paragraph, these funds should be returned to the NTD account opened by the collateral provider in accordance with Article 18 of the Investment Regulations by the end of the business day immediately after receipt of the income.
If the income from disposal of collaterals in accordance with the first paragraph and the preceding paragraph is subject to settlement of traded securities, the amount of settlement may be kept in NTD, with the remaining funds to be converted to a foreign currency and transferred out of the Republic of China by the end of the business day immediately after receipt of the funds.
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Article 14
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A collateral provider should authorize TDCC to transmit the information about the balance of its securities in the collateral custodian’s custodial book-entry account to the TWSE on a daily basis.
The authorization in the preceding paragraph may be given by the collateral provider’s Investment Custodian on behalf of the collateral provider.
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Article 15
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If overseas Chinese and foreign nationals have one of the following circumstances, the TWSE may prohibit them from providing or receiving domestic securities collaterals in accordance with these Rules:
- Failing to meet the qualifications set forth under Article 5, or making a false or untrue statement issued in accordance with Articles 5 and 8.
- A material breach with respect to offshore investment activities.
- A violation of these Rules.
- Being prohibited from providing or receiving domestic securities collaterals in accordance with these Rules as notified by the Competent Authority.
When overseas Chinese and foreign nationals have the circumstance in one of the preceding subparagraphs, if they have provided or received domestic securities collaterals in accordance with these Rules, the TWSE may instruct, as appropriate, the collateral custodian to stop any new provision or receipt of domestic securities collaterals by the overseas Chinese and foreign nationals, or instruct the collateral custodian to notify the overseas Chinese and foreign nationals to return part or all of the collaterals within a specified period of time.
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Article 16
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If a collateral manager or collateral custodian has one of the following circumstances, the TWSE may notify the collateral custodian to stop accepting the collateral manager’s instructions on adding new collaterals for custody:
- Incomplete contents or information, or false or untrue information in the application documents.
- Violating these Rules.
- Being prohibited from adding new collaterals for custody in accordance with these Rules as notified by the Competent Authority.
When the collateral manager or collateral custodian has the circumstance in one of the preceding subparagraphs, and if its violation is severe or it fails to make the correction within a period of time requested by a notice, the TWSE may withdraw its registration or application, and may ask the collateral custodian to transfer the collaterals in its custody to another collateral custodian within a specified period of time, or ask the collateral custodian to notify the collateral provider and collateral receiver to return the collaterals.
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Article 17
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The TWSE may charge the collateral provider a fee for provision of the supervision services in accordance with these Rules, and the fee shall be made by the Investment Custodian on behalf of the collateral provider.
The fee in the preceding paragraph shall be calculated on a per diem basis based on the following formula: Market Value of Collaterals × 0.0004 ÷ 365.
Where the amount calculated based on the above formula is less than NTD 100, an amount of NTD 100 will be charged.
The market value in the second paragraph is calculated based on the closing price of the previous business day. Where no closing price is available, the auction reference price at market opening will be used in the calculation.
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Article 18
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Where necessary, the Competent Authority, Central Bank of the Republic of China, and TWSE may ask the collateral custodian, collateral provider, and collateral receiver to provide the following information, in addition to the information required under Article 23 of the Investment Regulations:
- Financing amount of offshore investment activities and related information.
- Contact information about the offshore collateral manager and related information.
- Other information as specified.
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Article 19
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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.
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