These Directions are established per the concluding remarks of the 13 December 1993 "Conference on Measures on the Settlement by the Offsetting of Margin Purchases and Short Sales in Margin Trading" and the 20 September 2005 Letter No. Financial-Supervisory-Securities-IV-0940004202 and 13 October 2005 Letter No. Financial-Supervisory-Securities-IV-0940144749 of the Financial Supervisory Commission, Executive Yuan.
If proceeding with settlement by the offsetting of margin purchases and short sales in margin trading (the "Settlement"), a principal purchasing and selling the same kind of securities with the margin loan on the same day shall sign a general authorization agreement with the securities firms beforehand (as attached). After the transaction of margin purchase and short sale on that day, the same amounts will be offset automatically, and the securities firms will generate on behalf of the principal an Application to Settle Margin Purchases with Cash and an Application to Settle Short Sales with Spot Securities transaction by transaction; the principal is not required to file an application for each transaction.
If a principal decides not to proceed with the Settlement after signing the agreement, it must file a written statement with the securities firm before closing on the trading day.
The aforesaid amount of offsetting does not include the interest of margin purchases and short sales, provided the amount of offsetting for short sales shall still include the short sale fee according to applicable requirements.
A principal's Settlement shall be included in the single-day trading limit, provided the amount of any reverse order to purchase and short-sell securities with the margin loan is included, and the amount offset shall not be credited back for revolving uses on the same day.
If the securities firm, pursuant to relevant regulations, does not establish a single-day trading limit for the principal and the principal engages in the Settlement, it shall separately establish a Settlement limit and comply with the following rules:
- The monetary amounts of opposite offsetting orders executed in the Settlement may not exceed the Settlement limit; new positions of margin purchases, short sales and cancelled orders shall not be included in the Settlement limit, and that the amount offset may not be credited back for revolving use on the same day.
- If the principal is qualified to engage in both the Settlement and day trades of securities, the day trading limit shall include the Settlement limit. The total sum of sell orders for day trades plus the monetary amounts of opposite executed in the Settlement may not exceed the day trading limit.
- The monetary amounts of opposite offsetting orders by a principal executed in the Settlement during after-hours fixed-price trading shall be included in the calculation toward the Settlement limit and the day trading limit, provided . However, the monetary amount of unexecuted opposite offsetting orders of the Settlement during normal trading hours is not included.
The securities firm shall evaluate whether to increase or decrease a principal's single-day trading limit or Settlement limit based on the profit or loss of the principal's Settlement, after the closing of the market each business day. If the principal is also qualified to engage in day trades of securities, the profits and losses of day trades and Settlement shall be combined, and whether to increase or decrease the single-day trading limit, Settlement limit or day trading limit shall be assessed.
If the principal's cumulative loss from the Settlement of the previous month reaches half of its single-day trading limit or Settlement limit, the securities firm shall suspend such principal's Settlement. If the principal is also qualified to engage in day trades of securities, its profit and loss from the Settlement of the previous month shall be included in the calculation toward the profit and loss of day trades of securities. If the cumulative losses of the two combined reach half of its single-day trading limit or day trading limit, such principal shall be suspended from Settlement and day trading. The securities firm shall re-evaluate the principal's single-day trading limit, Settlement limit or day trading limit after the principal has submitted proof of adequate financial capability, unless the principal is a professional institutional investor.
The Settlement shall be stayed ipos facto for the period when a security is suspended from margin purchases and/or short sales by the announcement of the TWSE or GreTai Securities Market ("GTSM") or by the securities firm as required.
Securities firms engaging in margin-purchasing and short-selling securities shall suspend short sales immediately if the sum of the balance of short sales of each security plus the outstanding loans of securities lending and borrowing business reaches the combined total of the amounts in each of the following paragraphs:
- The margin loan balance.
- The Proprietary securities.
- The securities borrowed from the TWSE securities lending system.
Calculation method of the ceiling of securities loans of daily offsetting of margin purchases and short sales for securities firms (based on business day):
The margin loan balance on the previous day + the balance of proprietary securities on the previous day + the balance of securities borrowed from the TWSE securities lending system on the previous day - the outstanding securities loan on the previous day - the outstanding loans of securities lending and borrowing business on the previous day + short sales with spot securities as of today + securities purchased with the margin loan as of today + proprietary securities settled as of today + the lending securities returned as of today + the securities borrowed from the TWSE securities lending system as of today
Securities firms shall separately record the Settlement when entering margin trading data on the TWSE or GTSM.
These Directions are established by the TWSE together with the GTSM. They shall take effect after having been submitted to and approved by the Competent Authority. Subsequent amendments thereto shall be effected in the same manner.