Section I Margin Purchases and Short Sales in Securities Trading |
| Article 6 | The counterparties for which a securities finance enterprise handles margin purchases and short sales in securities trading shall be limited to principals that have opened accounts with a securities firm for securities trading (below, "principals").
A securities finance enterprise handling securities trading margin purchases and short sales shall sign an agent contract with a securities firm and report to the competent authority for its approval.
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| Article 7 | A securities finance enterprise handling securities trading margin purchases and short sales shall sign margin purchase and short sale contracts with its principals and open respective margin accounts.
The content of the contracts of the preceding paragraph shall be prescribed by the securities finance enterprise and reported to the competent authority for approval.
The following items shall be recorded in the margin purchase and short sale contracts:
- The ratio, and the time limit for replenishment, pursuant to the provisions of Article 11.
- Disposition of the collateral pursuant to the provisions of Article 13.
- Utilization of securities and funds, the obligation to deliver the same kind of securities as those utilized, and the interest rate that shall be paid on the proceeds from short sales and the margins for short sales, pursuant to the provisions of Article 15.
- The interest rates for margin purchases and the handling fees for short sales pursuant to the provisions of Article 16.
- Other items the competent authority requires be recorded therein.
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| Article 8 | Securities finance enterprises that handle the opening of principals' margin accounts are limited to opening one margin account for any one principal. The principal may only open one margin account through any one securities firm that handles margin purchases and short sales.
A securities finance enterprise that handles the opening of margin accounts for principals shall make a credit search in accordance with the terms of the regulations governing account opening.
The terms governing account opening referred to in the preceding paragraph shall be prescribed by the securities finance enterprises and reported to the competent authority for approval.
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| Article 9 | The settlement of securities traded in margin purchases and short sales shall be handled directly by the securities finance enterprise on behalf of the principal with the stock exchange or the OTC exchange.
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| Article 10 | Securities finance enterprises handling margin purchases and short sales of securities, when providing margin purchase financing to principals, shall collect margin pursuant to the ratio prescribed by the competent authority and take all securities purchased in margin purchases as collateral; when providing short sales for principals, it shall collect short sale margin pursuant to the percentage prescribed by the competent authority and take the proceeds from the short sale as collateral.
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| Article 11 | Securities finance enterprises handling securities margin purchases and short sales shall calculate the ratio of the collateral value of each margin account to principals' debts every day, and shall immediately inform principals to replenish any shortfall within a prescribed period if it is lower than the prescribed ratio.
The ratio and time limit for replenishment under the preceding paragraph shall be prescribed by the securities finance enterprise and reported to the competent authority for approval.
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| Article 12 | The margin for short sales, and the replenishment of shortfalls pursuant to the preceding article may, be paid in the form of securities or other commodities.
The types of securities or commodities and the standard of payment in the preceding paragraph shall be prescribed by the securities finance enterprise and reported to the competent authority for approval.
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| Article 13 | When a margin purchaser or short seller fails to satisfy a margin call pursuant to Article 11 or has failed to satisfy a call after the stipulated date, the securities finance enterprise shall dispose of their collateral immediately. However, this rule does not apply if the two parties have stipulated otherwise.
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| Article 14 | When a change in prices results in an increase, after deduction of the principal's debt, in the net collateral value in a principal's margin account, a securities finance enterprise handling margin purchases and short sales may not transfer the increased value to the principal in the form of funds, securities, or commodities, nor may it use such value to offset a margin purchase margin or short sale margin.
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| Article 15 | A securities finance enterprise that handles securities trading margin purchases and short sales may not utilize the securities collateral it obtains for any purpose but the following:
- As a source of securities for short sales or refinancing.
- As collateral for refinancing with another securities finance enterprise.
- As a source of securities to be loaned in a securities borrowing and lending transactions.
- As collateral for securities borrowed through the TWSE securities borrowing and lending system.
- To lend to a securities firm or another securities finance enterprise as a source of securities for conducting securities borrowing and lending business or securities margin purchase and short sale business.
- To lend through the TWSE securities borrowing and lending system.
- To participate in competitive auction lending transactions or negotiated lending transactions conducted by another securities finance enterprise.
A securities finance enterprise that handles margin purchases and short sales of securities may not use proceeds from short sales or margins for short sales that it retains on deposit for any purpose other than those listed below:
- As a source of funds for margin purchase or refinancing business.
- As collateral for refinancing with another securities finance enterprise.
- As a source of funds for financing for settlement of securities trades.
- As collateral for securities borrowed through the TWSE securities borrowing and lending system.
- Bank deposit.
- For the purchase of short-term bills.
Where utilizing securities pursuant to the provisions of paragraph 1, the securities finance enterprise shall be responsible for delivering the same category of securities when the margin purchase or short sale position is closed.
Securities finance enterprises shall pay interest to short sellers on the proceeds from short sales and on short sale margin. The interest rate shall be prescribed by the securities finance enterprise and reported to the competent authority for approval.
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| Article 16 | The interest rates for margin purchases and the handling fees for short sales shall be prescribed by the securities finance enterprise and reported to the competent authority for its records.
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| Article 17 | Securities finance enterprises handling margin purchases and short sales of securities shall establish operating rules for margin purchase and short sale business and implement the same with the competent authority's approval.
The operating rules referred to in the preceding Paragraph shall include the following items:
- The opening of the margin account.
- The application for the margin purchase or short sale and repayment.
- The calculation, replenishment, and disposition of collateral.
- The transfer of securities or commodities for collateral.
- Obtaining securities to cover shortfalls arising in connection with short sales.
- The transfer of title to securities provided as collateral for margin purchases and to securities or commodities paid in as additional collateral.
- Other items required by the competent authority.
Securities finance enterprises shall comply with the operating rules referred to in paragraph 1 in handling securities trading margin purchase and short sale business.
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| Article 18 | Securities finance enterprises handling margin purchases and short sales of securities shall establish early warning and allocation guidelines for the handling of margin purchases and short sales in accordance with the operating rules referred to in the preceding article, and shall publicly disclose on a daily basis information on credit extended in connection with margin purchases and short sales.
The early warning and allocation guidelines referred to in the preceding paragraph shall provide for safety stock amounts and calculation formulas for loans of each security, and when the balance of loans of that security plus the safety stock amount of that security reaches the combined total of the amounts of that security under each of the following subparagraphs, loans of that security shall be suspended:
- The margin purchase balance.
- The securities finance enterprise's proprietary securities.
- Securities borrowed from the TWSE securities borrowing and lending system.
- Securities borrowed from customers.
- Securities borrowed from securities firms or other securities finance enterprises that conduct securities borrowing and lending business or securities margin purchase and short sale business.
When a principal first purchases securities by margin purchase and on the same day sells short the same kind of securities in an amount not greater than the amount purchased by margin purchase, the requirement of the preceding paragraph regarding safety stock may be exempted.
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| Article 19 | If, during the effective duration of a margin purchase or short sale relationship, trading on the securities market is suspended either across the board or for a particular security due to a natural disaster or other extraordinary event and no time has been set for resumption of trading, the securities finance enterprise shall notify the short seller or margin purchaser to close out the margin purchase or short sale by the following means within the agreed period:
- For securities acquired through margin purchase, redemption of the securities by cash payment and withdrawing the securities.
- For securities sold short, redemption by delivery of spot securities in return for the monetary proceeds from the short sale and the margin. However, if the seller is unable to cover the short sale with spot securities, the securities finance enterprise may apply to the stock exchange or the OTC exchange to purchase the securities through public reverse auction. The cost of the reverse auction shall be borne by the short seller.
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| Article 20 | Securities finance enterprises handling margin purchases and short sales of securities shall not violate these Regulations or matters prescribed by the competent authority pursuant to Article 61 of the Securities and Exchange Act in regard to margin purchase and short sale amounts, time limits, margin purchase margin ratios, short sale margins, and standards for securities eligible for margin purchase and short sale.
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