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Title:

Taiwan Stock Exchange Corporation Securities Borrowing and Lending Rules  CH

Amended Date: 2019.09.26 
Categories: Securities Exchange Market > Borrowing of Securities
   Chapter III Settlement-Driven Securities Borrowing
      Section I Securities Firms
Article 50    If a seller securities firm does not have enough securities in its book-entry custody account available for the satisfaction of a securities settlement obligation, it shall submit a securities borrowing application by 10 am on the second business day after the trade date. the securities firm fails to submit such an application and fails to complete the securities settlement, the TWSE will borrow securities for the account of the securities firm after 11 am, with a notice to that effect to the securities firm on the same day. The securities firm shall pay, and may not raise any objection as to, the securities lending fee thus incurred.
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Article 51    The borrowing securities firm shall, by 11 am on the second business day after the trade date, deposit collateral with the TWSE against the borrowing of securities ("securities borrowing collateral"), in an amount of 120percent of the closing price of the securities on the first day after the trade date, multiplied by the quantity it requests to borrow. If no closing price is available for the preceding business day, the closing price shall be determined by the principles given in Article 58-3, paragraph 2, subparagraphs 2 and 3 of the TWSE Operating Rules.
    The provisions of the preceding paragraph in relation to deposit of securities borrowing collateral shall apply mutatis mutandis to a seller securities firm in the case where the TWSE borrows securities for its account or otherwise issues a securities delivery voucher as a temporary substitute for securities to satisfy settlement requirements.
    If the borrowing securities firm fails to deposit securities borrowing collateral or otherwise to provide non-cash collateral against the borrowing of securities by 11 am on the borrowing date, the TWSE may temporarily retain any amounts payable for the current clearing period and/or an equivalent portion of securities.
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Article 52    Lendable securities shall be restricted to those securities listed on a centralized exchange market and shown in the custody accounts at the central securities depository. An owner of such securities wishing to lend the securities shall fill out a lend order instructing its securities firm or its custodian institution to enter relevant information into a computerized securities borrowing and lending system for a lending quote, and may change or cancel the quote at any time before the conclusion of the lending transaction.
    The lending order under the preceding paragraph shall specify the title and quantity of securities to be lent as well as the lending quote and shall be made in a form determined by the TWSE.
    The quantity under the preceding paragraph shall be quoted on a per trading unit basis as provided in Article 60 of the TWSE Operating Rules, and the lending rate shall be no more than 7 percent of the closing price of the securities.
    In the event that loaned securities go ex-rights or ex-dividend, the borrowing securities firm shall compensate the lender in cash in the amount of the value of the rights or dividends on the securities, as calculated by the TWSE.
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Article 53    A settlement-driven securities borrowing request shall be matched against one or more of the lending quotes available from among all lenders, in ascending order of lending rate, until the borrowing quantity is reached; if the borrowing quantity is reached at a rate at which the total quantity from all lending quotes at that rate is higher than the quantity needed to be borrowed, one or more of those lending quotes will be selected on a random basis for matching, until the needed quantity is reached.
    The securities lending fee incurred on a given security shall be shared by all securities firms borrowing that security, on a pro rata basis according to their respective borrowing quantities.
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Article 54    A seller securities firm borrowing securities pursuant to Article 50 shall return securities on a daily and transaction-by-transaction basis starting from the next business day. Until it has returned the securities in full, it shall reborrow securities to meet the requirement for returning of securities under the preceding paragraph [sic].
    The borrowing securities firm shall complete return of securities by 10 am on a given business day. If the return of securities is not completed by that time, the TWSE will, after 11 am on that day, execute reborrowing of securities for the account of the securities firm, except where the securities firm has purchased securities on the TWSE exchange market and has submitted an application by 10 am to return securities that day and a verification has been made in this regard.
    Upon notification from the central securities depository advising that the returned securities are successfully transferred by book-entry, the TWSE will, upon application by the borrowing securities firm, transfer the payment of the securities lending fee out of the securities borrowing collateral to be returned, to the lender through its securities firm, and refund to the borrowing securities firm the balance of the cash collateral remaining after deduction of the securities lending fee, or notify it to withdraw the non-cash collateral, as the case may be.
    The securities firm of the lender, or the bank approved by the competent authority to operate custody business and acting as its custodian, shall advise the lender of the status of the securities lent and returned, and may charge the lender a service fee at a rate of not more than 10 percent of the securities lending fee.
Article 55    If, on a day on which a borrowing securities firm reborrows securities for a securities loan not yet returned, the remaining balance of the securities borrowing collateral deposited is lower than 107 percent of the outstanding balance of the securities borrowing multiplied by the closing price of the securities on the preceding business day, then the securities firm shall, by 11 am on the reborrowing date, make additional deposit to bring the level to 114 percent of the outstanding balance of the securities borrowing multiplied by the closing price of the securities on the preceding business day. If there is no closing price available for the preceding business day, the closing price shall be determined by the principles given in Article 58-3, paragraph 2, subparagraphs 2 and 3 of the TWSE Operating Rules.
    Where the borrowing securities firm fails to deposit the securities borrowing collateral required under the preceding paragraph, or is unable to return the borrowed securities for a cause attributable to itself, the TWSE will buy in the securities in the market and return them to the lender. The prices needed and all expenses incurred shall first be paid out of the remaining balance of the securities borrowing collateral, and in the event of any shortfall, then be recovered from the borrowing securities firm; any amount remaining thereafter will be refunded to the borrowing securities firm.
    The provisions of paragraphs 1 and 2 shall apply mutatis mutandis in the case where the TWSE borrows securities for the account of a seller securities firm or otherwise issues a securities delivery voucher as a temporary substitute for securities to satisfy the settlement requirement.
    If the securities firm defaults on its settlement obligations, the TWSE will forthwith suspend the securities firm's participation in securities borrowing and lending transactions.
Article 55-1    A borrowing securities firm may satisfy a requirement for securities borrowing collateral or for covering of a shortfall in securities borrowing collateral arising from a reborrowing of securities, by a bank guarantee or by creating a pledge of book-entry central government bonds (hereinafter collectively referred to as "non-cash collateral").
    Where a borrowing securities firm provides non-cash collateral to satisfy a requirement for securities borrowing collateral or for covering of a shortfall in securities borrowing collateral arising from a reborrowing of securities, if the cash portion of the total securities borrowing collateral deposited is insufficient to cover the daily deduction of securities lending fee, it shall transfer on a daily basis the amount of the securities lending fee to a TWSE-designated account, which amount to be forwarded by the TWSE to the lender through its securities firm.
Article 55-2    A borrowing securities firm providing a bank guarantee to satisfy a requirement for securities borrowing collateral or for covering of a shortfall in securities borrowing collateral arising from a reborrowing of securities or to replace any non-cash collateral, shall first complete the guarantee procedures with a bank, and then submit the original bank letter of guarantee to the TWSE by 11 am on the borrowing or reborrowing date, as the case may be.
    The TWSE may refuse to accept the bank guarantee provided by the securities firm, or demand the securities firm to replace it within a specified period of time.
    The bank guarantee may be denominated only in New Taiwan Dollars (NTD), and shall be in units of thousands of NTD.
Article 55-3    A borrowing securities firm providing pledged book-entry central government bonds to satisfy a requirement for securities borrowing collateral or for covering of a shortfall in securities borrowing collateral arising from a reborrowing of securities or to replace any non-cash collateral, shall first effect a restricted transfer registration with a clearing bank, and then, by 11 am on the borrowing or reborrowing date, as the case may be, transfer the bonds into a book-entry central government bond account designated by the TWSE.
    The posted book-entry central government bonds shall be valued at 90 percent of their face value.
Article 55-4    A borrowing securities firm may use one or more book-entry central government bonds and/or bank guarantees to serve as non-cash securities borrowing collateral for one or more securities borrowing transactions.
    The maturity date of the bank guarantee or book-entry central government bond, or, in a case where multiple bank guarantees or book-entry central government bonds with different maturity dates are used to serve as non-cash collateral for a single securities borrowing transaction, the earliest maturity date shall extend beyond the return date for the securities borrowing transaction.
Article 55-5    The securities borrowing collateral or non-cash collateral for which a borrowing securities firm submits a refund or withdrawal application pursuant to Article 54, paragraph 3 will be returned in the following manner when the TWSE has verified the receipt of any and all fees payable by the securities firm for borrowing of securities:
  1. In the case of securities borrowing collateral, the cash collateral will be transferred to the securities firm's bank account.
  2. In the case of a bank guarantee, the original guarantee documentation will be returned to the securities firm.
  3. In the case of book-entry central government bonds, registration of cancellation of the pledge will be made, and the bonds will be transferred, after cancellation by the clearing bank of the restricted transfer registration, to the clearing bank book-entry central government bond account designated by the securities firm.
Article 55-6    The prices needed for and all expenses incurred from the buy-in of securities in the market by the TWSE for returning the borrowed securities pursuant to Article 55, paragraph 2 shall first be paid out of the cash portion of the securities firm's securities borrowing collateral, and in the event of any shortfall, the TWSE will then dispose of the posted non-cash collateral or otherwise exercise any rights to seek repayment or cover necessary payments; the procedures for disposing of the posted non-cash collateral shall be as follows:
  1. In the case of a bank guarantee used as non-cash collateral, the TWSE shall seek recovery directly from the guaranteeing bank.
  2. In the case of book-entry central government bonds pledged as collateral, the TWSE shall dispose of the bonds through the Taiwan Stock Exchange Corporation Account for Events of Default it maintains with a securities firm.
  3. All expenses arising from or in connection with the disposition of the non-cash collateral shall be borne by the borrowing securities firm.
  4. The proceeds from the disposition of the non-cash collateral after deducting the amount in arrears shall be returned to the borrowing securities firm; if the proceeds of the disposition are insufficient to cover the amount in arrears, the TWSE shall seek recovery from the securities firm for the insufficient amount.