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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 II Securities Finance Enterprises
Article 56    If a shortfall occurs in a security due to a securities finance enterprise's operation of margin purchase and short sale business, securities lending business and refinancing business (hereinafter, "shortfall in securities in margin and short trading"), or, if the securities finance enterprise is engaged by a securities firm to handle on its behalf any open position that still remains after sell-first buy-later day trading (hereinafter, "shortfall in securities in day trading"), the securities finance enterprise shall initiate a competitive bid loan from the following lenders as from 9 am on the next business day, and if a shortfall still exists, shall arrange for negotiated transaction with any specified persons no later than 2 pm on that day.
  1. owners of that type of securities
  2. securities firms or securities finance enterprises operating securities lending business or margin purchase and short sale business
    With the exception of a shortfall in securities in day trading, if the shares of the given security obtained following the procedures described in the preceding paragraph are still insufficient in amount, the securities finance enterprise shall engage a securities firm to conduct a purchase of shares by reverse auction at the TWSE by 2:30 pm on the same day.
    Any borrowing of securities through competitive bid and negotiated transaction and any purchasing of securities by reverse auction under the preceding two paragraphs shall be suspended for a given security on the second business day preceding the first day of a book closure, except when book closure occurs due to the convening of a special shareholders meeting by the issuer or for reasons that do not affect the exercise of shareholder rights.
    The calculation of the business day referred to in the preceding paragraph shall be in accordance with Article 76 of the Operating Rules for Securities Firms Handling Margin Purchases and Short Sales of Securities.
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Article 57    A securities finance enterprise wishing to borrow securities through a competitive bid process shall submit an application to the TWSE and thereafter, by 9 am on the competitive bid loan application date, have a staff member enter into the TWSE competitive bid loan system the information on that competitive bid loan, keeping separate those for shortfalls in securities in margin and short trading and those for shortfalls in securities in day trading, and specify the type of securities to be borrowed, quantity, time, and highest acceptable rate. The TWSE will, according to the aggregate quantity of each type of securities to be borrowed through competitive bid, publish such information from 9 am on that day on its Market Information System.
    The highest acceptable rate for the borrowing of a security through the competitive bid process, as described in the preceding paragraph, shall in no case be more than 7 percent of the auction reference price at market opening of the security on the competitive bid application date; the borrowing quantity will be matched against one or more of the competitive bids available on that day, determined in ascending order of rate, until the borrowing quantity is reached; if the borrowing quantity is reached at a rate at which the total number of shares offered for lending from all competitive bids at that rate is higher than the number of shares needed to be borrowed through the competitive bid process, one or more of those competitive bids will be selected for matching, in order of the time they are entered, until the needed quantity is reached.
Article 58    A lender as in Article 56, paragraph 1, subparagraph 1 wishing to participate in the competitive bid process for a competitive bid loan shall fill out a bid order and submit it through a securities firm. If it is submitted in person, the bid order shall be filled out and signed/sealed by the securities owner; if it is submitted over the telephone, the securities broker shall synchronously record the telephone conversation, and in doing so shall comply with the provisions of Article 80, paragraphs 4 to 6 of the TWSE Operating Rules, and the bid order shall be completed by the associated person handling the bid order. Where an order is placed in the manner of transaction listed in Article 75, paragraph 1, subparagraph 8 of the TWSE Operating Rules, the bid order shall be made according to the relevant operating procedures.
    A lender as in Article 56, paragraph 1, subparagraph 2 wishing to participate in the competitive bid process for a competitive bid loan shall fill out a bid order and enter the bid order information in the TWSE competitive bid loan system.
    The bid order in the preceding two paragraphsshall specify the name ,name of the dedicated account, brokerage account number, securities lending account number or margin purchase and short sale account number of the lender in Article 56, paragraph 1, subparagraph 1, as well as the name, quantity and rateof securities lent.Securities offered to participate in the competitive bid process may only be securities it has deposited in a custody account at the central securities depository. The securities firm, when accepting a bid order request from a lender as in Article 56, paragraph 1, subparagraph 1, or when a lender as in Article 56, paragraph 1, subparagraph 2 participates in a competitive bid process for its own account, shall put the lendable securities on hold (except for those securities that have been lent out on the previous business day). The securities firm shall record the time and serial number on the bid order, and enter the information on the bid order in sequence into the TWSE competitive bid loan system.
    The timeframe for entering information, as described in the preceding paragraph, shall start from 9 am and end at 12:10 pm on the application date of the competitive bid loan, and all bids will be opened automatically at 12:30 pm; upon completion of the bid opening procedure, the TWSE will publish on the Market Information System the lending rate(s) and number of shares of the winning bid(s).
    The order confirmation and winning bid confirmation of the lender in Article 56, paragraph 1, subparagraph 1 in relation to the competitive bid loan will be printed out through the printer of the securities firm handling the bid order. Entry confirmations and winning bid confirmations of the lenders in Article 56, paragraph 1, subparagraph 2 in relation to the competitive bid loan will be printed by the respective companies. The TWSE will provide a function to query for winning bid(s) from 2 pm.
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Article 59    A securities finance enterprise, by 2 pm on the competitive bid loan application date, shall deposit cash collateral with the TWSE in the amount of 120 percent of the closing price of that security on that day multiplied by the number of shares of the winning bid(s); provided that if no closing price is available for a given day, the provisions of Article 33-1, paragraph 4 shall apply mutatis mutandis.
    Upon delivery of cash collateral by the securities finance enterprise, the TWSE will give notice to the central securities depository advising it to transfer the shares of security underlying the winning lending bid(s) to the securities finance enterprise's dedicated account at the central securities depository on the next business day following the competitive bid loan application date (the next business day hereinafter referred to as "the lending date").
    Certificates of deposit or pledged book-entry central government bonds, to be valued at 90 percent of the face value of the non-cash collateral, as well as bank guarantees, may be posted as collateral in lieu of the cash collateral described in the preceding paragraph.
    In regard to bank guarantees referred to in the preceding paragraph, the securities finance enterprise shall, upon completion of guarantee procedures with a bank, submit the original bank letter of guarantee to the TWSE. The TWSE may refuse to accept the bank guarantee provided by the securities finance enterprise, or demand the securities finance enterprise to replace it within a specified period of time. Bank guarantees may be denominated only in New Taiwan Dollars (NTD), and shall be in units of thousands of NTD.
    The lent securities shall be returned to the lender through the central securities depository on the next business day following the lending date; provided, however, that securities borrowed through competitive bid loan on the first settlement day that follows the last trading day before the Lunar New Year holiday, shall be returned on the second trading day after the Lunar New Year holiday.
    By 10 am on the next business day following the lending date, the securities finance enterprise shall pay the securities lending fee (securities lending fee = lending rate x quantity) to the lender in Article 56, paragraph 1, subparagraph 1 through the lender's securities firm or to the lender in Article 56, paragraph 1, subparagraph 2 directly, whereupon the TWSE will return the cash collateral to the securities finance enterprise.
    The securities firm of the lender may charge the lender a service fee at a rate of not more than 10 percent of the lending fee.
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Article 60    If a securities finance enterprise by the due date is unable to return the securities lent by a lender through competitive bid loan, the TWSE will use the cash collateral to buy in securities of the same type for return to the lender, with the prices needed for the buy-in of securities in the market by the TWSE for returning the borrowed securities, all processing fees, and other related fees and expenses that the securities finance enterprise shall pay the TWSE incurred for receiving a competitive bid loan, to be paid out of the cash collateral posted by the securities finance enterprise, and with any amount remaining thereafter to be refunded to the securities finance enterprise; provided, that if the cash collateral is insufficient to buy in securities in the full amount, the TWSE will instead deliver the cash collateral to the lender.
    If the securities finance enterprise under the preceding paragraph has pledged book-entry central government bonds as collateral in lieu of cash collateral, it may neither refuse to accept nor raise any objection as to how or at what price the TWSE disposes of the pledge to the extent that the disposition is made in a manner complying with the letter of consent (see attachment) provided by the securities finance enterprise. In the case of a bank guarantee used as non-cash collateral, the TWSE may seek recovery directly from the guaranteeing bank.
Article 61    Where with respect to a given security there are two or more securities finance enterprises initiating a competitive bid loan, the loans will be simultaneously brought to one single competitive bid based upon the aggregate quantity requested, with the aggregate lending fee to be shared on a pro rata basis among those securities finance enterprises according to their respective winning-bid quantities multiplied by the average fee calculated based upon the aggregate winning-bid quantity.
    If an insufficiency exists after the competitive bid process under the preceding paragraph, each securities finance enterprise will be distributed a quantity decided on a pro rata basis according to the quantity of the shortfall in securities margin and short trading specified in its application for competitive bid loan, rounded to an integral unit of trading; any quantity remaining thereafter will further be distributed to securities finance enterprises in the order of the size of the decimal number of their respective distributable quantity, and if for a decimal number there are multiple securities finance enterprises, to one or more of them determined by drawing lots. If any quantity still remains thereafter, each securities finance enterprise will be distributed a quantity decided, in accordance with the above principles, on a pro rata basis according to the quantity of the shortfall in securities in day trading specified in its application.
Article 62    A securities finance enterprise undertaking a negotiated transaction to borrow a security shall execute the transaction at a rate of not more than 10 percent of the auction reference price for the security at market opening on the date of application for the negotiated transaction, and priority of distribution of the quantity obtained through the negotiated transaction shall be given to the shortfall in securities in margin and short trading.
    A negotiated transaction shall be conducted in the following manner, unless there is a necessary reason to do otherwise:
  1. A lender as in Article 56, paragraph 1, subparagraph 1 wishing to participate in the negotiated transaction may engage a securities firm to carry out the transaction on its behalf. An order ticket for the negotiated transaction shall be filled out and signed/sealed by the securities owner if it is submitted in person; if it is submitted over the telephone, the securities broker shall synchronously record the telephone conversation, and in doing so shall comply with the provisions of Article 80, paragraphs 4 to 6 of the TWSE Operating Rules, and the order ticket shall be completed by the associated person handling the order ticket. Where an order is placed in the manner listed in Article 75, paragraph 1, subparagraph 8 of the TWSE Operating Rules, the order ticket shall be made according to the relevant operating procedures.
  2. A lender as in Article 56, paragraph 1, subparagraph 2 shall fill out an order ticket for the negotiated transaction and conduct the transaction with a securities finance enterprise.
  3. The order ticket above shall specify the name, name of the dedicated account, brokerage account number, securities lending and borrowing account number or margin purchase and short sale account number of the lender as in Article 56, paragraph 1, subparagraph 1, as well as the names, quantity and rateof securities lent.
  4. Securities offered to participate in the negotiated transaction may only be securities the lender has deposited in a custody account at the central securities depository.Upon receipt of the order request from a lender as in Article 56, paragraph 1, subparagraph 1, or when a lender as in Article 56, paragraph 1, subparagraph 2 participates in a negotiated transaction, the securities broker shall put the lendable securities on hold (excluding those securities that have been lent out on the previous business day).
  5. Upon conclusion of the negotiated transaction, the securities finance enterprise shall, keeping separate the transactions for shortfalls in securities in margin and short trading and the shortfalls in securities in day trading, enter the name, name of the dedicated account, brokerage account number, securities lending and borrowing account number or margin purchase and short sale account number, as well as thename, quantity, and rate of securities lent,into the TWSE's negotiated lending transaction system by 2 pm on that day, and, together with the details of the securities on hold, fax the same to the TWSE, and the TWSE upon confirmation will give a notice to the central securities depository, instructing it to transfer the lent securities to the securities finance enterprise's dedicated account on the next business day.
  6. The cash collateral shall be deposited at a level as negotiated and agreed between the securities finance enterprise and the lender in Article 56, paragraph 1, subparagraph 1 through the lender’s securities firm or between the securities finance enterprise and the lender in Article 56, paragraph 1, subparagraph 2 directly.
  7. The securities lent by the lender shall be returned through the central securities depository on the second business day following the date of the negotiated transaction.
  8. The securities finance enterprise shall pay the securities lending fee (securities lending fee = agreed lending rate x quantity) to, and reclaim the cash collateral from, the lender in Article 56, paragraph 1, subparagraph 1 through the lender’s securities firm, or the lender in Article 56, paragraph 1, subparagraph 2 directly, by 10 am on the second business day following the date of the negotiated transaction.
    If there is a necessary reason to do otherwise, as referred to in the preceding paragraph, a negotiated transaction shall be conducted in the following manner and under the supervision of personnel sent by the TWSE:
  1. The lender in Article 56, paragraph 1, subparagraph 1 agreeing to lend the security shall deliver transfer the security lent to the dedicated account for margin purchases and short sales or the special account for handling shortfalls in securities deliverable in day trading, opened by the securities finance enterprise at the central securities depository, by 2:00 pm on the current day; the securities finance enterprise shall prepare and deliver a receipt to the lender by 12 noon on the next business day following the date of the negotiated loan.
  2. The cash collateral shall be deposited at a level as negotiated and agreed between the securities finance enterprise and the lenderin Article 56, paragraph 1, subparagraph 1 through the lender’s securities firm or between the securities finance enterprise and the lender in Article 56, paragraph 1, subparagraph 2 directly.
  3. The securities finance enterprise shall return the securities borrowed under negotiated transaction and pay the securities lending fee (securities lending fee = agreed lending rate x quantity) to, and reclaim the cash collateral from, the lender in Article 56, paragraph 1, subparagraph 1 through the lender’s securities firm, or the lender in Article 56, paragraph 1, subparagraph 2 directly, by 2 pm on the second     business day following the date of the negotiated transaction.
    The securities firm engaged by the lender may charge the lender a service fee at a rate of not more than 10 percent of the lending fee.
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Article 63    If during the period a securities finance enterprise is borrowing a security to cover a shortfall driven by short sale needs, a securities firm also applies for refinancing of that security from the securities finance enterprise, the securities finance enterprise shall allocate the shares of that security it has obtained from borrowing through competitive bid transaction and/or negotiated transaction in accordance with the Operating Rules for Securities Finance Enterprises Offering Refinancing to Securities Firms.
    When a securities finance enterprise accepts to conduct on behalf of a securities firm a competitive bid loan or negotiated transaction with respect to a shortfall in securities in day trading, the securities finance enterprise shall allocate the securities it so obtains in accordance with the applicable regulations governing securities finance enterprises. The securities finance enterprise shall transfer the securities to the securities firm's special account for handling shortfalls in securities deliverable in day trading by 6 pm through the TWSE Platform for Reporting Shortfalls in Securities Deliverable in Day Trading. The subsequent return of the securities shall be made through the central securities depository.
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Article 64    None of the securities to which one of the following circumstances applies are allowed for competitive bid transactions and negotiated transactions:
  1. Securities of less than one unit of trading.
  2. Any registered shares issued to and acquired by shareholders or capital contributors as a result of capital increase out of earnings, or capital increase through capital contribution by company employees out of their bonuses to the industry in which they are serving, or capital increase by a venture capital company out of undistributed earnings, as effected in accordance with Article 13 of the Statute (Act) for Encouragement of Investment or Article 16 or 17 of the Statute (Act) for Upgrading Industries, that have not been transferred and reported for tax purposes, or for which the option of tax deferral has not been waived.
    A lender offering securities for lending shall warrant that the securities to be lent are free and clear of all liens, claims, and encumbrances of any nature whatsoever, and that in the case of any defect or legal dispute arising in this respect, upon notification from the securities finance enterprise to that effect, it shall replace the disputed securities with those of the same type and quantity, failing which it shall return the securities lending fee and further be held liable for any loss thus incurred.