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Title:

Operating Rules for Securities Firms Handling Margin Purchases and Short Sales of Securities  CH

Amended Date: 2023.12.28 (Articles 8, 13, 20, 57, 78 amended,English version coming soon)
Current English version amended on 2023.08.17 
Categories: Securities Exchange Market > Margin Transaction
   Chapter I General Principles
Article 1    These Rules are adopted pursuant to Articles 11, 14, 15 and 28 of the Regulations Governing the Conduct of Securities Trading Margin Purchase and Short Sale Operations by Securities Firms and Articles 2, paragraphs 5, 6 and 12, and Articles 3, 4 and 5 of the Standards Governing Eligibility of Securities for Margin Purchase and Short Sale.
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Article 2    A securities firm conducting margin purchase and short sale operations in securities trading shall do so in accordance with securities trading laws and regulations, these Rules, as well as other relevant bylaws, rules, public announcements, and circular letters of the Taiwan Stock Exchange Corporation (TWSE), Taipei Exchange (TPEx), and central securities depositories.
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Article 3    A securities firm applying for conducting margin purchase and short sale operations in securities trading shall fill out an application form and submit relevant documentation to the TWSE. The TWSE will forward the application to the competent authority for approval upon verifying that all qualification requirements and applicable provisions of these Rules are conformed to.
    Upon approval by the competent authority to conduct securities trading margin purchase and short sale business, a securities firm shall submit the following documents by letter to the TWSE for recordation two days before commencing such business:
  1. A photocopy of the permit from the competent authority.
  2. A description of the system of internal controls over securities trading margin purchase and short sale operations.
  3. A roster of the responsible and associated persons of the department in charge of these operations and documents certifying their qualifications.
    The responsible and associated persons under the third subparagraph of the preceding paragraph shall be registered with the TWSE before they may engage in such business. Any change of personnel in such positions shall be registered within five days.
    A securities firm which has been approved by the competent authority to conduct securities trading margin purchase and short sale business shall cease to engage in such business if its capital adequacy ratio is lower than 150% for 2 continuous months. However, repayment and satisfaction is not included. Until 3 months of continuous compliance and obtain the competent authority's further approval, a securities firm may re-open its business; for securities firms which have obtained the approval but yet to commence its business, the aforesaid rules shall also apply.
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Article 4    A securities firm shall confine its securities trading margin purchase and short sale operations for TWSE- or TPEx-listed securities to those funds and securities that are deliverable after execution of customer orders for normal-settlement brokerage trades on the automated trade matching system of the TWSE centralized securities exchange market or TPEx, for which the underlying securities are those publicly announced by the TWSE or TPEx as eligible for margin purchases and short sales.
    None of odd-lot or block trades or the trades specified in Article 74 of the Operating Rules of the Taiwan Stock Exchange Corporation (hereinafter, "TWSE Operating Rules") or Article 39 of the Taipei Exchange Rules Governing the Review of Securities for Trading on the TPEx (hereinafter, the "TPEx Trading Rules") are eligible for margin purchases or short sales.
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Article 5    A securities firm conducting securities trading margin purchase and short sale operations shall be subject to the requirements of the competent authority in relation to amount limit, duration, margin purchase leverage ratio, and short sale margin.
    The duration of a securities trading margin purchase and short sale is six months. A customer may apply for extension prior to the expiration of the duration. The number of such applications allowed is two. A securities firm shall review a customer's credit status before granting an extension. Notwithstanding, if, on account of a split, reverse split, or otherwise, the securities acquired through margin purchases by a customer at different times are consolidated into one trading unit, the duration of margin purchases of said securities will be the duration of the latest acquisition through margin purchases. Upon accepting an application for the opening of a margin account, a securities firm shall sign application documentation for extending the duration of each margin purchase and short sale on a blanket basis with the customer. The application documentation must include the number of extensions available for selection and the follow-up to the evaluation result regarding applications for extension upon expiration. Upon execution, the said documentation shall apply to each subsequent margin purchase and short sale. Where a customer seeks to amend the number of extensions, it shall re-sign the application documentation. Notwithstanding, in the circumstance where the amendment is to reduce the number of extensions, and the margin purchase and short sale has been extended as requested, such margin purchase and short sale shall continue until the extension period expires.
    A securities firm that agrees to a customer's extension of each margin purchase and short sale shall grant a six months' extension for each such purchase and sale, and may not terminate an extension unless these Rules provide otherwise.
    Where a securities firm disagrees with an extension sought by a customer as in the preceding paragraph, or a margin purchase and short sale has been extended twice, said firm shall notify the customer in writing ten business days prior to the expiry.
    The duration of a margin purchase and short sale where the underlying securities are subject to a suspension of trading or transaction is extended until the resumption of their trading or transaction.
    The securities firm shall give a written notice to the customer of a margin purchase or short sale no later than 10 business days before the end of the duration as fixed by the competent authority under the preceding paragraph. Notwithstanding the foregoing, the notice is not required if, pursuant to the Operational Guidelines Governing Securities Firms and Securities Finance Enterprises Accepting Applications by Customers for Extending the Duration of Each Margin Purchase and Short Sale the customer has entered into application documentation for extending the duration of each margin purchase and short sale on a blanket basis and the securities firm has granted consent to the customer for such extension.
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Article 6    A securities firm shall fix, and file with the competent authority for recordation, the interest and fee rates with respect to the margin loan interest and short sale handling fees receivable from customers, as well as short sale proceeds and short sale margin interest payable to customers, for conducting securities trading margin purchase and short sale operations.
    Before providing securities borrowed through the TWSE securities lending system, securities borrowed from customers in money lending conducted in connection with securities business, securities borrowed from securities firms or securities finance enterprises conducting money lending in connection with securities business or conducting margin purchases and short sales of securities (“Borrowed Securities”), or its proprietary shares of securities (“Proprietary Securities”), to a customer for short selling, a securities firm shall determine the rate, calculation, and method of collection of the short sale fee with the customer, where the interest rate shall be below 16% per annum.
    Upon adjustment to any interest rates or fee rates described in the preceding two paragraphs, the adjusted interest or fee rates shall apply to any and all open positions in margin purchases and short sales as from the date of the adjustment.
    The payment and receipt of interests and fees are determined by the securities firm where the extension in paragraph 6 of the preceding article exceeds the duration of the margin purchase and short sale.
    A securities firm shall charge a short sale handling fee from customers for providing securities acquired through margin purchases to them for short selling, and shall charge a short sale fee from customers for providing Borrowed Securities or Proprietary Securities to them for short selling.
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Article 7    In conducting securities trading margin purchase and short sale operations, a securities firm may not use retained short sale proceeds and short sale margins except for the purposes listed below:
  1. As a source of funds for conducting margin purchase business.
  2. As collateral for refinancing of securities from securities finance enterprises.
  3. As a source of funds for conducting money lending in connection with securities business.
  4. As collateral for borrowing securities through the TWSE securities lending system.
  5. For deposit with bank.
  6. To purchase short-term bills.
    In conducting securities trading margin purchase and short sale operations, a securities firm may not use securities received from such operations except for the purposes listed below and shall deposit the securities with a central securities depository:
  1. As a source of securities for conducting short sale business.
  2. As collateral for refinancing of funds or securities from securities finance enterprises.
  3. As a source of lendable securities in conducting securities lending business.
  4. As collateral for borrowing securities through the TWSE securities lending system.
  5. To lend to a securities firm or securities finance enterprise conducting securities borrowing and lending business as a source of securities for conducting securities borrowing and lending business or securities margin purchase and short sale business.
  6. To lend through the TWSE securities borrowing and lending system.
  7. To participate in competitive auction lending transactions or negotiated lending transactions conducted by a securities finance enterprise.