Chapter VIII Risk Control |
| Article 85 | When a securities firm deals with margin purchases and short sales, the total amount of margin purchases or short sales of securities provided to its customers, plus securities lent to the securities firms or securities finance enterprise engaging in borrowing of securities, or securities lent at the TWSE securities lending system, or securities lent for lending auction or lending negotiation ("Lent Securities") may not exceed 250% of its worth, respectively.
Where a securities firm maintains a regulatory capital adequacy ratio of 250% or above for three consecutive months, the total amount of margin purchases or short sales of securities which it conducts from and to customers, plus the Lent Securities, may not exceed 400% of its net worth, respectively.
Where, after the preceding paragraph is complied with, a securities firm maintains a regulatory capital adequacy ratio lower than 250% for two consecutive months and the total amount of its margin purchases from or short sales to customers, plus the Lent Securities, exceeds 250% of its net worth, it shall cease to conduct margin purchases from, short sales to or lending securities to customers. When such total amount falls below 250% of its net worth or its regulatory capital adequacy ratio remains 250% or above for three consecutive months, the preceding two paragraphs will apply, respectively.
When a securities firm conducts margin purchases and short sales of securities, the sum of the total amount of its margin purchases from customers plus the total financing amount of money lent in connection with securities business may not exceed 400% of its net worth; the sum of the total amount of short sales to customers plus the total dollar amount of securities lent in connection with borrowing of securities business may not exceed 400% of its net worth.
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| Article 86 | When a securities firm conducts margin purchases and short sales of securities, the total amount of its margin purchases of each security may not exceed 10% of its net worth.
When a securities firm conducts margin purchases and short sales of securities and securities lending and borrowing, the sum of the total amount of its short sales and the securities lent with respect to each security may not exceed 5% of its net worth.
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| Article 87 | The net worth of a financial institution operating as a securities firm concurrently is calculated based on the assigned working capital, provided it may not exceed the maximum net worth of the securities firm in the same period as specified in the preceding two articles and the limit prescribed by the competent authority.
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| Article 88 | When conducting margin purchases and short sales of securities, a securities firm shall implement an internal control over the amount limit for margin purchase and short sale applicable to its customers and establish the operating procedures for management of amount limit for margin purchase and short sale applicable to its customers, which shall cover, to a minimum extent, the following:
- Method of assessment of a customer's maximum amount for margin purchase and short sale. The amount approved to the customer for other loan business should also be taken into consideration in the assessment. There should be requirements that establish the sum of funds or securities financed to a single customer in the overall loan business should not exceed a certain percentage of its net worth. If the amount of margin purchases or short sales conducted by a single customer exceeds NT$300 million or 1 percent of the securities firm's net worth, whichever is higher, a proposal shall be submitted to the board of directors for approval.
- Method of assessment of a customer's maximum amount for margin purchase and short sale of individual securities. The amount approved to the customer for other loan business should also be taken into consideration in the assessment.
- Method of identifying high risk securities or high risk customers. Establishment of special procedure for supervision and approval/determination of the amount limit for margin purchase and short sale applicable to high risk securities or high risk customers.
- Method to determine the amount limit for sources of securities available for a customer's short sales based on a fair and reasonable principle and to avoid circumstances where the same customer acquires most securities from the sources. Special care is required in the case of securities for which the TWSE or the TPEx allocates the amount limit.
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| Article 89 | In assessing a customer's maximum amount for margin purchase and short sale, if the securities firm is fully aware that or reasonably determines certain customers are related to each other, i.e. they are related in terms of credit risks (e.g. acting as trading agent on another's behalf), it should control and manage the amount limit for margin purchase and short sale and the amounts of other loan business available to these customers.
Control and management of loan amount limit for customers related to each other as described in the preceding paragraph apply to a customer's opening of a new account, contract renewal and changes to amount limit, as well as changes to amount limit for another customer related to the customer or addition of a customer related to the customer.
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