Chapter II Conditions for Application |
| Article 5 | "Financial derivatives," as used in these Regulations, means trading contracts and structured instruments, whose value, in conformity with regulations or common practice on domestic or foreign OTC markets, is derived from an interest rate, exchange rate, equity, index, commodity, credit event, or other interest, or from a combination thereof.
"Structured instruments" in the preceding paragraph means hybrid contracts, combining fixed-income products or gold and financial derivatives, that a securities firm enters into as counterparty with a customer.
Except where otherwise provided in these Regulations, the financial derivatives trading business operated by a securities firm may not be linked to any of the following underlying products:
- Securities privately placed domestically or abroad.
- Certificates of beneficial interest that are issued overseas by domestic securities investment trust enterprises and are not listed and traded on a securities market.
- Any Taiwan stock index compiled by a domestic or foreign institution and related financial commodities, provided that this restriction shall not apply to an index compiled by the TPEx or the Taiwan Stock Exchange Corporation, either singly or in cooperation.
A securities firm that conducts foreign exchange financial derivative business shall comply with the Regulations Governing Foreign Exchange Business of Securities Enterprises, and shall copy the TPEx when it applies to the Central Bank for permission or reports to the Central Bank by letter for recordation.
A securities firm that provides customers other than professional institutional investors and high net worth juristic person investors with a complex high-risk product that has not been approved by the competent authority or has been approved for less than half a year and that furthermore does not involve foreign exchange shall submit an application with the relevant documents to the TPEx, and the TPEx will submit them to the competent authority for approval. After the competent authority has granted approval for the first securities firm to conduct transactions in the product and half a year has elapsed, other securities firms shall submit the relevant documentation to the TPEx for recordation within 7 days after their first transaction of the product, and may conduct subsequent transactions only after having received a letter of consent for recordation from the TPEx.
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| Article 6 | "Professional customer," as used in these Regulations, means a juristic person or natural person that meets any of the conditions listed below:
- A professional institutional investor: means a foreign or domestic bank, insurance company, bills finance company, securities firm, fund management company, government investment institution, government fund, pension fund, mutual fund, unit trust, securities investment trust company, securities investment consulting company, trust enterprise, futures commission merchant, futures service enterprise, or other institution approved by the competent authority.
- A high net worth juristic person investor: means a juristic person that has applied to the securities firm in writing, and that concurrently meets all of the following conditions.
- Net worth exceeds NT$20 billion according to its latest CPA-audited or reviewed financial report.
- Has a dedicated investment unit, staffed by capable professionals and the person in charge of the unit possesses one of the following qualifications:
- Has 3 years or more of work experience engaging in financial product investment business at a financial, securities, futures, or insurance institution.
- Has 4 years or more of work experience related to financial product investment.
- Possesses other academic or professional qualifications or experience sufficient to show that he or she has professional knowledge and management experience in financial product investment, and can soundly and effectively manage the business of an investment department.
- Holds securities position or derivatives product portfolios reaching NT$1 billion according to its latest CPA-audited or reviewed financial report.
- Has an internal control system with suitable investment procedures and risk management measures.
- A juristic person or fund that meets each of the following requirements and has applied in writing to the securities firm for the status of professional customer:
- Its CPA-audited or reviewed financial report for the most recent period shows total assets in excess of NT$100 million.
- The persons authorized by the customer to conduct trades possess adequate professional knowledge and trading experience with respect to financial products.
- The customer fully understands that the securities firm may be exempted from liability for financial derivatives trades conducted with a professional customer, and consents to sign for trades as a professional customer.
- A natural person that meets each of the following conditions and has applied in writing with the securities firm for the status of professional customer:
- Proof of financial resources of NT$30 million or more; or, a single trade in excess of NT$3 million combined with total investment assets at the given securities firm in excess of NT$15 million, along with provision of a statement of financial resources showing total assets of NT$30 million or more.
- Possession of adequate professional knowledge and trading experience with respect to financial products.
- Complete awareness that the securities firm may be exempted from liability for financial derivatives trades undertaken with a professional customer, and consent to sign for trades as a professional customer.
- A trust enterprise entering into a trust agreement, the trustor of which meets the conditions of subparagraph 2, 3, or 4.
The securities firm shall fulfill its responsibility to make a reasonable investigation of the qualifications required of a professional customer under each subparagraph of the preceding paragraph, obtain reasonable and reliable supporting evidence from the customer, and shall re-review at least once a year to examine whether the customer continues to qualify as a professional customer. However, in the case of a customer that is a TWSE or TPEx listed company, the securities firm is exempted from the requirement to obtain from the customer supporting evidence regarding the qualifications possessed by the person in charge of its dedicated investment unit or the persons authorized to conduct trades.
The securities firm's method for evaluation of whether a professional customer that is not a professional institutional investor possesses adequate professional knowledge and management or trading experience with respect to financial products shall be incorporated into its know-your-customer evaluation procedures and be submitted for adoption by the board of directors. However, if a foreign securities firm has no board of directors, the evaluation method shall be agreed to by its responsible person within the territory of the ROC.
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| Article 7 | "Ordinary customer," as used in these Regulations, means any customer other than those meeting the qualifications for professional customers under the preceding article.
Any professional customer, with the exception of professional institutional investors, may make written application with the securities firm for a change of status from professional customer to ordinary customer.
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| Article 8 | A securities firm that meets the qualification requirements set forth in Article 11 may submit an application and relevant documents to the TPEx to operate the business of OTC trading of financial derivatives. No OTC trading of financial derivatives may be undertaken without TPEx approval of such an application.
When a securities firm applies to engage in the business of the preceding paragraph and the TPEx does not expressly reject the application within 10 days from the day after it receives the application, it means that approval is granted. The securities firm may not, however, engage in the business for which it is applying during the aforesaid 10-day period.
The qualification of a securities firm engaging in financial derivatives business that has passed TPEx review will remain in effect and further yearly applications will not be required.
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| Article 9 | A securities firm that has been approved as qualified to operate the business set out in the preceding article may commence the business of offering financial derivatives and combinations thereof, and within 15 days after commencement of business shall file registration documents with the TPEx for recordation. The only exceptions are the products set forth in Article 5, paragraphs 3 to 5.
If registration documents under the preceding paragraph are not submitted in full or are not supplemented within a required deadline, the TPEx may notify the securities firm to suspend the offering of such products until supplementation is completed.
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| Article 10 | When a securities firm initiates a financial derivative trade with a professional institutional investor or a high net worth juristic person investor with any underlying listed under Article 5, paragraph 3, it shall first submit an application to the TPEx with the relevant documentation. The TPEx will forward the application to the competent authority, and trading of such a financial derivative product may only take place subsequent to the competent authority's first issuance of an approval to a securities firm for such a trade.
After the competent authority grants approval to the first securities firm, the provisions of Article 8, paragraph 2 shall apply mutatis mutandis to other securities firms applying to trade the same type of financial derivative.
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| Article 11 | A securities firm applying for operating the business of OTC trading of financial derivatives shall meet the following requirements:
- It must be an integrated securities firm that concurrently engages in brokerage, underwriting, and dealership business.
- Its CPA audited or reviewed financial report for the most recent period shows net worth not lower than paid-in capital, and its financial condition meets the provisions of Articles 13, 14, 16, 18, 18-1 and 19 of the Regulations Governing Securities Firms.
- It must have reported a regulatory capital adequacy ratio for each month of the preceding half year that meets the requirements of the competent authority.
- It must not have received of any of the following sanctions:
- Any sanction during the preceding 3 months equal to or greater than provided in Article 66, subparagraph 1 of the Securities and Exchange Act or Article 100, paragraph 1, subparagraph 1 of the Futures Exchange Act.
- Any sanction during the preceding 6 months equal to or greater than those under Article 66, paragraph 1, subparagraph 2 of the Securities and Exchange Act or Article 100, subparagraph 2 of the Futures Trading Act.
- Any sanction from the competent authority during the preceding year requiring a suspension of business.
- Any sanction from the competent authority during the preceding 2 years voiding approval for any part of its business.
- Any sanction during the preceding year whereby the TPEx, the Taiwan Stock Exchange Corporation, or the Taiwan Futures Exchange Corporation, acting pursuant to its operating Regulations or corporate bylaws, has suspended or restricted the firm's trading privileges.
A securities firm that falls out of compliance with the conditions of subparagraph 4 of the preceding paragraph but that effects improvement and subsequently receives approval from the competent authority shall not be subject to the restrictions of that subparagraph.
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| Article 12 | A foreign securities firm intending to apply for operating the business of OTC trading of financial derivatives shall furnish an approval letter or a performance undertaking from its board of directors, and shall then have an application submitted to the TPEx in the name of the foreign securities firm via a branch unit in the territory of the ROC, or via a branch unit established in the territory of the ROC by its directly or indirectly wholly-owned subsidiary. The foregoing branch unit in the territory of the ROC shall meet the qualification requirements set out in the preceding article, but for the regulatory capital adequacy ratio requirement, it may substitute the ratio of its head office, provided that the head office meets a standard similar to the requirement of paragraph 1, subparagraph 3 of the preceding article.
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| Article 13 | A securities firm applying to engage in OTC trading of financial derivatives pursuant to Article 8 shall submit an NT$200,000 application review fee to the TPEx; the same fee shall be submitted with any re-application following a termination, pursuant to these Regulations, of a securities firm's qualification for OTC trading of financial derivatives.
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| Article 14 | A securities firm applying or registering pursuant to Article 5, paragraph 5 or Articles 8 through 10 shall submit the documents shown in Attachments 1 and 2.
The directions for the TPEx review and approval of securities firms' applications or registrations are as given in Attachments 3 and 4.
A foreign securities firm trading financial derivatives shall issue an undertaking stating that the transaction prices it receives at the beginning of the transaction period will not be remitted out of Taiwan until after the transaction matures. This restriction, however, shall not apply to remittance of any transaction prices as required for instruments linked to foreign financial products.
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