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Title:

Operating Rules for Securities Business Money Lending by Securities Firms  CH

Amended Date: 2021.04.01 (Articles 19 amended,English version coming soon)
Current English version amended on 2020.12.31 
Categories: Securities Exchange Market > Borrowing of Money
   Chapter IV Calculation of the Collateral Maintenance Ratio and Covering of Shortfalls
Article 23    In securities business money lending conducted by a securities firm, if a customer applies for a financing period not exceeding 6 months and posts collateral in the form of securities or other commodities or foreign currencies that it purchase or holds, the customer's overall-account and individual-transaction collateral maintenance ratio for money lent to the customer shall be calculated as follows:
Collateral maintenance ratio = (market value of the collateral + market value of additional collateral securities or other commodities or foreign currencies) divided by the financing amount, and multiplied by 100 percent.
    In regard to the collateral referred to in the preceding paragraph, the market value of TWSE and TPEx listed securities is the closing price of the current day; that of central book-entry bonds is 80 per cent of their face value; that of municipal bonds, common corporate bonds and financial bonds is 60 percent of their face value; that of physical gold is the Closing Average of the current day; that of TPEx traded beneficial certificates of open-end funds, open-end securities investment trust funds and futures trust funds is the NAV of the preceding business day; and that of foreign currency collaterals is calculated at the current spot rate – buying of the bank with which the foreign currency collateral account is opened. If there is no current day's closing price for a given TWSE or TPEx security, the market value shall be determined by the following principles:
  1. If the current day's highest buy order price at the close of market is higher than the current day's auction reference price at market opening for a TWSE listed security, or than the current day's benchmark price at trade opening for a TPEx listed security, use the highest buy order price.
  2. If the current day's lowest sell order price at the close of market is lower than the current day's auction reference price at market opening for a TWSE listed security, or than the current day's benchmark price at trade opening of trading for a TPEx listed security, use the lowest sell order price.
  3. When neither of the above circumstances applies, use the current day's auction reference price at market opening for a TWSE listed security, or the current day's benchmark price at trade opening for a TPEx listed security.
    If the customer has applied for a financing period not exceeding 6 months and posted collateral in the form of securities or other commodities or foreign currencies that it purchases or holds, the securities firm shall mark-to-market the customer's collateral maintenance ratio each business day. If the customer's collateral maintenance ratio is lower than 130 percent due to a change in the value of the collateral or additional collateral securities or other commodities, or the customer is an offshore overseas Chinese or foreign national as in paragraph 7 with a collateral maintenance ratio lower than as agreed, the securities firm shall notify the customer to cover the collateral shortfall and bring the collateral maintenance ratio above 166 percent within 2 business days from receipt of the notice, and shall further comply with the following provisions:
  1. If the customer fails to cover the collateral shortfall within 2 business days from the date upon which the notice is served and the collateral maintenance ratio is still lower than 130 percent, beginning from the third business day, the securities firm shall dispose of the customer's collateral beginning from the third business day under the mutatis mutandis application of Article 27, paragraph 1.
  2. If the customer fails to cover the collateral shortfall within 2 business days from the date on which the notice is served and the collateral maintenance ratio has risen to 130 percent or higher, the securities firm may temporarily refrain from disposing of the collateral on the third business day. However, on any subsequent business day in which its collateral maintenance ratio is again lower than 130 percent and where the customer does not deposit additional collateral on its own initiative on the afternoon of that day, its collateral shall be disposed of beginning on the next business day under the mutatis mutandis application of Article 27, paragraph 1.
  3. If the collateral maintenance ratio returns to 166 percent or higher even though the customer has not covered, or has covered only a portion of, the collateral shortfall, or if the customer makes successive collateral deposits sufficient in total to cover the shortfall as stated in the notice prior before its collateral has been disposed of under the preceding subparagraphs, the record of the collateral call shall be expunged.
    Any and all individual loans of funds in the financing account for which the collateral maintenance ratio is below 130 percent are shortfalls that are required to be covered pursuant to the preceding paragraph, and shall be subject to a collateral call.
    If, as a result of any change in share price, there is an increase in the net value of the collateral in a customer's financing account less the customer's obligations, the securities firm is prohibited from delivering to the customer any cash or securities equivalent to the amount of the increase.
    The disposal of collateral under paragraph 3, subparagraphs 1 and 2 shall be carried out in accordance with Article 27 of the Operating Rules. If such disposal is insufficient to make repayment, the customer shall be notified to make repayment within a certain time period, with interest accruing at the financing interest rate from the date on which the claim occurred until the date of repayment.
    A securities firm may agree on the collateral maintenance ratio with offshore overseas Chinese and foreign nationals meeting the following qualification requirements, provided such ratio may not be lower than 110% and is subject to necessary adjustment by the TWSE in relation to financial market volatility:
  1. A qualified institutional investor designated by the competent authority in accordance with Article 4, paragraph 2 of the Financial Consumer Protection Act.
  2. A member of a foreign securities exchange designated by the competent authority in accordance with Article 5, paragraph 1 of the Regulations Governing Securities Firms Accepting Orders to Trade Foreign Securities, or a liquidity provider.
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Article 24    A securities firm conducting securities business money lending may, except in the case of a cash capital increase, beginning from 6 business days before the ex-dividend date of the collateral and additional collateral securities or other commodities provided by a customer, calculate the collateral maintenance ratio for each day based on that day's closing price or NAV of each security on each given day minus the value of the share rights or dividends, and the provisions of the preceding article shall apply mutatis mutandis.
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Article 25    In securities business money lending conducted by a securities firm, if a customer applies for a financing period not exceeding 6 months and posts collateral in the form of securities or other commodities or foreign currencies that it purchases or holds, the additional collateral securities or other commodities or foreign currencies that the customer shall provide to cover a collateral shortfall under Article 23 shall be limited to the collateral in Article 16, paragraph 9.
    The valuation percentage for calculating the collateral value of additional collateral securities or other commodities or foreign currencies under the preceding paragraph shall be subject, mutatis mutandis, to Article 18, paragraph 1.
    The collateral in paragraph 1 to which either of the circumstances listed below applies may not be used as additional collateral:
  1. Securities comprising less than one trading unit.
  2. Where the securities are registered shares of the issuing company acquired by its shareholders or capital contributors as a result of that company's conduct of a capital increase from earnings, capital increase through contributions by that company's employees out of their bonuses to the industry in which they serve, or capital increase by a venture capital company out of undistributed earnings pursuant to Article 13 of the Statute for Encouragement of Investment or Articles 16 and 17 of the Act for Upgrading Industries, and such shares have not been transferred or reported for taxes.
    When calculating a customer's overall account collateral maintenance ratio, a securities firm is not required to apply a haircut to the value of the additional collateral securities or other commodities or foreign currencies.
    If the rate of bonus shares or stock dividend shares distributed on collateral or additional collateral securities or other commodities provided by a customer is 20 percent or higher, except where the Competent Authority has imposed restrictions on trading of the securities, all such new shares shall serve as collateral, and the right to defer income tax shall be waived. The TDCC shall transfer the shares by book-entry transfer into the segregated loan collateral account opened by each securities firm, and the provisions of Article 33 of the Regulations Governing the Handling of Stock Registration and Transfer Services by Public Companies shall not apply.
    Bonus shares or stock dividends referred to in the preceding paragraph may not be used as collateral for borrowing securities from the TWSE securities lending system or for obtaining refinancing from a securities finance enterprise.
    The provisions of Article 24 shall not apply to bonus shares or stock dividend shares used as collateral. After ex-rights trading has commenced, the market value of such shares shall be calculated at 60 percent of the closing price of the TWSE or TPEx listed securities. After the shares have been transferred to the securities firm's segregated loan collateral account, the haircut need not be applied to the calculation of their value.
    The provisions of Article 18, paragraph 2 shall apply mutatis mutandis to paragraph 1 and the preceding paragraph.
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Article 26    A customer shall warrant that additional collateral securities or other commodities it provides are free and clear of all liens, claims, and encumbrances of any nature whatsoever. If there is any defect in rights or legal dispute regarding the securities, within 3 business days after receiving notice thereof from the securities firm, the customer shall replace such securities or commodities with securities or other commodities eligible for use as additional collateral, or pay their equivalent value in cash.
    Where the customer is not the owner of additional collateral securities or other commodities it provides, it shall be responsible for obtaining the household registration information, verification of source, and consent letter of the owner of such securities.