Chapter I General Principles |
| Article 1 | These Regulations are adopted pursuant to Article 60, paragraph 2, of the Securities and Exchange Act (the "Act").
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| Article 2 | A securities firm shall obtain approval from the competent authority to conduct securities borrowing and lending business.
The term "securities borrowing and lending business" referred to in the preceding paragraph means business activities in which a securities firm borrows or lends securities from or to a customer, another securities firm, or a securities finance enterprise under an agreement stipulating redelivery of securities of the same class and quantity.
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| Article 3 | A securities firm applying to conduct securities borrowing and lending business shall meet the following eligibility requirements:
- Have net worth per share of not less than par value, as shown in the latest CPA-audited and certified financial report, and financial condition meeting the requirements of the Regulations Governing Securities Firms.
- Have a regulatory capital adequacy ratio of 150 percent or higher for the half-year period immediately prior to the date of application.
- Have not been sanctioned by any warning imposed by the competent authority under Article 66, subparagraph 1, of the Act during the 3 most recent months.
- Have not been subject to any sanction imposed by the competent authority during the most recent half-year ordering the securities firm to remove from office any of its directors, supervisors, or officers or to replace any of its responsible persons or other related persons.
- Have not been subject to any sanction imposed by the competent authority during the most recent year involving suspension of business activities.
- Have not been subject to any sanction imposed by the competent authority during the two most recent years involving partial revocation of permission for business.
- Have not been subject to any measures taken by a securities exchange, an over-the-counter securities market, or a futures exchange during the most recent year under its rules and regulations involving suspension of or restriction on trading activities.
- Such other eligibility requirements as may be imposed by the competent authority.
A securities firm not meeting any of the eligibility requirements in subparagraphs 3 to 7 of the preceding paragraph may be exempted from restriction thereunder if the circumstances have been specifically corrected and the corrections have been recognized by the competent authority.
A securities firm having received approval from the competent authority to conduct securities borrowing and lending business shall suspend conducting such business if its regulatory capital adequacy ratio has been lower than 150 percent for a period of 2 consecutive months and may not resume the business until and unless it has been in compliance with the requirement for a period of 3 consecutive months and the business resumption has been filed with and approved by the competent authority; the same requirement shall apply to a securities firm that has received the approval but not yet commenced such business.
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| Article 4 | A securities firm applying to conduct securities borrowing and lending business shall fill out an application form, attach the documentation listed below, and submit them to the securities exchange or over-the-counter securities market to review and forward to the competent authority for approval:
- Internal control system.
- A financial report for the most recent fiscal year, audited and certified by a CPA. If at the time of application 6 months have elapsed since the beginning of the current fiscal year, a CPA-audited and certified financial report for the first half-year shall be submitted additionally.
- Board of directors meeting minutes.
- Documentation evidencing compliance with Article 3, paragraph 1, subparagraphs 1, 2, and 7.
- Other documents as required by the competent authority.
If a securities firm has obtained qualification to conduct securities margin purchase and short sale business, it need not submit the documentation set out in subparagraph 2 of the preceding paragraph when applying to conduct securities borrowing and lending business.
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| Article 5 | An officer or associated person of a securities firm who is charged with the conduct of securities borrowing and lending business shall have attended training, and passed the test, held by an institution recognized by the competent authority.
An associated person conducting securities borrowing and lending business under the preceding paragraph may concurrently provide services relating to margin purchases and short sales of securities and securities business money lending.
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