Chapter V Default and risk management |
| Article 25 | If customer exhibits any one of the following, the securities firm shall dispose the customer's collaterals the next business day and take the necessary measures agreed in the agreement:
- The customer fails to return the borrowed book-entry central government bonds upon the due date or at any earlier date agreed between the two parties.
- The customer fails to pay compensation upon the due date.
- The customer fails to remargin to the satisfactory level or provide eligible collaterals within a given period.
- The customer does not pay the agreed expenses.
If the disposal of customer's collateral does not sufficiently cover customer's outstanding debts, the securities firm may proceed to close customer's other lending deals to the extent necessary to cover outstanding debts. Any amounts remaining after the forced closure are returned to the customer, whereas shortfalls are claimed from the customer within a given notice period.
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| Article 26 | Customers are considered to be in default if they do not reimburse shortfalls according to Paragraph 2 of the preceding Article. In such a case, the securities firm has a duty to report the default to TPEx, thereby allowing TPEx to notify TSEC and other securities firms.
The securities firm may impose a penalty totaling 10% of the agreed lending rate over the amount of shortfall payable by the customer, starting from the date of default until the shortfall is settled.
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| Article 27 | Securities firms are prohibited from lending book-entry central government bonds to the following related parties:
- The firm's directors, supervisors, representatives of corporate directors and supervisors, employees, or shareholders with more than 10% ownership interest.
- Corporate shareholders with representatives elected as the firm's directors or supervisors in accordance with Article 27, Paragraph 2 of The Company Act.
- Spouses to the firm's directors, supervisors, and representatives of corporate directors and supervisors.
- Underage children of personnel listed in Sub-paragraph 1.
Securities firms are required to incorporate the above rules into their internal control policies.
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| Article 28 | A securities firm may not lend book-entry central government bonds totaling more than NT$20 million (in face value) or 1% of the firm's net worth to any single natural person, and may not lend totaling more than 5% of the firm's net worth to any single company. Lending of book-entry central government bonds to a group of related borrowers (in face value) may not exceed 10% of the firm's net worth, in which case the total face value of book-entry central government bonds lent to natural persons may not exceed 2% of the firm's net worth.
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| Article 29 | Securities firms are required to update any confirmed lending deals into TPEx's information system, within the designated timeframe and using the prescribed format.
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