Chapter 3 Applications for the Borrowing and Return of Securities |
| Article 12 | The business hours of a securities firm for securities lending business shall be 9 a.m. to 3:30 p.m.
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| Article 13 | A customer that lends, borrows or returns securities to a securities firm shall fill out an application form marked with the word “Lend,” "Borrow" or "Return", and after the securities lending transaction has been executed, the securities firm shall complete a lending report bearing that same word; the TWSE and the GTSM will make a joint public announcement of the matters that shall be recorded therein by the securities firm.
The provisions of the preceding paragraph shall be subject mutatis mutandis to Article 75, subparagraphs 7 to 10 and Article 80, paragraphs 4 to 6 of the TWSE Operating Rules and to Articles 62 and 62-2 of the GreTai Securities Market Rules Governing Securities Trading on the GTSM.
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| Article 13-1 | If the transfer date of securities that a customer borrows from a securities firm is the next business day after the borrowing is completed, and if before the borrowed securities are transferred into its securities borrowing and lending account, the customer needs to sell those borrowed securities, it may do so only through the securities firm that originally loaned the securities.
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| Article 14 | Where a securities firm conducts securities lending and borrowing, the securities firm and the customer shall negotiate and fix the rate at which the transaction will be executed, at a rate not to exceed 16 percent per annum, and with a tick of 0.01 percent.
The method for the calculation, collection and payment of the securities lending fee shall be negotiated between the securities firm and customer and recorded in the agreement.
Any fee arising from refinancing under Article 8, paragraph 2 of the Regulations Governing Securities Lending by Securities Firms shall be borne by the securities firm.
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| Article 15 | When a securities firm accepts a customer's application to borrow securities, it shall collect collateral from the customer with a value calculated at an initial collateral ratio of not less than 140 percent of the auction reference price at market opening or the base price for first trading of the security on the given day, unless the customer is a professional institutional investor as defined in Article 19-7, paragraph 2 of the Regulations Governing Securities Firms and has otherwise agreed to an initial collateral ratio with the securities firm.
The "auction reference price at market opening" or the "base price for first trading" in the preceding paragraph shall be determined pursuant to Article 58-3, paragraph 2 of the TWSE Operating Rules, or Article 60-1 of the GreTai Securities Market Rules Governing Securities Trading on the GTSM.
A securities firm shall notify the TWSE or GTSM regarding the delivery information of the loan securities and the collateral securities (except for book-entry central government bonds), and forward such notice to the TDCC to immediately conduct the securities transfer procedures. The TDCC shall annotate the securities borrowed by customers. Central government bonds shall be handled using the title transfer registration method pursuant to the Directions for the Operation of Book-Entry Central Government Bonds.
No transfer or withdrawal of securities that have been annotated is allowed unless for purposes listed under Article 10 of the Regulations Governing Securities Lending by Securities Firms.
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| Article 15-1 | When a securities firm accepts a customer's application for borrowing securities to repay refinancing, it may apply the collateral for short sales, margin deposited for short sales, and securities satisfied, that are to be returned to the customer for the transaction concerned, as the collateral for securities borrowing that is calculated according to the agreed initial collateral ratio in Article 15 and conforms to Article 19, paragraphs 2 and 6, and shall make up the shortfall, if any.
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| Article 16 | When a securities firm wishes to use proprietary securities, collateral securities obtained in connection with customer margin purchases, securities borrowed from customers, and securities borrowed from another securities firm or securities finance enterprise conducting securities borrowing and lending business or securities margin purchase and short sale business, for purposes listed in Article 10 of the Regulations Governing Securities Lending by Securities Firms, it must remit them into a securities borrowing and lending account before doing so, except where otherwise provided by the TWSE or laws and regulations.
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| Article 17 | When securities are transferred from a securities firm's own securities account to a securities borrowing and lending account, the securities firm shall first return any securities of the same type that had been remitted from the securities borrowing and lending account into its own account, with the remaining balance transferred being taken as the amount of securities remitted from its own securities account into the securities borrowing and lending account; the same procedure shall govern the transfer of securities from a securities borrowing and lending account to a securities firm's own account.
Borrowed securities in the securities firm's own securities account may not be loaned out.
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| Article 18 | A securities firm that conducts securities lending shall notify the TWSE or GTSM of any transfer of securities into or out of its securities lending collateral account and forward such notice to the TDCC to conduct the securities transfer procedures.
Securities in a securities firm's own securities account opened at another securities firm must be transferred into the securities firm's securities lending collateral account before they may be posted as collateral in the TWSE securities lending system.
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| Article 19 | A securities firm borrowing securities from customers shall pay a performance bond to the TWSE pursuant to Article 38, paragraph 1.
When lending securities to customers, a securities firm may accept the following types of assets as collateral, to be valued at the valuation percentages indicated:
- Cash.
- Book-entry central government bonds. Calculate at 90 percent of face value.
- Securities eligible for margin purchases and short sales. The collateral value of securities eligible for margin purchase and short sale transactions shall be 70 percent of the most recent closing price if they are TWSE or GTSM listed securities.
- Bank guarantee.
The "most recent closing price" in subparagraph 3 of the preceding paragraph shall mean, prior to the close of market on the given day, the closing price for the preceding business day, and after the close of market on the given day, shall mean the closing price on the given day. The aforesaid closing price shall be set pursuant to Article 58-3, paragraph 3 of the TWSE Operating Rules or Article 35, paragraph 3 of the GreTai Securities Market Rules Governing Securities Trading on the GTSM .
If no closing price is available for the preceding business day, the price determined by the principles under Article 58-3, paragraph 2, subparagraph 2 of the TWSE Operating Rules or Article 57, paragraph 1 of the GreTai Securities Market Rules Governing Securities Trading on the GTSM shall substitute for the closing price.
If the closing price for a given day is not available, the most recent closing price shall be determined by one of the following principles:
- When, on the day the security is loaned, the highest bid price at market close is higher than the auction reference price at market opening or the base price for first trading, the highest bid price shall be used.
- When, on the day the security is loaned, the lowest ask price at market close is lower than the auction reference price at market opening or the base price for first trading, the lowest ask price shall be used.
- When neither of the above circumstances applies, the auction reference price at the opening of market or the base price for first trading shall be used.
Securities collateral that a securities firm collects from a customer shall be limited to securities that the customer itself owns.
The collateral valuation percentages in paragraph 2 may be adjusted by the TWSE in conjunction with the GTSM based on the condition of the collateral. The lender and borrower may separately agree to a collateral valuation percentage lower than the prescribed percentage.
A securities firm may reject, or lower the valuation percentage for, any security that would otherwise be eligible collateral under paragraph 2, subparagraph 3 if the securities firm so deems appropriate having regard to the market liquidity and risk status of that collateral; if any such security has been accepted and received as collateral for a lending transaction, the securities firm may notify the borrowing party to replace the collateral.
Where a security eligible for margin purchases and short sales under paragraph 2, subparagraph 3 is during a trading halt announced by the TWSE or GTSM, that security may not be the collateral for a lending transaction; if any such security has been accepted and received as collateral for a lending transaction, the securities firm may proceed with the collateral in accordance with the preceding paragraph.
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| Article 19-1 | A dedicated account shall be established for management of the collateral under paragraph 2, subparagraph 1 of the preceding article. The collateral may only be New Taiwan Dollars. Offshore overseas Chinese and foreign nationals, however, may provide a collateral in foreign currency. The types of foreign currency are limited to US Dollar, Euro, Japanese Yen, British Pound, Australian Dollar and Hong Kong Dollar). Dedicated accounts for foreign currency collateral shall be established at banks that have been approved by the Central Bank to handle foreign exchange business ("designated banks").
Securities firms shall abide by the following provisions when accepting foreign currency collateral:
- Foreign currency collateral may be returned to customers only in the original currency, and may not be converted to New Taiwan Dollars.
- Foreign currency collateral shall be only in the form of bank deposits and used only as a source of funds of securities business money lending by offshore securities branches and as needed for carrying out securities lending business, and only as collateral for securities lending through the TWSE securities lending system.
- The collateral value of foreign currency collateral will not be discounted.
- The exchange rate a securities firm uses for marking foreign currency collateral to market shall be the foreign currency rate posted by the designated bank at which the securities firm opened the dedicated foreign currency deposit account or the exchange rate for marking the foreign currency to market that is publicly announced through the TWSE securities lending system.
If a securities firm uses foreign currency collateral when making interest rate swaps, then in addition to observing the self-regulatory rules of the Taiwan Securities Association, the securities firm shall also handle the swaps in accordance with the following provisions, and the following provisions shall be made part of the securities firm's internal control system:
- Swaps may only be carried out with designated banks, and any New Taiwan Dollars obtained must first be transferred into the dedicated New Taiwan Dollar cash collateral account before being otherwise utilized.
- "Utilization" under the preceding paragraph shall be restricted to the uses set out Article 14, paragraph 1 of the Regulations Governing Securities Lending by Securities Firms.
- Interest rate swaps among foreign currencies shall be handled by offshore securities branches.
A securities firm shall file information on its utilization of cash collateral for recordation with the TWSE during the following month, along with the filing of its monthly accounting summary.
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| Article 20 | A securities firm that receives a customer's application to replace collateral shall effect such replacement by the second business day after the receipt thereof; the replacement method shall be stipulated between the two parties.
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| Article 21 | A securities firm shall notify the customer in writing or other manner as agreed between the parties 10 days before the expiration of the loan period for any loaned securities, and shall return the collateral, or utilize said securities as the collateral of another borrowing transaction as agreed between the parties, on the same day that the customer returns the securities upon expiration or the next business day.
The return of subject securities and collateral securities by a securities firm (except book-entry central government bonds) is governed by Article 15, paragraph 3 mutatis mutandis.
Cash collateral that is returned shall be deposited in the customer's bank deposit account. Return of book-entry central government bonds shall be handled in accordance with the Directions for the Operation of Book-Entry Central Government Securities. Notwithstanding, a cash collateral in foreign currency may be converted as a collateral for securities business money lending to a customer subject to agreement between the parties.
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| Article 22 | A securities firm may notify a customer of a recall of loaned securities as agreed by the two parties, and shall return the collateral, or utilize said securities as the collateral of another borrowing transaction as agreed between the parties, on the day the customer returns the securities or the next business day.
During the loan period, a customer may apply to return early all, or a portion of, the borrowed securities, and at the time of such application stipulate with the securities firm the method and deadline for transfer of the securities and the collateral, or or utilize said securities as the collateral of another borrowing transaction as agreed between the parties. Where the return of the collateral is agreed on, the securities firm shall return the collateral, at the latest, by the second business day after it receives the securities returned by the customer.
Where public notice is given of either a suspension of trading of a subject security without prescribing the time for resumption or the termination of its TWSE or GTSM listing, or in the event of a merger, capital reduction or other circumstances prejudicing the lending party’s exercise of its shareholder’s rights that occur to an issuer, or a split or reverse split of ETF beneficial certificates by an issuer, the borrowing party shall return the security and close out the transaction before the date of such suspension.
Where the lending party is prevented by the overall trading condition in the market or of the subject security in question as a result of the aforementioned circumstances from buying up the security either at the maximum price limit or through placing brokerage trading orders at market price, the borrowing party may apply for return with third-person securities during the suspension period of the subject security.
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| Article 23 | A securities firm shall on a daily basis transmit information regarding the authorized loan limits, loan transaction details, and outstanding balances of securities loans for each customer to the TWSE or the GTSM, which shall compile such information and publish the outstanding balance of securities loans before the next day's market opening.
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| Article 24 | A securities firm shall produce detailed and accurate records and vouchers for all funds and securities receivable and payable that it processes in the course of securities borrowing and lending transactions, and shall compile the following statements on a daily basis:
- Daily statement of securities lending transactions.
- Summary statement and itemized statement of securities borrowing and lending position balances.
- Itemized statement of the receipt, payment, disposal, and utilization of collateral in connection with securities lending and borrowing.
- Itemized statement of collateral.
- Itemized statement of collateral margin calls and deposits.
- Itemized statement of compensation of entitlements.
- Itemized statement of applications for and repayment of refinancing in connection with securities lending.
- Itemized statement of refinancing balances in connection with securities lending.
- Itemized statement of refinancing collateral in connection with securities lending.
- Itemized statement of performance bond.
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