Chapter 4 Collateral Mark-to-Market and Collateral Calls |
| Article 25 | A securities firm shall calculate on a daily basis, for each customer, the collateral ratio for the customer's securities borrowing and lending account as a whole and for each securities loan made through it, based on the closing prices published by the TWSE or the GTSM, according to the following formula:
Collateral ratio = (total collateral value of the collateral － securities lending fees payable ) ÷ (market value of the loaned securities ＋ market value of stock dividend shares to be returned ＋ cash dividends to be returned) × 100%
Except in the case of a cash capital increase, for the six business days prior to any ex-dividend or ex-rights date for a security that is provided as collateral, its collateral value shall be calculated at the valuation percentage specified in Article 19, based on the respective current day's closing price minus the value of the dividend or minus the value of the right determined based on the current day's closing price.
The current day’s closing price mentioned in the preceding paragraph is governed by Article 19, paragraph 5 mutatis mutandis.
Where a customer's overall account collateral ratio is lower than the 120 percent collateral maintenance ratio, the loaning securities firm shall promptly give notice to request the customer to provide additional collateral within two business days from the day the notice is delivered to make up the collateral shortfall for each individual securities lending transaction that does not meet the required collateral maintenance ratio, so as to bring the individual collateral ratios thereof above the initial collateral ratio, provided where 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 a collateral maintenance ratio with the loaning securities firm, the aforementioned notice shall be given requesting that the shortfall be made up based on the agreed ratio.
The collateral maintenance ratio in the preceding paragraph and the initial collateral ratio in Article 15 may be adjusted by the TWSE in consultation with the GTSM based on market circumstances.
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| Article 26 | If a securities firm notifies a customer to cover a shortfall pursuant to paragraph 4 of the preceding article and the customer fails to do so, or does so only partially, within two business days from service of that notice, the securities firm shall proceed as follows:
- If a customer's overall account collateral ratio on a given day is still lower than the collateral maintenance ratio, dispose of its collateral beginning from the next business day under the mutatis mutandis application of Article 32, paragraph 1.
- If the customer's overall account collateral ratio rises and meets or exceeds the collateral maintenance ratio, the securities firm may temporarily refrain from disposing of its collateral. However, if the collateral ratio subsequently falls short again on any given business day, and the customer fails to take the initiative to pay additional collateral on that same day, dispose of its collateral beginning on the next business day under the mutatis mutandis application of Article 32, paragraph 1.
- If before the collateral has been disposed of under the preceding subparagraph, the sum of any successive collateral deposits made by the customer covers the shortfall of which it was notified, expunge the collateral call record.
- If a customer's overall account collateral ratio rises and meets or exceeds the initial collateral maintenance ratio, expunge the collateral call record.
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| Article 27 | When a customer closes out a portion of its securities borrowing positions, if the overall account collateral ratio for positions still open in the borrowing and lending account is lower than the collateral maintenance ratio, the securities firm shall retain the collateral returnable to the customer, to the extent necessary so as not to fall below the required collateral maintenance ratio.
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| Article 28 | A customer shall warrant that the securities it provides as collateral are free and clear of all liens, claims, and encumbrances of any nature whatsoever. If there is any defect in rights, legal dispute, loss of eligibility for margin transactions, suspension of trading, or other cause that disqualifies any of the securities collateral, the securities firm shall subtract that type of security when calculating the collateral ratio under Article 25 herein, and promptly notify the customer to replace it with eligible collateral of equivalent collateral value within three business days after receiving such notice.
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| Article 29 | If the overall collateral ratio of a customer's securities borrowing and lending account exceeds the initial collateral ratio as a result of a change in price, the customer may, as stipulated between the two parties, request that the securities firm return the collateral for those transactions in which the collateral ratio exceeds the initial collateral ratio or apply it toward other securities borrowing transactions, provided that subsequent to such return of collateral, the collateral ratio of the overall account may not be lower than the initial collateral ratio.
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