Chapter 6 Default and Dispositive Measures |
| Article 32 | Under any of the following circumstances, the securities firm shall, beginning from the next business day, dispose of the collateral from the lending transactions at issue, and also take any necessary measures pursuant to the provisions of the agreement, unless the parties agree otherwise:
- The loan period has expired, or early return is agreed between the parties or required by Article 22, paragraph 3, and the customer is unable to return the securities within the stipulated time limit.
- The payment date for compensation for entitlements has arrived, and the customer fails to make such compensation.
- The customer fails to make up a collateral shortfall or to provide eligible replacement collateral within the required time period.
- The customer fails to pay any applicable fee as stipulated.
When a securities firm disposes of securities collateral or makes necessary repurchases pursuant to the preceding paragraph, it shall do so, through the Securities Lending Default Handling Account it has opened with another securities broker, on the TWSE central securities market or through the GTSM trading system. If such an order is not executed, it shall continue to be quoted from the next business day, and the relevant processing fees and tax shall be borne by the customer.
After a securities firm disposes of that collateral, if the settlement proceeds are insufficient to offset the debt, it may, within the scope necessary to settle the obligation, liquidate outstanding securities borrowing and lending transactions of the customer and use the funds obtained thereby to offset its debt. If a positive balance remains, it shall be returned to the customer; if the funds obtained are still insufficient, the securities firm shall notify the customer to make up the shortfall within a specified period.
A securities firm that borrows securities from customers shall discontinue operations regarding additional securities borrowing and extension of its securities lending and borrowing business if the circumstance in paragraph 1, subparagraph 1, 2 or 4 applies to it or if it fails to pay the performance bond in full pursuant to Article 38, paragraph 1.
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| Article 33 | A customer that fails to make up a shortfall pursuant to a notice under paragraph 3 of the preceding article is in default. The securities firm shall cancel its securities lending account and file a default report with the TWSE or GTSM. The TWSE or GTSM shall promptly forward notice to all securities finance enterprises and securities firms.
A securities firm may, from the date of default until the date of settlement by the customer, collect a default penalty of 10 percent of the stipulated lending rate on the shortfall portion.
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| Article 34 | If during the term of a securities loan any of the following circumstances applies to a customer, the securities firm shall notify the customer to close out its securities borrowing and lending transactions on the following business day, and then cancel that customer's securities borrowing and lending account. the positions have not been closed out by the deadline, the securities firm shall begin on the following business day to close out the securities lending transactions through the mutatis mutandis application of Article 32, paragraph 2 herein:
- Failure to perform settlement obligations on time as specified in Article 91 of the Operating Rules of the TWSE, Article 87 of the GTSM Rules Governing Securities Trading on the GTSM, or Article 58 of the Operating Rules of the Taiwan Futures Exchange Corporation.
- Any default or violation specified in Article 81 of the Operating Rules for Securities Firms Handling Margin Purchases and Short Sales of Securities or Article 28 of the Operating Rules for Securities Business Money Lending by Securities Firms.
If during the term of a securities loan any of the following circumstances applies to a customer at another securities firm, futures commission merchant, or securities finance enterprise, the securities firm shall halt the customer adding of any new securities borrowing and lending transaction:
- Any breach specified in Article 76, paragraph 3, subparagraph 1 or 3 of the Operating Rules of the TWSE or Article 47, paragraph 2, subparagraph 1 or 3 of the GTSM Rules Governing Securities Trading on the GTSM.
- Any default or in violation specified in Article 81 of the Operating Rules for Securities Firms Handling Margin Purchases and Short Sales of Securities, Article 28 of the Operating Rules for Securities Business Money Lending by Securities Firms, or Article 33 of these Operating Rules.
- Any default, or violation of the type referred to in the preceding subparagraph, as specified in the securities finance enterprise's operating rules for handling margin purchases and short sales, securities settlement financing rules, or rules of operation for securities lending.
Before a case of a default or violation under the preceding paragraph has been closed, after the securities the customer provided as collateral have been sold through the Securities Lending Default Handling Account opened by another securities broker retained by the securities firm, the customer may buy back the securities from the market to return those securities.
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| Article 35 | If a customer is in default under Article 33 herein or its securities lending account is cancelled by the securities firm pursuant to paragraph 1 of the preceding article, the securities firm may again accept and process the opening of a securities lending account by that customer only after it has settled its obligations, made payment in full, or the case has been closed.
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| Article 35-1 | If a customer’s participation in securities lending transactions is halted or terminated by the TWSE pursuant to Article 42, 45, or 49 of the TWSE Securities Borrowing and Lending Rules, the securities firm shall halt the customer’s adding of any new securities lending transaction.
If a customer’s participation in securities lending transactions has been terminated pursuant to the preceding paragraph, the securities firm may again accept and process an application by that customer for securities lending transactions only after one full year has passed after the customer has settled its obligations, made payment in full, or made corrections.
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| Article 35-2 | Where the registration of an overseas Chinese or a foreign national has been cancelled by the TWSE or the TAIFEX, the securities firm, after receiving notice of such cancellation, may not accept such customer's request for new securities lending transactions, and shall notify such customer to close out any securities lending transactions, and cancel the securities lending account after the closeout.
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