Chapter I General Principles |
| Article 1 | These Rules are adopted under Article 23, paragraph 2 of the Regulations Governing Custody and Investment of Funds by Securities Firms on Behalf of Customers.
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| Article 2 | A securities firm conducting business relating to custody and investment of funds on behalf of customers shall do so in accordance with securities and exchange laws and regulations, these Rules, as well as applicable rules, regulations, public notices, and circular letters of the Taiwan Stock Exchange Corporation (TWSE), the GreTai Securities Market (GTSM), and the Taiwan Depository & Clearing Corporation (TDCC).
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| Article 3 | For the proposes of theses Rules, reference to a securities firm conducting business relating to custody and investment of funds on behalf of customers means a securities firm engaging in business activities in which the securities firm, pursuant to an agreement with each customer, keeps custody of customer funds arising from securities business in a cash management account and pool the funds held in custody in that account on behalf of the customer for investing in the name of the securities firm on such subject instruments as agreed with the customer.
For the proposes of theses Rules, the term "cash management account" means a special account opened and maintained by a securities firm for use in conducting business relating to custody and investment of funds on behalf of customers.
The cash management account under the preceding paragraph shall be kept separate and segregated from the securities firm's own property. Customer funds and subject investments held in the cash management account may not be used for any other purpose, nor may any creditor of the securities firm make any claim for attachment or otherwise exercise any right against the customer funds or subject investments held in the special account to satisfy any liability or obligation incurred by the securities firm with respect to its own property.
For the purposes of these Rules, the term "a company that is an interested party of a securities firm" shall have the same meaning as under Article 17 of the Regulations Governing Custody and Investment of Funds by Securities Firms on Behalf of Customers.
For the purposes of these Rules, the term "total amount of invested funds" does not include profit or loss arising from investment of such funds.
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| Article 4 | To conduct business relating to custody and investment of funds on behalf of customers, a securities firm shall open a New Taiwan Dollar demand deposit account, to be used exclusively for receipt and payment of funds within the scope of that business, at a bank using the account name of "_______ Securities Firm's Customer Cash Management Account."
The bank under the preceding paragraph shall have a long-term credit rating in the most recent year at or above a prescribed level from a credit rating agencyas listed in Appendix 1.
When conducting business relating to custody and investment of funds on behalf of customers, a securities firm may only initiate or accept inter-account transfer for the transfer of funds.
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| Article 5 | To apply to conduct business relating to custody and investment of funds on behalf of customers, a securities firm shall fill out an application form and submit it to the TWSE, together with other relevant supporting documentation. When the TWSE has reviewed the application and found it in compliance with relevant eligibility conditions as well as the provisions of these Rules, the TWSE shall forward the application to the competent authority for final approval. Upon approval by the competent authority to conduct business relating to custody and investment of funds on behalf of customers, the securities firm shall, at least three business days before commencing such business, submit the following documents by mail to the TWSE for review of compliance with eligibility conditions and for subsequent forwarding to the competent authority for recordation:
- A photocopy of the approval document of the competent authority.
- Documentation containing credit rating and regulatory capital adequacy ratio information, current as of the commencement date and covering the period from after the approval of the competent authority up to the reported commencement date.
- Documentary proof of the cash management account established at a bank and documentation indicating the credit rating of the bank.
The securities firm under the preceding paragraph that has received the approval from the competent authority to conduct business relating to custody and investment of funds on behalf of customers may not commence such business unless an amendment to its securities business activity information has been registered with the TWSE. The associated persons of the securities firm performing services of custody and investment of funds on behalf of customers shall possess the qualifications specified in the Regulations Governing Responsible Persons and Associated Persons of Securities Firms as adopted by the competent authority.
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| Article 6 | After the commencement of business relating to custody and investment of funds on behalf of customers, a securities firm shall obtain updated credit rating information and file it with the TWSE each year.
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| Article 7 | After the commencement of business relating to custody and investment of funds on behalf of customers, if either of the following circumstances applies, a securities firm shall on its own initiative stop the operations of such business:
- If its credit rating falls below the eligibility condition under the application requirement.
- If its regulatory capital adequacy ratio falls below 150% for two consecutive months.
If a securities firm under either of the circumstances of the preceding paragraph does not stop the operations of the business contemplated herein, the TWSE shall notify the securities firm to promptly stop those operations.
A securities firm shall, on the next business day following its stop of business operations contemplated herein, transfer all customer funds held in custody in the cash management account to the account for book-entry transfer of securities and funds opened by each relevant customer for engaging in securities trading on the exchange or over-the-counter market, and shall within the next five business days close out all transactions in subject instruments already made through the cash management account and transfer the resultant proceeds to the account for book-entry transfer of securities and funds opened by each relevant customer for engaging in securities trading on the exchange or over-the-counter market.
If the securities firm stops the business operations contemplated herein, it shall promptly send a notice by mail to the TWSE to that effect and shall submit a regulatory filing to the TSEC on a daily basis reporting the progress and status of action taken under the preceding paragraph.
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| Article 8 | To apply to resume business operations relating to custody and investment of funds on behalf of customers, a securities firm shall submit an application to the TWSE when it has met the required eligibility conditions for both credit rating and, for three consecutive months, the regulatory capital adequacy ratio, and it may resume such business operations only when the application has been reviewed by the TWSE and then forwarded to and approved by the competent authority.
Article 5, paragraph 2 shall apply mutatis mutandis to a securities firm submitting a regulatory filing for the commencement of business for which it has received approval under the preceding paragraph.
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| Article 9 | A securities firm may only accept customer funds from any of the following sources in its conduct of business relating to custody and investment on behalf of customers:
- Trading balance payable by the securities firm to the customer for execution of the customer's order to buy or sell securities on the exchange or OTC market.
- Amount payable by the securities firm to the customer for exercise of a call/put warrant.
- Trading balance payable by the securities firm to the customer for trading bonds or engaging in a repurchase or reverse repo transaction ("repo-style transaction") with the customer.
- Trading balance payable by the securities firm to the customer for trading with the customer any of the financial instruments defined in the GreTai Securities Market Rules Governing Over-the-Counter Trading of Financial Derivatives by Securities Firms.
- Trading balance payable by the securities firm to the customer for execution, either by the securities firm or by its sub-broker, of the customer's order to buy or sell foreign securities.
- Such other sources as the competent authority may designate.
A securities firm shall, pursuant to its agreement with a customer specifying part or all of the sources/types of customer funds described in the preceding paragraph and the corresponding amount limit, transfer and attribute any balance of such funds arising from such types from time to time, for inclusion within the scope of business hereunder.
Upon review of the settlement status of a customer's trade involving any of the agreed types of customer funds under the preceding paragraph, the securities firm shall forward the incurred balance of funds to the cash management account it maintains with a bank, on the same day on which it receives the balance transferred to it.
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| Article 10 | A securities firm conducting business relating to custody and investment of funds on behalf of customers shall, when the funds held in custody in the cash management account reach the minimum investment level as agreed with a customer, make use of the funds for such type of subject instrument as specified by the customer, in the name of "_______ Securities Firm's Customer Cash Management Account."
A securities firm may invest funds under the preceding paragraph only in subject instruments falling within the following scope:
- Treasury bills with a maturity of ten or less days, negotiable certificates of deposit, and commercial papers.
- Government bonds with a maturity of ten or less days.
- Repo transactions in three instruments, namely treasury bills, negotiable certificates of deposit, and commercial papers.
- Repo transactions in government bonds.
- Repo transactions in exchange-listed or OTC-listed straight corporate bonds and general bank debentures.
- Money market funds.
- Quasi-money market funds within the category of bond funds.
- Any other subject instrument as approved by the competent authority.
The term "general bank debentures" under the preceding paragraph shall have the same meaning as set forth in the Regulations Governing Issuance of Bank Debentures By Banks.
The issuer, guarantor, acceptor, or underlying of the negotiable certificates of deposit or commercial papers under paragraph 2, subparagraph 1 or 3 shall have a short-term credit rating at or above a prescribed level from a credit rating agency as listed in Appendix 2.
The issuer or underlying of the exchange-listed or OTC-listed straight corporate bonds or general bank debentures under paragraph 2, subparagraph 5 shall have a long-term credit rating at or above a prescribed level from a credit rating agency as listed in Appendix 3.
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| Article 11 | No securities firm may use funds from the cash management account to engage in a transaction in an eligible instrument under the preceding article with the securities firm itself or with a company that is an interested party of the securities firm, without having expressly informed the customer concerned of the associated conflict of interest and corresponding control measures and obtained the written consent of the customer.
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| Article 12 | A securities firm using funds from the cash management account for transaction in subject instruments shall, at least three business days prior to each transaction, notify the customer(s) concerned of the projected use of funds, specifying at least the following information, either through a public announcement on a web page or by other means agreed separately with each individual customer, such as via email, fax, or telephone:
- In the case of an outright transaction, the type of the underlying instrument.
- In the case of a repo transaction, the counterparty and type of the underlying instrument.
- In the case of a fund, the name of the fund.
The securities firm shall keep a record of the content of the notice given pursuant to the preceding paragraph, and shall in its internal control system establish when to give such a notice, what information is to be included in the notice, and how to preserve the record.
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| Article 13 | A securities firm shall distribute any loss or income incurred on any instrument in which it invests within the scope of Article 10, paragraph 2, among customers based on the percentage of their respective investment amount and other agreed terms and conditions, and in the case of income, shall either use the proceeds for further reinvestment together with other existing funds or otherwise return the proceeds to the customers.
A securities firm conducting business relating to custody and investment of funds on behalf of customers shall be fully responsible for any loss incurred as a result of its operational error and for that matter may not prejudice the interest of the customer.
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| Article 14 | A securities firm maintaining custody of customer funds arising from securities business in the cash management account may not keep the funds in the account for more than ten business days. If by the end of the period the custodied funds still do not reach the minimum investment level as agreed with the customer, the securities firm shall, by 12 noon on the next business day, return and transfer the funds in full to the account for book-entry transfer of securities and funds opened by the customer for engaging in securities trading on the exchange or over-the-counter market.
A securities firm shall return any bank interest accrued on customer funds it holds in custody in the cash management account to the customers based on the percentage of funds it holds in custody for each customer.
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| Article 15 | A securities firm conducting business relating to custody and investment of funds on behalf of customers may charge management fees at a rate determined between the securities firm and the customers.
Any bank interest accrued on customer funds held in custody by the securities firm in the cash management account, and any gains or income arising from any investment made by the securities firm in its name using the funds from the cash management account, shall be the income of the customers. The securities firm shall, in the year in which the income is accrued, withhold tax from the payment of income to each entitled customer in accordance with the Income Tax Act and the associated regulatory provisions and issue a withholding certificate accordingly identifying the customer as the taxpayer.
With respect to the bank interest accrued on customer funds held in custody in the cash management account as described in the preceding paragraph, the securities firm shall, after deduction of necessary fees and applicable taxes, settle account on a half-yearly basis and return any remaining balances to each relevant customer by the end of January and July each year, and the funds so returned may only be transferred to the account for book-entry transfer of securities and funds opened by the customer for engaging in securities trading on the exchange or over-the-counter market.
With respect to the gains or income arising from any investment made by the securities firm in its name using the funds from the cash management account, the securities firm shall, after deduction of the management fee specified in paragraph 1 and any applicable taxes and other necessary fees, settle account on a yearly basis and return any remaining balances to each relevant customer by the end of December each year, and the funds so returned may only be transferred to the account specified in paragraph 3. If a customer terminates early the agreement for the business services contemplated herein, the securities firm may return early to the customer the portion of income earned on investment on the part of the customer.
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| Article 16 | A securities firm shall adopt an effective internal control system for the conduct of business relating to custody and investment of funds on behalf of customers.
The internal control system under the preceding paragraph shall specify matters relating to regulatory filing of the securities firm's credit rating information, the securities firm's operational procedures for commencement, suspension, and resumption of the business contemplated herein, regulatory filing of the monetary amount in which the securities firm conducts the business hereunder, methods of transfer from the various sources of funds for custody and investment, methods of transfer when funds do not reach the agreed minimum investment level, compliance matters for investment of funds, distribution and transfer of income or loss on investment, distribution and transfer of interest on custodied funds, treatment of management fees and government taxes and fees, treatment of funds for settlement of customers' trades, customers' funds withdrawal requests, early termination of agreement by customers, receipt, release/payment, and investment of customer funds, and other matters relating to account administration and information transmission, and any other matters required by the competent authority.
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