Chapter III Regulation of Classification for Subject Instruments
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Section 1 Outright Transactions and Repo Transactions
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| Article 25 | A securities firm using funds from the cash management account to engage in outright transactions shall do so in compliance with the following:
- 1. It may not invest in any negotiable certificate of deposit or commercial paper issued by the securities firm itself or by a company that is an interested party of the securities firm.
- 2. The total amount of its investment in negotiable certificates of deposit or commercial papers issued by one single company may not exceed 10% of the total amount of invested funds.
- 3. The total amount of its investment in negotiable certificates of deposit or commercial papers guaranteed or endorsed by any bank or bills finance company may not exceed 10% of the total amount of invested funds.
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| Article 26 | A securities firm using funds from the cash management account to engage in repo transactions may not engage in any single transaction that involves a period of more than 180 days.
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| Article 27 | A securities firm using funds from the cash management account to engage in repo transactions shall do so with counterparties that have, during the most recent year, a long-term credit rating at or above a prescribed level from a credit rating agency as listed in Appendix 1.
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| Article 28 | A securities firm using funds from the cash management account to engage in repo transactions may not engage in any transaction with one single counterparty resulting in a combined outstanding balance in excess of 100% of the counterparty's net worth as shown in its latest CPA-audited and attested financial report.
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| Article 29 | A securities firm using funds from the cash management account to engage in outright transactions or in repo transactions in any of the three instruments of treasury bills, negotiable certificates of deposit, and commercial papers with the securities firm itself or with a company that is an interested party of the securities firm shall, by the end of the month following the transaction date, disclose to the customers the index rate for transactions in Taiwan's short-term bills (SIRIS) of a corresponding maturity as published by the TDCC on the transaction date, or if no such index rate is available, the index rate for quotations for Taiwan's short-term bills (TAIBIR) of a corresponding maturity.
A securities firm using funds from the cash management account to engage in bond repo transactions with the securities firm itself or with a company that is an interested party of the securities firm shall, by the end of the month following the transaction date, disclose to the customers the average interest rate for repo transactions on the OTC market as published by the GTSM on the transaction date.
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| Article 30 | A securities firm using funds from the cash management account to engage in repo transactions may not enter into any new transaction with a counterparty whose credit rating no longer meets the requirement in Article 27. Notwithstanding the foregoing, if a repo transaction with the counterparty involves pooling of funds from two or more customers, as described in Article 31, and if the transaction is subject to early termination due to early termination of agreement by any of the customers involved, the securities firm may for and only for that transaction enter into a subsequent repo-style transaction agreement with the counterparty expiring on the same date as the original agreement.
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| Article 31 | When a securities firm uses funds from the cash management account to engage in repo transactions, if a repo transaction involves pooling of funds from two or more customers, and if the transaction is subject to early termination due to early termination of agreement by any of the customers involved, the securities firm shall obtain written consent from the counterparty to the transaction. In the case of a transaction involving partial termination of agreement, interest shall be paid, based on the original agreed interest rate, on the funds used to enter into a subsequent repo transaction with the same counterparty to replace the original transaction. If a new repo-style transaction agreement is entered into for that purpose, it shall have the same expiry date and interest rate as the original agreement as if it were not terminated early. The same shall not apply, however, if without detriment to customer interests the securities firm otherwise reaches or has reached an agreement with the non-terminating customer(s).
The preceding paragraph shall also apply when a securities firm uses funds from the cash management account to engage in repo transactions with the securities firm itself.
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| Article 32 | The agreement signed between a securities firm and a customer for the provision of business services relating to custody and investment of funds on behalf of the customer, shall contain a special clause to the effect that when a subject instrument involves repo transactions, if any single repo transaction involves pooling of funds from two or more customers, and if the transaction is subject to early termination due to early termination of agreement by any of the customers involved, it is agreed that in this circumstance the securities firm may on its own initiative terminate the agreement early and that the securities firm shall take further action as specified in the preceding article.
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| Article 33 | A securities firm conducting business relating to custody and investment of funds on behalf of customers shall assign qualified associated persons to engage in outright transactions and repo transactions with counterparties.
When a securities firms uses funds from the cash management account to engage in outright transactions and repo transactions with itself, the function of associated persons for the business described in the preceding paragraph may not be performed by associated persons engaging in proprietary trading operations for that business, and vice versa.
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| Article 34 | A securities firm using funds from the cash management account to engage in outright transactions or repo transactions may not use the underlying assets thus obtained for further outright sale to others, for further repo-style transactions, or for any other purposes.
A securities firm using funds from the cash management account to engage in outright transactions or repo transactions shall, in lieu of actually receiving and holding the underlying assets, only use a short-term bill passbook, central depository passbook, bond passbook, or repo-style transaction certificate, as the case may be, issued by a custodian institution; it may not withdraw any underlying asset in physical form.
When a securities firms uses funds from the cash management account to engage in transactions in eligible instruments with itself, the functions of associated persons performing clearing and settlement for those transactions may not be performed by associated persons performing clearing and settlement for proprietary trading operations for that business, and vice versa.
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| Article 35 | A securities firm shall in its internal control system specify the preservation method for the trade confirmation statements, delivery statements, and payment and settlement statements with respect to subject instruments, and for the relevant passbooks and certificates, and shall regularly check the relevant passbooks or certificates thus held against the information on any outstanding balance of subject instruments, and also prepare and maintain written verification records accordingly.
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Section II Money Market Funds and Quasi-Money Market Funds Within the Category of Bond Funds |
| Article 36 | A securities firm using funds from the cash management account to invest in funds shall do so in compliance with the following:
- Its investment in beneficial certificate units of any single securities investment trust fund may not exceed 10% of the net asset value of that fund.
- Its investment in beneficial units of securities investment trust fund(s) offered and issued by any single securities investment trust enterprise may not in total exceed 20% of the total amount of invested funds.
- Its investment in quasi-money market funds within the category of bond funds may not in total exceed 10% of the total amount of invested funds.
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| Article 37 | A securities firm using funds from the cash management account to invest in funds issued in certificated form may not take or receive the physical beneficial certificates; if it uses such funds to invest in funds issued in dematerialized form, it shall deposit the fund units in the accounts opened by the relevant securities investment trust enterprises with the TDCC.
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| Article 38 | A securities firm using funds from the cash management account to invest in beneficial certificate units shall obtain written consent from customers for matters that are required by law or regulation to be approved by the beneficial owners or unitholders of the fund but that exceed the scope of customer authorization stated in the agreement for the business contemplated hereunder.
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| Article 39 | A securities firm shall in its internal control system specify matters relating to the method for preserving trade confirmation statements, reconciliation statements, notices issued by fund companies, and any other relevant vouchers, records, and documents in relation to its investment in beneficial certificate units, and shall regularly check the balance of beneficial units in funds whose trading involves the use of funds from the cash management account against the number of beneficial units on hand, and prepare and maintain written verification records accordingly
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