Chapter III Procedures for Covering Shortfalls in Securities Deliverable in Day Trading |
| Article 7 | When a securities broker accepts an order to sell shares on the spot market, the broker shall confirm whether the order quantity exceeds the aggregate sum of the balance of those securities deposited in the principal's depository account and the quantity of the principal's cash purchases of the securities executed the same day. If the order exceeds that sum, the securities broker also shall confirm that it has a sufficient quantity of the securities, for the broker to lend to the principal for settlement purposes in the event that the principal fails to complete an opposite purchase to close out the day trade.
Where the quantity of sold spot securities reported by the dealing department of a securities firm (securities trading account number: 000000-0) exceeds the aggregate sum of the balance of the securities in the depository account which it keeps and the quantity of cash purchases of the securities executed the same day, the securities firm shall confirm with the brokerage department that it has a sufficient quantity of the securities for transfer into the account for settlement purposes in the event that an opposite purchase to close out the day trade is not completed.
The sources of securities for lending or transfer out of the account by a securities broker as referred to in paragraphs 1 and 2 shall be limited to securities borrowed by said broker from a customer, proprietary securities transferred by the dealing department of said broker, or securities borrowed through securities lending business conducted by said broker; or securities borrowed from another securities broker that borrows the securities from its own customers, proprietary securities transferred by the dealing department of such other broker, or securities borrowed through securities lending business conducted by such other broker; and relent to the securities broker.
A public company's directors, supervisors, managerial officers, and greater than 10 percent shareholders (including their spouses, minor children, and any other persons in whose names they hold shares) may not borrow or lend stock of that public company under paragraphs 1 and 2 herein. Stock of that public company placed in trust by those persons also may not be lent.
The rate charged for lending of securities to cover a shortfall in securities deliverable in day trading under paragraphs 1 and 2 shall not exceed 7 percent of the closing price of the securities on the day of their sale. Subject to the shortfall in securities deliverable in day trading being made up, the securities firm may borrow from those with confirmed intent to lend, in ascending order of lending rate. A securities firm shall borrow from a customer first if the lending rate charged by the internal personnel of the securities firm is the same as that by the customer.
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| Article 8 | If the securities broker is unable to lend securities to the principal under the preceding article, the securities broker will authorize a financial enterprise to bid or negotiate on its behalf for the borrowing of securities in accordance with the TWSE Securities Borrowing and Lending Rules or the GTSM Securities Borrowing and Lending Rules.
If the quantity of securities borrowed by the securities broker through the bidding or negotiation procedures under the preceding article is still insufficient, the TWSE or GTSM will arrange on its behalf for the borrowing of the remaining quantity of securities required for settlement in accordance with the TWSE Securities Borrowing and Lending Rules or the GTSM Securities Borrowing and Lending Rules.
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| Article 9 | When a principal or the dealing department of a securities firm has sold spot securities but fails to complete an opposite purchase, the securities broker shall, on the first business day after the trade date of the sale of the spot securities, make a forced repurchase through a "special account for handling shortfalls in securities deliverable in day trading" (securities trading account number: 889999-9) set up by the broker's headquarters, for purposes of returning the securities borrowed under Articles 7 and 8. If it is unable to make a forced repurchase of the full quantity on the first business day after the trade date of the sale of the spot securities, it shall, beginning from the second business day after the trade date of the sale of the spot securities, continuously repurchase the securities until the full quantity has been repurchased. Forcibly repurchased securities shall be used, in first priority, to return securities borrowed through bidding and negotiation procedures under Article 8.
If the securities broker is unable, on the first business day after the trade date of the sale of the spot securities, to make a forced repurchase of the full quantity of the securities borrowed under Article 7, it shall notify the party that lent the securities and the principal that borrowed the securities to continue lending and borrowing the securities that have not yet been forcibly repurchased until the full quantity has been repurchased. The party that lent the securities may not request the early return of the securities. The securities lending rate shall be as provided in Article 7, paragraph 5, and shall be calculated based on the closing price on the day of the continued lending. If there is no closing price for the securities on the current day, it shall be calculated based on the auction reference price at market opening of the current trading session.
If the securities broker is unable, on the first business day after the trade date of the sale of the spot securities, to make a forced repurchase of the full quantity of the securities borrowed through bidding or negotiation procedures under Article 8, it shall continue to authorize the financial enterprise to bid or negotiate on its behalf for the borrowing of the quantity of securities not yet forcibly repurchased.
Forced repurchases under this article may be made in ordinary trading, after-hours fixed-price trading, odd-lot trading, or block trading. However, the "special account for handling shortfalls in securities deliverable in day trading" referred to in paragraph 1 may be used only to make purchases in the spot market, and may not be used to make sales. Also, an omnibus account may not be used for forced repurchases, nor may an account number correction be reported.
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| Article 10 | The securities broker must first sign a Contract for Securities Lending to Cover Shortfalls in Securities Deliverable in Day Trading with the customer or the other securities broker that lends the securities and with the principal that borrows the securities, respectively. The securities broker also must open a Special Account for Handling Shortfalls in Securities Deliverable in Day Trading before the broker may handle business in connection with securities lending to cover shortfalls in securities deliverable in day trading under Article 7.
The contract of the preceding paragraph shall specify at least the following:
- Securities lending period: that the securities will be returned after the securities broker has forcibly repurchased the securities and settlement has been completed.
- Processing fee rate and securities lending fee rate.
- Entitlement compensation.
- Handling of customer information.
A template of the contract under the preceding paragraph shall be adopted by the Taiwan Securities Association and submitted to the TWSE for recordation.
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| Article 11 | A securities broker shall set up a separate account ledger for each customer and make itemized daily entries of shortfalls in securities deliverable in day trading, borrowing of securities through bidding or negotiation procedures, settlement-driven securities borrowing, return of securities, entitlement compensation, and related matters.
A securities broker shall, based on the account entry records under the preceding paragraph, prepare a reconciliation statement each month and deliver it to the customer, unless there is no record of borrowing for the given month and neither the lender nor the borrower has submitted a written request for a statement.
The securities broker shall obtain written statements of consent signed by securities borrowers and by lenders under Article 7 consenting for the securities broker to provide the signer's personal information related to securities borrowing to the TWSE, GTSM, and any institution designated by the competent authority, as required for collection, processing, or international transmission, and utilization, in accordance with relevant laws and regulations.
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| Article 12 | When there is book closure by an issuer of a security eligible for day trading, all sell-first buy-later day trading of that security, and all operations for lending of that security to cover shortfalls in day trading under Article 7, shall be suspended beginning from 5 business days before the book closure date. This restriction shall not apply, however, if the cause for the book closure by the issuer has no effect on the exercise of shareholder rights.
If a business day under the preceding paragraph is a trading day, but the commencement date of book closure of the issuing company is scheduled to fall on a date from (and inclusive of) the second settlement day after the last trading day before the Lunar New Year Holidays to (and inclusive of) the second trading day following the Lunar New Year Holidays, the following provisions shall apply:
- If the commencement date of book closure is scheduled to fall on the second settlement day after the last trading day before the Lunar New Year Holidays, then the first settlement day after the last trading day is included in the calculation of "business days."
- If the commencement date of book closure is scheduled to fall during the Lunar New Year Holidays or on the first trading day following the Lunar New Year Holidays, then the two settlement days after the last trading day are both included in the calculation of "business days."
- If the commencement date of book closure is scheduled to fall on a weekend or other regular holiday after the first trading day following, or on the second trading day following, the Lunar New Year Holidays, then the first settlement day after the last trading day is included in the calculation of "business days."
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| Article 13 | When a principal, after selling securities on the spot market, fails to complete an opposite purchase to close out the day trade, the principal shall be solely liable for all fees incurred in connection with any borrowing of securities, or bidding or price negotiation for the borrowing of securities, to cover any shortfall in securities deliverable in day trading, or with settlement-driven securities borrowing, and for any price difference and other fees incurred in connection with a forced repurchase.
By 5 p.m. on the first business day after a forced repurchase for the return of borrowed securities, the principal shall pay in full any price difference and fees incurred in connection with a forced repurchase under the preceding paragraph, and will be deemed in default if the payment is late.
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