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Operating Rules for Securities Firms Handling Non-Restricted Purpose Loan  CH

Amended Date: 2021.04.01 
Categories: Securities Exchange Market > Borrowing of Money
   Chapter IV Calculation of the Collateral Maintenance Ratio
Article 20    In non-restricted purpose loan business conducted by a securities firm, the client's overall-account collateral maintenance ratio shall be calculated as follows:
    Collateral maintenance ratio=(market value of the collateral+market value of the supplementary collateral) ÷ (financing amount)×100%
    In regard to the market value of collateral referred to in the preceding paragraph, the market value of TWSE and TPEx listed securities is the closing price of the current day; that of central book-entry bonds is 80 percent of their face value; that of municipal bonds, common corporate bonds and financial bonds is 60% of their face value; that of physical gold is the Closing Average of the current day, and that of TPEx traded beneficial certificates of open-end funds, open-end securities investment trust funds and futures trust funds is the net asset value of the preceding business day. If there is no current day's closing price for a given TWSE or TPEx security, the market value shall be determined by the following principles:
  1. If the current day's highest buy order price at the close of market is higher than the current day's auction reference price at market opening for a TWSE listed security, or than the current day's benchmark price at trade opening for a TPEx listed security, the market value shall be the highest buy order price.
  2. If the current day's lowest sell order price at the close of market is lower than the current day's auction reference price at market opening for a TWSE listed security, or than the current day's benchmark price at trade opening of trading for a TPEx listed security, the market value shall be the lowest sell order price.
  3. When neither of the above circumstances applies, the market value shall be the current day's auction reference price at market opening for a TWSE listed security, or the current day's benchmark price at trade opening for a TPEx listed security.
    A securities firm shall calculate a client's overall account collateral maintenance ratio each business day. If a client's overall account collateral maintenance ratio is lower than 130% due to a change in the value of the collateral or supplementary collateral, the securities firm shall notify the client to cover the collateral shortfall and bring the collateral maintenance ratio above 166% within 2 business days from receipt of the notice, and the following provisions shall be complied with, unless the parties agree otherwise:
  1. If the client fails to cover the collateral shortfall within 2 business days from the date on which the notice is served and the overall account collateral maintenance ratio is still lower than 130%, from the third business day, the securities firm shall dispose of the client's collateral under the mutatis mutandis application of Article 25, Paragraph 1.
  2. If the client fails to cover the collateral shortfall within 2 business days from the date on which the notice is served and the overall account collateral maintenance ratio has risen to 130% or higher, the securities firm may temporarily refrain from disposing of the collateral on the third business day. However, if on any subsequent business day in which its overall account collateral maintenance ratio again falls below than 130% and the client does not deposit additional collateral on its own initiative in the afternoon of that day, its collateral shall be disposed of from the next business day under the mutatis mutandis application of Article 25, paragraph 1.
  3. If the collateral maintenance ratio rises to 166% or higher even though the client has not covered, or has covered only a portion of, the collateral shortfall, or if the total collateral deposits made by the client is sufficient to cover the shortfall notified to cover in the notice before its collateral has been disposed of according to the preceding subparagraphs, the record of the collateral call shall be expunged.
    The covering of shortfall under the preceding paragraph is for the situation where the overall account collateral maintenance ratio of the financing account is below 130%.
    If, as a result of any change in share price, there is an increase in the net value of the collateral in a client's financing account less the client's obligations, the securities firm is prohibited from delivering to the client any cash or securities equivalent to the amount of the increase. However, this does not apply when the client applies to change the credit limit, and the securities firm reapproves its credit limit.
    The disposal of collateral under subparagraph 1 and 2, Paragraph 3 shall be carried out in accordance with Article 25 of these Operating Rules. If the proceed from such disposal is insufficient to make repayment, the client shall be notified to make repayment within a certain time period, with interest accruing at the financing interest rate from the date on which the claim occurred until the date of repayment.
    The supplementary collateral under these Operating Rules means the securities or other commodities provided by the client or any third party when the overall account collateral maintenance ratio is lower than the required ratio and such collateral is supplemented to make up the shortfall upon the notification made by the securities firm.
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Article 21    Except in the case of a cash capital increase, beginning from 6 business days before the ex-dividend date of the collateral and supplementary collateral provided by a client, a securities firm may calculate the collateral maintenance ratio for each day based on that day's closing price or net asset value of each security on each given day minus the value of the share rights or dividends, and the provisions of the preceding article shall apply mutatis mutandis.
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Article 22    The client may use the securities or other commodities prescribed under Article 2 to cover the finance shortfall, and the supplementary value may be calculated according to Article 16. However, the collateral to which either of the circumstances listed below applies may not be used as supplementary collateral:
  1. Securities comprising less than one trading unit.
  2. Where the securities are registered shares of the issuing company acquired by its shareholders or capital contributors as a result of that company's conduct of a capital increase from earnings, capital increase through contributions by that company's employees out of their bonuses to the industry in which they serve, or capital increase by a venture capital company out of undistributed earnings pursuant to Article 13 of the Statute for Encouragement of Investment or Articles 16 and 17 of the Act for Upgrading Industries, and such shares have not been transferred or reported for taxes.
    When calculating a client's overall account collateral maintenance ratio, a securities firm is not required to apply a haircut to the value of the supplementary collateral securities or other commodities.
    If the rate of bonus shares or stock dividend shares distributed on collateral or additional collateral securities or other commodities provided by a client is 20% or higher, except where the competent authority has imposed restrictions on trading of the securities or pledge has been created under Article 6, paragraph 3, all such new shares shall serve as collateral, and the right to defer income tax shall be waived. The TDCC shall transfer the shares by book-entry transfer into the segregated loan collateral account opened by each securities firm, and the provisions of Article 33 of the Criteria Governing Handling of Stock Affairs by Public Stock Companies shall not apply.
    Bonus shares or stock dividends referred to in the preceding paragraph may not be used as collateral for borrowing securities from the TWSE securities lending system or for obtaining refinancing from a securities finance enterprise.
    The provisions of Article 21 shall not apply to bonus shares or stock dividend shares used as collateral. After ex-rights trading has commenced, the market value of such shares shall be calculated at 60% of the closing price of the TWSE or TPEx listed securities. After the shares have been transferred to the securities firm's segregated loan collateral account, the haircut need not be applied to the calculation of their value.
    For the calculation standard set forth in paragraph 1 and preceding paragraph, a securities firm may adopt a stricter standard depending on the market status of the collateral and the client credit risk.
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