Chapter I General Principles
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| Article 1 | These Regulations are adopted pursuant to Article 28 of the Regulations Governing Margin and Stock Loans by Securities Firms. |
| Article 2 | A securities firm handling margin purchase and short sale lending operations in securities trading shall do so in accordance with securities trading acts and regulations, these Regulations, and other relevant rules, regulations, public announcements, and letters of the Taiwan Stock Exchange Corporation (TSEC), GreTai Securities Market (GTSM), and centralized securities depository enterprises. |
| Article 3 | Upon approval by the competent authority to engage in securities margin purchase and short sale business, a securities firm shall submit the following documents by letter to the TSEC for recordation two days before commencing such business:
1. A photocopy of the permit from the competent authority.
2. Operational rules and regulations governing margin purchases and short sales of securities.
3. A roster of the responsible and associated persons of the department in charge and documents certifying their qualifications.
The responsible and associated persons under the preceding paragraph shall be registered with the TSEC before they may engage in such business. Any change in such personnel shall be registered within five days.
Any amendment to the operational rules and regulations under paragraph 1 shall be reported to the TSEC by letter for recordation within five days. |
| Article 4 | Margin purchases and short sales in the trading of listed securities by securities firms shall be confined to funds and securities deliverable after execution of customer orders for normal settlement trades on the TSEC centralized securities exchange market of securities that the TSEC has publicly announced are eligible for margin purchase and short sale.
Margin purchases and short sales in the trading of over-the-counter (OTC) securities by securities firms shall be confined to funds and securities deliverable after execution of customer orders for trades through the GTSM automated trade matching system of securities that the GTSM has publicly announced are eligible for margin purchase and short sale.
Odd-lot and block trades and trades under Article 74 of the TSEC Operating Regulations or Article 39 of the GTSM Securities Market Regulations Governing Securities Trading on Over-the-Counter Markets (hereinafter, "Trading Regulations") are not eligible for margin purchases or short sales. |
| Article 5 | The amount limits, time limits, margin financing ratio, and short-selling margin rate percentage for margin purchases and short sales in securities trading by securities firms shall be subject to relevant provisions of the competent authority.
A securities firm shall issue a written notice to the customer 10 business days before expiration of the time limit designated by the competent authority under the preceding paragraph for each margin purchase or short sale. |
| Article 6 | For securities margin purchases and short sales handled by securities firms, with respect to the margin loan interest, securities sold short, and commission receivable from the customer, and the short-selling price and short-selling margin interest payable to the customer, the interest rates and fee schedules are to be set by the securities firm and reported to the competent authority for recordation.
Where any adjustment is made to interest rates and/or fee schedules under the preceding paragraph, receipts/payments for any open position margin purchase or short sale positions shall be made based on the adjusted interest rate and/or fee schedule from the date of the adjustment. |
| Article 7 | In handling margin purchases and short sales of securities, a securities firm may not use short-selling proceeds and short-selling margins that are on deposit for any purpose other than those listed below:
1. To fund its margin purchase services.
2. Collateral for securities refinancing from securities finance enterprises.
3. Bank deposits.
In handling margin purchases and short sales of securities, a securities firm may not employ securities acquired through such trading except for the following purposes, and shall place them under central custody:
1. To fund its short selling services.
2. As collateral for funds or securities refinanced from securities finance enterprises. |
Chapter II Opening and Management of Margin Trading Accounts
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| Article 8 | A securities firm shall enter into a margin purchase and short sale contract with the customer and open a margin account before accepting any order for margin purchase or short sale of securities.
The margin purchase and short sale contract under the preceding paragraph shall be drafted by the TSEC in conjunction with the GTSM and submitted to the competent authority for ratification.
A put warrant issuer may, to meet hedging needs, open a margin account with which to sell securities short.
An enterprise exclusively or concurrently engaged in futures proprietary trading (dealing) that is also an equity options market maker may, for its offsetting hedging needs, open a margin account with which to short sell securities.
For a privately placed securities investment trust fund managed by a securities investment trust enterprise, the fund custodian institution may apply to open a margin account, for which the amount limit for margin purchase and short sale shall not exceed 50 percent of the fund size, and which shall be controlled by the TSEC as a segregated account. If that amount is exceeded, the TSEC shall notify the securities firm to forward notice to the securities investment trust enterprise, which then shall lower the amount to 50 percent within two business days from the date on which it receives the notice from the securities firm. If it fails to do so within the time limit, the TSEC may, by the mutatis mutandis application of Article 30, paragraph 3, instruct the securities firm to dispose, on the following business day, of the collateral to the extent required to achieve compliance.
The combined total of the amount limit for short sale under the preceding paragraph and actual sales with borrowed securities may not exceed 50 percent of the fund size. |
| Article 9 | A securities firm may open only one margin account per customer. The requirements for opening an account shall be drafted by the TSEC in conjunction with the GTSM and submitted to the competent authority for ratification. |
| Article 10 | A securities firm may not accept an application to open an account from any customer to whom any of the circumstances below applies. If an account has already been opened, the securities firm shall promptly notify the customer to close out all margin trades on the following business day, after which its account shall be canceled; if the customer fails to close out all trades within this time limit, the securities shall, by the mutatis mutandis application of Article 39, paragraph 3, commence closing out the trades on the following business day.
1. Non-compliance with the account opening requirements.
2. Opening the account under the name of another person.
3. Any circumstance under Article 76, paragraphs 1 or 3, of the TSEC Operating Rules or Article 47, paragraphs 1 or 2, of the GTSM Trading Regulations.
4. Cancellation of a brokerage account opened at the same securities firm.
5. (deleted)
6. Any violation of a margin purchase and short sale contract entered into with a securities firm or securities finance enterprise, where less than one year has elapsed since such violation or where the case remains pending.
7. A petition filed with a court for reorganization, composition, or bankruptcy under the Company Act or the Bankruptcy Act.
8. Refusal to transact by a clearing house.
9. Any internal personnel of a securities firm, other than a spouse of an employee.
The provisions of the preceding paragraph apply mutatis mutandis where money and/or securities in a margin account are subject to a court ruling for provisional attachment, provisional injunction, or compulsory execution.
Where any circumstance in the preceding two paragraphs applies to a juristic person or its responsible person, the responsible person or any juristic person represented thereby is also prohibited from opening a margin account. Where an account has already been opened, the provisions of paragraph 1 shall be complied with. |
| Article 11 | A customer that is a natural person, when applying to open a margin account, shall present the original copy of his/her national ID card, sign a margin account application and margin purchase and short sale contract then and there, and provide a specimen seal or signature card, a certificate of income and property, and trading records.
Where the customer is a juristic person, the account opening procedures under the preceding paragraph shall be carried out by an authorized person who shall present a power of attorney, the original national ID cards of the authorized person and the customer's representative, the original incorporation/amendment registration card of the juristic person, and the original certification of incorporation.
A photocopy of each documentary proof of identity and incorporation/amendment registration card, and the original power of attorney under the preceding paragraph shall be retained. The photocopies shall be stamped with a stamp stating, "It has been verified that the account opening application has been made in person by the applicant or by the authorized person thereof and that the photocopies are true and faithful copies of the original."
When processing an application to open a margin account, a securities firm shall perform a detailed and faithful credit check to verify that the customer is qualified to open an account. It shall specify the details of the credit check method, credit check materials, and credit check findings along with the credit account application form, and shall complete an account opening card specifying the date of account opening and the account number. It shall submit the account opening information on the same day to the TSEC or GTSM computer database, and shall do the same for the account cancellation information when an account is cancelled. Where the customer is a juristic person, it shall also obtain certification from the juristic person via letter that it has in fact authorized the opening of the account. |
| Article 12 | Where a customer who has opened a margin account does not have any record of engaging in any margin purchase or short sale trading for three or more consecutive years, the securities firm shall promptly cancel the margin account and notify the customer of such cancellation.
A customer needing to terminate a margin account that it has opened shall complete an Application for Termination of Margin Account. The securities firm, upon satisfaction that the customer has closed out all obligations in relation to margin purchases and short sales, shall promptly carry out account cancellation procedures. |
| Article 13 | (deleted) |
| Article 14 | A securities firm shall open a separate account for each margin account, and make an entry for each of the following matters on a daily basis:
1. Particulars of margin purchases and short sales.
2. Collateral.
3. Any margin calls for, or disposal of, collateral.
A securities firm 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 margin trading for the given month and the customer moreover has not submitted a written request for a statement.
Upon execution of a consent letter by the customer to allow collection, computer processing or international transmission, and use, by the TSEC, GTSM, and an institution designated by the competent authority, of the customer's personal data pursuant to relevant acts and regulations, a securities firm shall promptly transmit the data concerning credit line, balance of margin loans and borrowed securities, and any changes therein, to the TSEC and GTSM computer database systems. |
| Article 15 | If a customer fails to promptly notify the securities firm in writing of any change in its name, national ID number or business license government uniform invoice number, or mailing address or contact telephone number of the customer, agent, or representative as stated in the Margin Account Application, the securities firm may temporarily suspend margin purchases and short sales by the customer. |
| Article 16 | Notices by a securities firm to a customer of matters of which the customer must be notified under these Regulations shall be made by mail or signed for in person by the customer.
Where a notice mailed by a securities firm is not delivered in due time as a result of failure by a customer to give notice under the preceding article or for some other reason attributable to the customer, the notice shall be deemed effective from the day of the first delivery made by the post office.
A notice that is signed for in person by the customer shall be signed with the customer's signature or seal impression corresponding to the specimen signature or seal in the original margin purchase and short sale contract, and shall be dated personally by the customer. |
Chapter III Margin Trading Applications and Repayment
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| Article 17 | A customer placing an order for a margin purchase or short sale shall complete an order ticket bearing the words "MARGIN PURCHASE" or "SHORT SALE"; after execution of the trade, the securities firm shall complete a trade report bearing the same words and have it signed/sealed by the customer. |
| Article 18 | Upon execution of a margin purchase or short sale, a securities firm shall calculate the balance of margin loans or borrowed securities of the customer's margin account after close of market each day. The customer shall deposit cash or spot securities to settle any portion above its credit limit for margin purchases or short sales.
After a customer places an order for a short sale, if a rise in the price of the security causes the customer's balance of securities sold short to exceed its amount limit for short sale, the securities firm may proceed with the short sale within the extent of the daily price limit for the security on the given day.
When the market price per trading unit of securities sold short exceeds the credit limit for short sales, a trader may sell one trading unit short if the trader's margin account is clear of any short sale balance. |
| Article 19 | Upon execution of a margin purchase or short sale trade, the securities firm shall, by 12 noon on the first business day after the trade date, collect from the customer a margin for the margin purchase, based on the balance of the price of the margin purchase trade less the dollar amount of the margin loan, or a short-selling margin, based on the price of the short sale trade multiplied by a required percentage (any amount less than NT$100 shall be calculated as NT$100).
When the same type of stock exchange-listed or OTC-listed securities are bought on margin and sold short in the same account on the same day, if the customer has signed a consent letter with the securities firm, for portions of equal volume, settlement may be made for the balance after netting (offsetting) the "margin purchase repayment" and "short sale repayment," and the securities firm shall complete an Application to Repay Margin Purchases with Cash and An Application to Repay Short Sales with Spot Securities on behalf of the customer; the provisions of Article 31 shall not apply.
If a customer who has already signed a consent letter under the preceding paragraph does not wish to carry out netting settlement under the preceding paragraph, the customer shall provide a written explanation to the securities firm before close of market on the day on which the trades are executed.
Interest for margin purchases or short sales shall not accrue on portions that are offset as set out in paragraph [2]; short sales handling fees will accrue however.
The customer shall continue to include any portions that are offset as set out in paragraph [2] when calculating the respective limits on margin purchases and short sales for the given day, and is prohibited from calculating merely the net amount remaining after offsetting and using it as a revolving line on the given day. |
| Article 20 | A securities firm providing a margin loan to a customer shall do so and perform settlement on behalf of the customer based on the dollar amount of the margin loan as calculated (with any amount less than NT$1,000 excluded from calculation) by multiplying the trade price for the margin purchase by a required percentage; all securities bought on margin shall serve as collateral.
A securities firm providing short sale services to a customer shall provide the stocks sold short and perform settlement on behalf of the customer in accordance with the type and amount of the securities sold in the short sale trade; the proceeds from the short sale, after deducting the securities transaction tax, short sale handling fee, and securities firm handling fee, shall serve as collateral. |
| Article 21 | In a margin purchase trade, a securities firm shall collect from customers the interest on margin loans loan accrued at the prescribed interest rate; in a short sale trade, interest shall accrue on the short-selling margin and on the remainder of the proceeds from short selling under paragraph 2 of the preceding article at the prescribed interest rate and shall be paid to the customer.
The interest under the preceding paragraph shall accrue for the number of days from the second business day after the day on which the margin purchase or short sale trade is executed to the day before the repayment day. |
| Article 22 | For fees required to be borne by a securities firm as a result of borrowing by tender, borrowing by negotiation, or a tender purchase conducted by a securities finance enterprise, after calculating the fees required to be borne per share based on the short-sale balance for that security on the date the short-sale loan deficiency occurred, the securities firm shall collect the fees from the short sellers respectively according to the quantities of the short sales of each.
A securities firm may collect the fees receivable under the preceding paragraph by deducting the amount from the short sale collateral funds in the margin account of the customer.
Securities apportionable to a securities firm from among the securities acquired through a tender purchase conducted by a securities finance enterprise shall be apportioned on the basis of single trading units, and distributed pro-rata to those [short sellers] with a remaining short-sale balance for that security on the date the short-sale loan deficiency occurred, for purchase to repay the short sales. If securities still remain after such distribution, they shall be further distributed sequentially based on the size of the fractional portion of the quantity distributable to each short seller. Where the fractional portion is equal, they shall be distributed by drawing of lots.
Where two or more tender purchases are conducted, the dollar amounts distributable to short sellers shall be calculated by the weighted average method. |
| Article 23 | A securities firm shall calculate on a daily basis, based upon the closing price announced by the TSEC ("closing price"), or the next day's reference price announced by the GTSM ("reference price), or the par value of government bonds, the collateral maintenance ratio for each overall margin account and for each margin purchase/short sale in each margin account by the following formula:
collateral maintenance ratio = (market value of securities deposited as collateral for margin purchase + initial collateral and margin for short sale) ÷ (initial margin loan amount + market value of the securities sold short) × 100 percent
The market value of securities under the preceding paragraph shall be calculated based on the closing price or reference price; however, for securities deposited as collateral for margin purchase, during the six business days prior to the ex-rights or ex-dividend date for each security, the market value of the collateral securities shall be calculated based on each day's closing price or reference price less the ex-dividend price or less the ex-rights price as calculated on the basis of the closing price or reference price for the given day.
If the rate of stock dividends on securities that a customer buys on margin is 20 percent or more, the full amount of the stock dividends shall serve as collateral, and the right to defer income tax shall be waived. The centralized securities depository enterprise shall transfer them by book-entry transfer into the segregated margin purchase/short sale accounts of the given securities firm, and the application of Article 19 of the Regulations Governing Handling of Stock Affairs by Public Companies is precluded.
Stock dividends referred to in the preceding paragraph may not serve as a source of securities for lending in short sale operations handled by securities firms nor may they be used as collateral for refinancing.
Paragraph 2 shall not apply to stock dividends used as collateral. After ex-rights trading [has commenced], the market value shall be calculated on the basis of 70 percent of the closing price for listed securities and 60 percent of the reference price for OTC securities. After such securities have been remitted into the segregated margin purchase/short sale account of the securities firm, their value is no longer required to be discounted.
The market value of securities deposited as collateral for margin purchase and initial collateral and margin for short sale referred to in paragraph 1 [means the] balance of the funds, and the market value of the securities, in the customer margin account less short sale fees and tender purchase fees; any that has been offset by an offsetting trade or on which any residual obligation remains after the securities firm has disposed of the collateral shall also be deducted.
Where the overall collateral maintenance ratio of the customer margin account is lower than 120 percent, the securities firm shall notify the customer to pay in, within two business days from the day the notice is delivered, additional margin-purchase margin or short-selling margin to cover the deficiency for each individual margin purchase or short sale for which the collateral maintenance ratio is not met.
Deficiencies that a customer is required to cover under the preceding paragraph shall be calculated by the following formula:
–deficiency in margin-purchase margin ＝ initial margin purchase amount － (closing/reference price on the day of calculation × number of shares bought on margin × margin financing ratio) － (closing/reference price on the day of calculation × number of shares on deposit as margin × margin financing ratio)
–deficiency in short-selling margin ＝ (closing/reference price on the day of calculation × number of shares sold short × margin percentage requirement for short selling － initial short-selling margin) ＋ (closing/reference price on the day of calculation × number of shares sold short － initial short sale price proceeds) － (closing/reference price on the day of calculation × number of shares on deposit as margin)
"[Shares on deposit] as margin" in the preceding paragraph [means] stock dividends under paragraph 3 and securities deposited as margin under Article 26; the market value of stock dividends shall be calculated as set out in the latter part of paragraph 5. |
| Article 24 | If, after a securities firm has notified a customer to make payment to cover a deficiency in accordance with paragraph 7 of the preceding article, the customer fails to make payment to cover the deficiency, or pays only a portion of it, within two business days from delivery of the notice, the securities firm shall take the following measures:
1. if the overall collateral maintenance ratio of the customer's account on the given day is still deficient, dispose of the collateral by mutatis mutandis application of Article 39, paragraph 3, from the next business day.
2. if the overall collateral maintenance ratio of the customer's account on the given day returns to 120 percent or higher, it may temporarily refrain from disposing of the collateral; provided, if a deficiency again occurs on any subsequent business day, and the customer fails to take the initiative to make payment to cover the deficiency on the afternoon of the given day, it shall dispose of the collateral by mutatis mutandis application of Article 39, paragraph 3, from the next business day.
3. if before the collateral has been disposed of under the preceding subparagraph, the customer has made payments to cover the deficiency that cumulatively reach the amount of the deficiency that it was notified to cover, expunge the margin call record.
4. if the overall collateral maintenance ratio of the customer's account returns to 1.25 times 120 percent or higher, and reaches 166 percent or higher, expunge the margin call record.
If collateral disposed of under the preceding paragraph is margin-purchase/short-sale collateral that was paid in upon notice of deficiencies in the collateral maintenance ratios for individual margin-purchase/short-sale positions in the customer margin account, any surplus amount after disposal shall be returned; if the amount is insufficient to offset the liability, the liability shall be offset from other funds in the margin account; if there is still a deficiency after such offsetting, the securities firm shall notify the customer to make up the deficiency on the next business day.
When disposing of margin-purchase/short-sale collateral where customers have failed to make up deficiencies in the collateral maintenance ratios for individual margin-purchase/short-sale positions in the customer margin account within the time limit after being notified to do so, a securities firm may take customers' stock dividends that are in amounts of less than one trading unit and combine them into trading units to dispose of them. |
| Article 25 | If the customer disposes of some of the collateral, causing a deficiency in the overall collateral maintenance ratio of the margin account, the securities firm shall, within the extent necessary to maintain a collateral maintenance ratio of 120 percent, retain, in full or in part, funds/securities payable, to serve as collateral. |
| Article 26 | A customer may deposit government bearer bonds and TSE-listed and OTC securities eligible for margin purchase and short sale, to offset short-selling margin requirements; or may deposit government bearer bonds and listed securities that are not in the altered-trading-method category or OTC securities eligible for margin purchase and short sale, to offset a deficiency the customer is required to cover under Article 23.
Securities under the preceding paragraph may not fall into any of the following categories:
1. be less than one trading unit;
2. be any issued name-bearing stocks acquired by a shareholder or by an investor as a result of capital increase through recapitalization of earnings, capital increase through recapitalization of employees' bonus, capital increase by venture capital companies through recapitalization of undistributed profits pursuant to Article 13 of the Statute for Encouragement of Investment, or Articles 16 and 17 of the Statute for Upgrading Industries, that has not been transferred and taxed.
Where a securities firm accepts deposit of securities by a customer to offset margin collateral requirements, it shall chop the appended share transfer application with an endorsement chop; if the shares are not owned by the customer, it shall additionally append the household registration information of the holder of the shares, certification of the source, and a letter of consent.
If the rate of stock dividends on securities deposited to offset margin collateral requirements under the preceding paragraph is 20 percent or more, the provisions of paragraphs 3, 4, and 5 of Article 23 shall apply to such stock dividends, and the letter of consent referred to in the preceding paragraph shall specifically waive deferral of income tax. |
| Article 27 | The offsetting value against margin collateral of securities deposited under the preceding article shall be calculated by the following standards:
1. government bearer bonds: discounted 20 percent from the par value thereof.
2. TSEC-listed securities: discounted 30 percent from the closing price of the business day before they are deposited.
3. OTC securities: discounted 40 percent from the reference price of the business day before they are deposited.
The terms "closing price" or "reference price" in the preceding paragraph shall be defined as provided in Article 58-1, paragraph 2, of the TSEC Operating Regulations, or Article 57 of the GTSM Regulations Governing Securities Trading on Over-the-Counter Markets.
When calculating the overall account collateral maintenance ratio for a customer's account, the securities firm is not required to discount the value of the securities deposited to offset margin collateral requirements. |
| Article 28 | If any of the following circumstances applies to any securities deposited by a customer to offset margin collateral requirements, the securities firm shall deduct the value of such securities when calculating the collateral maintenance ratio under Article 23, and shall promptly notify the customer to replace them, within three business days from delivery of the notice, with an equivalent value in cash or other securities eligible for use in offsetting margin collateral requirements:
1. there is any defect in the rights thereto or any other legal dispute.
2. the provisions of Article 26 are not complied with. |
| Article 29 | If there is any change in the price of the shares causing an increase in the net value of the collateral in the customer's margin account less the obligations thereof, the securities firm may not proceed to pay the customer cash or securities equivalent to the amount of such increase, or to offset it from the margin for margin purchase or the short-selling margin. |
| Article 30 | When a customer places a sell order to offset a margin purchase, or places a buy order to offset a short sale, the customer shall fill out an order form bearing the words "REDEMPTION" or "SHORT COVERING," respectively; the securities firm shall first check whether the type and quantity of securities of the offsetting trade actually corresponds to that in the record for the original trade, before accepting the trading order.
After an offsetting trade under the preceding paragraph has been executed, the securities firm shall complete a trade report bearing the words "REDEMPTION" or "SHORT COVERING" and give it to the customer to sign/chop.
If, after an offsetting trade placed by a customer under paragraph 1 has been executed, it is insufficient to liquidate the obligation, the securities firm shall notify the customer to settle the obligation, or offset it with funds from the customer margin account, by the second business day after the trade date. |
| Article 31 | A customer applying to offset a margin purchase or short sale with cash or spot securities shall deliver the cash or securities by 12 noon on the current day, and shall fill out an Application to Settle a Margin Purchase with Cash or Application to Settle a Short Sale with Spot Securities and submit it to the securities firm. After the securities firm has checked them and found them in order, it shall pay the short-selling price and short-selling margin to the customer by the second following business day. For securities bought on margin or securities deposited to offset margin collateral requirements, if the customer has already opened a custodial book-entry account, they shall be transferred to the account by the second following business day. If the customer withdraws cash, it shall be paid by the third following business day.
Except under the following circumstances, an application may not be made to use third-party securities as spot securities to offset a customer's short sale:
1. during a period in which trading has been suspended in the underlying securities of the short sale.
2. where, before trading hours on the sixth business day prior to the book closure date, an order placed to buy securities to cover a short sale at seven percent above the previous business day's closing price or reference price cannot be executed.
During a period when the centralized securities depository enterprise has temporarily postponed processing of withdrawal of securities by participants, the securities firm may temporarily postpone its delivery to a customer of securities deliverable upon the customer's application to make a cash payment to offset a margin purchase.
Where a customer withdraws spot securities, the securities firm shall stamp the words "CASH SETTLEMENT OF MARGIN PURCHASE" or "REFUND OF SECURITIES DEPOSITED AS COLLATERAL" on the Share Transfer Application Form and the Trade Report for the original purchase. |
| Article 31-1 | Where a customer applies to offset a margin purchase or short sale with cash or spot securities, and applies by some means other than in-person, the provisions of Article 31 shall nevertheless still be complied with. If the customer has already submitted a signed Letter of Consent That Applications to Settle with Cash or Spot Securities Do Not Require a Signature/Seal, and the securities firm has verified it and kept it on file, it is not necessary for the customer to sign/seal an Application to Settle with Cash or Spot Securities.
When a customer personally applies by telephone to use cash or spot securities to offset a margin purchase or short sale, the securities firm shall synchronously record the telephone call. The telephone recording shall be kept at its place of business and preserved for at least two months. In the event of any dispute, it shall be preserved until the dispute has been eliminated.
Where it is unnecessary for a customer to sign/seal an Application to Settle with Cash or Spot Securities being handled under paragraph 1, the short-selling collateral/proceeds and short-selling margin that the securities firm shall return to the customer shall be deposited into the same bank deposit account used for book-entry transfer settlement of the customer's trading orders; the securities bought on margin or various securities deposited as collateral that the securities firm shall return to the customer shall be transferred into the customer's custodial book-entry account; securities deposited as collateral that do not belong to the customer shall be returned by means of book-entry transfer. |
| Article 32 | During a period when a securities finance enterprise is engaging in borrowing by tender, borrowing by negotiation, or purchase by tender of securities to cover a short-sale deficiency, a securities firm may temporarily suspend short selling of that security, and may refrain from processing cash settlement of margin purchases, provided, this shall not apply to settlement of margin purchases at expiration, or to where a customer is applying for cash settlement of a margin purchase and will use the receivable securities to settle a short sale. |
| Article 33 | A securities firm may refinance from a securities finance enterprise funds or securities that it needs for securities trading margin purchase and short sale business.
A securities firm shall still be required to fulfill its clearing and settlement obligations with the TSEC or the GTSM with respect to funds or securities refinanced under the preceding paragraph.
A securities firm shall on a daily basis prepare statements of margin purchases and short sales executed, broken down into the portion on behalf of securities finance enterprises, the portion using the securities firm's own funds, and the refinanced portion, and carry out clearing and settlement operations in accordance with the applicable provisions of the TSEC Operating Rules, the GTSM Trading Regulations, Directions Governing Payment and Settlement Operations for Securities Traded Over the Counter, and the regulations governing business operations by securities central depository enterprises.
1. For the portion consisting of margin purchases and short sales on behalf of securities finance enterprises, a separate Table of Applications for Margin Purchases and Short Sales by Securities Finance Enterprises shall be prepared, and shall be reconciled with the records of the securities finance enterprises.
2. For the portion consisting of margin purchases and short sales carried out by a securities firm with its own funds, a separate Itemized Table of Margin Purchases and Short Sales by the Securities Firm shall be prepared。
3. For the portion that is refinanced by securities finance enterprises, a separate Table of Applications by a Securities Firm for Refinancing of Margin Purchases and Short Sales shall be prepared, and shall be reconciled with the records of the securities finance enterprises.
Securities firms shall by the prescribed times separately enter the materials under each subparagraph of the preceding paragraph into the mainframe computer of the centralized securities depository enterprise and prepare summary statements and enter them into the mainframe computer of the TSEC or the GTSM, and then print out a Settlement Report or Payment Settlement List. |
| Article 34 | A securities firm shall maintain accurate and detailed records of and receipt/payment vouchers for funds and securities received and paid in relation to securities margin trading and refinancing from securities finance enterprises, and shall prepare the following statements on a daily basis:
1. Daily operations statement of margin purchase and short sale trades.
2. Summary statement and itemized statement of increments, offsetting/repayments, and balances of margin purchases and short sales.
3. Itemized statement of receipts, deliveries, disposals, and uses of collateral for margin purchases and short sales.
4. Statement of settlement by cash and spot securities.
5. Summary statement of margin calls and deposits.
6. Itemized statement of deposits of securities as collateral.
7. Itemized statement of refinancing applications and repayments.
8. Itemized statement of balance of refinancing.
9. Itemized statement of collateral for refinancing. |
Chapter IV Handling of Share Transfers in Margin Purchases and Short Sales
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| Article 35 | Securities eligible for margin purchase and short sale shall be suspended from margin purchase for three days commencing from the fifth business day prior to book closure of the issuing company, and shall be suspended from short sale for five days commencing from the seventh business day prior to book closure; if a short sale has already been made, the short sale shall be covered and closed out by the sixth business day prior to book closure. Provided, this shall not apply where the book closure of the issuing company is done for a reason as follows:
1. convening of a special shareholders' meeting.
2. a reason that will not affect the exercise of shareholders' rights.
Where 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.
1. When 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."
2. When 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."
3. When 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." |
| Article 35-1 | If, after a general meeting of beneficiaries has been duly convened under the securities investment trust contract, any of the following circumstances consequently applies to beneficiary certificates eligible for margin purchase and short sale, margin purchase and short sale trading of those beneficiary certificates shall be temporarily suspended from the second business day following the public announcement by the company; provided, this restriction shall not apply to offsetting trades; if a margin purchase or short sale has already been made, it shall be offset or covered and closed out by the first business day before delisting.
1. the general meeting of beneficiaries decides to change to an open-end fund.
2. where acceptance for redemption of the beneficiary certificates is begun, such that the scale of the fund reaches the standard for delisting.
If a customer fails to liquidate a margin purchase or short sale within the deadline under the preceding paragraph, the securities firm may dispose of its collateral beginning from the next business day by the mutatis mutandis application of Article 39, paragraph 3. However, this shall not apply if the customer has, by the deadline under the preceding paragraph, completed a mandate contract mandating the securities firm to perform redemption on its behalf after delisting. |
| Article 35-2 | When the TSEC or GTSM has ratified and publicly announced the delisting from the stock exchange or termination of OTC trading of a security eligible for margin purchase and short sale trades, the securities firm shall notify customers to offset or cover and close out any margin purchases or short sales of such security by the 10th business day before the delisting or the termination of OTC trading. If a customer fails to offset or cover and close out any margin purchase or short sale within the deadline, the securities firm may, within the scope of liquidating the debt, apply the provisions of Article 39, paragraph 3, to dispose of the balance in the customer's margin account beginning from the next business day. Provided, this shall not apply where an issuing company has applied for conversion of its OTC securities to exchange-listed securities, or where securities of both the surviving and non-surviving listed or OTC companies in a merger are eligible for margin purchase and short sale trading. |
| Article 36 | On the business day preceding book closure of the issuing company, a securities firm shall prepare a transfer statement of securities bought on margin and securities deposited as collateral in the customer margin account and send the statement along with the data in an electronic medium to the centralized securities depository enterprise to carry out share transfer procedures with the issuing company or agent for stock affairs on behalf of the customer. Provided, where the issuing company closes its books because of a special shareholders meeting; the number of shares of the stocks bought on margin in the customer margin account shall be handled in accordance with the provisions of the Operational Directions for the Calculation of Share Transfer Quantities of Margin Buyers Upon Special Shareholders Meetings prescribed by the TSEC in consultation with the GTSM. |
| Article 37 | For securities bought on margin, or securities deposited to cover a deficiency in margin purchase or short sale trading or as short-selling margin, if a customer is required to process the transfer of stock certificates himself, the customer shall, by two business days before the date book closure commences, pay cash for the securities bought on margin and withdraw them, or swap cash or securities specified in Article 26 for securities deposited as collateral and withdraw them. |
Chapter V Default Procedures
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| Article 38 | Failure by a customer to make timely deposit of margin-purchase margin or short-selling margin under Article 19 constitutes default. The securities firm shall immediately carry out settlement procedures on behalf of the customer, cancel the margin account and brokerage account, and file a report with the TSEC or the GRSM and of the default and the settlement procedures carried out on behalf of the customer; on the basis of the securities firm's report, the TSEC or GTSM shall forward notice to all securities finance enterprises and securities firms.
For securities or consideration it receives for carrying out settlement procedures on behalf of a customer under the preceding paragraph, a securities firm shall, on the next business day on the TSEC centralized exchange market or through the GTSM automated trade matching system, engage another securities broker to dispose thereof; if the order quote is not executed, it shall continue to be quoted from the next business day. |
| Article 39 | Where any of the circumstances listed below applies to a customer, the securities firm may, within the extent required to settle the obligation, dispose of the balance in the customer margin account by applying the provisions of paragraph 3. If there is any surplus, it shall be returned to the customer. For any remaining shortfall, the securities firm shall notify the customer to settle it within a time limit, and shall file a default report with the TSEC or the GTSM and cancel the margin account. The TSEC will promptly forward notice to securities finance enterprises and all securities enterprises handling margin purchase and short sale business.
1. Failure to make up a deficiency in accordance with Article 24, paragraph 2.
2. Failure to settle an obligation in accordance with Article 30, paragraph 3.
Where any of the following circumstances applies to a customer, and where the obligation is not fully settled after disposal of the collateral for that margin purchase/short sale, the securities firm shall use other funds in that customer's margin account to offset the obligation. If after such offsetting there is still a shortfall, the securities firm shall notify the customer to make up the shortfall on the next business day. If the shortfall is not fully made up, the securities firm may, within the extent required to settle the obligation, dispose of the balance in the customer margin account by applying the provisions of paragraph 3. If there is any surplus, it shall be returned to the customer. For any remaining shortfall, the securities firm shall notify the customer to settle it within a time limit, and shall file a default report with the TSEC or the GTSM and cancel the margin account. The TSEC will promptly forward notice to securities finance enterprises and all securities enterprises
handling margin purchase and short sale business.
1. Failure to repay securities sold short in accordance with Article 35.
2. Failure to settle a margin loan or short sale by expiration.
3. Failure to exchanged securities deposited as collateral in accordance with Article 28.
Where any circumstances under paragraphs 1 or 2 applies to a customer, the securities firm shall, on the next business day on the TSEC centralized exchange market or through the GTSM automated trade matching system, engage another securities broker to dispose of the collateral through a Margin Trading Default Processing Account opened by it; if the order quote is not executed, it shall continue to be quoted from the next business day. |
| Article 40 | Where a customer fails to make repayment for a margin purchase or short sale within the time limit, the securities firm may, beginning from the overdue date until the date on which disposal is completed, collect a margin buying breach penalty that is 10 percent of the prescribed margin rate, or a short selling breach penalty that is equivalent to one handling fee at the prescribed short sale handling fee rate. |
| Article 41 | A securities firm that has been notified by the TSEC or the GTSM under Article 38, paragraph 1, or Article 39, paragraph 1 or 2, of default by a customer at a securities finance enterprise or at another securities firm shall take the following measures according to the circumstances:
1. Where a customer is in default under any provision of Article 38, paragraph 1 hereof, Article 76, paragraph 3, subparagraph 1 or 3 of the TSEC Operating Rules, or Article 47, paragraph 2, subparagraph 1 or 3 of the GTSM Trading Regulations, the securities firm shall promptly notify the customer to cancel its brokerage account and margin account on the next business day after closing out all its margin purchases and short sales; where the customer fails to close out all such trades within the time limit, the securities firm shall, by the mutatis mutandis application of Article 39, paragraph 3, commence to close out all such trades on the next business day.
2. Where a customer is in default under any provision of Article 39, paragraph 1 or 2 hereof, the securities firm may not accept any order placed by the customer to carry out any margin purchase or short sale, and shall, after the customer has closed out all margin purchases and short sales, promptly cancel the customer's margin account. |
Chapter VI Supplementary Provisions |
| Article 42 | A violation of any provision hereof by a securities firm or its responsible person or employee may be dealt with by the TSEC or the GTSM under its applicable rules and regulations.
When a responsible or associated person charged with handling margin purchases and short sales in securities trading violates any provision hereof or any other relevant provision, such person may not engage in margin purchase and short sale business during the period in which the violation is subject to disposition. |
| Article 43 | These Regulations, and any amendments hereto, shall be drafted by the TSEC together with the GTSM, and shall take force upon public announcement after ratification by the competent authority. |