Chapter I General Principles
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| Article 1 | These Rules are adopted pursuant to Article 28 of the Regulations Governing the Conduct of Securities Trading Margin Purchase and Short Sale Operations by Securities Firms. |
| Article 2 | A securities firm conducting margin purchase and short sale lending operations in securities trading ["securities trading margin purchase and short sale business"] shall do so in accordance with securities trading laws and regulations, these Rules, as well as other relevant bylaws, rules, regulations, public announcements, and circular letters of the Taiwan Stock Exchange Corporation (TSEC), GreTai Securities Market (GreTai), and central securities depositories. |
| Article 3 | Upon approval by the competent authority to conduct securities trading 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. A description of the system of internal controls over securities trading margin purchase and short sale operations.
3. A roster of the responsible and associated persons of the department in charge of these operations 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 of personnel in such positions shall be registered within five days. |
| Article 4 | A securities firm shall confine its securities trading margin purchase and short sale operations for exchange-listed securities to those funds and securities that are deliverable after execution of customer orders for normal-settlement brokerage trades on the TSEC centralized securities exchange market, for which the underlying securities are those publicly announced by the TSEC as eligible for margin purchases and short sales.
A securities firm shall confine its securities trading margin purchase and short sale operations for over-the-counter (OTC) securities to those funds and securities that are deliverable after execution of customer orders for trades through the GreTai automated trade matching system, for which the underlying securities are those publicly announced by the GreTai as eligible for margin purchases and short sales.
None of odd-lot or block trades or the trades specified in Article 74 of the TSEC Operating Rules or Article 39 of the GreTai Securities Market Rules Governing Securities Trading on Over-the-Counter Markets (hereinafter, "Trading Rules") are eligible for margin purchases or short sales. |
| Article 5 | A securities firm conducting securities trading margin purchase and short sale operations shall be subject to the requirements of the competent authority in relation to amount limit, duration, margin purchase leverage ratio, and short sale margin.
The securities firm shall give a written notice to the customer of a margin purchase or short sale no later than 10 business days before the end of the duration as fixed by the competent authority under the preceding paragraph. |
| Article 6 | A securities firm shall fix, and file with the competent authority for recordation, the interest and fee rates with respect to the margin loan interest and short sale handling fees receivable from customers, as well as short sale proceeds and short sale margin interest payable to customers, for conducting securities trading margin purchase and short sale operations.
Upon adjustment to any interest rates or fee rates described in the preceding paragraph, the adjusted interest or fee rates shall apply to any and all open positions in margin purchases and short sales as from the date of the adjustment. |
| Article 7 | In conducting securities trading margin purchase and short sale operations, a securities firm may not use retained short sale proceeds and short sale margins for purposes other than those listed below:
1. As a source of funds for conducting margin purchase business.
2. As collateral for refinancing of securities from securities finance enterprises.
3. As a source of funds for conducting money lending in connection with securities business.
4. As collateral for borrowing securities through the TSEC securities lending system.
5. For deposit with bank.
6. To purchase short-term bills.
In conducting securities trading margin purchase and short sale operations, a securities firm may not use securities received from such operations for purposes other than those listed below and shall deposit the securities with a central securities depository:
1. As a source of securities for conducting short sale business.
2. As collateral for refinancing of funds or securities from securities finance enterprises.
3. As a source of lendable securities in conducting securities lending business.
4. As collateral for borrowing securities through the TSEC securities lending system. |
Chapter II Opening and Management of Margin Accounts for Margin Purchases and Short Sales
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| Article 8 | A securities firm shall enter into a margin agreement with, and open a margin account for, a customer before accepting any order from the customer to carry out a margin purchase or short sale of securities.
The margin agreement under the preceding paragraph shall be prepared by the TSEC in conjunction with the GreTai and submitted to the competent authority for ratification.
A put warrant issuer, or a securities firm or bank engaged in structured products business, 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 risk mitigation or hedging needs, open a margin account with which to sell securities short.
In the case of a privately placed securities investment trust fund managed by a securities investment trust enterprise ("SITE"), the custodian of the trust fund may apply to open a margin account, for which the outstanding balance of long and short margin positions may not exceed 50 percent of the size of the fund, and which shall be controlled by the TSEC as a segregated account. If that limit is exceeded, the TSEC shall through the securities firm notify the SITE to lower the balance to 50 percent within two business days from the date on which it receives the notice from the securities firm. If the SITE fails to do so within the time limit, the TSEC may instruct the securities firm to dispose of the collateral on the next business day, by the mutatis mutandis application of Article 39, paragraph 3, to the extent required to achieve compliance.
The combined total of the outstanding balance of short margin positions under the preceding paragraph and other sales of borrowed securities [borrowed directly from securities holders or otherwise] may not exceed 50 percent of the size of the fund.
In the case of a discretionary investment account managed by an SITE or a securities investment consulting enterprise (SICE), or of discretionary investment business conducted by a securities broker concurrently operating a SICE, the custodian institution for discretionary investment assets may open a margin account on behalf of its customer, for which the outstanding balance of long and short margin positions may not exceed 50 percent of the net asset value of the discretionary investment account.
The combined total of the outstanding balance of short margin positions under the preceding paragraph and other sales of borrowed securities may not exceed 50 percent of the net asset value of the discretionary investment account. |
| Article 9 | A securities firm may allow a customer to open one and only one margin account. The threshold requirements for opening such an account shall be set out by the TSEC in conjunction with the GreTai and submitted to the competent authority for ratification.
When securities firms accept margin account opening applications submitted on behalf of customers by custodian institutions for discretionary investment assets, a customer may not simultaneously open or maintain a margin account of its own and a discretionary investment margin account with the same securities firm. |
| Article 10 | A securities firm may not entertain an application to open a margin 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 outstanding margin purchases and short sales on the next business day and thereafter cancel the margin account; if the customer fails to close out all outstanding margin trades within this time limit, the securities firm shall, by the mutatis mutandis application of Article 39, paragraph 3, close out the trades for the customer starting from the next business day.
1. The customer does not meet the account opening threshold requirements.
2. The customer applies to open a margin account using the name of another person.
3. Any circumstance under Article 76, paragraph 1 or 3, of the TSEC Operating Rules or Article 47, paragraph 1 or 2, of the GreTai Trading Rules applies to the customer.
4. A brokerage account previously opened by the customer at the securities firm has been cancelled.
5. (deleted)
6. The customer has previously breached a margin agreement entered into with a securities firm or securities finance enterprise, where less than one year has elapsed since such breach or where the case remains pending.
7. The customer is the subject of a court petition for reorganization, composition, or bankruptcy under the Company Act or the Bankruptcy Act.
8. A clearinghouse for negotiable instruments has blacklisted the customer.
9. The customer belongs to the internal personnel of the 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 the subject of 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. An account that has already been opened shall be subject to the provisions of paragraph 1. |
| Article 11 | A customer who is a natural person applying to open a margin account shall personally furnish the original of his or her national ID card, sign a Margin Account Application Form and a margin agreement then and there, and also 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, and the original certification of incorporation.
A photocopy of each of the identity documents and incorporation/amendment registration card and the original power of attorney under the preceding paragraph shall be retained on record, and the following statement shall be stamped on the photocopies: "The account opening application is confirmed to have been made in person by the applicant or a person authorized thereby; this is a true and faithful copy of the original."
When processing an application to open a margin account, a securities firm shall perform a detailed and accurate credit check to verify that the customer meets the account opening threshold requirements. It shall expressly state on the Margin Account Application Form the details of the credit check method, credit information, and credit check findings, and prepare an account opening card specifying the date of account opening and the assigned account number. It shall transmit the account opening information, or account cancellation information if such is the case, on the current day to the computer database of the TSEC or GreTai. Where the customer is a juristic person, the securities firm shall also send a written request to the customer confirming that the customer has authorized the opening of the account. |
| Article 12 | Where a customer opens a margin account and subsequently has no record of margin purchases or short sales for a period of three consecutive years or more, the securities firm shall promptly cancel the margin account and notify the customer of such cancellation.
A customer wishing to terminate an existing margin account shall fill out an Application for Termination of Margin Account. The securities firm shall cancel the account once it has confirmed that the customer has settled all outstanding obligations relating to margin purchases and short sales. |
| Article 13 | (deleted) |
| Article 14 | A securities firm shall set up a separate account ledger for each customer margin account, and record therein on a daily basis the following:
1. Matters relating to 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 of the customer's personal data by the TSEC, GreTai, or any institution designated by the competent authority in accordance with relevant laws and regulations, a securities firm shall promptly transmit the data concerning credit line, balance of margin purchases and short sales, and any changes therein, to the TSEC and GreTai computer database systems. |
| Article 15 | If a customer fails to promptly notify the securities firm in writing of any change to the information contained in the Margin Account Application Form with respect to the name, national ID number or government uniform invoice number on the profit-seeking enterprise registration certificate, mailing address, or contact telephone number of the customer, agent, or representative, the securities firm may temporarily suspend margin purchases and short sales by the customer. |
| Article 16 | All notices that a securities firm is required to give to a customer under these Rules shall be delivered by mail or by personal delivery against a receipt signed by the customer.
Where a notice mailed by a securities firm is not delivered in time as a result of failure by the customer to give notice as required under the preceding article or due to some other reason attributable to the customer, the notice shall be deemed effective from the day of the first delivery attempt by the post office.
In the case of a notice given by personal delivery against a receipt signed by the customer, the customer's signature or seal impression on the receipt shall match the specimen signature or seal appearing on the margin agreement, and shall be dated personally by the customer.
For matters for which a securities firm is required to give notice to a customer under these Rules, if the customer is a discretionary investment account, notice shall be given to the discretionary investment manager and to the custodian institution. |
Chapter III Margin Trading Applications and Settlements
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| Article 17 | A customer giving an order for a margin purchase or short sale shall fill out an order ticket marked "MARGIN PURCHASE" or "SHORT SALE"; after execution of the trade, the securities firm shall prepare a trading report marked with the same words and have it signed/sealed by the customer. |
| Article 18 | For executed margin purchases and short sales, a securities firm shall calculate the balance of long and short positions in a customer's margin account after close of market each day. The customer shall settle with cash or spot securities any portion that is beyond the long position limit or short position limit.
After a customer places an order for a short sale, if a rise in the price of the security causes the customer's short balance to exceed the short position limit, the securities firm may lend the security to the customer for short selling within the extent of the daily price limit for the security on the given day.
When the market price per trading unit of a security sold short exceeds the short position limit, a customer may sell one trading unit short if the customer's margin account is clear of any short balance. |
| Article 19 | Upon execution of a margin purchase or short sale, 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 trade price of the margin purchase less the dollar amount of the margin loan, or in the case of a short sale, a margin for the short sale, based on the trade price of the short sale multiplied by a required percentage (any amount less than NT$100 shall be calculated as NT$100).
Notwithstanding the provisions of Article 31, where an exchange-listed or OTC security is bought on margin and sold short on the same day in an account, if the customer has signed a consent letter with the securities firm, then a net settlement is allowed for offsetting a portion of the settlement obligation under the margin purchase against an equal amount of the settlement obligation under the short sale, in which case the securities firm shall prepare an Application to Settle Margin Purchases with Cash and an Application to Settle Short Sales with Spot Securities on behalf of the customer.
If the customer having signed the consent letter under the preceding paragraph does not wish to have netting settlement thereunder carried out, the customer shall give a written instruction to the securities firm before close of market on the day on which the trades are executed.
No interest may be accrued on the margin purchase and short sale with respect to the portions that are offset by netting under paragraph [2]; nevertheless, the handling fee for that portion of the short sale shall still be calculated and collected/paid.
The portions of the trades that are offset by netting under paragraph [2] shall still be calculated respectively into the position limits for margin purchases and short sales for the customer on the given day; it is not allowed to calculate only the net amount remaining after the setoff, nor is it allowed to calculate the revolving line for the given day on a net amount basis. |
| 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 amount of the margin loan as calculated by multiplying the trade price of the margin purchase by a required percentage (with any amount less than NT$1,000 excluded from calculation); all securities bought on margin shall serve as collateral.
A securities firm lending a security to a customer for short selling shall do so and perform settlement on behalf of the customer based on the type and quantity of the security sold short in that trade; the proceeds from the short sale shall serve as collateral after deducting the securities transaction tax, the short sale handling fee, and the securities firm handling fee. |
| Article 21 | A securities firm shall, for a margin purchase, collect from the customer the interest on the margin loan at the stated interest rate, and, for a short sale, pay interest at the stated interest rate on the short sale margin and on the remainder of the proceeds from the short sale under paragraph 2 of the preceding article.
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 is executed to the day before the payment day. |
| Article 22 | For the various fees and expenses required to be borne by a securities firm for obtaining securities through a securities finance enterprise by conducting a competitive bid loan, negotiated transaction, or purchase by tender offer [to cover securities shortfalls arising in the course of short sale operations], a securities firm shall first calculate the fees and expenses for each share of the security sold short based on the short balance for that security on the date on which the security shortfall occurs, and then collect payment from each short seller in the short sales in an amount determined by the number of shares it sells short.
The securities firm may collect the fees and expenses receivable under the preceding paragraph by deducting the amount from the short sale collateral funds in the customer's margin account.
For shares of securities obtained and distributable as a result of a securities finance enterprises conducting a purchase by tender offer, the securities firm shall distribute the shares to those short sellers who have a short balance in the security on the date the security falls short of short sale needs, in a quantity decided on a pro rata basis and rounded to an integral trading unit, for them to buy in to cover their short positions; any quantity remaining after the distribution shall further be distributed to these short sellers in the order of the size of the decimal portion of their respective distributable quantity, and if for a decimal number there are multiple short sellers, to one or more of them determined by drawing lots.
Where two or more tender offer purchases are conducted [to cover securities shortfalls arising in the course of short sale operations], the dollar amounts of the purchases that are allocable to the short sellers shall be calculated by the weighted average method. |
| Article 23 | A securities firm shall calculate, on a daily mark-to-market basis, and based upon the closing price announced by the TSEC ("closing price"), or the next day's reference price announced by the GreTai ("reference price"), or the par value of government bonds, as the case may be, the collateral maintenance ratio for each margin account as a whole and for each margin purchase and short sale in each margin account by the following formula: collateral maintenance ratio = {market value of collateral securities for margin purchase(s) + initial collateral and short margin for short sale(s)} ÷ {original margin purchase amount(s) + market value of underlying 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, except that for the six business days prior to an ex-rights or ex-dividend date for a security pledged as collateral for a margin purchase, the market value of the collateral security shall be calculated based on the respective current day's closing price or reference price, minus the value of the cash dividend, or minus the value of the stock dividend calculated based on the current day's closing price or reference price.
If the security the customer purchases on margin is subject to a 20 percent or more share dividend rate in gratuitous distribution of shares, then unless the competent authority has otherwise imposed trading restrictions on the security, the newly issued rights shares shall all be pledged as collateral, with the option of income tax deferral to be waived, and shall be transferred through book-entry by the central securities depository into the securities firm's segregated account for margin purchases and short sales, notwithstanding the provisions of Article 33 of the Regulations Governing Handling of Shareholder Services by Public Companies.
The securities firm may not use the newly issued rights shares under the preceding paragraph as a source of securities for lending in its conduct of securities trading short sale operations or as collateral for refinancing.
The provisions of paragraph 2 shall not apply to newly issued rights shares used as collateral. After the security is traded ex-rights, the market value of the collateral rights shares shall be calculated as 70 percent of the closing price if they are exchange-listed securities, or 60 percent of the reference price if they are OTC securities. After such shares have been transferred into the securities firm's segregated account for margin purchases and short sales, their market value is no longer required to be discounted.
The market value of collateral securities for margin purchases and the original collateral and short margin for short sales referred to in paragraph 1 means the balance of the money and market value of securities in a customer margin account after deducting the securities lending fee and/or the fee for purchase of securities by tender offer [to meet a securities shortfall in short selling]; if there is any residual obligation after a settlement trade has been made or after the securities firm has disposed of the collateral, the residual obligation shall also be deducted.
Where the overall collateral maintenance ratio of the customer margin account is lower than 120 percent, the securities firm shall issue a margin call to the customer demanding the deposit, within two business days from the day the margin call is received, of additional margin collateral for the margin purchase or short sale that falls below the collateral maintenance ratio, to cover the margin deficiency.
Margin deficiencies that a customer is required to cover under the preceding paragraph shall be calculated by the following formulas:
– deficiency in margin for margin purchase = original margin purchase amount- (closing/reference price on the day of calculation x number of shares purchased on margin x margin purchase leverage ratio) - (closing/reference price on the day of calculation x number of shares pledged as collateral x margin purchase leverage ratio)
– deficiency in margin for short sale = (closing/reference price on the day of calculation x number of shares sold short x margin percentage required for short sale - initial margin for short sale) + (closing/reference price on the day of calculation x number of shares sold short - original short sale proceeds) - (closing/reference price on the day of calculation x number of shares pledged as collateral)
The term "collateral" in the preceding paragraph refers collectively to the newly issued rights shares under paragraph 3 and the securities deposited as additional collateral under Article 26; the market value of the newly issued rights shares shall be calculated as set out in the latter part of paragraph 5. |
| Article 24 | If, after a securities firm has issued a margin call demanding additional deposit to cover a margin deficiency in accordance with paragraph 7 of the preceding article, the customer fails to make the additional deposit, or makes deposit covering only part of it, within two business days from receipt of the margin call, the securities firm shall take the following measures:
1. If the overall collateral maintenance ratio of the customer's margin account still falls below the required level on the given day, the securities firm shall dispose of the collateral by the mutatis mutandis application of Article 39, paragraph 3, starting from the next business day.
2. If the overall collateral maintenance ratio of the customer's margin account is restored to 120 percent or higher on the given day, the securities firm may refrain for the time being from disposing of the collateral; provided that if the ratio again falls below the required level on any subsequent business day, and if the customer fails to make additional deposit on its own initiative to cover the deficiency that same afternoon, it shall dispose of the collateral by the mutatis mutandis application of Article 39, paragraph 3, starting from the next business day.
3. If prior to disposal of collateral pursuant to the provisions of the preceding subparagraph, the customer makes successive deposits sufficient to cover the deficiency stated in the margin call, the securities firm shall expunge the record of the margin call.
4. If the overall collateral maintenance ratio of the customer's margin account is restored to 1.25 times 120 percent or higher, and reaches 166 percent or higher, the securities firm shall expunge the record of the margin call.
The collateral disposed of under the preceding paragraph shall be the collateral for a given margin purchase or short sale in the customer's margin account for which a margin call has been issued demanding additional deposit of collateral to meet the collateral maintenance ratio. Any surplus amount after the disposal shall be returned. If the disposal proceeds are insufficient to satisfy the obligation, the deficiency shall be offset by other funds in the margin account. If there is still a deficiency remaining after such offsetting, the securities firm shall notify the customer to make up the remaining deficiency on the next business day.
When a securities firm disposes of the collateral for margin purchases and/or short sales in customer margin accounts where a margin call has been issued demanding additional deposit of collateral to meet the collateral maintenance ratio, and where the customers concerned have failed to make the additional deposit within the specified time limit, the securities firm may take the newly issued rights shares of those customers that are in amounts of less than one trading unit and combine them into trading units for the purpose of disposal. |
| Article 25 | If a deficiency occurs with respect to the overall collateral maintenance ratio of a customer's margin account as a result of disposal of any part of the collateral, the securities firm shall retain as collateral all or part of the funds and/or securities payable within the extent necessary to maintain the 120 percent collateral maintenance ratio. |
| Article 26 | A customer may deposit government bearer bonds or exchange-listed or OTC securities eligible for margin purchases and short sales as additional collateral to offset against its short sale margin requirements, or may deposit government bearer bonds, or exchange-listed securities that are not in the altered-trading-method category, or OTC securities eligible for margin purchases and short sales, as additional collateral to offset against any 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 registered shares issued to and acquired by shareholders or capital contributors as a result of capital increase out of earnings, or capital increase through contribution by company employees out of their bonuses to the industry in which they are serving, or capital increase by a venture capital company out of undistributed earnings, as effected in accordance with Article 13 of the Statute (Act) for Encouragement of Investment or Article 16 or 17 of the Statute (Act) for Upgrading Industries, that have not been transferred and reported for tax purposes.
Where the securities firm accepts the deposit of securities by the customer as additional collateral to offset against the margin requirement, it shall impress its endorsement seal on the attached share transfer application form, and if the shares are not owned by the customer, additionally submit the household registration record, proof of source, and consent letter obtained from the holder of the shares.
If the securities deposited as collateral to offset against a margin requirement under the preceding paragraph are subject to a 20 percent or more share dividend rate in gratuitous distribution of shares, the provisions of paragraphs 3, 4, and 5 of Article 23 shall apply to the newly issued rights shares, and the consent letter under the preceding paragraph shall specify the waiver of the option of income tax deferral. |
| Article 27 | The securities deposited to offset against margin requirements under the preceding article shall be valued as follows:
1. government bearer bonds: valued at 90 percent of their par value.
2. exchange-listed securities: valued at 70 percent of their closing price on the business day immediately before they are deposited.
3. OTC securities: valued at 60 percent of their reference price on the business day immediately before they are deposited.
The terms "closing price" and "reference price" in the preceding paragraph shall have the meaning specified in Article 58-1, paragraph 2 of the TSEC Operating Rules, or Article 57 of the GreTai Trading Rules.
For the purpose of calculating the overall account collateral maintenance ratio for a customer's margin account, the securities firm is not required to discount the value of securities deposited to offset against margin requirements. |
| Article 28 | If any of the following circumstances applies to any securities deposited by a customer to offset against its margin 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 such securities within three business days from receipt of the notice with cash of equivalent value or other securities eligible for use as additional collateral in offsetting against margin requirements:
1. there is any defect in the rights or any other legal dispute.
2. the provisions of Article 26 are not complied with. |
| Article 29 | If there is any change in stock price resulting in an increase in the net equity of the collateral value minus the obligations in the customer's margin account, the securities firm may not for that reason only deliver to the customer any cash or securities equivalent in amount to such increase, or use the amount to offset against the margin purchase margin or short sale margin. |
| Article 30 | A customer giving an order to sell stock to settle (repay) a margin purchase or to buy stock to settle (repay) a short sale shall fill out an order ticket marked RETURN OF MONEY or RETURN OF STOCK, as the case may be; the securities firm receiving the order shall first check and verify that the type and quantity of shares under the settlement trade correspond to those on record for the original margin purchase or short sale before accepting the sell or buy order.
Upon execution of the settlement trade under the preceding paragraph, the securities firm shall prepare a trade report marked RETURN OF MONEY or RETURN OF STOCK, as the case may be, and have it signed/sealed by the customer.
If the execution of the settlement trade specified in the customer's order under paragraph 1 fails to fully satisfy the customer's obligation, the securities firm shall notify the customer to settle the remaining obligation by the second business day after the trade date, or directly use the money in the customer's margin account to offset against the remaining obligation. |
| Article 31 | A customer applying to settle a margin purchase with cash or a short sale with spot securities shall deliver the money or securities by 12 noon of 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 the application to the securities firm. Upon verification of the accuracy of the content, the securities firm shall deliver the short sale proceeds and short sale margin to the customer by the second following business day, or in the case of securities bought on margin or securities deposited as collateral, where the customer has maintained a depository account, transfer the securities to the account by the second following business day, or in the case of withdrawal of spot securities by the customer, deliver the securities by the third following business day.
Except under any of the following circumstances, the customer may not apply to use third-party securities as spot securities to settle a short sale:
1. during a period in which trading has been suspended in the underlying securities of the short sale.
2. where an order for margin purchase has been placed to cover the short sale at a price of seven percent above the previous business day's closing price or reference price and cannot be executed before the trading session of the sixth business day prior to the book closure date of the underlying securities.
During a period when the central securities depository postpones processing of participants' withdrawal of securities, a securities firm may postpone delivering to a customer any securities deliverable as a result of the customer's application to settle a margin purchase with cash.
Where a customer withdraws spot securities, the securities firm shall additionally stamp the words "SETTLEMENT OF MARGIN PURCHASE WITH CASH" or "RETURN OF SECURITIES DEPOSITED AS COLLATERAL," as the case may be, on the Share Transfer Application Form and the trade report of the original margin purchase. |
| Article 31-1 | Where a customer applies to settle a margin purchase with cash or a short sale with spot securities by means other than in person, the provisions of Article 31 shall still apply, except that the customer's signature or seal is not required on the settlement application form 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 if the securities firm has kept it on record after verification.
When a customer personally applies by telephone to use cash or spot securities to settle 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, or in the event of any dispute, until the dispute has been resolved.
Where a customer has submitted a signed Letter of Consent That Applications to Settle with Cash or Spot Securities Do Not Require a Signature/Seal under paragraph 1, the short sale collateral price and short sale margin returnable by the securities firm to the customer shall be deposited into the same bank deposit account used for book-entry settlement of the customer's trading orders, and the securities bought on margin and/or the securities deposited as collateral returnable by the securities firm to the customer shall be transferred into the customer's book-entry custody account. Securities deposited as collateral that are not owned by the customer shall be returned through book-entry transfer. |
| Article 32 | During the period when a securities finance enterprise is engaging in a competitive bid borrowing, negotiated borrowing, or purchase by tender offer to cover a security that falls short of short sale needs, a securities firm may temporarily suspend the short selling of that security, and may also refrain from processing cash settlement of any margin purchase of that security, except in the case of settling a margin purchase at maturity, or where a customer is applying to settle a margin purchase with cash and will use the receivable securities to settle a short sale. |
| Article 33 | A securities firm may seek refinancing from a securities finance enterprise of any funds and securities that it needs in conducting securities trading margin purchase and short sale business.
The securities firm is still required to fulfill its clearing and settlement obligations with the TSEC or the GreTai with respect to the funds or securities refinanced under the preceding paragraph.
The securities firm shall prepare daily statements of margin purchases and short sales executed, broken down by trades executed on behalf of securities finance enterprises, trades executed with its own funds, and trades executed with refinanced funds or securities, and carry out clearing and settlement operations in accordance with the provisions of the TSEC Operating Rules, the GreTai Trading Rules, the Rules Governing Payment and Settlement Operations for Securities Traded Over the Counter, and the operating rules of the central securities depository.
1. For margin purchases and short sales executed on behalf of securities finance enterprises, the securities firm shall prepare a separate Table of Applications for Margin Purchases and Short Sales by Securities Finance Enterprises, and reconcile the information therein with the records of the securities finance enterprises.
2. For margin purchases and short sales executed with its own funds, the securities firm shall prepare a separate Itemized Table of Margin Purchases and Short Sales by Securities Firm.
3. For trades executed with the refinancing from securities finance enterprises, the securities firm shall prepare a separate Table of Applications by Securities Firm for Refinancing in Margin Purchases and Short Sales, and reconcile the information therein with the records of the securities finance enterprises.
Upon entering the information respectively under the subparagraphs of the preceding paragraph into the mainframe computer of the central securities depository by the specified time limit and upon entering the prepared summary statements into the mainframe computer of the TSEC or GreTai, the securities firm shall print out a Delivery List or Payment and Settlement List containing the information entered. |
| Article 34 | A securities firm shall maintain accurate and detailed records of and receipt/payment vouchers for funds and securities received and paid in conducting the business of securities trading margin purchase and short sale and refinancing from securities finance enterprises, and shall prepare the following statements on a daily basis:
1. Daily operations statement of margin purchases and short sales.
2. Summary statement and itemized statement of increments, settlement, 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 with 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 settlements.
8. Itemized statement of refinancing balance.
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 purchases and short sales shall be suspended from being purchased on margin for three days commencing from the fifth business day prior to the closure of books by the issuing company, and shall be suspended from being sold short for five days commencing from the seventh business day prior to such book closure; if a short sale has already been made, it shall be covered and closed out by the sixth business day prior to the book closure. Provided, this shall not apply where the issuing company closes its books 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 | For any beneficial interest certificates that are eligible for margin purchases and short sales, if, after a general meeting of beneficial owners has been duly convened under the securities investment trust contract, any of the following circumstances consequently applies, margin purchases and short sales of those beneficial interest certificates shall be temporarily suspended from the second business day following the public announcement by the TSEC; provided, this restriction shall not apply to close-out trades. If a margin purchase or short sale has already been made, the trade shall be covered and closed out by repaying the margin loan or returning the borrowed securities by the first business day before delisting.
1. where the general meeting of beneficial owners resolves to change to an open-end fund.
2. where the beneficial interest certificates are open for redemption, and as a result the size 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 requesting the securities firm to perform redemption on its behalf after delisting. |
| Article 35-2 | When the TSEC or GreTai 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 transactions, a securities firm shall notify customers to cover and close out any margin purchases or short sales of such security by repaying the margin loans or returning the borrowed securities by the 10th business day before the delisting or the termination of OTC trading. If a customer fails to cover and close out any margin purchase or short sale by repaying the margin loan or returning the borrowed security within the deadline, the securities firm may, within the scope of satisfying the obligation, 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, these provisions shall not apply where the 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 transactions. |
| Article 36 | On the business day preceding book closure of an issuing company, a securities firm shall prepare a share transfer list with respect to the security of the issuing company held in customer margin accounts, specifying those shares that are purchased on margin and those that are deposited as collateral to offset against margin collateral requirements, and send the share transfer list, together with the data file, to the central securities depository to carry out share transfer procedures with the issuing company or its shareholder services agent on behalf of the customers. Provided, where the issuing company closes its books because of a special shareholders meeting, the number of shares of the issuing company's stock held in customer margin accounts that are purchased on margin shall, for the purposes of share transfers, be calculated by the securities firm in accordance with the provisions of the Rules Governing the Calculation of Number of Shares of Margin Buyers for the Purposes of Share Transfers Upon Special Shareholders Meetings as prescribed by the TSEC in consultation with the GreTai. |
| Article 37 | For securities purchased on margin or securities deposited to cover a shortfall in margin purchase or short sale or deposited as short sale margin, if a customer needs to carry out the share transfer procedures himself, the customer shall, by two business days before the commencement date of a book closure, repay the margin loan in cash and withdraw the securities purchased on margin, or take back the deposited securities by replacing them with cash or with any of the securities specified in Article 26, as the case may be. |
Chapter V Default Procedures
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| Article 38 | Failure by a customer to make timely deposit of margin purchase margin or short sale margin under Article 19 constitutes an event of default, in which case the securities firm shall immediately carry out settlement procedures on behalf of the customer, cancel the margin account and brokerage account, and report the event of default to, and carry out the settlement procedures on behalf of the customer with, the TSEC or the GreTai; on the basis of the securities firm's report, the TSEC or GreTai will 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 GreTai 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.
If an event of default under paragraph 1 occurs to a discretionary investment account, the preceding two paragraphs shall apply, unless the cause is unauthorized trading, in which case the provisions of Article 91-1 of the TSEC Operating Rules shall be followed. |
| Article 39 | Where any of the following circumstances applies to a customer, the securities firm may, within the extent required to satisfy the obligation, dispose of the balance in the customer's margin account in accordance with the provisions of paragraph 3. If there is any surplus remaining after the obligation is satisfied, it shall be returned to the customer. If the proceeds of the disposal are insufficient to fully satisfy the obligation, the securities firm shall notify the customer to satisfy the remaining obligation within a specified time limit and shall report the case to the TSEC or the GreTai as an event of default and cancel the customer's margin account accordingly. The TSEC [or the GreTai] shall promptly forward the message to securities finance enterprises and to all securities firms engaged in 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 on a margin purchase or short sale, and where the obligation is not fully satisfied after disposal of the collateral for that margin purchase or short sale, the securities firm shall use other funds in that customer's margin account to offset against the obligation. If there is still a deficiency remaining after such offsetting, the securities firm shall notify the customer to make up the deficiency on the next business day. If the deficiency is not fully made up, the securities firm may, within the extent required to satisfy the obligation, dispose of the balance in the customer's margin account in accordance with the provisions of paragraph 3. If there is any surplus remaining after the obligation is satisfied, it shall be returned to the customer. If the proceeds of the disposal are insufficient to fully satisfy the obligation, the securities firm shall notify the customer to satisfy the remaining obligation within a specified time limit, and shall report the case to the TSEC or the GreTai as an event of default and cancel the customer's margin account accordingly. The TSEC [or the GreTai] shall promptly forward the message to securities finance enterprises and to all securities firms engaged in margin purchase and short sale business.
1. Failure to settle a short sale in accordance with Article 35.
2. Failure to settle a margin purchase or short sale at maturity.
3. Failure to replace securities deposited as additional collateral against margin requirements as required under Article 28.
Where any circumstances under paragraphs 1 and 2 applies to a customer, the securities firm shall, on the next business day and on the TSEC centralized exchange market or through the GreTai automated trade matching system, place an order with another securities broker to dispose of the customer's 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 settle a margin purchase or short sale by the due date, the securities firm may, for a period starting from the day after the due date and ending at the day on which disposal is completed, charge the customer a margin purchase default penalty at 10 percent of the stated interest rate on the margin loan, or a short sale default penalty equivalent to a one-time handling fee based on the stated amount of the short sale handling fee. |
| Article 41 | A securities firm to which the TSEC or GreTai has forwarded a message under Article 38, paragraph 1 or Article 39, paragraph 1 or 2 that a customer is in default with a securities finance enterprise or with another securities firm, shall take the following measures as the circumstances merit:
1. Where a customer is in default under 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 GreTai Trading Rules, the securities firm shall promptly notify the customer to close out all outstanding margin purchases and short sales on the next business day and thereafter cancel the brokerage account and margin account; if the customer fails to close out all outstanding margin trades within this time limit, the securities firm shall, by the mutatis mutandis application of Article 39, paragraph 3, close out the trades for the customer starting the next business day.
2. Where a customer is in default under Article 39, paragraph 1 or 2 hereof, the securities firm may not accept any order from by the customer to carry out a margin purchase or short sale, and shall cancel the customer's margin account promptly after the customer has closed out all outstanding margin purchases and short sales.
Unless the cause is unauthorized trading and handling measures are not required to be taken, if any event of default under the preceding paragraph occurs to a discretionary investment account or to a customer's own account, the provisions of the preceding paragraph shall apply to the customer' own account and any other discretionary investment account of the customer. |
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 GreTai under its applicable rules and regulations.
When a responsible or associated person charged with the operations of securities trading margin purchases and short sales violates any provision hereof or any other relevant provision, such person may not engage in those operations during the period in which the violation is subject to a disposition. |
| Article 43 | These Rules, and any amendments hereto, shall be prepared and adopted by the TSEC in conjunction with the GreTai, and shall be implemented by public announcement after ratification by the competent authority. |