||Taiwan Stock Exchange Corporation Criteria Governing Review of Call (Put) Warrant Listings(2003.05.16)
Chapter 3 Issuance and Market Listing of Call (Put) Warrants
|Article 14|| Issuers shall apply to the TSEC to open a specialized account at the time of their initial call (put) warrants issue. Where the issuer will be self-hedging or partially self-hedging, the account shall be used exclusively for establishing a hedge position after issuance of the warrants and for future performance of obligations when the investors exercise the warrants. Where the issuer entrusts another institution with hedging, the account shall be used for performance of obligations when the investors exercise the warrants, and the risk management institution is also required to open a specialized account with the issuer for the purpose of establishing a hedge position after issuance of the warrants.
Account numbers for the issuer's accounts referred to in the preceding paragraph shall uniformly include the "888888-8" number under which securities dealers are listed. Foreign issuers applying to issue warrants through a branch institution established in the territory of the ROC by a subsidiary which is either directly or indirectly fully-owned, the foreign issuer shall establish a sub-account under the qualified foreign institutional investor (QFII) account established in the ROC for hedging. The above-mentioned account shall be first reported to the TSEC, and may only be used for trading in the call (put) warrants it issues, the underlying securities, convertible corporate bonds based on those underlying securities, and certificates carrying rights to convert bonds into shares, or other certificates from the issuer based on the same underlying security. In addition, the securities in the specialized hedging account for the call (put) warrants issue without exception may not be pledged.
|Article 15|| Where the risk-management institution is a foreign institution and is concurrently performing risk management for more than one issuer, that institution shall, at the time of application for review in connection with market-listing of the call (put) warrants, provide documentation showing the amount of direct investment for which it has applied as a Qualified Foreign Institutional Investor; in addition, that amount, after deduction of the market value of the underlying securities of call (put) warrants for which it has already been entrusted with hedging, shall be larger than the market value of the underlying securities represented by the present issue of call (put) warrants which it is hedging.
|Article 16|| The financial instruments employed by the issuer in hedging shall be underlying securities, convertible corporate bonds based on those underlying securities and their exercised option positions, certificates carrying rights to convert bonds into shares, or other certificates from the issuer based on the same underlying security.
The convertible corporate bonds and certificates carrying rights to convert bonds into shares referred to in the preceding paragraph may not exceed 30% of the underlying securities represented by the originally issued warrants and the exercised option positions of convertible corporate bonds my not exceed 10 percent of the underlying securities represented by the originally issued warrants; in addition, hedging employing warrants representing the same underlying securities issued by other issuers shall be limited to an amount not in excess of 10% of the total of that warrants issue by that issuer, provided that when purchasing warrants representing the same underlying security from different issuers for hedging purposes, the combined total number of units purchased for hedging shall be limited to an amount not in excess of 15% of the projected hedge position of the issuer.
|Article 16-1|| Hedging methods employed by the issuer for put warrants issued may include one or more of the following: offsetting of the hedging positions employed for call warrants issued against the same underlying securities, sales of shares of the underlying security borrowed from shareholders, or short sales of the underlying security on the Taiwan Stock Exchange.Where the issuer elects to sell shares of the underlying security that have been borrowed from shareholders as a hedging instrument, the lending shareholder shall, following conclusion of a contract between the two parties in accordance with the provisions of Article 32-1, paragraph 1 of the Rules Governing Securities Firms, apply through their securities firm to the Taiwan Securities Central Depository Co., Ltd. for the transfer of all of the shares to be lent into the hedging account of the issuer or shall put said shares in escrow to be divided subsequently up into lots to apply for transfer into the hedging account in accordance with the issuer's hedging needs.
Where the issuer employs short sales of the underlying securities as a hedging instrument, said issuer shall open a margin account with another securities firm and report the details of said margin trading account in writing to This Corporation. The opening of the abovementioned margin account may be exempt from the applicability of Item 2 of This Corporation's "Terms for the Opening of Margin Accounts Used by Securities Firms to Conduct Long and Short Margin Trading."
The issuer shall, within three days following the borrowing or short sales of marketable securities, apply in accordance with regulations to issue put warrants. Where there is a failure to file application within the deadline, failure to complete the issue within the deadline or the put warrant has reached its expiry date, the issuer shall close out all open positions on the last day of the exercise period or on the expiry date.
The shareholders of the underlying security referred to in paragraph 1 may not be subject to the parameters set forth in paragraph 1 and paragraph 3 of the Article 22-2 of the Securities Trading Law.
|Article 17|| With the exception of trading in the underlying security during the term of validity of the warrants for hedging write-off purposes or under circumstances otherwise prescribed by the TSEC, the securities-dealing division of a securities firm issuing call (put) warrants may not purchase or sell said underlying security. Shares already held by the securities-dealing division prior to issuance shall be calculated as part of the total number of shares held under the hedging write-off strategy. In the case of entrusted external hedging, the risk management institution employed may not engage in buying or selling of the underlying securities on its own account.
Where the issuer is a foreign institution; its the branch institution within ROC territory or the dealing department of the branch institution established within ROC territory by a wholly directly or indirectly owned subsidiary may not engage in buying or selling of the underlying security during the period of validity of the abovementioned call (put) warrants.
|Article 18|| The issuer shall, during the period of validity for listed warrants, report hedging information daily online regarding estimated hedging positions and actual hedging positions. Where the issuer uses entrusted external hedging, it shall also report hedging information on the risk management institution in accordance with regulations.
Where the issuer's estimates of hedging positions differ from actual hedging positions by more than a 20% positive or negative value for three consecutive business days or for any three business days during any recent period of six business days, the TSEC shall request an explanation from the issuer and may perform an on-site investigation. Should the TSEC find the issuer's explanation unreasonable, it may give the issuer a demerit point; an issuer may be barred from applying to issue warrants for a one-month period after accumulating three demerit points. For any positive or negative discrepancy between estimated and actual open positions greater than 50%, the TSEC may require mandatory implementation of risk-offsetting strategies by the issuer.
Where the issuer is a foreign institution, and its reporting on hedge positions in accordance with the first paragraph shows actual hedge positions to be less than the estimated hedge positions, the issuer shall place an amount in its special hedge account equal to the market value of the underlying securities represented by the discrepancy between the open positions and the issuer's estimate.
|Article 19|| The issuer shall submit items for assessment and related information (Attachment 3) to the TSEC by letter within one week of the maturity of each call (put) warrants issue as the basis for assessment of qualification for later issues. The above items for assessment shall be set out in three columns (the item for assessment, a space for the issuer to fill out, and the assessment opinion of the exchange) (in three copies), and shall include the following items:
1. Whether the accounting procedures employed by the call (put) warrants issuer were carried out in accordance with the Criteria Governing Preparation of Financial Reports by Securities Firms.
2. Whether or not the issuer's hedging write-off procedures for the call (put) warrants issue during the period of issuing and listing of the warrants corresponded with the planned write-off strategy set out in the original application.
3. The circumstances relating to investor's exercise of the warrant rights during the time of issuance and listing for each issue.
4. The profit and loss of the issuer at the maturity of each call (put) warrants issue.
5. Whether or not there were any irregular fluctuations in the prices of the underlying securities represented by the call (put) warrants during the period of issuance and listing of the warrants.
6. Whether or not the issuer cleared all open positions prior to the next business day following the final day of the exercise period or the expiry date of the put warrant.
|Article 20|| Where an issuer, prior to application to the TSEC for issuance of call (put) warrants, releases or divulges information on its own initiative about the application or the warrants issue, the TSEC may bar the issuer from any subsequent application for a period of three months.
When the media have made a concrete announcement or disclosure of information related to the underlying securities of a particular warrants issue in the week prior to the issuer's application, the TSEC will not approve the application for issuance and market listing.
|Article 21|| Where any of the circumstances under Article 13, Paragraph 2 apply with respect to the issuer, the TSEC may restrict the issuer from further applications for warrants issues during the subsequent one-month period.
|Article 22|| Where the issuer applies for call (put) warrants issuance with the TSEC and subsequently, as a means of promoting the items under application, releases or cites unconfirmed information relating to the underlying securities, the TSEC may withhold approval for the issuance and listing of the given warrants issue and may restrict the issuer from submitting further applications for warrants issues during the succeeding one-month period.
|Article 23|| Where the issuer is in violation of the provisions of Article 16-1, paragraph 4, This Corporation may impose restrictions that the issuer may not again file application within the coming three months.
|Article 24|| These Criteria and any amendments to them shall take force upon approval by the competent authority.