Chapter 1: General Provisions
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| Article 1 | These Criteria are promulgated pursuant to Article 140 of the Securities and Exchange Law. |
| Article 2 | The term "call (put) warrant" as used in these Criteria refers to securities issued by a third party, other than the issuer of the underlying securities, for which the holder of the issued call (put) warrant has the right, within a prescribed period of time or by a prescribed expiration date, to buy from or sell to the issuer the underlying securities at a given strike price, or to take a cash settlement in lieu of the price difference [between the strike price and the actual price of the securities]. |
Chapter 2: Issuer Qualifications and Applications
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| Article 3 | Applicants seeking approval by the Taiwan Stock Exchange Corporation (hereafter, "the TSEC") for qualification as a call (put) warrants issuer shall prepare an Application for Approval as a Qualified Call (Put) Warrants Issuer (Attachment 1), filled out in full and with the required documents attached for submission to the TSEC. Following review and approval of the application by the TSEC in accordance with the Criteria Governing Applications for Issuance of Call (Put) Warrants by Issuers, these Criteria, and the Taiwan Stock Exchange Corporation Procedures for Review of Call (Put) Warrant Listings, the TSEC shall submit the application, along the with TSEC review opinion, to the competent authority for review.
The Taiwan Stock Exchange Corporation Procedures for Review of Call (Put) Warrant Listings referred to in the preceding paragraph shall be promulgated by the Taiwan Stock Exchange Corporation, and take effect from the date of promulgation. |
| Article 4 | Any enterprise that simultaneously operates underwriting, trading for its own account, and brokerage or intermediary services may apply for approval as a qualified issuer of call (put) warrants. Where the enterprise is a foreign institution, the board of directors shall first issue a letter of approval or an undertaking guaranteeing performance of obligations, after which an application shall be submitted to the TSEC in the foreign institution's name by its branch institution within the territory of the ROC or by a branch institution established within the territory of the ROC by a subsidiary that is directly or indirectly fully-owned. Any enterprise operated by the aforementioned subsidiary or branch institution within the ROC shall also conform to the above provisions.
An issuer applying for approval as a qualified issuer of call (put) warrants shall conform to each of the following:
1. Its shareholder equity, based on a CPA's certified financial report for the most recent period, shall be at least NT$3 billion; for a foreign institution or a branch institution established within the territory of the ROC by a subsidiary which is either directly or indirectly fully-owned, the parent company must be in conformance with the preceding standard and its branch entity must within the ROC shall additionally have a net worth of at least NT$150 million.
2. The CPA's certified financial report for the most recent period may not show any cumulative losses.
3. It must have a credit rating of a particular grade issued by a credit rating institution approved or recognized by the competent authority.
4. Its self-owned capital adequacy ratio shall have been no less than 200 percent for the half-year preceding the date of application; where the issuer is a foreign institution, the same standard shall apply for its head office.
5. It must set out a strategy for offsetting foreseeable risks.
Where the issuer entrusts a foreign institution with hedging operations or where the issuer is a foreign institution, that institution shall first obtain a letter of approval from the competent authorities governing foreign exchange operations before submitting an application to the TSEC.
Where the foreign issuer is issuing through a branch institution established in the territory of the ROC by a subsidiary which is either directly or indirectly fully-owned, that branch institution in the ROC shall be designated to carry out matters related to issuance, exercise of warrant rights, and proper disclosure, and the provisions of Article 5 or Article 7, Paragraph 2 of these Criteria may not be applied. |
| Article 5 | Where an issuer does not conform to the standards set forth in Article 1, Subparagraphs 1 and 2, but has shareholder equity of at least NT$1 billion, it shall execute an agreement with a financial institution which, according to both the laws of its country of registration and its own articles of incorporation, may act as a guarantor; the issuer shall, at the time of application for listing of call (put) warrants, execute an unconditional and irrevocable guaranty agreement with that guarantor institution, which will act as joint guarantor to ensure the issuer's performance of the call (put) warrants listing agreement for the given issue; however, the guarantor institution shall conform to the standards set forth in Paragraph 2 of the preceding article.
The amount of the guaranty under the guaranty agreement referred to in the preceding paragraph shall be a sum equal to at least 20% of the strike price multiplied by the total shares of the call (put) warrants issue. |
| Article 6 | Where the issuer entrusts another institution with hedging operations, the risk management institution shall have shareholder equity of at least NT$1 billion and shall have a credit rating of a particular grade issued by a credit rating institution approved or recognized by the competent authority. |
| Article 7 | The term "credit rating of a particular grade" in Article 4, Paragraph 2, Subparagraph 3, and Article 6 means a rating of twBB or above obtained from Taiwan Ratings Corporation, or BB- (twn) or above from Fitch Ratings Limited, Taiwan Branch, or Ba3.tw or above from Moody's Investors Service; for foreign institutions, it means a rating of Ba3 or above from Moody's Investors Service, BB or above from Standard and Poor's, or BB or above from Fitch Inc.
Where the issuer or the risk-management institution is a foreign institution or the subsidiary of an ROC financial holding company, it may obtain a credit rating as a group holding company, and the holding company may provide an unconditional and irrevocable guaranty, however, the credit rating of the holding company shall still conform to the standards set forth in the preceding paragraph. |
| Article 8 | Where any of the following conditions apply to an issuer, the TSEC may withhold approval for qualification:
1. The issuer has made incomplete submission of required application documents, and failed to supplement those documents by the deadline prescribed by the TSEC.
2. The particulars of the issuer's application do not conform to laws and regulations, or contain false and misleading presentations.
3. There is an instance of major default by the issuer which has yet to be settled, or less than four years have elapsed since settlement of the default.
4. Non-conformance by the issuer with any one of the subparagraphs under Article 38 of the Standards Governing Establishment of Securities Firms, or any similar circumstances in cases where the issuer is a foreign institution.
5.5. The issuer lacks appropriate mechanisms for risk management.
6. The issuer has been incapable of meeting obligations in connection with any previous issue of call (put) warrants.
7. The issuer has been incapable of carrying out issuance in conformance with relevant TSEC regulations governing call (put) warrants within the previous year and unable to achieve conformance within the period of time prescribed by the TSEC.
8. Preparation of the issuer's financial reports does not conform with generally accepted accounting principles or its internal control system is not capable of functioning effectively.
9. The issuer has violated Article 6 of the Criteria Governing Applications for Issuance of Call (Put) Warrants by Issuers, or review of matters requiring disclosure show threat of serious influence to its financial condition.
10. There are serious equity disputes or violation of regulations sufficient to affect financial operations of the issuer that have not been resolved or rectified.
11. Where there is factual evidence of irregular circumstances in the issuer's finances or operations.
12. There is nonconformance with provisions of these Criteria relating to the issuer's financial status.
When any circumstance set forth in the subparagraphs below occurs after an issuer obtains qualification approval, its issuance of call (put) warrants shall be suspended, and resumed only after such circumstances are rectified. The issuance of any warrants already approved but not yet issued shall be suspended and the suspension reported to the competent authority; the validity of any call (put) warrants already issued shall not be affected by the suspension. This paragraph shall also apply when the issuer is a foreign institution and the circumstances of any subparagraph herein exist with respect to its head office.
1. The issuer does not simultaneously operate underwriting, trading for its own accounts, and brokerage or intermediary services.
2. The circumstances under Article 4, paragraph 2, subparagraphs 1 and 2 apply.
3. The issuer's self-owned capital adequacy ratio remains below 200 percent for a period of three consecutive months.
4. The issuer's credit rating fails to achieve the minimum prescribed standard. |
| Article 8-1 | After obtaining qualification from the competent authority as an issuer of call (put) warrants, an issuer shall each year provide a written report to the TSEC, with relevant documentation attached, within three days after receiving its credit rating from the credit rating institution, and shall do the same at any time during the intervening periods when there is a change in its credit rating. |
Chapter 3: Issuance and Market Listing of Call (Put) Warrants
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| Article 9 | After the issuer receives approval as a qualified issuer of call (put) warrants and wishes to apply to the TSEC for listing of a planned call (put) warrants issue, the issuer shall apply to the TSEC with an Application for Listing of Call (Put) Warrants (Attachment 2) filled out in full and with the required documents attached. Following TSEC approval of the issuer's issuance plan, the TSEC will immediately issue a letter of approval, with a copy to the competent authority, provided that depending on the condition of the issuer's financial business, the status of the underlying securities, the number of call (put) warrants already listed on the market with identical or similar types of underlying securities and their expiration dates and distributions, the TSEC may withhold approval, limit the number of warrants to be listed, or impose other conditions.
After receiving a TSEC approval letter and submitting a copy to the competent authority, the issuer may entrust an underwriter with underwriting of the issue or it may sell the warrants itself, and provide a prospectus to the subscribers.
The guidelines for information to be published in public offering prospectuses will be promulgated by the TSEC in accordance with Article 13 of the Criteria Governing Applications for Issuance of Call (Put) Warrants by Issuers and shall take force upon approval by the competent authority. |
| Article 10 | An application for TSEC listing approval for an issue of call (put) warrants shall conform to each of the following conditions:
1. The issue shall comprise 20 million or more issuance units, or 10 million or more units with a total value of NT$200 million or more.
An issuance unit shall represent one share (one beneficiary unit) or a basket of single shares, or every 10 issuance units shall represent one share (one beneficiary unit) or a basket of single shares.
2. Distribution of warrant holders:
(1) There must be 100 or more warrant holders. At least 80 warrant holders must hold between 1,000 and 50,000 issuance units, and their cumulative holdings must comprise 20% or more of the total listed issuance units.
(2) The number of issuance units held by any single warrant holder may not exceed 10% of the total volume of listed issuance units; where a warrant holder is the issuer, the number of issuance units held may not exceed 30% of the total volume of listed issuance units, provided that where the issuer entrusts another institution with risk management, the risk management institution in question may not hold the warrants issued.
(3) The total number of issuance units held by the issuer and the issuer's associated persons and employees may not exceed 35% of the total volume of listed issuance units.
(4) During the sale of the call (put) warrants, the issuer shall restrict the directors, supervisors, and managers of the company whose securities are represented in the call (put) warrants, as well as major shareholders with shareholdings of 10% or more in that company, from holding warrants through which they may subscribe to a number of shares in excess of the number of shares of the underlying security they already hold, with the exception of the TSEC Taiwan 50 Index exchange-traded fund (below, "the Taiwan 50 Index").
3. Period of validity: Calculated from the date of listing, the period of validity shall be between six months and two years, inclusive.
4. Restriction on total issuance volume of the underlying represented by a warrant: The total number of shares of the underlying security that may be called (or put) through the call (put) warrants and the shares of the same underlying security represented by other existing call (put) warrants already listed on the TSEC, combined with those issued overseas by the issuer or its correspondent institution overseas and representing the same underlying, may not exceed 20% of the total number of outstanding shares of the issuing company after deduction of each of the following types of shareholdings:
(1) The total percentage of shares held by directors and supervisors under statutory shareholding ratio requirements.
(2) Already pledged securities.
(3) The number of centrally deposited shares mandatory for newly listed companies.
(4) Shares already repurchased under the Regulations Governing Share Repurchase by Listed and OTC Companies and not yet cancelled.
(5) Shares with restrictions on listing or trading imposed by the competent authority. When the underlying security is the Taiwan 50 Index, the total number of shares of the underlying that may be called (or put) through the call (put) warrants and the shares of the same underlying represented by other existing call (put) warrants already listed on the TSEC, combined with those issued overseas by the issuer or its correspondent institution overseas and representing the same underlying, may not exceed 40% of the total number of outstanding shares of the issuing company, provided that this shall not affect the validity of any call (put) warrants already issued.
5. When the underlying security is the Taiwan 50 Index, consent shall be obtained from the institution creating the fund's underlying index.
6. The issuance plan shall contain the following terms and conditions:
(1) The issuance date and the period of validity.
(2) Detailed information on the underlying security or basket of securities (for the underlying securities of the warrants issued, in addition to the financial statement of the most recent period audited or certified by a certified public accountant and showing no losses, there shall also be a statement of the reason for issuing warrants based on the underlying securities).
(3) The type of call (put) warrant, the volume of issuance units and total value of the issue.
(4) Terms of issuance (including issuance price, strike price, exercise period and number of shares or beneficiary units represented per issuance unit; where knock-out call warrants or knock-out put warrants are issued, conditions regarding upper and lower price caps and the fact that the warrants will be deemed to be at maturity, requiring settlement exclusively in cash when the closing price of the underlying security reaches the upper or lower price, cap shall be set out in a prominent typeface). For a call warrant, the strike price referred to may not exceed 150% of the underlying security's price at market close on the date of application; for a put warrant, the strike price may not be lower than 50% of the underlying security's price at market close on the date of application, provided that the above ratios may be exceeded when the strike price and the closing price of the underlying security differ by less than NT$30. There shall be reasonable cause and explanation for any terms of issuance that do
not conform to the above standards, and full disclosure shall be given to investors.
(5) The method by which the issuance price is calculated, including the price of the underlying security, the strike price, the period of validity, the interest rate, the rate of fluctuation of the underlying security and other elements used in the calculation, and a table of comparison with other warrants in the preceding year that took the same listed security as the underlying security.
(6) Detailed information on the guarantor and the guaranty agreement or collateral.
(7) Procedures for exercising the option and the terms for cancellation of already-exercised call (put) warrants.
(8) Strategies for offsetting foreseeable risks.
(9) The policy of the issuer regarding adjustment of the strike price of the call (put) warrant and related items along with the distribution of dividends and bonuses, increases or decreases in capitalization, stock splits or consolidations, and handling of other related matters by the issuing company of the underlying securities, or the distribution of Taiwan 50 Index exchange-traded fund dividends and handling of other matters by the securities investment trust enterprise. Where the issuer does not make such adjustments in accordance with the TSEC reference formula, that fact shall be noted in bold lettering in the issuance prospectus.
(10) Methods of handling merger by the company issuing the underlying securities, or alteration in the trading method, suspension of sale, or de-listing of the securities, or delisting when the securities investment trust enterprise of the underlying Taiwan 50 Index fund undergoes dissolution or bankruptcy, or its approval its revoked
(11) Methods of handling market listing of the call (put) warrants, or suspension of trading or de-listing of the warrants by the TSEC.
(12) Terms stipulating that upon expiration of the period of validity, where the market price of the underlying securities is higher than the strike price of a call warrant (or the strike price of a put warrant is higher than the market price of the underlying securities) and where there is value in the exercise of the option and the terms of exercise require cash settlement, the warrant holder shall be deemed to have exercised the warrant and to have given notice to that effect.
(13) Terms stipulating that the warrant issuer may not substitute another warrant with a period of validity longer than that of the original warrant, or any other security, for the originally issued warrant.
(14) Procedures for delivery and payment when the warrant holder exercises the option.
(15) Terms stipulating that where settlement after exercise of the option referred to in the preceding paragraph shall be in cash, the cash settlement amount shall be calculated based on the closing price of the underlying securities on the exercise date.
(16) Terms stipulating the methods for handling distribution of securities centrally deposited in the Taiwan Central Depository Corporation account where the issuer fails to perform its delivery of the underlying securities or the cash price differential.
(17) Clarification of whether or not there are plans for a reverse issue of call (put) warrants against the same underlying securities within the coming three months. |
| Article 11 | An application for TSEC approval for listing of call (put) warrants shall conform to each of the following conditions when the underlying securities are stocks:
1. Market value of underlying security: NT$10 billion or more.
2. The volume of shares traded during the most recent three calendar months shall account for 20% of the total of outstanding shares, or the average monthly volume of shares traded in the most recent three months shall reach 100 million shares or more.
3. The financial report for the most recent period, certified or audited by a certified public accountant, shall show no losses, or shall show no accumulated deficit if losses exist.
Conformance of underlying securities with the standards of the preceding paragraph shall be based on quarterly TSEC announcements, provided that if during the period for announcement the financial report required under Article 36 of the Securities and Exchange Law does not conform with Subparagraph 3 of the preceding paragraph, the TSEC will announce cancellation of the given security's qualification as the underlying of a call (put) warrant.
In applications to the TSEC for approval for listing of call (put) warrants, in addition to the financial statement of the most recent period audited or certified by a certified public accountant and showing no losses, there shall also be a statement of the reason for issuing warrants based on the underlying securities.
Applications with the TSEC for approval for listing of call (put) warrants whose underlying security is beneficiary certificates shall be limited to the Taiwan 50 Index fund, for which the total number of already-issued beneficiary units in the exchange-traded fund portfolio composition file published on the TSEC website on the business day preceding application for issuance of the call (put) warrants shall have reached 500 million units or more. |
| Article 12 | Where any of the following conditions apply, the TSEC may withhold approval for an application for market listing of a projected issue of call (put) warrants:
1. The required application documents submitted by the issuer are incomplete, and it has failed to supplement the required documents by the deadline prescribed by the TSEC.
2. The particulars of the issuer's application do not conform to laws and regulations, or the issuer has made false and misleading presentations in the application.
3. The issuer or an affiliated company of the issuer has, during the month preceding application, released information or predictions relating to the price of the underlying securities of its projected warrants issue.
4. The issuer or its directors, supervisors, managers, employees, or shareholders hold 10% or more of the issuer's shares, or any of the above hold 10% or more of the shares of another company, and are at the same time a director, supervisor, manager, or shareholder with a stake of 10% or more in the issuing company of the underlying security or any of the issuing companies of the basket of underlying listed securities. Applications for issuance of warrants whose underlying is the Taiwan 50 Index may be exempt from the provisions of this subparagraph.
5. The issuer is not in compliance with Article 4, paragraph 2, subparagraphs 1 and 2.
6. The total of the issuer's currently listed and OTC-listed call (put) warrants whose term of validity has not yet expired (OTC-listed warrants shall be converted for calculation and expressed as a figure in listed warrants) together with the projected issue exceeds the limit for the number of warrants it may issue, or where any of the following conditions apply:
(1) The issuer's credit rating is a Taiwan Ratings Corporation Class A rating or above, a Fitch Ratings Limited, Taiwan Branch rating of A (twn) or above, a Moody's Investors Service rating of A.tw or above, a Moody's Investors Service Class A rating or above, a Standard & Poor's Corp. Class A rating or above, or a Fitch Inc. Class A rating or above, and the total value of its issue exceeds 60% of its net self-owned capital adequacy requirement.
(2) The issuer's credit rating is a Taiwan Ratings Corporation Class BBB- rating or above, a Fitch Ratings Limited, Taiwan Branch rating of BBB- (twn) or above, a Moody's Investors Service rating of Baa1.tw, Baa2.tw, Baa3.tw or above, a Moody's Investors Service Class Baa1, Baa2, Baa3 rating or above, a Standard & Poor's Corp. Class BBB- rating or above, or A Fitch Inc. Class BBB- or above, and the total value of its issue exceeds 50% of its net self-owned capital adequacy requirement.
(3) The issuer's credit rating is a Taiwan Ratings Corporation Class BB+ rating or above, a Fitch Ratings Limited, Taiwan Branch rating of BB+ (twn) or above, a Moody's Investors Service rating of Ba1.tw or above, a Moody's Investors Service Class Ba1 rating or above, a Standard & Poor's Corp. Class BB+ rating or above, or a Fitch Inc. Class BB+ or above, and the total value of its issue exceeds 30% of its net self-owned capital adequacy requirement.
(4) The issuer's credit rating is a Taiwan Ratings Corporation Class BB rating or above, a Fitch Ratings Limited, Taiwan Branch rating of BB (twn) or above, a Moody's Investors Service rating of Ba2.tw or above, a Moody's Investors Service Class Ba2 rating or above, a Standard & Poor's Corp. Class BB rating or above, or a Fitch Inc. Class BB rating or above, and the total value of its issue exceeds 20% of its net self-owned capital adequacy requirement.
(5) The issuer's credit rating is a Taiwan Ratings Corporation Class BB- rating or above, a Fitch Ratings Limited, Taiwan Branch rating of BB- (twn) or above, a Moody's Investors Service rating of Ba3.tw or above, a Moody's Investors Service Class Ba3 rating or above, a Standard & Poor's Corp. Class BB- rating or above, or a Fitch Inc. Class BB- rating or above, and the total value of its issue exceeds 10% of its net self-owned capital adequacy requirement.
The above-mentioned net self-owned capital adequacy requirement shall be calculated based on the methods set forth within the Rules Governing Securities Firms, and the limit on the number of warrants that may be issued shall be calculated according to the following formula:
The limit on the number of warrants issuable = net self-owned capital requirement × the percentage listed corresponding to the above credit ratings ÷ the total value of each warrants issue (NT$300 million). Where the value obtained is less than one, it shall be counted as one; where more than one, decimals shall without exception be rounded down to the nearest whole number.
The above net self-owned capital adequacy requirement shall be applied to ROC issuers. Where the issuer is a foreign institution, limits on the number of warrants it may issue will be separately announced by the TSEC.
7. The issuer is a foreign institution, and at the time of application to issue call (put) warrants, the inward remittance of capital required for a hedge on the issue (the amount remitted into Taiwan minus the amount not required for a hedge on the issue) is less than the market value of the underlying securities represented by the non-matured listed or OTC-listed call (put) warrants (including the current issue). In addition, where a letter of undertaking stating that the premiums collected for the given issue of warrants will only be remitted into Taiwan after the expiration of the period of validity of the warrant or proof of an existing line of credit at a Taiwan bank in an amount equivalent to the premiums collected on the given issue have not been issued.
8. There are irregular fluctuations in the price of the underlying security within the three months prior to the date of application, and a penalty has been imposed in accordance with the Taiwan Stock Exchange Corporation Regulations Governing Implementation of the Stock Market Monitoring System.
9. There is any other factor arising out of the nature of the enterprise or exceptional circumstances that may be deemed to adversely affect the applicant's performance of the option or the price of the underlying securities.
10. There are any of the conditions set forth in Article 8 of these Criteria. |
| Article 13 | In the case of a call (put) warrant listing where the issuer has obtained approval documents from the TSEC, the issuer shall sign a listing agreement with the TSEC, and shall announce market listing of the warrants after obtaining approval from the competent authority.
After the competent authority approves the listing agreement referred to in the preceding paragraph, the agreement may be annulled by reporting to the competent authority for approval and recordation under the following conditions:
1. Where, prior to market listing, there is a discovery by the competent authority or a letter of report from the TSEC of any of the conditions under Article 8.
2. The issuer applies to annul the agreement.
For call (put) warrants already issued pursuant to the preceding paragraph, the issuer shall return the price with statutory interest included within 10 days from receipt of TSEC notice of approval for annulment of the listing agreement. |
Chapter 4: Matters Subsequent to the Hedging Period for Call (Put) Warrants
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| 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 exe
rcise 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 be the "888888-8" number under securities dealers' accounts. 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 offshore foreign institutional investor 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 financial hedging instruments as announced by the TSEC. 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 that it has registered for investment in the domestic securities market. |
| Article 16 | The types of financial instruments employed by the issuer in hedging and any related restrictions will be separately announced by the TSEC. |
| 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, short sales of the underlying security on the Taiwan Stock Exchange, or the borrowing and sale of the underlying security for a strategic transaction in accordance with Article 82-2 of the Operating Rules of the Taiwan Stock Exchange Corporation.
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 2 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 or with the securities finance company of a non-affiliated enterprise, and shall observe the provisions of this Corporation's "Operating Rules for Securities Firms Dealing with Margin Purchases and Short Sale," "Terms for the Opening of Margin Accounts Used by Securities Firms to Conduct Long and Short Margin Trading" and the provisions of the various securities finance companies related to the aforesaid two regulations.
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. |
Chapter 5: Handling of Violations
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| Article 20 | Except where the circumstances set forth under Article 10, paragraph 1, subparagraph 5, sub-subparagraph 17 exist, when 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.
Where an issuer produces a defective report, public announcement, or disclosure of required matters with regard to an application for qualification as a call (put) warrant issuer, issuance of warrants, or relevant matters during or subsequent to the warrant duration period, the TSEC may issue a letter requesting it to make rectification, and when the circumstances are serious, may restrict it from subsequent applications for issuance of warrants for a period of one month. |
| 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. |
Chapter 6: Supplementary Provisions |
| Article 24 | These Criteria and any amendments to them shall take force upon approval by the competent authority. |