Chapter 1 General Principles
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| Article 1 | These Rules are promulgated pursuant to Article 140 of the Securities and Exchange Act. |
| Article 2 | The term "call (put) warrant" as used in these Rules 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 TWSE") 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 TWSE. Following review and approval of the application by the TWSE in accordance with the Rules Governing Applications for Issuance of Call (Put) Warrants by Issuers, these Rules, and the Taiwan Stock Exchange Corporation Procedures for Review of Call (Put) Warrant Listings, the TWSE shall submit the application, along the with TWSE 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 adopted by the Taiwan Stock Exchange Corporation, and enforced after ratification by the competent authority. |
| 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 TWSE 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 net worth stated on the CPA's certified financial report for the most recent period is not lower than the paid-in capital.
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 regulatory 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 TWSE.
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 Rules may not be applied. |
| Article 5 | Where an issuer does not conform to the standards set forth in Article 1, subparagraph 1, 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, subparagraphs 1 to 3, 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 (the total shares of the call (put) warrants issue) x (the strike price [or strike index]) x (20 percent of the multiplier). |
| 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, or 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.
The provisions of the preceding paragraph shall apply mutatis mutandis to an issuer that whose incorporation is registered in ROC territory and is wholly owned, either directly or indirectly, by a foreign institution. |
| Article 8 | Where any of the following conditions apply to an issuer, the TWSE 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 TWSE.
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 4 years have elapsed since settlement of the default.
4. Non-conformance by the issuer with any of subparagraphs 2-5 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. 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 TWSE regulations governing call (put) warrants within the previous year and unable to achieve conformance within the period of time prescribed by the TWSE.
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 Rules 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 Rules 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. 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 latest financial report, audited and attested or reviewed by a CPA, fails to conform with the standards of Article 4, paragraph 2, subparagraphs 1 and 2, provided that this shall not apply where there is non-conformance with the standards of Article 4, paragraph 2, subparagraph 1, but the measures provided in Article 5 are followed.
3. The issuer's regulatory capital adequacy ratio falls below 150 percent, or remains below 200 percent for a period of 3 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 TWSE, with relevant documentation attached, within 3 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 TWSE for listing of a planned call (put) warrants issue, the issuer shall apply to the TWSE with an Application for Listing of Call (Put) Warrants (Attachment 2) filled out in full and with the required documents attached. Following TWSE approval of the issuer's issuance plan, the TWSE will immediately issue a letter of approval, with a copy to the competent authority, provided that depending on the issuer's financial and business condition, the status of the underlying securities or the underlying index, 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 TWSE may withhold approval, limit the number of warrants to be listed, or impose other conditions.
After receiving a TWSE 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 adopted by the TWSE in accordance with Article 13 of the Rules Governing Applications for Issuance of Call (Put) Warrants by Issuers and shall take force upon ratification by the competent authority. |
| Article 10 | An application for TWSE listing approval for an issue of call (put) warrants shall conform to each of the following conditions:
1. The issue shall comprise 10 million to 50 million issuance units. The price per issuance unit shall be not less than NT$0.6. For non-index warrants, the issuer itself determines the number of shares (or units) or baskets thereof represented by one issuance unit, within a range that is from one issuance unit representing one share (one unit) or basket thereof to 100 issuance units representing one share (one unit) or basket thereof. For index warrants, the issuer itself determines the index points represented by each issuance unit; one index point corresponds to NT$1.
2. Period of validity: Calculated from the date of listing, the period of validity shall be from 6 months to 2 years, inclusive; for issuance of callable bull contracts or callable bear contracts, the period of validity shall be from 3 months to 2 years, inclusive.
3. Restriction on total issuance volume of the underlying represented by a warrant:
(1) When the underlying security is a domestic stock, the total number of shares of the underlying security represented by the domestic warrant issuance units of the call (put) warrants and the shares of the same underlying security represented by other existing call (put) warrants already listed on the TWSE may not exceed 22 percent of the total number of outstanding shares of the domestic issuing company after deduction of each of the following types of shareholdings. Where the issuer and any of its overseas subsidiaries (whose warrant issuing operations are guaranteed or secured by the mother company) issue offshore call (put) warrants for which the underlying security is a domestic stock, the total number of shares of the underlying security represented by the issuance units of the offshore call (put) warrants, combined with the number of the same underlying securities represented by other existing call (put) warrants issued overseas, may not exceed three percent of the total number of outstanding shares of the issuing company after deduction of each of the following types of shareholdings:
(i.) The total percentage of shares held by directors and supervisors under statutory shareholding ratio requirements.
(ii.) Already pledged securities.
(iii.) The number of centrally deposited shares mandatory for newly listed companies.
(iv.) Shares already repurchased under the Rules Governing Share Repurchase by TWSE Listed and GTSM Listed Companies and not yet cancelled.
(v.) Shares with restrictions on listing or trading imposed by the competent authority.
(2) If the underlying security is a foreign stock, the combined total of the number of shares of the underlying security represented by domestic issuance units of the call (put) warrants and of the same underlying security represented by other existing call (put) warrants already listed on the TWSE may not exceed 15 percent of the total number of shares already issued by the issuer of the underlying securities.
(3) When the underlying security is an exchange-traded securities investment trust fund announced by the TWSE, the total number of shares of the underlying security represented by the issuance units of the call (put) warrants and the shares of the same underlying security represented by other existing call (put) warrants already listed on the TWSE, combined with those issued overseas by the issuer or its correspondent institution overseas and representing the same underlying, may not exceed the total number of beneficial interest units already issued by the fund, provided that this shall not affect the validity of any call (put) warrants already issued. When the underlying security is an offshore exchange-traded fund as announced by the TWSE, the total number of units of the underlying security represented by the issuance units of the call (put) warrants and the units of the same underlying represented by other existing call (put) warrants already listed on the TWSE may not exceed the total number of units of that fund offered and sold domestically within the ROC territory.
(4) If the underlying security is a foreign exchange-traded fund (ETF), the combined total of the number of beneficial units of the underlying security represented by the issuance units of the call (put) warrants and the number of beneficial units of the same underlying security represented by other existing call (put) warrants already listed on the TWSE may not exceed 50 percent of the total number of the beneficial units already issued.
(5) When the underlying security is Taiwan Depository Receipts, the total number of units of the underlying represented by the domestic issuance units of the call (put) warrants and the units of the same underlying represented by other existing call (put) warrants already listed on the TWSE may not exceed 22 percent of the already listed units of the receipts.
(6) If the underlying security is a foreign depositary receipt, the combined total of the number of units of the underlying security represented by the domestic issuance units of the call (put) warrants and the number of units of the same underlying security represented by other existing call (put) warrants already listed on the TWSE, may not exceed 15 percent of the total number of the depositary receipt units already listed on the TWSE.
4. When the underlying security is an exchange-traded securities investment trust fund or offshore exchange-traded fund, if an authorization is required to be obtained, consent shall be obtained from the institution creating the fund's underlying index; for the underlying index, consent shall be obtained in advance from the institution creating the given underlying index.
5. 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 index, security, or basket of securities (when the underlying securities of the warrants issued are domestic stocks, if the financial statement of the most recent period audited or certified by a certified public accountant and shows losses on the stock, there shall also be a statement of the reason for issuing warrants based on the underlying securities; when the underlying security is a foreign stock or a foreign depositary receipt, there shall be a statement of the status of liquidity of the foreign stock or foreign depositary receipt).
(3) The type of call (put) warrant, the volume of issuance units and total value of the issue.
(4) Terms of issuance (such terms, including issuance price, strike price or exercise index level, exercise period and number of shares, beneficial units, depository receipt units, or index points represented per issuance unit.
(5) The method by which the issuance price is calculated, including the price of the underlying security or underlying index, the strike price or exercise index level, 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 with the same listed security or index as the underlying security. In the case of an issue of callable bull contracts or callable bear contracts, the issuance price shall be calculated as the “difference between the price of the underlying security or underlying index and the strike price or strike index × multiplier ＋ funding cost”, wherein the funding cost shall be calculated as “funding cost annual rate × strike price or strike index × (days to maturity ÷ 365) × multiplier.”
(6) Issuance of capped call or put warrants (or callable bull or bear contracts) shall, in addition to the provisions of the preceding five items, comply with the following requirements:
i. For a capped call warrant or capped put warrant, the day on which the closing price of the underlying securities or the closing index of the underlying index reaches the capped call (or put) price or index is deemed the warrant’s last trading day; such warrants reach maturity on the second business day thereafter, and without exception the automatic cash settlement performance method is adopted based on the closing price of the underlying securities or the closing index of the underlying index on the last trading day of the warrant; the aforementioned conditions shall be printed in conspicuous typeface. The capped call price or index level shall be set at no less than 150 percent of the strike price or strike index; the capped put price or index level shall be set at no more than 50 percent of the strike price or strike index.
ii. For a callable bull contract or callable bear contract, the day on which the closing price of the underlying securities or the closing index of the underlying index reaches the knock-out price or index is deemed the contract’s last trading day. Such contract reaches maturity on the second business day thereafter, and the automatic cash settlement performance method is adopted based on the simple arithmetic mean trade price of the underlying securities or the simple arithmetic mean of the underlying index on the first business day following the last trading day of the contract. If there is no trade price for the underlying security, the base auction price for the opening of trading of the underlying security on the expiration date of the contracts shall be used. If the trading of underlying security is halted or suspended on the first business day following the last trading day of the contracts or on the expiry date, the closing price of the underlying security on the last trading day of the contracts shall be used. The aforementioned conditions shall be printed in conspicuous typeface. The bull/bear contract knock-out price or index level shall be set within a range between the closing price of the underlying securities or the closing index of the underlying index and the strike price or the strike index (inclusive thereof), and the bull contract or index knock-out price or index level shall be set at no more than 90 percent of the closing price of the underlying securities or the closing index of the underlying index, or the bear contract or index knock-out price or index level shall be set at no less than 110 percent of the closing price of the underlying securities or the closing index of the underlying index. The issuer shall also specify that in the event that any of the terms of issuance is re-set, any adjustment to the bull/bear contract strike price and knock-out price, or to the bull/bear contract strike index and knock-out index level, shall take effect from the first day of TWSE listing, and the price or index level thereof shall still be required to conform with the requirements set out above.
(7) Detailed information on the guarantor and the guaranty agreement or collateral.
(8) Items that must be included in the issuance plan in accordance with Article 8 of the Taiwan Stock Exchange Corporation Directions for Call (Put) Warrant Liquidity Provider Operations.
(9) Procedures for exercising the option and the terms for cancellation of already-exercised call (put) warrants.
(10) Strategies for offsetting foreseeable risks.
(11) 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 dividends and handling of other matters by the securities investment trust enterprise in relation to the underlying exchange-traded securities investment trust fund or by the offshore fund management institution or its designated institution in relation to the underlying offshore exchange-traded fund. Where the issuer does not make such adjustments in accordance with the TWSE reference formula, that fact shall be noted in bold lettering in the issuance prospectus. If the underlying is a foreign security, the issuer shall itself determine the formula for adjustment.
(12) Methods of handling when there is a merger by the company issuing the underlying securities, or alteration in the stock trading method, halt of trading, suspension of sale, or de-listing; or when there is delisting when the securities investment trust enterprise of the underlying exchange-traded securities investment trust fund undergoes dissolution or bankruptcy, or its approval is revoked; or when the beneficial certificates, fund shares, or investment units of the underlying offshore exchange traded fund are delisted by the TWSE after approval by the competent authority; or when the index provider announces suspension of the compilation of the underlying index.
(13) Methods of handling market listing of the call (put) warrants, or suspension of trading, de-listing or halt of trading of the warrants by the TWSE.
(14) Terms stipulating that upon expiration of the period of validity, for call (put) warrants with domestic securities or a domestic index as the underlying, there is exercise value if the simple arithmetic mean trade price of the underlying securities during the 60 minutes before market close or the simple arithmetic mean value of the underlying index during the 30 minutes before market close is higher (lower) than the strike price or strike index of the call (put) warrant. If there is no trade price for the underlying securities during the 60 minutes before market close, then the calculation shall be based on the most recent trade price. If the circumstance under Article 58-3, paragraph 5 of the TWSE Operating Rules exists, the calculation shall also incorporate the trade price or index from during the postponement period. For call (put) warrants with foreign securities or a foreign index as the underlying, there is exercise value if the most recent closing price of the underlying securities or the most recent closing value of the underlying index is higher (lower) than the strike price or strike index of the call (put) warrant. Where 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.
(15) 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.
(16) Procedures for delivery and payment when the warrant holder exercises the option.
(17) Terms stipulating that where settlement after exercise of the option referred to in the preceding paragraph shall be done in cash, the cash settlement amount shall be calculated based on the closing price of the underlying securities or the closing level of the underlying index on the exercise date. If the exercise date is the expiration date of the warrants, the cash settlement amount shall be calculated on the basis of the simple arithmetic mean trade price of the underlying securities during the 60 minutes prior to market close, or the simple arithmetic mean value of the underlying index during the 30 minutes prior to market close. If there is no trade price for the underlying securities during the 60 minutes prior to market close, then the calculation shall be based on the most recent trade price. If the circumstance under Article 58-3, paragraph 5 of the TWSE Operating Rules exists, the calculation shall also incorporate the trade price or index from during the postponement period. However, when the underlying asset is a foreign security or foreign index, the provisions of the TWSE Guidelines for the Exercise of Call (Put) Warrants shall be followed.
(18) Terms stipulating the methods for handling distribution of securities centrally deposited in the Taiwan Depository and Clearing Corporation account where the issuer fails to perform its delivery of the underlying securities or the cash price differential within the prescribed time period.
(19) Clarification of whether or not there are plans for a reverse issue of call (put) warrants against the same underlying securities or underlying index within the coming 3 months.
(20) Source of data and method of disclosure for the halt of trading, suspension of trading, or delisting, of foreign underlying securities by the securities exchange on which the security is traded, or for the suspension of compilation of foreign underlying foreign index as announced by the index provider.
6. Domestic call (put) warrants for which the underlying assets are foreign securities or foreign indexes may not be of the knock-out type, and investors may not apply for exercise of such warrants until the maturity date.
7. When an issuer issues domestic call (put) warrants for which the underlying assets are foreign securities or foreign indexes, it shall disclose, from the applied-for issue date through the maturity date of the warrants, on its company website and the TWSE-designated information reporting website, the up-to-date trading information of the underlying securities or indexes and the public announcements made by the issuing companies of the underlying securities. When such public announcement occurs during the trading hours [of the TWSE], the warrant issuer shall immediately enter the information; when such public announcement occurs during the non-trading hours [of the TWSE], the warrant issuer shall enter the information prior to the beginning of trading hours on the next business day following the occurrence. The warrant issuer shall enter the following information publicly announced by the issuing companies of the underlying securities:
(1) The annual and semi-annual consolidated financial reports (where the consolidated financial reports are not required, enter the individual financial reports), and the first-quarter and third-quarter financial reports prepared in accordance with the laws and regulations of the issuing company's home country or country of listing.
(2) Public announcement of dividend distribution for the current fiscal year; proposal of the dividend distribution has been passed by the board of directors and ratified at the shareholders meeting.
(3) Public announcement of acquisition or disposal of assets.
(4) Public announcement of the record date fixed for distribution of dividends, bonuses, or other benefits.
(5) Material information published by the issuing company in accordance with the laws and regulations of its home country or country of listing.
(6) Other matters that are required to be publicly announced under the rules of the TWSE. |
| Article 11 | For applications for TWSE approval for listing of call (put) warrants, when the underlying securities are domestic stocks, they shall conform to each of the following conditions:
1. Market value of underlying security: NT$10 billion or more.
2. The volume of shares traded during the most recent 3 calendar months shall account for 20 percent of the total of outstanding shares, or the average monthly volume of shares traded in the most recent 3 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.
When the underlying securities in an application for TWSE approval for listing of call (put) warrants are Taiwan depositary receipts, they shall meet each of the following requirements:
1. Units listed: 100 million units or more.
2. In the most recent 3 months the ratio of the number units traded to the number of units listed must reach 20 percent or more.
Conformance of underlying securities with the standards of the preceding two paragraphs shall be based on quarterly TWSE announcements, provided that if during the period for announcement the financial report required under Article 36 of the Securities and Exchange Act does not conform with subparagraph 3 of paragraph 1, the TWSE will announce cancellation of the given security's qualification as the underlying of a call (put) warrant.
In applications to the TWSE for approval for listing of call (put) warrants, when the underlying security of the warrants is a domestic stock and the financial statement of the most recent period audited or certified by a certified public accountant shows losses on the stock, there shall also be a statement of the reason for issuing warrants based on the underlying security.
In applications to the TWSE for approval for listing of call (put) warrants, when the underlying of the warrants is a domestic beneficial certificate or a domestic index, such underlying shall be limited to exchanged-traded securities investment trust funds, offshore exchanged-traded funds, or indexes as announced by the TWSE.
In applications to the TWSE for approval for listing of call (put) warrants, if the underlying of the warrants is a foreign security or a foreign index, the underlying shall comply with the requirements prescribed in Article 8, paragraph 1, subparagraph 3, items 1 and 2, of the Regulations Governing Applications for Issuance of Call (Put) Warrants by Issuers. If the underlying is a foreign stock, the market capitalization of the issuing company of the underlying security may not be equal to or less than US$500 million, and the volume of shares traded during the most recent 3 calendar months shall reach 20 percent or more of the total issued shares, or the average monthly volume of shares traded in the most recent 3 months shall reach 100 million shares or more. If the underlying is a foreign depositary receipt, the volume of units traded during the most recent 3 calendar months shall reach 20 percent or more of the listed units. |
| Article 12 | Where any of the following conditions apply, the TWSE 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 TWSE.
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 or the underlying index of its projected warrants issue.
4. When the underlying security of the projected issue of warrants is a domestic stock, and the issuer or its directors, supervisors, managers, employees, or shareholders hold 10 percent or more of the issuer's shares, or any of the above hold 10 percent 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 percent or more in the issuing company of the underlying security or any of the issuing companies of the basket of underlying listed securities.
5. The issuer's CPA audited and attested or CPA reviewed financial report for the most recent period is not in compliance with the standards of Article 4, paragraph 2, subparagraphs 1 and 2, provided that this shall not apply where there is non-conformance with the standards of Article 4, paragraph 2, subparagraph 1, but the measures provided in Article 5 are followed.
6. When the combined total of the issue price of the currently listed, GTSM listed, and GTSM contract-based call (put) warrants issued domestically by the issuer whose term of validity has not yet expired, and the call (put) warrants issued overseas whose term of validity has not yet expired, and the projected issue of call (put) warrants, together with the amount of the guarantee or the assets provided as collateral for the overseas subsidiary's offshore call (put) warrant issuing business is subject to any of the following conditions:
(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 combined total exceeds 60 percent of its eligible net regulatory 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 combined total exceeds 50 percent of its eligible net regulatory 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 combined total exceeds 30 percent of its eligible net regulatory 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 combined total exceeds 20 percent of its eligible net regulatory 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 combined total exceeds 10 percent of its eligible net regulatory capital adequacy requirement.
The above-mentioned eligible net regulatory capital adequacy requirement shall be calculated based on the methods set forth within the Rules Governing Securities Firms, for Taiwan issuers.
If the issuer is a foreign institution, the aforesaid eligible net regulatory capital is calculated by (the net worth on the most recent financial reports of its branch(es) within the Republic of China or branch(es) established within the Republic of China by its wholly owned subsidiaries) x (net available funds multiplier).
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 20 percent of the market value of the underlying securities represented by the non-matured listed or GTSM 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 3 months prior to the date of application, and a penalty has been imposed in accordance with the Taiwan Stock Exchange Corporation Rules 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 Rules. |
| Article 13 | In the case of a call (put) warrant listing where the issuer has obtained approval documents from the TWSE, the issuer shall sign a listing agreement with the TWSE, 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 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 TWSE 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 TWSE notice of approval for annulment of the listing agreement. |
| Article 13-1 | When an underlying foreign security represented by listed call (put) warrants is announced as delisted by the securities exchange on which the security is traded, or when an underlying foreign index represented by the warrants is announced by the index provider as suspended from compilation, the issuer shall immediately report by letter to the TWSE, and the TWSE shall delist the call (put) warrants after reporting to the competent authority and obtaining its approval. |
| Article 13-2 | When the underlying foreign securities represented by listed call (put) warrants is suspended or halted from trading by the securities exchange on which the security is traded, the warrant issuer shall report to the TWSE, and the TWSE may announce the suspension or halt of trading of warrants, and report for the competent authority’s recordation; the same applies to the resuming of halted trading. |
Chapter 4 Matters Subsequent to the Hedging Period and Liquidity Provision for Call (Put) Warrants
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| Article 14 | Issuers shall apply to the TWSE to open a segregated account at the time of their initial issue of domestic call (put) warrants and offshore call (put) warrants for which the underlying security is a domestic security. 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 segregated account with the issuer for the purpose of establishing a hedge position after issuance of the warrants.
The segregated accounts of issuers referred to in the preceding paragraph shall without exception be opened under securities dealer accounts. For 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 wholly-owned, the foreign issuer shall open a segregated hedge account in the securities brokerage department of that branch institution; the segregated hedge account opened with the issuer by the risk management institution shall be opened in the securities brokerage department. The account numbers of the aforesaid segregated hedge accounts shall without exception be 888888-8. The above-mentioned accounts shall be reported to the TWSE in advance, and may only be used for trading in financial hedging instruments for hedging purpose and in call (put) warrants issued by the issuer itself. In addition, the securities in the segregated hedging account 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 warrant hedging shall be relevant securities or financial derivatives with the same underlying securities.
An issuer's hedge positions in any domestically listed call (put) warrants, contract-based call (put) warrants, structured instruments, equity derivatives, or offshore call (put) warrants with the same underlying securities may be mutually offset. |
| 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 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 Depository and Clearing Corporation 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 the Operating Rules for Securities Firms Handling Margin Purchases and Short Sales of Securities and the Directions for Establishment of Margin Accounts with Securities Margin and Stock Loans, and the provisions of the various securities finance companies related to the aforesaid two regulations.
The issuer shall, within 3 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 Act. |
| Article 17 | Trading conducted by the dealing department of the issuer for its own account and hedge trading conducted by it in connection with call (put) warrants issued by it may not affect the fairness of market prices or harm shareholder equity, and an effective internal control system shall be established and executed in connection with such trading.
An issuer of call (put) warrants shall issue a letter of report to the TWSE by the 5th of each month, providing information on purchases and sales of the underlying securities of its issued warrants by its dealing department for the preceding month (including the trading day, the name of the security and the volume of the transaction).
The provisions of the preceding two paragraphs will apply mutatis mutandis to the risk management institutions engaged by issuers using outsourced risk management, and, where the issuer is a foreign institution, to the dealing department of its branch institution within ROC territory or the dealing department of a branch institution established within ROC territory by a directly or indirectly wholly-owned subsidiary of such a foreign institution.
Except where regulations provide otherwise, during the duration of the call (put) warrants, there may be no inter-account transfers of the warrants' underlying security between the issuer's dealing department and positions in the security held in the issuer's hedge accounts.
The "dealing department" referred to in the preceding four paragraphs includes any unit or trading account that is equivalent to a dealing department. |
| Article 18 | (deleted) |
| Article 19 | The issuer shall supply a liquidity provision mechanism for the warrants it issues, either by acting as the liquidity provider itself or by engaging other liquidity providers. Directions for the operations of liquidity providers will be separately adopted by the TWSE. |
Chapter 5 Handling of Violations
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| Article 20 | Except where the circumstances set forth under Article 10, subparagraph 5, item 19 exist, when an issuer, prior to application to the TWSE for issuance of call (put) warrants, releases or divulges information on its own initiative about the application of the warrants issue, the TWSE may send a letter requiring the issuer to give attention and make rectification. Where, due to the circumstance set forth in this paragraph, the issuer has been required by a letter from the TWSE to give attention and make rectification in the past year, the TWSE may additionally impose a breach penalty of NT$30,000; where the violation is serious in nature, the TWSE may also restrict the issuer from applications for issuance of warrants for a period of 1 month.
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 TWSE will not approve the application for issuance and market listing.
Where an issuer or a risk management institution engaged by it 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 TWSE may issue a letter requiring the issuer to give attention and make rectification. Where, due to the circumstance set forth in this paragraph, the issuer has been required by a letter from the TWSE to make rectification in the past year, the TWSE may additionally impose a breach penalty of NT$30,000; where the violation is serious in nature, the TWSE may also restrict the issuer from applications for issuance of warrants for a period of 1 month. |
| Article 21 | Where any of the circumstances under Article 13, paragraph 2 apply with respect to the issuer, the TWSE may restrict the issuer from further applications for call (put) warrant issues during the subsequent 1-month period. |
| Article 22 | Where the issuer applies for call (put) warrants issuance with the TWSE and subsequently, as a means of promoting the items under application, releases or cites unconfirmed information relating to the underlying securities, the TWSE 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 1-month period. |
| Article 23 | Where the issuer is in violation of the provisions of Article 16-1, paragraph 4, the TWSE may restrict the issuer from applications for warrant issues during the subsequent 3-month period. |
| Article 24 | Where an issuer violates the provisions of Article 17, paragraph 1, the TWSE may send a letter requiring the issuer to give attention and make rectification. If, due to the circumstance set forth in this article, the issuer has been required by a letter from the TWSE to give attention and make rectification in the past year, the TWSE may additionally impose a breach penalty of NT$30,000; where the violation is serious in nature, the TWSE may also restrict the issuer from applications for issuance of warrants for a period of 1 month. |
| Article 25 | Where an issuer violates the provisions of Article 13-1 or 13-2, the TWSE may impose a breach penalty of NT$100,000. If, due to the circumstance set forth in this article, the issuer has been imposed breach penalty by the TWSE in the past year, the TWSE may impose another breach penalty of NT$500,000; where the violation is serious in nature, the TWSE may also restrict the issuer from applications for issuance of warrants for a period of 1 to 3 months. |
| Article 26 | Where a breach penalty is imposed by the TWSE, the issuer of call (put) warrants shall remit the payment to the Finance Department of the TWSE within 5 days from the date on which it receives notification thereof. |
Chapter 6 Supplementary Provisions |
| Article 27 | These Rules and any amendments to them shall take force upon approval by the competent authority. |