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Taiwan Stock Exchange Corporation Regulations Governing Trading of Call (Put) Warrants(2007.04.11) |
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Article 1
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These regulations are promulgated pursuant to Article 55 of the Operating Rules of the Taiwan Stock Exchange Corporation.
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Article 2
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Call (Put) Warrants issued in accordance with the provisions of the "Criteria Governing Applications for Issuance of Call (Put) Warrants by Issuers" and approved by the Taiwan Stock Exchange (TSE) for listing shall be traded on the TSE. Without exception, a centralized securities depository institution shall be committed to carry out book-entry transfer, and the principal may not apply to retrieve the call (put) warrants.
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Article 3
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Trading in call (put) warrants shall be conducted in accordance with these regulations. For matters on which these regulations are silent, applicable provisions of other relevant laws and regulations or the Operating Rules of the TSE shall apply.
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Article 4
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A principal that is trading in call (put) warrants for the first time shall sign in advance a risk notification statement before a securities firm may accept its consignment.
The TSE shall prescribe the content that must be included in the risk notification statement.
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Article 4-1
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Where the underlying securities of call (put) warrants are subject by law to maximum limits on the ratio of investment by foreigners and overseas Chinese, investment in such call (put) warrants by foreigners or overseas Chinese shall be limited to cash settlement transactions. The same shall apply where any one of the underlying securities of basket call (put) warrants are subject to the above-mentioned legal restrictions.
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Article 5
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Applications to trade call (put) warrants shall specify the quantity to be traded, which shall be at least one trading unit or a full multiple thereof.
A block of 1,000 call (put) warrants shall equal one trading unit.
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Article 6
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Trading orders for call (put) warrants shall be in units of one warrant. Fluctuation basis points shall be as follows:
One cent for call (put) warrants priced less than NT$5; 5 cents for call (put) warrants priced from NT$5 to less than NT$10; 10 cents for call (put) warrants priced NT$10 to less than NT$50; 50 cents for call (put) warrants priced NT$50 to less than NT$100; NT$1 for call (put) warrants priced NT$100 to less than NT$500; and NT$5 for call (put) warrants priced NT$500 and up.
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Article 7
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Daily fluctuation limits for call (put) warrants shall be calculated in the following manner based upon the class of the underlying securities:
1. Limits for call (put) warrants on individual stocks, or on the Taiwan Top 50 Tracker Fund, shall be calculated using one of the following two formulas:
(1) For call warrants
Limit-up price = Previous day's closing price + (Limit-up price of the underlying security for the given day –Auction reference price at market opening for the underlying security for the given day) × Exercise ratio
Limit-down price = Previous day's closing price - (Auction reference price at market opening for the underlying security for the given day - Limit-down price of the underlying security for the given day) × Exercise ratio
(2) For put warrants
Limit-up price = Previous day's closing price + (Auction reference price at market opening for the underlying security for the given day – Limit-down price of the underlying security for the given day) × Exercise ratio
Limit-down price = Previous day's closing price – (Limit-up price of the underlying security for the given day – Auction reference price at market opening for the underlying security for the given day) × Exercise ratio
2. Fluctuation limits for call (put) basket warrants shall be calculated for each underlying security within the basket using the following formulas: (1) (Limit-up price of each underlying security in the basket for the given day –Auction reference price at market opening for each underlying security for the given day) × Sum of exercise ratios for each underlying security in the basket; and (2) (Auction reference price at market opening for each underlying security for the given day –Limit-down price of each underlying security for the given day) × Sum of the exercise ratios for each underlying security in the basket. The larger of these two figures shall be plugged into the formulas in the preceding sub-paragraph to calculate the daily fluctuation limits.
The "previous day's closing prices" referred to in the preceding paragraph shall be determined by the following means, in the following order of priority
1. Final transaction price of the previous day.
2. Where there is no closing price from the previous day's trading but the highest (or lowest) posted price reached the limit-up (or limit-down) price, the price may be calculated on the basis of such posted price.
3. The most recent transaction price.
4. For the initial listing of call (put) warrants, an initial listing reference price is used. The initial listing reference price is calculated by one of the following formulas:
(1) For call warrants
Initial listing reference price = Issue price of the call warrant x (Auction reference price at market opening for the underlying security on the day of listing of the call warrants ÷ Auction reference price at market opening for the underlying security on the day of issue of the call warrants) × (Exercise ratio for the call warrant on the day of its listing ÷ Exercise ratio for the call warrant on the day of its issue).
(2) For put warrants
Initial listing reference price = Issue price of the put warrant x (Auction reference price at market opening for the underlying security on the day of issue of the put warrants ÷ Auction reference price at market opening for the underlying security on the day of listing of the put warrants) × (Exercise ratio for the put warrant on the day of its issue ÷ Exercise ratio for the put warrant on the day of its listing).
The "auction reference price at market opening for the underlying securities for the given day" as referred to in paragraphs 1 and 2 shall be determined as follows:
1. If it is not the commencement date of ex-dividend or ex-rights trading, the auction reference price at market opening shall be the closing price of the underlying security on the previous trading day.
2. If it is the commencement date of ex-dividend trading, the auction reference price at market opening shall be the closing price of the underlying security on the previous trading day minus the value of dividends and bonuses.
3. If it is the commencement date of ex-rights trading, the auction reference price at market opening shall be determined according to the following conditions:
(1) Where a listed company issues stock dividends or new shares (including stock dividends paid out of undistributed employee bonuses) out of earnings or capital reserves, the auction reference price at market opening shall be the closing price of the underlying security on the previous trading day minus the rights value.
(2) Where a listed company carries out a cash capital increase through a new share issue, the auction reference price at market opening shall be the closing price of the underlying security on the previous trading day.
(3) Where a listed company issues stock dividends or new shares (including stock dividends paid out of undistributed employee bonuses) out of earnings or capital reserves, and at the same time also carries out a cash capital increase through a new share issue, the auction reference price at market opening shall be the closing price of the underlying security on the previous trading day minus the rights value of the stock dividends or new shares (including stock dividends paid out of undistributed employee bonuses) paid out of earnings or capital reserves.
The closing price of the underlying security on the previous trading day as referred to in the preceding paragraph shall be determined according to the provisions of paragraph 2 of Article 58-1 of the Operating Rules of the Taiwan Stock Exchange Corporation.
The limit-up and limit-down prices referred to in paragraph 1 shall without exception be calculated in positive numbers. In the event of any negative number, the calculation shall be based on the minimum tick size as set forth in Article 6.
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Article 8
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Trading orders shall be limited to orders at designated prices.
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Article 8-1
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Where the quantity of a single consigned call (put) warrant trade is 100 or more trading units, securities firms shall conduct a precise evaluation of the client's investment capabilities. Where the trading consignment does not exceed the client's investment capabilities; securities firms shall collect an amount of no less than 30 percent of the total value of the trading consignment where the client is purchasing call (put) warrants; securities firms shall limit the disposal and take custody of the call (put) warrants where the client is selling call (put) warrants. However, where the trading consignment does exceed the client's investment capabilities, securities firms shall collect an amount equivalent to the full value of the trading consignment where the client is purchasing call (put) warrants; securities firms shall collect the full quantity of call (put) warrants where the client is selling call (put) warrants.
Where the issuer is employing external hedging and a risk management organization opens a dedicated hedging account with the issuer to trade in call (put) warrants, the restrictions provided for in the preceding paragraph shall not apply.
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Article 9
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When matching transactions, buy and sell orders shall be prioritized according to the following principles:
1. Buy orders shall be prioritized from highest to lowest; sell orders shall be prioritized from lowest to highest.
2. Orders of the same price shall be prioritized based upon order of entry; however, the priority of pre-market-opening entries shall be assigned randomly by computer.
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Article 10
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Price competition among trading orders for call (put) warrants shall without exception be conducted through collective auction. Execution prices shall be determined by the following principles:
1. All buy orders higher than the determined buy price and sell orders lower than the determined sell price must be fully satisfied.
2. All orders identical to the determined price must be satisfied.
Where two or more prices conform to the principles in the preceding paragraph, the price closest to the most recent execution price on the current trading day shall adopted; if there is not yet an execution price for the current trading day, the price closest to the closing price on the previous day as provided in Article 7 shall be adopted.
The provisions of Article 58-3, Paragraph 3 of the Operating Rules of the Taiwan Stock Exchange Corporation shall not apply to the matching and execution of call (put) warrant trading orders.
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Article 11
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The provisions of Article 58, Paragraph 5 of the Operating Rules of the Taiwan Stock Exchange Corporation shall apply mutatis mutandis to disclosure of execution prices and volumes of call (put) warrant trading orders.
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Article 12
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The applicable provisions of the TSE Operating Rules shall apply mutatis mutandis to the clearing and settlement of call (put) warrant transactions.
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Article 13
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Relevant regulations regarding trade in listed stocks shall apply mutatis mutandis to collection of handling charges from principals by securities firms, and to collection of handling charges from securities firms by the TSE, in consignment trading of call (put) warrants.
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Article 14
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When a principal wishes to exercise a warrant right, it shall submit an application via its securities firm to the TSE. After the TSE accepts the application, it will request that the issuer honor the warrant. [In such cases], or where, upon expiration of a call (put) warrant that is to be settled in cash, the TSE has calculated and deemed that there is exercise value in the warrant and has notified the securities firm to exercise the warrant on behalf of the principal, fees shall be collected according to the provisions of the preceding article. Irrespective of whether the warrant will be exercised by delivery of shares or cash settlement, the following formula shall apply: Strike price of the call (put) warrant x Number of underlying shares.
When an issuer of call (put) warrants, or a risk management institution, buys back any warrant of the issuer on the centralized securities exchange market, it shall deliver such warrants in full to the centralized custody account which it previously notified the TSE of in writing. The TSE will not act on the issuer's behalf to request the honoring of warrants held in such an account.
The term "exercise value" in paragraph 1 means that there is a positive difference between the strike price of the underlying stocks of a call (put) warrant and the settlement price of the call (put) warrant at its expiration date, as calculated under Article 10, subparagraph 6, item 15 of the Taiwan Stock Exchange Corporation Criteria Governing Review of Call (Put) Warrant Listings.
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Article 15
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Except where otherwise provided by the terms and conditions of issuance, where a principal elects to exercise its rights on call (put) warrants and the exercise method is "payout in securities but issuer may elect to settle in cash," if on the same business day the issuer elects to settle its obligations partially by payout in securities and partially by cash, priority in receiving payout in securities shall be determined by the order in which the TSE receives requests from securities firms.
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Article 16
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These regulations shall be in force upon promulgation after approval by the competent authority, the same shall apply to all revisions hereto.
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