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Taiwan Stock Exchange Corporation Rules Governing Trading of Call (Put) Warrants(2009.05.19) |
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Article 1
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These Rules are adopted pursuant to Article 55 of the Operating Rules of the Taiwan Stock Exchange Corporation (TSEC).
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Article 2
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Call (Put) Warrants issued in accordance with the provisions of the "Regulations Governing Applications for Issuance of Call (Put) Warrants by Issuers" and approved by the TSEC for listing shall be traded on the TSEC centralized exchange. Without exception, a centralized securities depository institution shall be engaged to carry out book-entry transfer, and the principal may not apply to withdraw 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 TSEC Operating Rules shall apply.
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Article 4
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A principal other than a qualified institutional investor that is trading in call (put) warrants for the first time shall sign in advance a risk disclosure statement before a securities firm may accept orders from it.
The TSEC shall prescribe the content that must be included in the risk disclosure statement.
"Qualified institutional investor" means a foreign or domestic bank, insurance company, bills finance company, securities firm, fund management company, government investment institution, government fund, pension fund, mutual fund, unit trust, securities investment trust company, securities investment consulting company, trust enterprise, futures commission merchant, or futures service enterprise.
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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 foreigner nationals and overseas Chinese, the exercise of such call (put) warrants invested by foreigner nationals or overseas Chinese shall be limited to cash settlement. The same shall apply where any one of the underlying securities of basket call (put) warrants are subject to the above-mentioned legal restrictions.
The exercise of index call (put) warrants is limited to cash settlement.
The exercise of call (put) warrants invested in by a mainland area investor is limited to cash settlement.
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Article 5
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Trading orders for call (put) warrants shall be placed in one full trading unit or an integral 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 priced in units of one warrant. Tick size shall be as follows:
One cent per call (put) warrant priced less than NT$5; 5 cents per call (put) warrant priced from NT$5 to less than NT$10; 10 cents per call (put) warrant priced from NT$10 to less than NT$50; 50 cents per call (put) warrant priced from NT$50 to less than NT$100; NT$1 per call (put) warrant priced from NT$100 to less than NT$500; and NT$5 per call (put) warrant priced NT$500 or higher.
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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 warrants whose underlying is an exchange-traded fund announced by the TSEC 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.
3. Limits for index call (put) warrants shall be calculated using one of the following two formulas:
(1) Limit-up price for call (put) warrants = Previous day's closing price ＋ (Closing index of the underlying index on the previous day × corresponding monetary value per index point × multiplier × 7%).
(2) Limit-down price for call (put) warrants ＝ Previous day's closing price － (Closing index of the underlying index on the previous day × corresponding monetary value per index point × multiplier × 7%).
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 non-index 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 non-index 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).
(3) Reference price for the initial listing of index call warrants ＝ Call warrant issue price × (Closing index of the underlying index on the day before the call warrants are listed ÷ Closing index of the underlying index on the day before the call warrants were issued) × (Multiplier on the listing date of the call warrants ÷ Multiplier on the issuance date of the call warrants).
(4) Reference price for the initial listing of index put warrants ＝ Put warrant issue price × (Closing index of the underlying index on the day before the put warrants were issued ÷ Closing index of the underlying index on the day before the put warrants are listed) × (Multiplier on the issuance date of the put warrants ÷ Multiplier on the listing date of the put warrants).
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 Article 58-1, paragraph 2 of the TSEC Operating Rules.
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 placed as limit orders.
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Article 8-1
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Where the quantity of a single order for a call (put) warrant trade is 100 or more trading units, the securities firm shall conduct a precise evaluation of the client's financial capabilities. Where the size of the order does not exceed the investment capabilities of a customer wishing to purchase call (put) warrants, the securities firm shall collect an amount of no less than 30 percent of the total price of the buy order; where the size of the order does not exceed the investment capabilities of a client wishing to sell call (put) warrants, the securities firm shall earmark the call (put) warrants. However, where the size of the order does exceed the investment capabilities of a customer wishing to purchase call (put) warrants, the securities firm shall collect an amount equivalent to the full value of the order; and where the size of the order exceeds the investment capabilities of a customer wishing to sell call (put) warrants, the securities firm shall earmark the full quantity of call (put) warrants.
Where the issuer uses outsourced risk management and the risk management organization opens a dedicated hedging account with the issuer to trade in call (put) warrants, or where a liquidity provider of call (put) warrants opens a segregated account for providing liquidity, the restrictions set out in the preceding paragraph shall not apply to trades through those accounts.
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Article 9
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When orders are being matched, 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 the chronological sequence of entry; provided, however, that the priority of pre-opening orders shall be assigned randomly by computer.
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Article 10
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Trading orders for call (put) warrants shall without exception be auctioned through call auction. Transaction prices shall be determined in accordance with the following principles:
1. All buy orders higher than the clearing price and sell orders lower than the clearing price must be met in full.
2. All orders equal to the clearing price must be met in full.
Where two or more prices conform to the principles in the preceding paragraph, the price closest to the most recent transaction price in the current trading session shall adopted; if there is not yet a transaction price for the current trading session, 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 TSEC Operating Rules 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 TSEC Operating Rules shall apply mutatis mutandis to disclosure of the prices and volumes of call (put) warrant trading orders.
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Article 12
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The applicable provisions of the TSEC 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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Where a securities firm executes a trading order placed by a principal, processing fees collected by the securities firm from its principal and by the TSEC from the securities firm shall be governed mutatis mutandis by regulations governing trade in exchange-listed stocks.
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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 TSEC. After the TSEC accepts the application, it will request that the issuer honor the exercise of the warrant. [In such cases], or where, upon expiration of a call (put) warrant that is to be settled in cash, the TSEC 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 formula for non-index call (put) warrants shall be -- "Strike price of the call (put) warrant x Number of underlying shares"; the formula for index call (put) warrants shall be -- "The difference between the strike index and settlement index x corresponding monetary value per index point x number of units of warrants x exercise ratio."
When a liquidity provider of call (put) warrants hired to provide liquidity buys back any warrant on a centralized securities exchange market, it shall deliver such warrants in full to the centralized custody account which it previously notified the TSEC of in writing. The exercise of warrants held in such an account may not be requested.
The term "exercise value" in paragraph 1 means the positive difference between the strike price of the underlying stocks or the strike index of the underlying index of a call (put) warrant and the settlement price or the index at settlement of the call (put) warrant at its expiration date, as calculated under Article 10, subparagraph 5, item 16 of the Taiwan Stock Exchange Corporation Rules 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 TSEC receives requests from securities firms.
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Article 16
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These Rules, and any amendments hereto, shall be publicly announced and implemented after submission to an ratification by the competent authority.
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