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Taiwan Stock Exchange Corporation Rules Governing Trading of Call (Put) Warrants(2011.09.28) |
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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 (TWSE).
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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 TWSE for listing shall be traded on the TWSE 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.
The call (put) warrants under the preceding paragraph shall be issued in dematerialized form.
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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 TWSE 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 TWSE 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 call (put) warrants for which the underlying security is a domestic single stock 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, of call (put) warrants invested in by a mainland area investor, and of call (put) warrants for which the underlyings are foreign securities, 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 on call (put) warrants shall be calculated in the following manner based upon the class of the underlying securities:
1. Limits on call (put) warrants for which the underlying is a domestic single stock or an exchange-traded securities investment trust fund announced by the TWSE shall be calculated as follows:
(1) For call warrants
Limit-up price = Auction reference price at market opening for the given day + (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 = Auction reference price at market opening for the given day - (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 = Auction reference price at market opening for the given day + (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 = Auction reference price at market opening for the given day – (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 on 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 on index call (put) warrants for which the underlying is an index as announced by the TWSE shall be calculated using one of the following two formulas:
(1) Limit-up price for call (put) warrants = Auction reference price at market opening for the given day ＋ (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 ＝Auction reference price at market opening for the given day － (Closing index of the underlying index on the previous day × corresponding monetary value per index point × multiplier × 7%).
4. No price fluctuation limit is imposed on call (put) warrants for which the underlying is an exchange-traded fund with foreign component securities, or an offshore exchange-traded fund, or a foreign security, or a foreign index.
The provisions of Article 58-3, paragraph 2, subparagraphs 1 and 2 of the TWSE Operating Rules shall apply mutatis mutandis to the "auction reference price at market opening for the given day" referred to in the preceding paragraph, but the reference price on the first day of listing shall be determined by the following principles:
1. For the call (put) warrants for which the underlying asset is a domestic single stock, or an exchange-traded fund (ETF) or index as announced by the TWSE, the reference price on the first day of exchange listing is calculated as follows based on the price obtained pursuant to Article 6:
(1) For non-index call warrants
Reference price on the first day of listing = 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
Reference price on the first day of listing = 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 an index call warrants on the first day of listing ＝ 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 an index put warrants on the first day of listing ＝ 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).
(5) The reference price for a callable bull contract or callable bear contract on the first day of listing is as follows;
i. Where a security is the underlying: the difference between the reset adjusted strike price and the underlying security's auction reference price at market opening for the given day of listing of the contractｘ multiplier ＋ funding cost.
ii. Where an index is the underlying: the difference between the reset adjusted strike index and the closing index of the underlying index for the given day preceding the day of listing of the contractｘ multiplier ＋ funding cost.
The funding cost shall be calculated pursuant to Article 10, paragraph 1, subparagraph 5, item 5 of the TWSE Rules Governing Review of Call (Put) Warrant Listings.
2. For a call (put) warrant for which the underlying is a foreign security or a foreign index, its reference price on the first day of exchange listing is the issue price.
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 pursuant to Article 58-3 of the TWSE 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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The matching methods for trading orders for call (put) warrants shall be divided into two categories: call auction and continuous trading.
Transaction prices in call auction trading 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.
3. Where two or more prices conform to the principles in the preceding two subparagraphs, 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 auction reference price at market opening for the given day shall be adopted.
Transaction prices in continuous trading for successively placed bid quotes or ask quotes shall be determined in accordance with the following principles:
1. If the current bid quote is priced at or above the lowest previously placed ask quote, it will be matched and executed against individual asks sequentially from lowest to highest until the current bid quote is completely satisfied or the price of the current bid quote is lower than the prices of unexecuted ask quotes.
2. If the current ask quote is priced at or below the lowest previously placed bid quote, it will be matched and executed against individual bids sequentially from highest to lowest until the current ask quote is completely satisfied or the price of the current ask quote is higher than the prices of unexecuted bid quotes.
The first matching of call (put) warrants in any given trading session shall be done by call auction, and subsequent matching shall be done by continuous trading, until a period of time before market closing, during which all the trading quotes shall be accumulated and matched by call auction.
The “period of time” in the preceding paragraph is determined by the mutatis mutandis application of Article 58-7 of the TWSE Operating Rules.
The provisions of Article 58-3, paragraphs 4 and 5 of the TWSE 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 TWSE 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 TWSE 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 TWSE 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 TWSE. After the TWSE 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 TWSE 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 TWSE 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 TWSE 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 and ratification by the competent authority.
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