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Title：

Rules Governing the Proprietary Trading of Foreign Bonds by Securities Firms  CH

Amended Date： 2022.06.08 
Article Content Content Search Article No. Search Legal Basis Amended Article Legislative History Chinese

Title： Rules Governing the Proprietary Trading of Foreign Bonds by Securities Firms(2013.10.16)
Date：
Article 1     This Policy was established pursuant to Article 19-1, Paragraph 2 of Regulations Governing Securities Firms.
Article 2      Except where otherwise stipulated by the competent authority, securities firms are bound to comply with this policy when engaging in the proprietary trading of foreign bonds or any derivative-based hedging activities that arise in association of which; for matters not covered by this policy, the GreTai Securities Market Rules Governing Securities Trading on the GTSM and other relevant rules shall apply.
    The scope of products and limits permitted for the abovementioned activities are governed by Regulations Governing Securities Firms.
Article 3     The term "competent authority" mentioned in this policy shall refer to the Financial Supervisory Commission.
Article 4     The term "foreign bond" mentioned in this policy shall refer to any foreign currency denominated bonds issued outside the Republic of China either by a local or a foreign issuer.
    The term "derivative-based hedging" mentioned in this policy refers to any transactions involving financial derivatives that are initiated by securities firms to hedge against risks of foreign bond trading.
Article 5     Securities firms are required to submit formal documentation to GreTai Securities Market and seek approval before engaging in the proprietary trading of foreign bonds. In addition, the following eligibility criteria are applicable:
  1. The applicant must be an eligible proprietary securities inter-dealer.
  2. Capital adequacy ratio may not fall below 200% at anytime in the last 6 months; or the adjusted monthly net capital ratio may not have fallen below 40% in the last 6 months.
  3. The applicant must be free of the following:
    1. Penalties imposed under Article 66, Paragraph 1 of the Securities and Exchange Act or Article 100, Paragraph 1, Subparagraph 1 of the Futures Trading Act in the last 3 months.
    2. Penalties imposed under Article 66, Paragraph 2 of the Securities and Exchange Act or Article 100, Paragraph 1, Subparagraph 2 of the Futures Trading Act in the last 6 months.
    3. Penalties involving suspension of business activities in the last year.
    4. Penalties involving partial revocation of business license in the last 2 years.
    5. Penalties imposed under the Operating Rules of GreTai Securities Market, Taiwan Stock Exchange Corporation or Taiwan Futures Exchange Corporation, which involved the suspension or restriction of trading activities.
    Failure to meet Subparagraph 3 of the previous Paragraph may be disregarded if the securities firm has made rectifications to the satisfaction of the competent authority.
    Securities firms may proceed to carry out their requested activities if GreTai Securities Market (GTSM) does not express any objections to their applications within 5 days of making the official submission.
     The term "adjusted net capital ratio" mentioned in Subparagraph 2, Paragraph 1 herein refers to the monthly simple arithmetic mean of the adjusted net capital of the futures commission merchant as a percent of the total margins required for uncovered positions of futures traders.
Article 6      Proprietary trading of foreign bonds may be traded at the securities firm's business premise or through the GTSM's trading system.
     Securities firms shall first apply to the GTSM for registration of a foreign bond and receive approval from the GTSM before trading said foreign bond with qualified institutional investors at its business premises. However the preceding provision does not apply to foreign bonds that have been registered by other securities firms.
     Where there is a change to the registration data of a foreign bond mentioned in the preceding paragraph, the registering securities firm shall complete the update of registration data in five (5) days after the change has occurred.
     The term "qualified institution investors" mentioned in Paragraph 2 hereof shall mean the qualified institutional investors referred to in Paragraph 1, Article 4 of the Financial Consumer Protection Act.
     The foreign bonds mentioned in Paragraph 2 hereof may not be structured notes or RMB-denominated bonds. Items to be registered for a foreign bond shall include its issuer, place of issue, International Securities Identification Number (ISIN), long-term credit rating, denominated currency, date of issue, coupon rate, maturity date, terms for interest and principal repayment, and other early call (put) provisions.
     Before the 10th of each month, the GTSM shall compile relevant information on foreign bonds it has approved for registration in the previous month and submit a report to the competent authority for recordation.
Article 7     Securities firms may trade foreign bonds outright with or without recourse.
Article 8     Securities firms are bound to comply with the competent authority's restrictions on foreign securities exposures when holding positions of foreign bonds.
    Total foreign bond position is calculated as: net amount purchased without recourse plus amounts sold with recourse, less amounts purchased with recourse.
Article 9     All balances of foreign bonds purchased and sold with recourse must be included as part of the securities firm's overall bond repurchase/resale balance. The overall bond repurchase or resale balance (converted into NTD equivalents at the spot exchange rate) shall not exceed six times of the securities firm's net worth; repurchases or resales of bonds other than government-issued, underlying bonds shall not exceed four times of the securities firm's net worth.
Article 10     For any foreign bond positions or derivative-based hedging positions held by the securities firm, any deterioration in the credit rating, which includes the country rating, the long-term debt rating, and the counterparty's credit rating (in a hedging transaction), below the statutory minimum will suspend further trading activities by the securities firm except for disposing or settling the positions that are in breach.
Article 11     Securities firms are required to assemble a dedicated department and implement a set of operating procedures according to Article 31-2 of Regulations Governing Securities Firms, for the purpose of handling foreign bond trading and derivative-based hedging.
Article 12     Securities firms are bound to comply with Regulations Governing the Preparation of Financial Reports by Securities Firms when accounting for foreign bond trades and derivative-based hedging transactions.
Article 13     The business premises occupied for foreign bond trading and derivative-based hedging shall be clearly marked and comply with the following requirements:
  1. Must be furnished with business telephones and fax machines.
  2. Must be furnished with data transmission equipment that enables the firm to obtain real-time information on overseas exchanges.
Article 14     Securities firms are required to establish contracts with counterparties when engaging in foreign bond trading or derivative-based hedging. These contracts shall outline the rights and obligations of the two parties, and the securities firm must confirm the detailed terms of each deal with the counterparty.
Article 15     Securities firms are bound to fulfill their settlement obligations for the foreign bond trades and the derivative-based hedges they engage in, according to the local laws and practices wherever deemed appropriate.
Article 16     Securities firms are required to update any confirmed foreign bond trades into FTSM's information system, within the designated timeframe and using the prescribed format.
Article 17     For securities firms that are found to be in breach of this policy, the GTSM may either demand for rectification within a given timeframe or report the breach to the competent authority. The securities firm may even be suspended from further uses of the GTSM's transaction system, depending on the severity of the breach.
Article 18     If any employee of the securities firm is found to be in breach of this policy, the GTSM may issue a warning or suspend business practices for a duration from one month up to six month depending on the severity.
Article 19     This Policy shall take effect once it has been approved by the GTSM's board of directors and enforced by the competent authority; the same applies to all subsequent revisions.