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Taiwan Stock Exchange Corporation Securities Borrowing and Lending Rules(2011.01.12) |
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Article 7
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A securities firm shall enter into a Master Securities Borrowing and Lending Agreement with the TWSE, in the form set out in Appendix 1 hereto, before it may accept authorization and empowerment from an SBL participant to apply for opening a securities borrowing and lending account, and further to carry out securities loan transactions and to submit regulatory filings reporting the execution of negotiated transactions, on behalf of the SBL participant.
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Article 33-1
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When placing an order with a securities firm to submit a quote for borrowing securities through a fixed-price or competitive auction transaction, a borrower shall provide collateral to the TWSE in an amount equivalent to the current day's auction reference price at market opening or base price for first trading of the subject securities multiplied by the quoted quantity and further by the original margin (140 percent). From the day on which the securities loan transaction is executed, the total collateral value for the given securities borrowing transaction shall be marked to market daily using the current day’s closing price, and a ratio shall then be calculated by dividing the total collateral value thus obtained, after deduction of relevant fees and expenses required for the borrowing of securities, by the sum of the total value of the subject securities plus total cash dividends; if the ratio thus obtained falls below the maintenance margin (120 percent), then upon receipt of a notice from the TWSE as forwarded by the securities firm, the borrower shall provide additional collateral on the next business day to cover the shortfall, so that the collateral value will be brought back to the original margin level or above.
The term "total collateral value" referred to in the preceding paragraph shall be equal to the sum of the current day’s closing price of collateral securities multiplied by quantity and further by a valuation percentage, plus the par value of book-entry central government bonds multiplied by quantity and further by a valuation percentage, plus the total cash collateral, and plus the total bank guarantee amount.
If a circumstance arises where a collateral security is traded ex-rights or ex-dividend, with the exception of cash capital increases, then for the 3 business days prior to the ex-rights or ex-dividend date, the collateral value shall be calculated using the respective current day's closing price minus the value of the dividend or the value of the rights, as the case may be.
If the closing price referred to in the preceding three paragraphs and Articles 44 and 47 is not available for the given day, the closing price shall be determined by one of the following principles:
1. When the highest bid price at market close on the day the security is loaned is higher than the auction reference price at market opening or the base price for first trading, the highest bid price will be the closing price.
2. When the lowest ask price at market close on the day the security is loaned is lower than the auction reference price at the opening of market or base price for first trading, the lowest ask price will be the closing price.
3. When neither of the above circumstances applies, the auction reference price at market opening or the base price for first trading will be the closing price.
The valuation percentage for collateral securities shall be 70 percent for -listed securities, 60 percent for GTSM-listed securities, and 90 percent for book-entry central government bonds. The valuation percentages may be adjusted by the TWSE with regard to market liquidity or risk status.
In a negotiated transaction, the lender and the borrower shall negotiate and agree between themselves on the terms and conditions, and the margins required, as to the collateral and shall between themselves arrange for the furnishing of the collateral.
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Article 34
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A borrower in a fixed-price or competitive auction transaction applying to replace collateral shall do so through its securities firm, using the TWSE securities lending system, and shall provide substitute collateral before submitting an application to withdraw the previously pledged collateral within the value of the substitute collateral (in the case of collateral securities, the value shall be discounted at the collateral valuation percentage based on the auction reference price at the opening of market or base price for first trading for the current day on the exchange market).
Upon occurrence of any of the following circumstances to the collateral provided against a securities borrowing transaction, the TWSE shall forthwith give notice to the securities firm, to be then forwarded to the borrower, advising the borrower to replace the collateral on the next business day:
1. Where the collateral securities do not conform to subparagraph 2, paragraph 1, Article 33 or otherwise are subject to an event of altered trading method, capital reduction, suspension of trading, or delisting from the stock exchange or OTC market.
2. Where the bank guaranteeing the performance of obligation becomes insolvent or, by the operation of law, is put under receivership or rehabilitation or files for reorganization or bankruptcy, or is declared bankrupt or subject to court ruling for reorganization, or has any other event involving significant loss of creditworthiness.
3. Any other event sufficient to result in a low value or liquidity of the collateral.
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Article 47
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The securities lending fee for a fixed-price or competitive auction transaction shall be calculated, on a daily marked-to-market and on a transaction-by-transaction basis, as the sum of the products obtained by multiplying the outstanding balance of subject securities on loan on a given day by the closing price of the subject securities on that day and further by the lending rate fixed upon execution of the loan transaction. The total securities lending fees shall be collected/paid through the securities firm upon return of securities in satisfaction of the loan by the borrower.
The borrowing period shall begin on the date the subject securities are borrowed and end on the day preceding the date they are returned. If the return date does not fall on a business day, the next business day shall be treated as the return date. The preceding paragraph shall apply mutatis mutandis when calculating securities lending fees for holidays.
Where in the fixed-price or competitive auction transaction the lender agrees to renew the loan, the securities lending fee shall continue to accrue until, and be collected/paid upon, return of securities in satisfaction of the loan.
If the borrower in a fixed-price or competitive auction transaction makes any early, partial return during the life of the loan, it shall on the next business day settle all lending fees and expenses that have incurred on the securities borrowing transaction. If the borrower in a negotiated transaction makes any early, partial return during the life of the loan, it shall on the next business day settle all processing fees and loan service fees in relation to the securities returned.
The calculation and payment of the securities lending fee on a negotiated transaction shall be negotiated and agreed upon between the borrower and the lender themselves, notwithstanding the provisions of Article 31, paragraph 5.
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Article 51
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The borrowing securities firm shall, by 11 am on the second business day after the trade date, deposit collateral with the TWSE against the borrowing of securities ("securities borrowing collateral"), in an amount of 114 percent of the closing price of the securities on the first day after the trade date, multiplied by the quantity it requests to borrow. If no closing price is available for the preceding business day, the closing price shall be determined by the principles given in Article 58-3, paragraph 2, subparagraphs 2 and 3 of the TWSE Operating Rules.
The provisions of the preceding paragraph in relation to deposit of securities borrowing collateral shall apply mutatis mutandis to a seller securities firm in the case where the TWSE borrows securities for its account or otherwise issues a securities delivery voucher as a temporary substitute for securities to satisfy settlement requirements.
If the borrowing securities firm fails to deposit securities borrowing collateral or otherwise to provide non-cash collateral against the borrowing of securities by 11 am on the borrowing date, the TWSE may temporarily retain any amounts payable for the current clearing period and/or an equivalent portion of securities.
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Article 55
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If, on a day on which a borrowing securities firm reborrows securities for a securities loan not yet returned, the remaining balance of the securities borrowing collateral deposited is lower than 107 percent of the outstanding balance of the securities borrowing multiplied by the closing price of the securities on the preceding business day, then the securities firm shall, by 11 am on the reborrowing date, make additional deposit to bring the level to 114 percent of the outstanding balance of the securities borrowing multiplied by the closing price of the securities on the preceding business day. If there is no closing price available for the preceding business day, the closing price shall be determined by the principles given in Article 58-3, paragraph 2, subparagraphs 2 and 3 of the TWSE Operating Rules.
Where the borrowing securities firm fails to deposit the securities borrowing collateral required under the preceding paragraph, or is unable to return the borrowed securities for a cause attributable to itself, the TWSE will buy in the securities in the market and return them to the lender. The prices needed and all expenses incurred shall first be paid out of the remaining balance of the securities borrowing collateral, and in the event of any shortfall, then be recovered from the borrowing securities firm; any amount remaining thereafter will be refunded to the borrowing securities firm.
The provisions of paragraphs 1 and 2 shall apply mutatis mutandis in the case where the TWSE borrows securities for the account of a seller securities firm or otherwise issues a securities delivery voucher as a temporary substitute for securities to satisfy the settlement requirement.
If the securities firm defaults on its settlement obligations, the TWSE will forthwith suspend the securities firm's participation in securities borrowing and lending transactions.
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Article 57
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A securities finance enterprise wishing to borrow securities through a competitive auction process shall submit an application to the TWSE and thereafter, by 9 am on the competitive auction loan application date, have a staff member enter into the TWSE competitive auction loan system the information on that competitive auction loan, including the type of securities to be borrowed, quantity, time, and highest acceptable rate; the TWSE will publish such information from 9 am on that day on its Market Information System.
The highest acceptable rate for the borrowing of a security through the competitive auction process, as described in the preceding paragraph, shall in no case be more than 7 percent of the auction reference price at market opening of the security on the competitive auction application date; the borrowing quantity will be matched against one or more of the competitive bids available on that day, determined in ascending order of rate, until the borrowing quantity is reached; if the borrowing quantity is reached at a rate at which the total number of shares offered for lending from all competitive bids at that rate is higher than the number of shares needed to be borrowed through the competitive auction process, one or more of those competitive bids will be selected for matching, in order of the time they are entered, until the needed quantity is reached.
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Article 59
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A securities finance enterprise, by 2 pm on the competitive auction loan application date, shall deposit cash collateral with the TWSE in the amount of 120 percent of the closing price of that security on that day multiplied by the number of shares of the winning bid(s); provided that if no closing price is available for a given day, the provisions of Article 33-1, paragraph 4 shall apply mutatis mutandis.
Upon delivery of cash collateral by the securities finance enterprise, the TWSE will give notice to the central securities depository advising it to transfer the shares of security underlying the winning lending bid(s) to the securities finance enterprise's dedicated account at the central securities depository on the next business day following the competitive auction loan application date (the next business day hereinafter referred to as "the lending date").
Certificates of deposit or pledged book-entry central government bonds, to be valued at 90 percent of the face value of the non-cash collateral, as well as bank guarantees, may be posted as collateral in lieu of the cash collateral described in the preceding paragraph.
In regard to bank guarantees referred to in the preceding paragraph, the securities finance enterprise shall, upon completion of guarantee procedures with a bank, submit the original bank letter of guarantee to the TWSE. The TWSE may refuse to accept the bank guarantee provided by the securities finance enterprise, or demand the securities finance enterprise to replace it within a specified period of time. Bank guarantees may be denominated only in New Taiwan Dollars (NTD), and shall be in units of thousands of NTD.
The lent securities shall be returned to the lender through the central securities depository on the next business day following the lending date; provided, however, that securities borrowed through competitive auction loan on the first settlement day that follows the last trading day before the Lunar New Year holiday, shall be returned on the second trading day after the Lunar New Year holiday.
By 10 am on the next business day following the lending date, the securities finance enterprise shall pay the securities lending fee (securities lending fee = lending rate x quantity) to the lender through the lender's securities firm, whereupon the TWSE will return the cash collateral to the securities finance enterprise.
The securities firm of the lender may charge the lender a service fee at a rate of not more than 10 percent of the lending fee.
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Article 62
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A securities finance enterprise undertaking a negotiated transaction to borrow a security shall execute the transaction at a rate of not more than 10 percent of the auction reference price for the security at market opening on the date of application for the negotiated transaction.
A negotiated transaction shall be conducted in the following manner, unless there is a necessary reason to do otherwise:
1. A securities owner wishing to participate in the negotiated transaction may engage a securities firm to carry out the transaction on its behalf. An order ticket for the negotiated transaction shall be filled out and signed/sealed by the securities owner if it is submitted in person; if it is submitted over the telephone, the securities broker shall synchronously record the telephone conversation, and in doing so shall comply with the provisions of Article 80, paragraphs 4 to 6 of the TWSE Operating Rules, and the order ticket shall be completed by the associated person handling the order ticket. The order ticket shall specify the name of principal, brokerage account number, name of securities, lending quantity and lending rate; and the securities offered to participate in the negotiated transaction may only be securities it has deposited in a custody account at the central securities depository.
2. Upon receipt of the order request, the securities broker shall put the lendable securities on hold (excluding those securities that have been lent out on the previous business day).
3. Upon conclusion of the negotiated transaction, the securities finance enterprise shall enter the name of the lender, brokerage account number, name of securities, lending quantity, and lending rate into the TWSE's negotiated lending transaction system by 2 pm on that day, and, together with the details of the securities on hold, fax the same to the TWSE, and the TWSE upon confirmation will give a notice to the central securities depository, instructing it to transfer the lent securities to the securities finance enterprise's dedicated account on the next business day.
4. The cash collateral shall be deposited at a level as negotiated and agreed between the securities finance enterprise and the lender.
5. The securities lent by the lender shall be returned through the central securities depository on the second business day following the date of the negotiated transaction.
6. The securities finance enterprise shall pay the securities lending fee (securities lending fee = agreed lending rate x quantity) to, and reclaim the cash collateral from the lender by 10 am on the second business day following the date of the negotiated transaction.
If there is a necessary reason to do otherwise, as referred to in the preceding paragraph, a negotiated transaction shall be conducted in the following manner and under the supervision of personnel sent by the TWSE:
1. The securities owner agreeing to lend the security shall deliver endorsed certificates of the security and a securities lending list, along with a complete set of attachments, to the securities finance enterprise, or transfer the security by book-entry to the securities finance enterprise's dedicated account at the central securities depository, by 2:00 pm on the current day; the securities finance enterprise shall prepare and deliver a receipt to the lender by 12 noon on the next business day following the date of the negotiated loan.
2. The cash collateral shall be deposited at a level as negotiated and agreed between the securities finance enterprise and the lender.
3. The securities finance enterprise shall return the securities borrowed under negotiated transaction and pay the securities lending fee (securities lending fee = agreed lending rate x quantity) to, and reclaim the cash collateral from the lender by 2 pm on the second business day following the date of the negotiated loan.
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