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Taiwan Stock Exchange Corporation Securities Borrowing and Lending Rules(2014.06.16) |
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Article 56
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If a securities finance enterprise's total short balance from its lending for short sale and other securities lending of any given type of securities, plus any balance of refinancing of that type of securities it extends to others, exceeds the total number of shares of that type of securities it owns, it borrows through the stock exchange securities lending system, and it obtains from the operation of margin purchase and short sale business and the business of providing refinancing to others, and, after it has sought refinancing from other securities finance enterprises, the shortfall is still not fully covered (hereinafter, "shortfall in securities in margin and short trading"), or, if the securities finance enterprise is engaged by a securities firm to handle on its behalf any open position that still remains after sell-first buy-later day trading (hereinafter, "shortfall in securities in day trading"), the securities finance enterprise shall initiate a competitive bid loan from owners of that type of securities as from 9 am on the next business day, and if a shortfall still exists, shall arrange for negotiated transaction with any specified persons no later than 2 pm on that day.
With the exception of a shortfall in securities in day trading, if the shares of the given security obtained following the procedures described in the preceding paragraph are still insufficient in amount, the securities finance enterprise shall engage a securities firm to conduct a purchase of shares by reverse auction at the TWSE by 2:30 pm on the same day.
Any borrowing of securities through competitive bid and negotiated transaction and any purchasing of securities by reverse auction under the preceding two paragraphs shall be suspended for a given security on the second business day preceding the first day of a book closure, except when book closure occurs due to the convening of a special shareholders meeting by the issuer or for reasons that do not affect the exercise of shareholder rights.
The calculation of the business day referred to in the preceding paragraph shall be in accordance with Article 35 of the Operating Rules for Securities Firms Handling Margin Purchases and Short Sales of Securities.
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Article 57
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A securities finance enterprise wishing to borrow securities through a competitive bid process shall submit an application to the TWSE and thereafter, by 9 am on the competitive bid loan application date, have a staff member enter into the TWSE competitive bid loan system the information on that competitive bid loan, keeping separate those for shortfalls in securities in margin and short trading and those for shortfalls in securities in day trading, and specify the type of securities to be borrowed, quantity, time, and highest acceptable rate. The TWSE will, according to the aggregate quantity of each type of securities to be borrowed through competitive bid, 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 bid 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 bid 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 bid 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 61
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Where with respect to a given security there are two or more securities finance enterprises initiating a competitive bid loan, the loans will be simultaneously brought to one single competitive bid based upon the aggregate quantity requested, with the aggregate lending fee to be shared on a pro rata basis among those securities finance enterprises according to their respective winning-bid quantities multiplied by the average fee calculated based upon the aggregate winning-bid quantity.
If an insufficiency exists after the competitive bid process under the preceding paragraph, each securities finance enterprise will be distributed a quantity decided on a pro rata basis according to the quantity of the shortfall in securities margin and short trading specified in its application for competitive bid loan, rounded to an integral unit of trading; any quantity remaining thereafter will further be distributed to securities finance enterprises in the order of the size of the decimal number of their respective distributable quantity, and if for a decimal number there are multiple securities finance enterprises, to one or more of them determined by drawing lots. If any quantity still remains thereafter, each securities finance enterprise will be distributed a quantity decided, in accordance with the above principles, on a pro rata basis according to the quantity of the shortfall in securities in day trading specified in its application.
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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, and priority of distribution of the quantity obtained through the negotiated transaction shall be given to the shortfall in securities in margin and short trading.
A negotiated transaction shall be conducted in the following manner, unless there is a necessary reason to do otherwise:
- 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.
- 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).
- Upon conclusion of the negotiated transaction, the securities finance enterprise shall, keeping separate the transactions for shortfalls in securities in margin and short trading and the shortfalls in securities in day trading, 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.
- The cash collateral shall be deposited at a level as negotiated and agreed between the securities finance enterprise and the lender.
- 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.
- 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:
- 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 dedicated account for margin purchases and short sales or the special account for handling shortfalls in securities deliverable in day trading, opened by the securities finance enterprise 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.
- The cash collateral shall be deposited at a level as negotiated and agreed between the securities finance enterprise and the lender.
- 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 transaction.
The securities firm engaged by 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 63
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If during the period a securities finance enterprise is borrowing a security to cover a shortfall driven by short sale needs, a securities firm also applies for refinancing of that security from the securities finance enterprise, the securities finance enterprise shall allocate the shares of that security it has obtained from borrowing through competitive bid transaction and/or negotiated transaction in accordance with the Operating Rules for Securities Finance Enterprises Offering Refinancing to Securities Firms.
When a securities finance enterprise accepts to conduct on behalf of a securities firm a competitive bid loan or negotiated transaction with respect to a shortfall in securities in day trading, the securities finance enterprise shall allocate the securities it so obtains in accordance with the applicable regulations governing securities finance enterprises. The securities finance enterprise shall transfer the securities to the securities firm's special account for handling shortfalls in securities deliverable in day trading by 6 pm through the TWSE Platform for Reporting Shortfalls in Securities Deliverable in Day Trading. The subsequent return of the securities shall be made through the central securities depository.
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