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Operational Regulations for Securities Firms Handling Margin Purchases and Short Sales of Securities(2006.08.23) |
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Article 8
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A securities firm shall enter into a margin purchase and short sale contract with the customer and open a margin account before accepting any order for margin purchase or short sale of securities.
The margin purchase and short sale contract under the preceding paragraph shall be drafted by the TSEC in conjunction with the GTSM and submitted to the competent authority for ratification.
A put warrant issuer or securities firm engaged in structured products business may, to meet hedging needs, open a margin account with which to sell securities short.
An enterprise exclusively or concurrently engaged in futures proprietary trading (dealing) that is also an equity options market maker may, for its offsetting hedging needs, open a margin account with which to short sell securities.
For a privately placed securities investment trust fund managed by a securities investment trust enterprise, the fund custodian institution may apply to open a margin account, for which the amount limit for margin purchase and short sale shall not exceed 50 percent of the fund size, and which shall be controlled by the TSEC as a segregated account. If that amount is exceeded, the TSEC shall notify the securities firm to forward notice to the securities investment trust enterprise, which then shall lower the amount to 50 percent within two business days from the date on which it receives the notice from the securities firm. If it fails to do so within the time limit, the TSEC may, by the mutatis mutandis application of Article 30, paragraph 3, instruct the securities firm to dispose, on the following business day, of the collateral to the extent required to achieve compliance.
The amount limit for short sale under the preceding paragraph and actual sales with borrowed securities in combined total may not exceed 50 percent of the fund size.
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Article 23
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A securities firm shall calculate on a daily basis, based upon the closing price announced by the TSEC ("closing price"), or the next day's reference price announced by the GTSM ("reference price), or the par value of government bonds, the collateral maintenance ratio for each overall margin account and for each margin purchase/short sale in each margin account by the following formula:collateral maintenance ratio = (market value of securities deposited as collateral for margin purchase + initial collateral and margin for short sale) ÷ (initial margin loan amount + market value of the securities sold short) × 100 percent
The market value of securities under the preceding paragraph shall be calculated based on the closing price or reference price; however, for securities deposited as collateral for margin purchase, during the six business days prior to the ex-rights or ex-dividend date for each security, the market value of the collateral securities shall be calculated based on each day's closing price or reference price less the ex-dividend price or less the ex-rights price as calculated on the basis of the closing price or reference price for the given day.
If the rate of stock dividends on securities that a customer buys on margin is 20 percent or more, unless the Competent Authority has placed trading restrictions on them, the full amount of the stock dividends shall serve as collateral, and the right to defer income tax shall be waived. The centralized securities depository enterprise shall transfer them by book-entry transfer into the segregated margin purchase/short sale accounts of the given securities firm, and the application of Article 33 of the Regulations Governing Handling of Stock Affairs by Public Companies is precluded.
Stock dividends referred to in the preceding paragraph may not serve as a source of securities for lending in short sale operations handled by securities firms nor may they be used as collateral for refinancing.
Paragraph 2 shall not apply to stock dividends used as collateral. After ex-rights trading [has commenced], the market value shall be calculated on the basis of 70 percent of the closing price for listed securities and 60 percent of the reference price for OTC securities. After such securities have been remitted into the segregated margin purchase/short sale account of the securities firm, their value is no longer required to be discounted.
The market value of securities deposited as collateral for margin purchase and initial collateral and margin for short sale referred to in paragraph 1 [means the] balance of the funds, and the market value of the securities, in the customer margin account less short sale fees and tender purchase fees; any that has been offset by an offsetting trade or on which any residual obligation remains after the securities firm has disposed of the collateral shall also be deducted.
Where the overall collateral maintenance ratio of the customer margin account is lower than 120 percent, the securities firm shall notify the customer to pay in, within two business days from the day the notice is delivered, additional margin-purchase margin or short-selling margin to cover the deficiency for each individual margin purchase or short sale for which the collateral maintenance ratio is not met.
Deficiencies that a customer is required to cover under the preceding paragraph shall be calculated by the following formula:
– deficiency in margin-purchase margin ＝ initial margin purchase amount － (closing/reference price on the day of calculation × number of shares bought on margin × margin financing ratio) － (closing/reference price on the day of calculation × number of shares on deposit as margin × margin financing ratio)
– deficiency in short-selling margin ＝ (closing/reference price on the day of calculation × number of shares sold short × margin percentage requirement for short selling － initial short-selling margin) ＋ (closing/reference price on the day of calculation × number of shares sold short － initial short sale price proceeds) － (closing/reference price on the day of calculation × number of shares on deposit as margin)
"[Shares on deposit] as margin" in the preceding paragraph [means] stock dividends under paragraph 3 and securities deposited as margin under Article 26; the market value of stock dividends shall be calculated as set out in the latter part of paragraph 5.
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