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Operating Rules for Securities Firms Handling Margin Purchases and Short Sales of Securities(2008.02.18) |
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Article 22
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For the various fees and expenses required to be borne by a securities firm for obtaining securities through a securities finance enterprise by conducting a competitive bid loan, negotiated transaction, or purchase by tender offer [to cover securities shortfalls arising in the course of short sale operations], a securities firm shall first calculate pursuant to the following principles for short sellers the fees and expenses for each share of the security sold short based on the short balance for that security on the date the shortfall in the security occurs, and then collect payment from each short seller in the short sales in an amount determined by the number of shares it sells short:
1. If the margin balance is larger than the short balance, and the balance of securities borrowed from the TSEC securities lending system ("Borrowing Balance") is smaller than the balance of securities lent through securities lending business ("Lending Balance"), the short seller does not have to bear the fees.
2. If the margin balance is smaller than the short balance, and the Borrowing Balance is larger than the Lending Balance, the short seller shall bear the fees in full.
3. If the margin balance is smaller than the short balance, and the Borrowing Balance is smaller than the Lending Balance, the short seller shall bear a proportion of the fees as calculated pursuant to the following formula:
(short balance – margin balance)/[(short balance – margin balance) + (Lending Balance – Borrowing Balance)]
The securities firm may collect the fees and expenses receivable under the preceding paragraph by deducting the amount from the short sale collateral funds in the customer's margin account.
For shares of securities obtained and distributable as a result of a securities finance enterprises conducting a purchase by tender offer, the securities firm shall distribute the shares to those short sellers who have a short balance in the security on the date the security falls short, in a quantity decided on a pro rata basis in accordance with the principles of paragraph 1 and rounded to an integral trading unit, for them to buy in to cover their short positions; any quantity remaining after the distribution shall further be distributed to these short sellers in the order of the size of the decimal portion of their respective distributable quantity, and if for a decimal number there are multiple short sellers, to one or more of them determined by drawing lots.
Where two or more tender offer purchases are conducted [to cover securities shortfalls arising in the course of short sale operations], the dollar amounts of the purchases that are allocable to the short sellers shall be calculated by the weighted average method.
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