| Title： |
Operating Rules for Securities Firms Handling Margin Purchases and Short Sales of Securities(2010.05.26) |
| Date： |
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Article 23
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A securities firm shall calculate, on a daily mark-to-market basis, and based upon the closing price announced by the TSEC ("closing price"), or the next day's reference price announced by the GreTai ("reference price"), or the par value of government bonds, as the case may be, the collateral maintenance ratio for each margin account as a whole and for each margin purchase and short sale in each margin account by the following formula:
collateral maintenance ratio = {market value of collateral securities for margin purchase(s) + initial collateral and short margin for short sale(s)} ÷ {original margin purchase amount(s) + market value of underlying 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, provided that for the six business days prior to an ex-rights or ex-dividend date for a security pledged as collateral for a margin purchase, with the exception of in cases of a cash capital increase, the market value of the collateral security shall be calculated based on the respective current day's closing price or reference price, minus the value of the cash dividend, or minus the value of the stock dividend calculated based on the current day's closing price or reference price.
If the security the customer purchases on margin is subject to a 20 percent or more share dividend rate in gratuitous distribution of shares, then unless the competent authority has otherwise imposed trading restrictions on the security, the newly issued rights shares shall all be pledged as collateral, with the option of income tax deferral to be waived, and shall be transferred through book-entry by the central securities depository into the securities firm's segregated account for margin purchases and short sales, notwithstanding the provisions of Article 33 of the Regulations Governing Handling of Shareholder Services by Public Companies.
The securities firm may not use the newly issued rights shares under the preceding paragraph as a source of securities for lending in its conduct of securities trading short sale operations or as collateral for refinancing.
The provisions of paragraph 2 shall not apply to newly issued rights shares used as collateral. After the security is traded ex-rights, the market value of the collateral rights shares shall be calculated as 70 percent of the closing price if they are exchange-listed securities, or 60 percent of the reference price if they are OTC securities. After such shares have been transferred into the securities firm's segregated account for margin purchases and short sales, their market value is no longer required to be discounted.
The market value of collateral securities for margin purchases and the original collateral and short margin for short sales referred to in paragraph 1 means the balance of the money and market value of securities in a customer margin account after deducting the securities lending fee and/or the fee for purchase of securities by tender offer [to meet a securities shortfall in short selling]; if there is any residual obligation after a settlement trade has been made or after the securities firm has disposed of the collateral, the residual obligation shall also be deducted.
Where the overall collateral maintenance ratio of the customer margin account is lower than 120 percent, the securities firm shall issue a margin call to the customer demanding the deposit, within two business days from the day the margin call is received, of additional margin collateral for the margin purchase or short sale that falls below the collateral maintenance ratio, to cover the margin deficiency.
Margin deficiencies that a customer is required to cover under the preceding paragraph shall be calculated by the following formulas:
? deficiency in margin for margin purchase = original margin purchase amount- (closing/reference price on the day of calculation x number of shares purchased on margin x margin purchase leverage ratio) - (closing/reference price on the day of calculation x number of shares pledged as collateral x margin purchase leverage ratio)
? deficiency in margin for short sale = (closing/reference price on the day of calculation x number of shares sold short x margin percentage required for short sale - initial margin for short sale) + (closing/reference price on the day of calculation x number of shares sold short - original short sale proceeds) - (closing/reference price on the day of calculation x number of shares pledged as collateral)
The term "collateral" in the preceding paragraph refers collectively to the newly issued rights shares under paragraph 3 and the securities deposited as additional collateral under Article 26; the market value of the newly issued rights shares shall be calculated as set out in the latter part of paragraph 5.
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