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Operating Rules for Securities Firms Handling Margin Purchases and Short Sales of Securities(2010.06.21) |
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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, or the issuer of the securities conducts a demerger and capital reduction, and after the capital reduction, the stock resumes trading and is exchange-listed or OTC-listed on the same day as the stock of the assignee company of the demerger, then unless the competent authority has otherwise imposed trading restrictions on the security, the newly issued rights shares or the stock of the assignee company of the demerger 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 or the stock of the assignee company of the demerger 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 or the stock of the assignee company of the demerger used as collateral. After the security is traded ex-rights, the market value of the newly issued 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 and the stock of the assignee company of the demerger 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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Article 24
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If, after a securities firm has issued a margin call demanding additional deposit to cover a margin deficiency in accordance with paragraph 7 of the preceding article, the customer fails to make the additional deposit, or makes deposit covering only part of it, within two business days from receipt of the margin call, the securities firm shall take the following measures:
1. If the overall collateral maintenance ratio of the customer's margin account still falls below the required level on the given day, the securities firm shall dispose of the collateral by the mutatis mutandis application of Article 39, paragraph 3, starting from the next business day.
2. If the overall collateral maintenance ratio of the customer's margin account is restored to 120 percent or higher on the given day, the securities firm may refrain for the time being from disposing of the collateral; provided that if the ratio again falls below the required level on any subsequent business day, and if the customer fails to make additional deposit on its own initiative to cover the deficiency that same afternoon, it shall dispose of the collateral by the mutatis mutandis application of Article 39, paragraph 3, starting from the next business day.
3. If prior to disposal of collateral pursuant to the provisions of the preceding subparagraph, the customer makes successive deposits sufficient to cover the deficiency stated in the margin call, the securities firm shall expunge the record of the margin call.
4. If the overall collateral maintenance ratio of the customer's margin account is restored to 1.25 times 120 percent or higher, and reaches 166 percent or higher, the securities firm shall expunge the record of the margin call.
The collateral disposed of under the preceding paragraph shall be the collateral for a given margin purchase or short sale in the customer's margin account for which a margin call has been issued demanding additional deposit of collateral to meet the collateral maintenance ratio. Any surplus amount after the disposal shall be returned. If the disposal proceeds are insufficient to satisfy the obligation, the deficiency shall be offset by other funds in the margin account. If there is still a deficiency remaining after such offsetting, the securities firm shall notify the customer to make up the remaining deficiency on the next business day.
When a securities firm disposes of the collateral for margin purchases and/or short sales in customer margin accounts where a margin call has been issued demanding additional deposit of collateral to meet the collateral maintenance ratio, and where the customers concerned have failed to make the additional deposit within the specified time limit, the securities firm may take the newly issued rights shares or the stock of the assignee company of the demerger of those customers that are in amounts of less than one trading unit and combine them into trading units for the purpose of disposal.
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Article 26
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A customer may deposit government bearer bonds or exchange-listed or OTC securities eligible for margin purchases and short sales as additional collateral to offset against its short sale margin requirements, or may deposit government bearer bonds, or exchange-listed securities that are not in the altered-trading-method category, or OTC securities eligible for margin purchases and short sales, as additional collateral to offset against any deficiency the customer is required to cover under Article 23.
Securities under the preceding paragraph may not fall into any of the following categories:
1. be less than one trading unit;
2. be any registered shares issued to and acquired by shareholders or capital contributors as a result of capital increase out of earnings, or capital increase through contribution by company employees out of their bonuses to the industry in which they are serving, or capital increase by a venture capital company out of undistributed earnings, as effected in accordance with Article 13 of the Statute (Act) for Encouragement of Investment or Article 16 or 17 of the Statute (Act) for Upgrading Industries, that have not been transferred and reported for tax purposes.
Where the securities firm accepts the deposit of securities by the customer as additional collateral to offset against the margin requirement, it shall impress its endorsement seal on the attached transfer application form, and if the securities are held but not owned by the customer, additionally submit the household registration record, proof of source, and consent letter obtained from the original owner of the securities.
If the securities deposited as collateral to offset against a margin requirement under the preceding paragraph are subject to a 20 percent or more share dividend rate in gratuitous distribution of shares, or the issuer of the securities conducts a demerger and capital reduction, and after the capital reduction, the stock resumes trading and is exchange-listed or OTC-listed on the same day as the stock of the assignee company of the demerger, the provisions of paragraphs 3, 4, and 5 of Article 23 shall apply to the newly issued rights shares or to the stock of the assignee company of the demerger for which the circumstances set forth in paragraph 2, subparagraph 2 do not exist, and the consent letter under the preceding paragraph shall specify the waiver of the option of income tax deferral.
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