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Operating Rules for Securities Firms Handling Margin Purchases and Short Sales of Securities(2018.08.09) |
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Article 5
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A securities firm conducting securities trading margin purchase and short sale operations shall be subject to the requirements of the competent authority in relation to amount limit, duration, margin purchase leverage ratio, and short sale margin.
The duration of a securities trading margin purchase and short sale is six months. A customer may apply for extension prior to the expiration of the duration. The number of such applications allowed is two. A securities firm shall review a customer's credit status before granting an extension.
Upon accepting an application for the opening of a margin account, a securities firm shall sign application documentation for extending the duration of each margin purchase and short sale on a blanket basis with the customer. The application documentation must include the number of extensions available for selection and the follow-up to the evaluation result regarding applications for extension upon expiration. Upon execution, the said documentation shall apply to each subsequent margin purchase and short sale. Where a customer seeks to amend the number of extensions, it shall re-sign the application documentation. Notwithstanding, in the circumstance where the amendment is to reduce the number of extensions, and the margin purchase and short sale has been extended as requested, such margin purchase and short sale shall continue until the extension period expires.
A securities firm that agrees to a customer's extension of each margin purchase and short sale shall grant a six months' extension for each such purchase and sale, and may not terminate an extension unless these Rules provide otherwise.
Where a securities firm disagrees with an extension sought by a customer as in the preceding paragraph, or a margin purchase and short sale has been extended twice, said firm shall notify the customer in writing ten business days prior to the expiry.
The duration of a margin purchase and short sale where the underlying securities are subject to a suspension of trading or transaction is extended until the resumption of their trading or transaction.
The securities firm shall give a written notice to the customer of a margin purchase or short sale no later than 10 business days before the end of the duration as fixed by the competent authority under the preceding paragraph. Notwithstanding the foregoing, the notice is not required if, pursuant to the Operational Guidelines Governing Securities Firms and Securities Finance Enterprises Accepting Applications by Customers for Extending the Duration of Each Margin Purchase and Short Sale the customer has entered into application documentation for extending the duration of each margin purchase and short sale on a blanket basis and the securities firm has granted consent to the customer for such extension.
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Article 10
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Beneficial certificates satisfying the following criteria will be announced by the TWSE as eligible for margin purchase and short sale: having been listed for at least six months, not being traded in foreign currency, the beneficial ownership not being excessively concentrated, and the circumstance in Article 8, paragraph 1, subparagraph 3, item 1 or 3 not being applicable.
Beneficial certificates of securities investment trust exchange-traded funds ("ETF Beneficial Certificates") and beneficial certificates of futures trust exchange-traded funds will be announced by the TWSE or TPEx as eligible for margin purchase and short sale from the day their trading commences on the TWSE or TPEx. Offshore ETF Beneficial Certificates will be announced by the TWSE as eligible for margin purchase and short sale from the day their trading commences on the TWSE.
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Article 13
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As samples for review purposes of TWSE listed securities to which excessively intense share price volatility or excessively irregular trade volume as mentioned in Article 8, paragraph 1, subparagraph 3, item 1 or 3 occurs, listed common shares, Taiwan depository receipts, and beneficial certificates other than those whose trading method has altered are taken for comparison. As samples for review purposes of TPEx listed securities, TPEx listed common stock shares other than TPEx listed managed stocks and stocks registered on the Emerging Stock Board, and ETF Beneficial Certificates and beneficial certificates of futures trust exchange-traded funds are taken for comparison.
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Article 22
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The TWSE or TPEx will suspend the margin purchases and short sales of TWSE or TPEx listed securities that are otherwise eligible for margin purchases and short sales, from the business day after the date of public announcement, if any of the circumstances in Article 4, paragraph 1, subparagraphs 1 to 7, and subparagraph 11, and Article 5, paragraph 1, subparagraphs 1 to 3, and subparagraph 7 applies, unless the trading method has altered or trading has been halted with respect to TWSE or TPEx listed shares and Taiwan depository receipts as in subparagraph 1 below or the Surveillance Operations Oversight Committee of the TWSE or TPEx resolves on such suspension as in subparagraph 8 below:
- Where the trading method of TWSE or TPEx listed shares or Taiwan depository receipts alters, their trading is halted, or such shares or receipts, or beneficial certificates, are delisted from the TWSE or TPEx, margin purchases and short sales of such securities will be suspended as of the effective date of the event upon the public announcement by the TWSE and TPEx of such alteration or halt, with the suspension publicly announced concurrently; and upon the public announcement by the TWSE and TPEx of the TWSE and TPEx delisting of shares, Taiwan depository receipts and beneficial certificates, margin purchases and short sales of such securities will be suspended, with the suspension publicly announced concurrently. Notwithstanding, this does not apply where the trading is halted either under any of the circumstances in the proviso of Article 78 applies or due to a difference in rights and obligations between the existing stocks and new stocks after share exchange.
- The TWSE or TPEx will immediately announce publicly the suspension of margin purchases and short sales of the beneficial certificates concerned, should a SITE fail to make a report and publish the financial reports of any of its securities investment trust funds on schedule as required or the circumstance in Article 96, paragraph 1 of the Securities Investment Trust and Consulting Act apply to the SITE managing the securities investment trust fund.
- The TWSE or TPEx will immediately announce publicly the suspension of margin purchases and short sales of the beneficial certificates concerned, should a futures trust enterprise fail to make a report and publish the financial reports of any of its futures trust funds on schedule as required or the circumstance in Article 38, paragraph 1 of the Regulations Governing Futures Trust Enterprises apply to the futures trust enterprise managing the exchange-traded futures trust fund.
- The TWSE or TPEx will publicly announce the suspension of margin purchases and short sales of TWSE or TPEx listed shares with a net value per share below par value if, on the fifth business day after the deadline to publish and file the annual financial reports and financial reports for the first, second and third quarters of each fiscal year, a review of the latest financial reports that are published and filed as required reveals that the net value per share is below par value or, in the event of a TWSE or TPEx primary listed company with no face value or in the event of a par value per share other than NT$10, the financial reports indicate cumulative losses.
- The TWSE or TPEx will publicly announce the suspension of margin purchases and short sales of Taiwan depository receipts where the foreign securities they represent suffer cumulative losses if, on the last business day of the third month after the deadline to make a public notice and to make a filing with the competent authority, TWSE or securities market as required by the laws and regulations of the country of the foreign issuer and the country of listing, the latest annual consolidated financial reports audited and certified by the CPA or biannual consolidated financial reports reviewed by the CPA indicate cumulative losses.
- The TWSE will publicly announce, on the following business day, the suspension of margin purchases and short sales of the Taiwan depository receipts where the number of listed units is less than 60 million after redemption.
- The TWSE will publicly announce, on the following business day, the suspension of margin purchases and short sales of the shares or Taiwan depository receipts where the cumulative reported amount of defaulting single-day trades of TWSE listed securities is at least NT$200 million, or the cumulative reported amount of defaulting single-day trades of TPEx listed shares is at least NT$50 million, and if the balance of margin purchases or short sales of the day in question is at least 15% of the number of such TWSE or TPEx shares or units.
- The TWSE or TPEx will immediately announce publicly the suspension of margin purchases and short sales of the securities concerned if the Surveillance Operations Oversight Committee of the TWSE or TPEx so resolves or such margin purchases and short sales are otherwise inappropriate in the circumstances.
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Article 55
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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 1 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, unless agreed by both parties otherwise, the securities firm shall take the following measures:
- 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 81, paragraph 3, starting from the next business day.
- If the overall collateral maintenance ratio of the customer's margin account is restored to 130 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 81, paragraph 3, starting from the next business day.
- 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.
- If the overall collateral maintenance ratio of the customer's margin account is restored to 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 78
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When the TWSE or TPEx has ratified and publicly announced the delisting from the stock exchange or termination of TPEx trading of a security eligible for margin purchase and short sale transactions, a securities firm shall notify customers to cover and close out any margin purchases or short sales of such security by repaying the margin loans or returning the borrowed securities by the tenth business day before the delisting or the termination of TPEx trading. If a customer fails to cover and close out any margin purchase or short sale by repaying the margin loan or returning the borrowed security within the deadline, unless agreed by both parties otherwise, the securities firm may, within the scope of satisfying the obligation, apply the provisions of Article 81, paragraph 3 to dispose of the balance in the customer's margin account beginning from the next business day. However, these provisions shall not apply under any of the following circumstances:
- The issuing company has applied for conversion of its TPEx listed securities to TWSE listed securities.
- The securities of a TWSE or TPEx listed company are delisted due to the company's merger, and the surviving company uses the securities which are eligible for margin purchase and short sale transactions for payment of all or part of the consideration to shareholders of the non-surviving company.
- The securities of a TWSE or TPEx listed company are delisted due to a share conversion, and the shares after conversion are still eligible for margin purchase and short sale transactions.
or where securities of both the surviving and non-surviving TWSE or TPEx listed companies in a merger are eligible for margin purchase and short sale transactions.
After termination of the contract for trading of Over-the-Counter (OTC) securities eligible for margin purchase and short sale to be converted as TWSE listed securities, the customer shall proceed to settlement of the balance of its existing margin purchases and short sales within the time limits for margin purchase and short sale. If prior to listing of these securities to be eligible for margin purchase and short sale, the customer acquired these securities through margin purchase or short sale, redemption shall be made by cash or by delivery of spot securities, respectively.
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Article 81
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Where any of the following circumstances applies to a customer, the securities firm may, within the extent required to satisfy the obligation, dispose of the balance in the customer's margin account in accordance with the provisions of paragraph 3, unless agreed otherwise by both parties. If there is any surplus remaining after the obligation is satisfied by proceeds of the disposition, it shall be returned to the customer. If the proceeds of the disposal are insufficient to fully satisfy the obligation, the securities firm shall notify the customer to satisfy the remaining obligation within a specified time limit and, if the customer fails to the remaining obligation within such specified time limit, the securities firms shall report the case to the TWSE or the TPEx as an event of default and cancel the customer's margin account accordingly. The TWSE or the TPEx shall promptly forward the message to securities finance enterprises and to all securities firms engaged in margin purchase and short sale business:
- Failure to make up a deficiency in accordance with Article 55, paragraph 2.
- Failure to settle an obligation in accordance with Article 62, paragraph 3.
Where any of the following circumstances applies to a customer on a margin purchase or short sale, unless agreed otherwise by both parties according to paragraphs 2 and 3, and where the obligation is not fully satisfied after disposal of the collateral for that margin purchase or short sale, the securities firm shall use other funds in that customer's margin account to offset against the obligation. If there is still a deficiency remaining after such offsetting, the securities firm shall notify the customer to make up the deficiency on the next business day. If the deficiency is not fully made up, the securities firm may, within the extent required to satisfy the obligation, dispose of the balance in the customer's margin account in accordance with the provisions of paragraph 3. If there is any surplus remaining after the obligation is satisfied by proceeds of the disposition, it shall be returned to the customer. If the proceeds of the disposal are insufficient to fully satisfy the obligation, the securities firm shall notify the customer to satisfy the remaining obligation within a specified time limit, and, if the obligation remains unsatisfied after the time limit, shall report the case to the TWSE or the TPEx as an event of default and cancel the customer's margin account accordingly. The TWSE or the TPEx shall promptly forward the message to securities finance enterprises and to all securities firms engaged in margin purchase and short sale business:
- Failure to settle a short sale in accordance with Article 76.
- Failure to settle a margin purchase or short sale at maturity.
- Failure to replace securities or other merchandise deposited as additional collateral against margin requirements as required under Article 60.
Where any circumstances under paragraphs 1 and 2 apply to a customer, the securities firm shall, starting the next business day and on the TWSE centralized exchange market or through the TPEx trade system or through tender offer or competitive auction, place an order with another securities broker to dispose of the customer's collateral and securities or other merchandise deposited through a Margin Trading Default Processing Account opened by it. If a customer uses book-entry central government bearer bonds, local government bonds, corporate bonds, financial bonds to settle a margin sale , a securities firm may negotiate the price and dispose the aforesaid with a bonds dealer; if a customer uses open-end fund beneficiary certificates to settle a margin sale, a securities firm may dispose the aforesaid by buying back from a securities investment trust enterprise.
If a customer fails to return the securities for satisfaction of the loan according to Article 76, the securities firm shall proceed with disposition from the next business day. The securities firm or securities finance company may purchase the securities by tender offer according to Chapter 4 of the TWSE Rules Governing Purchase of Listed Securities by Reverse Auction or Chapter 4 of the TPEx Rules Governing Reverse Auction of TPEx Listed Securities during any suspension or halting of trading of the securities. When two or more tender offer purchases are conducted, the dollar amounts of the purchases that are allocable to the customer shall be calculated by weighted average method.
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