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Operating Rules for Securities Firms Handling Margin Purchases and Short Sales of Securities(2018.12.24) |
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Article 54
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Where the overall collateral maintenance ratio of the customer margin account is lower than 130 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 price on the day of calculation × number of shares purchased on margin × margin purchase leverage ratio) - (par value, closing price and average closing price of the day of calculation or net asset value per beneficiary unit of the prior business day × unit number of shares of the stock under paragraph 3 and securities deposited as collateral or other merchandise under Article 57 × margin purchase leverage ratio)
■ deficiency in margin for short sale = (closing price on the day of calculation × number of shares sold short × margin percentage required for short sale - initial margin for short sale) + (closing price on the day of calculation × number of shares sold short - original short sale proceeds) - (par value, closing price and average closing price of the day of calculation or net asset value per beneficiary unit of the prior business day × unit number of shares of the securities deposited as collateral under Article 57 or other merchandise).
In the formula for calculating the deficiency for margin purchase under the preceding paragraph, if the stock under paragraph 3 of the preceding article or the securities deposited as collateral or other merchandise under Article 57 are categorized as book-entry central government bonds, local government bonds, corporate bonds, financial bonds, gold that is registered for trading over the counter, an open-end type securities investment trust fund beneficiary certificate and futures trust fund beneficiary certificate, its financing ratio shall be calculated based on the maximum financing ratio of TWSE or TPEx listings announced by the competent authority; for others that are not eligible for margin purchase or short sale under Article 2 or 3 of the Standards Governing Eligibility of Securities for Margin Purchase and Short Sale or are temporarily suspended under Article 4 or 5 of the same Standards, then the margin purchase leverage ratio shall be set at zero.
Where trading of securities has been suspended or halted, the collateral maintenance ratio in paragraph 1 of the preceding article and the margin deficiencies required to cover in paragraph 2 of this article shall be calculated based on the closing price of the business day immediately before suspension or halting of trading.
For purposes of calculation of the collateral maintenance ratio in the preceding article and the margin deficiencies that a customer is required to cover in paragraph 2 of this article, if a closing price is not available for the given day, it shall be calculated as the price determined by the following principles:
- When the highest buy price quoted as of market close on the given day is higher than the auction reference price at market opening on the TWSE or the basis price for the opening of trading on the TPEx, the highest buy price quoted will be the price.
- When the lowest sell price quoted as of market close on the given day is lower than the auction reference price at market opening on the TWSE or the basis price for the opening of trading on the TPEx, the lowest sell price quoted will be the price.
- When the above circumstances are not met, the auction reference price at market opening on the TWSE or the basis price for the opening of trading on the TPEx will be the price.
The terms "the auction reference price at market opening" and "the basis price for the opening of trading" in the preceding paragraph shall have the meaning specified in Article 58-3, paragraph 4 of the TWSE Operating Rules, or Article 60-1 of the TPEx Trading Rules.
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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, or if, for said collateral for margin purchases and/or short sales that is disposed of, brokerage trading orders have been placed at auction reference price at market opening of the current trading session or at basis price for the opening of trading, ± 10 percent, before market opening for six consecutive days (brokerage trading orders may be placed at market price instead during intraday trading hours other than a given period before market opening and after close of market), and the trades thus cannot be fully executed, 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 request 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 collateral eligible for margin purchase and short sale transactions, a securities firm shall request customers to cover and close out any margin purchases or short sales of such collateral 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 shall dispose of said collateral on the following business day. Any surplus amount after the disposal shall be returned. If the disposal proceeds are insufficient to satisfy the obligation; or if, for said collateral for margin purchases and/or short sales that is disposed of, brokerage trading orders have been placed at auction reference price at market opening of the current trading session or at basis price for the opening of trading, ± 10 percent, before market opening for six consecutive days (brokerage trading orders may be placed at market price instead during intraday trading hours other than a given period before market opening and after close of market), and the trades thus cannot be fully executed; or if the collateral cannot be disposed of on account of a suspension of trading under Article 50 or 50-3 of the Operating Rules of the TWSE or Article 12-1 of the TPEx Rules Governing Securities Trading on the TPEx; or if, after reverse auction is conducted in respect of the collateral in accordance with Article 81, paragraph 5, the proceeds do not sufficiently cover the obligation, then 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 request the customer to make up the remaining deficiency on 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, or if, for the balance in the margin account being disposed of, brokerage trading orders have been placed at auction reference price at market opening of the current trading session or at basis price for the opening of trading, ± 10 percent, before market opening for six consecutive days (brokerage trading orders may be placed at market price instead during intraday trading hours other than a given period before market opening and after close of market), and the trades thus cannot be fully executed, the securities firm shall request 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.
- Failure to make up a deficiency in accordance with Article 78, paragraph 1.
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 subparagraphs 2 and 3, the securities firm shall return any surplus amount after the disposal of the collateral for the margin purchase or short sale. If the disposal proceeds are insufficient to satisfy the obligation; or where either subparagraph 2 or subparagraph 3 applies to the customer, if brokerage trading orders for said collateral have been placed at auction reference price at market opening of the current trading session or at basis price for the opening of trading, ± 10 percent, before market opening for six consecutive days (brokerage trading orders may be placed at market price instead during intraday trading hours other than a given period before market opening and after close of market), and the trades thus cannot be fully executed; or if, after reverse auction is conducted in respect of the collateral in accordance with paragraph 4, the proceeds do not sufficiently cover the obligation, 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 request 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, or if, for said collateral for the margin purchase and/or short sale that is disposed of, brokerage trading orders have been placed at auction reference price at market opening of the current trading session or at basis price for the opening of trading, ± 10 percent, before market opening for six consecutive days (brokerage trading orders may be placed at market price instead during intraday trading hours other than a given period before market opening and after close of market), and the trades thus cannot be fully executed, the securities firm shall request 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 may conduct reverse auction in accordance with the preceding paragraph if the subject security cannot be disposed of on account of a suspension of trading under Article 50 or 50-3 of the Operating Rules of the TWSE or Article 12-1 of the TPEx Rules Governing Securities Trading on the TPEx.
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