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Operating Rules for Securities Firms Handling Margin Purchases and Short Sales of Securities(2021.04.01) |
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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. Notwithstanding, if, on account of a split, reverse split, or otherwise, the securities acquired through margin purchases by a customer at different times are consolidated into one trading unit, the duration of margin purchases of said securities will be the duration of the latest acquisition through margin purchases. 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 53
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A securities firm shall calculate, on a daily mark-to-market basis, 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) + market value of securities deposited as collateral or other merchandise} ÷ {original margin purchase amount(s) + market value of underlying securities sold short} × 100 percent
The market value of securities and other merchandise under the preceding paragraph shall be calculated based on the paragraph below , provided that for the six business days prior to an ex-rights or ex-dividend date for a TWSE or TPEx listed 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 and the market value of TWSE or TPEx listed securities pledged as collateral shall be calculated based on the respective current day's closing 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.
- TWSE or TPEx listed book-entry central government bonds, local government bonds, corporate bonds, financial bonds: par value.
- TWSE or TPEx listed securities: the closing price of Taiwan Stock Exchange or Taipei Exchange.
- Gold that is registered for trading over the counter: the average price at closing based on the highest buying price quote and the lowest selling price quote ("the average closing price").
- An open-end type securities investment trust fund beneficiary certificate and futures trust fund beneficiary certificate: the net asset value per beneficiary unit of the prior business day.
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 TWSE or TPEx 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 TWSE or TPEx listed securities for margin purchase and short sale, or 50 percent of the closing price if they are not qualified according to Article 2 or 3 of the Standards Governing Eligibility of Securities for Margin Purchase and Short Sale, or are suspended according to Article 4 or 5 of the same Standards. 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 number of new beneficial right units after a split of the ETF beneficial certificates and beneficial certificates of futures trust exchange-traded funds acquired by a securities firm through margin purchases shall be deposited into the securities firm's segregated account for margin purchases and short sales as margin balance. The number of new beneficial right units after a split of the ETF beneficial certificates and beneficial certificates of futures trust exchange-traded funds deposited as additional collateral by a securities firm in accordance with Article 57 shall be deposited into the securities firm's segregated account for margin purchases and short sales as securities to be deposited as additional collateral.
The market value of collateral securities for margin purchases and the original collateral and short margin for short sales, the market value of securities deposited as collateral or other merchandise referred to in paragraph 1 means the balance of the money, market value of securities and other merchandise in a customer margin account after deducting the short sale fee, competitive auction lending fee, negotiated lending fee, and 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.
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Article 63
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A customer applying to settle a margin purchase with cash or a short sale with spot securities shall deliver the money or securities by 12 noon of the current day, and shall fill out an Application to Settle a Margin Purchase with Cash or Application to Settle a Short Sale with Spot Securities and submit the application to the securities firm. Upon verification of the accuracy of the content, the securities firm shall deliver the short sale proceeds and short sale margin to the customer by the second following business day, or in the case of securities bought on margin or securities deposited or other merchandise as collateral, or securities investment trust fund beneficiary certificates purchased not in the name of a securities firm, where the customer has maintained a depository account or a book-entry central government securities account, transfer the securities to the account by the second following business day, or in the case of withdrawal of spot securities by the customer, deliver the securities by the third following business day.
A customer applying to settle a short sale with spot securities which are borrowed from the same securities firm through securities lending business as the source of securities, the short sale collateral, short sale margin, or securities eligible to be deposited as collateral by securities firms for conducting securities lending business may, with the customer’s consent, be pledged as collateral of the securities concerned and not be subject to the requirement for transfer through book-entry in the preceding paragraph. Any balance after the pledge as collateral shall be returned pursuant to the preceding paragraph unless the securities firm and customer agree otherwise.
The matters mentioned in the preceding paragraph that are subject to the customer’s consent and agreement with the customer shall be recorded by the securities firm.
During the suspension or halting of trading of the underlying securities in margin purchase and short sale, the customer may apply to settle a short sale by cash payment or delivery of spot securities.
Except under any of the following circumstances, the customer may not apply to use third-party securities as spot securities to settle a short sale:
- during a period in which trading has been suspended or halted in the underlying securities of the short sale
- where an order for margin purchase has been placed to settle the short sale at the maximum price of the auction reference price at market opening on the TWSE or the basis price for the opening of trading on the TPEx on the same day and cannot be executed before the start of the trading session of the sixth business day prior to the book closure date of the underlying securities.
Where the securities acquired by a customer through margin purchases are short of one trading unit as a result of a split, reverse split, or otherwise, settlement of margin purchases with cash shall be carried out in respect of fractions of said unit
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