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Taiwan Stock Exchange Corporation Criteria Governing Review of Call (Put) Warrant Listings(2004.01.02) |
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Article 4
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Any enterprise that simultaneously operates underwriting, trading for its own account, and brokerage or intermediary services may apply for approval as a qualified issuer of call (put) warrants. Where the enterprise is a foreign institution, the board of directors shall first issue a letter of approval or an undertaking guaranteeing performance of obligations, after which an application shall be submitted to the TSEC in the foreign institution's name by its branch institution within the territory of the ROC or by a branch institution established within the territory of the ROC by a subsidiary that is directly or indirectly fully-owned. Any enterprise operated by the aforementioned subsidiary or branch institution within the ROC shall also conform to the above provisions.
An issuer applying for approval as a qualified issuer of call (put) warrants shall conform to each of the following:
1. Its shareholder equity, based on a CPA's certified financial report for the most recent period, shall be at least NT$3 billion; for a foreign institution or a branch institution established within the territory of the ROC by a subsidiary which is either directly or indirectly fully-owned, the parent company must be in conformance with the preceding standard and its branch entity must within the ROC shall additionally have a net worth of at least NT$150 million.
2. The CPA's certified financial report for the most recent period may not show any cumulative losses.
3. It must have a credit rating of a particular grade issued by a credit rating institution approved or recognized by the competent authority.
4. Its self-owned capital adequacy ratio shall have been no less than 200 percent for the half-year preceding the date of application; where the issuer is a foreign institution, the same standard shall apply for its head office.
5. It must set out a strategy for offsetting foreseeable risks.
Where the issuer entrusts a foreign institution with hedging operations or where the issuer is a foreign institution, that institution shall first obtain a letter of approval from the competent authorities governing foreign exchange operations before submitting an application to the TSEC.
Where the foreign issuer is issuing through a branch institution established in the territory of the ROC by a subsidiary which is either directly or indirectly fully-owned, that branch institution in the ROC shall be designated to carry out matters related to issuance, exercise of warrant rights, and proper disclosure, and the provisions of Article 5 or Article 7, Paragraph 2 of these Criteria may not be applied.
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Article 7
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The term "credit rating of a particular grade" in Article 4, Paragraph 2, Subparagraph 3, and Article 6 means a rating of twBB or above obtained from Taiwan Ratings Corporation, or BB- (twn) or above from Fitch Ratings Limited, Taiwan Branch, or Ba3.tw or above from Moody's Investors Service; for foreign institutions, it means a rating of Ba3 or above from Moody's Investors Service, BB or above from Standard and Poor's, or BB or above from Fitch Inc.
Where the issuer or the risk-management institution is a foreign institution or the subsidiary of an ROC financial holding company, it may obtain a credit rating as a group holding company, and the holding company may provide an unconditional and irrevocable guaranty, however, the credit rating of the holding company shall still conform to the standards set forth in the preceding paragraph.
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Article 8
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Where any of the following conditions apply to an issuer, the TSEC may withhold approval for qualification:
1. The issuer has made incomplete submission of required application documents, and failed to supplement those documents by the deadline prescribed by the TSEC.
2. The particulars of the issuer's application do not conform to laws and regulations, or contain false and misleading presentations.
3. There is an instance of major default by the issuer which has yet to be settled, or less than four years have elapsed since settlement of the default.
4. Non-conformance by the issuer with any of subparagraphs 2-5 under Article 38 of the Standards Governing Establishment of Securities Firms, or any similar circumstances in cases where the issuer is a foreign institution.
5. The issuer's self-owned capital adequacy ratio has fallen below 200 percent during the half-year preceding the date of application; where the issuer is a foreign institution, the same standard shall apply for its head office..
6. The issuer lacks appropriate mechanisms for risk management.
7. The issuer has been incapable of meeting obligations in connection with any previous issue of call (put) warrants.
8. The issuer has been incapable of carrying out issuance in conformance with relevant TSEC regulations governing call (put) warrants within the previous year and unable to achieve conformance within the period of time prescribed by the TSEC.
9. Preparation of the issuer's financial reports does not conform with generally accepted accounting principles or its internal control system is not capable of functioning effectively.
10. The issuer has violated Article 6 of the Criteria Governing Applications for Issuance of Call (Put) Warrants by Issuers, or review of matters requiring disclosure show threat of serious influence to its financial condition.
11. There are serious equity disputes or violation of regulations sufficient to affect financial operations of the issuer that have not been resolved or rectified.
12. Where there is factual evidence of irregular circumstances in the issuer's finances or operations.
13. Nonconformance with provisions of these Criteria relating to the issuer's financial status.
When any circumstance set forth in the subparagraphs below occurs after an issuer obtains qualification approval, its issuance of call (put) warrants shall be suspended, and resumed only after such circumstances are rectified. The issuance of any warrants already approved but not yet issued shall be suspended and the suspension reported to the competent authority; the validity of any call (put) warrants already issued shall not be affected. This paragraph shall also apply when the issuer is a foreign institution and the circumstances of any subparagraph herein exist with respect to its head office.
1. The issuer does not simultaneously operate underwriting, trading for its own accounts, and brokerage or intermediary services.
2. Non-conformance with the provisions of Article 4, paragraph 2, subparagraphs 1 and 2.
3. The issuer's self-owned capital adequacy ratio remains below 200 percent for a period of three consecutive months.
4. The issuer's credit rating fails to achieve the minimum prescribed standard.
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Article 8-1
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After obtaining qualification from the competent authority as an issuer of call (put) warrants, an issuer shall each year provide a written report to the TSEC, with relevant documentation attached, within three days after receiving its credit rating from the credit rating institution, and shall do the same at any time during the intervening periods when there is a change in its credit rating.
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Article 12
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Where any of the following conditions apply, the TSEC may withhold approval for an application for market listing of a projected issue of call (put) warrants:
1. The required application documents submitted by the issuer are incomplete, and it has failed to supplement the required documents by the deadline prescribed by the TSEC.
2. The particulars of the issuer's application do not conform to laws and regulations, or the issuer has made false and misleading presentations in the application.
3. The issuer or an affiliated company of the issuer has, during the month preceding application, released information or predictions relating to the price of the underlying securities of its projected warrants issue.
4. The issuer or its directors, supervisors, managers, employees, or shareholders hold 10% or more of the issuer's shares, or any of the above hold 10% or more of the shares of another company, and are at the same time a director, supervisor, manager, or shareholder with a stake of 10% or more in the issuing company of the underlying security or any of the issuing companies of the basket of underlying listed securities.
5. The issuer is not in compliance with Article 4, paragraph 2, subparagraphs 1 and 2.
6. The total of the issuer's currently listed and OTC-listed call (put) warrants whose term of validity has not yet expired (OTC-listed warrants shall be converted for calculation and expressed as a figure in listed warrants) together with the projected issue exceeds the limit for the number of warrants it may issue, or where any of the following conditions apply:
(1) The issuer's credit rating is a Taiwan Ratings Corporation Class A rating or above, a Fitch Ratings Limited, Taiwan Branch rating of A (twn) or above, a Moody's Investors Service rating of A.tw or above, a Moody's Investors Service Class A rating or above, a Standard & Poor's Corp. Class A rating or above, or a Fitch Inc. Class A rating or above, and the total value of its issue exceeds 60% of its net self-owned capital adequacy requirement.
(2) The issuer's credit rating is a Taiwan Ratings Corporation Class BBB- rating or above, a Fitch Ratings Limited, Taiwan Branch rating of BBB- (twn) or above, a Moody's Investors Service rating of Baa1.tw, Baa2.tw, Baa3.tw or above, a Moody's Investors Service Class Baa1, Baa2, Baa3 rating or above, a Standard & Poor's Corp. Class BBB- rating or above, or A Fitch Inc. Class BBB- or above, and the total value of its issue exceeds 50% of its net self-owned capital adequacy requirement.
(3) The issuer's credit rating is a Taiwan Ratings Corporation Class BB+ rating or above, a Fitch Ratings Limited, Taiwan Branch rating of BB+ (twn) or above, a Moody's Investors Service rating of Ba1.tw or above, a Moody's Investors Service Class Ba1 rating or above, a Standard & Poor's Corp. Class BB+ rating or above, or a Fitch Inc. Class BB+ or above, and the total value of its issue exceeds 30% of its net self-owned capital adequacy requirement.
(4) The issuer's credit rating is a Taiwan Ratings Corporation Class BB rating or above, a Fitch Ratings Limited, Taiwan Branch rating of BB (twn) or above, a Moody's Investors Service rating of Ba2.tw or above, a Moody's Investors Service Class Ba2 rating or above, a Standard & Poor's Corp. Class BB rating or above, or a Fitch Inc. Class BB rating or above, and the total value of its issue exceeds 20% of its net self-owned capital adequacy requirement.
(5) The issuer's credit rating is a Taiwan Ratings Corporation Class BB- rating or above, a Fitch Ratings Limited, Taiwan Branch rating of BB- (twn) or above, a Moody's Investors Service rating of Ba3.tw or above, a Moody's Investors Service Class Ba3 rating or above, a Standard & Poor's Corp. Class BB- rating or above, or a Fitch Inc. Class BB- rating or above, and the total value of its issue exceeds 10% of its net self-owned capital adequacy requirement.
The above-mentioned net self-owned capital adequacy requirement shall be calculated based on the methods set forth within the Rules Governing Securities Firms, and the limit on the number of warrants that may be issued shall be calculated according to the following formula:
The limit on the number of warrants issuable = net self-owned capital requirement × the percentage listed corresponding to the above credit ratings ÷ the total value of each warrants issue (NT$300 million). Where the value obtained is less than one, it shall be counted as one; where more than one, decimals shall without exception be rounded down to the nearest whole number.
The above net self-owned capital adequacy requirement shall be applied to ROC issuers. Where the issuer is a foreign institution, limits on the number of warrants it may issue will be separately announced by the TSEC.
7. The issuer is a foreign institution, and at the time of application to issue call (put) warrants, the inward remittance of capital required for a hedge on the issue (the amount remitted into Taiwan minus the amount not required for a hedge on the issue) is less than the market value of the underlying securities represented by the non-matured listed or OTC-listed call (put) warrants (including the current issue). In addition, where a letter of undertaking stating that the premiums collected for the given issue of warrants will only be remitted into Taiwan after the expiration of the period of validity of the warrant or proof of an existing line of credit at a Taiwan bank in an amount equivalent to the premiums collected on the given issue have not been issued.
8. There are irregular fluctuations in the price of the underlying security within the three months prior to the date of application, and a penalty has been imposed in accordance with the Taiwan Stock Exchange Corporation Regulations Governing Implementation of the Stock Market Monitoring System.
9. There is any other factor arising out of the nature of the enterprise or exceptional circumstances that may be deemed to adversely affect the applicant's performance of the option or the price of the underlying securities.
10. There are any of the conditions set forth in the preceding article.
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Article 16-1
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Hedging methods employed by the issuer for put warrants issued may include one or more of the following: offsetting of the hedging positions employed for call warrants issued against the same underlying securities, sales of shares of the underlying security borrowed from shareholders, short sales of the underlying security on the Taiwan Stock Exchange, or the borrowing and sale of the underlying security for a strategic transaction in accordance with Article 82-2 of the Operating Rules of the Taiwan Stock Exchange Corporation.
Where the issuer elects to sell shares of the underlying security that have been borrowed from shareholders as a hedging instrument, the lending shareholder shall, following conclusion of a contract between the two parties in accordance with the provisions of Article 32-1, paragraph 2 of the Rules Governing Securities Firms, apply through their securities firm to the Taiwan Securities Central Depository Co., Ltd. for the transfer of all of the shares to be lent into the hedging account of the issuer or shall put said shares in escrow to be divided subsequently up into lots to apply for transfer into the hedging account in accordance with the issuer's hedging needs.
Where the issuer employs short sales of the underlying securities as a hedging instrument, said issuer shall open a margin account with another securities firm or with the securities finance company of a non-affiliated enterprise, and shall observe the provisions of this Corporation's "Operating Rules for Securities Firms Dealing with Margin Purchases and Short Sale," "Terms for the Opening of Margin Accounts Used by Securities Firms to Conduct Long and Short Margin Trading" and the provisions of the various securities finance companies related to the aforesaid two regulations.
The issuer shall, within three days following the borrowing or short sales of marketable securities, apply in accordance with regulations to issue put warrants. Where there is a failure to file application within the deadline, failure to complete the issue within the deadline or the put warrant has reached its expiry date, the issuer shall close out all open positions on the last day of the exercise period or on the expiry date.
The shareholders of the underlying security referred to in paragraph 1 may not be subject to the parameters set forth in paragraph 1 and paragraph 3 of the Article 22-2 of the Securities Trading Law.
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Article 20
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Except where the circumstances set forth under Article 10, paragraph 1, subparagraph 5, sub-subparagraph 17 exist, when an issuer, prior to application to the TSEC for issuance of call (put) warrants, releases or divulges information on its own initiative about the application or the warrants issue, the TSEC may bar the issuer from any subsequent application for a period of three months.
When the media have made a concrete announcement or disclosure of information related to the underlying securities of a particular warrants issue in the week prior to the issuer's application, the TSEC will not approve the application for issuance and market listing.
Where an issuer produces a defective report, public announcement, or disclosure of required matters with regard to an application for qualification as a call (put) warrant issuer, issuance of warrants, or relevant matters during or subsequent to the warrant duration period, the TSEC may issue a letter requesting it to make rectification, and when the circumstances are serious, may restrict it from subsequent applications for issuance of warrants for a period of one month.
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