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Taiwan Stock Exchange Corporation Regulations Governing Review of Call (Put) Warrant Listings(2006.01.20) |
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Article 3
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Applicants seeking approval by the Taiwan Stock Exchange Corporation (hereafter, "the TSEC") for qualification as a call (put) warrants issuer shall prepare an Application for Approval as a Qualified Call (Put) Warrants Issuer (Attachment 1), filled out in full and with the required documents attached for submission to the TSEC. Following review and approval of the application by the TSEC in accordance with the Regulations Governing Applications for Issuance of Call (Put) Warrants by Issuers, these Regulations, and the Taiwan Stock Exchange Corporation Procedures for Review of Call (Put) Warrant Listings, the TSEC shall submit the application, along the with TSEC review opinion, to the competent authority for review.
The Taiwan Stock Exchange Corporation Procedures for Review of Call (Put) Warrant Listings referred to in the preceding paragraph shall be adopted by the Taiwan Stock Exchange Corporation, and enforced after ratification by the competent authority.
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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 net worth stated on the CPA's certified financial report for the most recent period is not lower than the paid-in capital.
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 regulatory 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 Regulations may not be applied.
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Article 5
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Where an issuer does not conform to the standards set forth in Article 1, Subparagraph 1, but has shareholder equity of at least NT$1 billion, it shall execute an agreement with a financial institution which, according to both the laws of its country of registration and its own articles of incorporation, may act as a guarantor; the issuer shall, at the time of application for listing of call (put) warrants, execute an unconditional and irrevocable guaranty agreement with that guarantor institution, which will act as joint guarantor to ensure the issuer's performance of the call (put) warrants listing agreement for the given issue; however, the guarantor institution shall conform to the standards set forth in Paragraph 2, subparagraphs 1 to 3, of the preceding article.
The amount of the guaranty under the guaranty agreement referred to in the preceding paragraph shall be a sum equal to at least (the total shares of the call (put) warrants issue) x (the strike price) x (20% of the multiplier)..
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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, or 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 lacks appropriate mechanisms for risk management.
6. The issuer has been incapable of meeting obligations in connection with any previous issue of call (put) warrants.
7. 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.
8. 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.
9. The issuer has violated Article 6 of the Regulations 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.
10. There are serious equity disputes or violation of regulations sufficient to affect financial operations of the issuer that have not been resolved or rectified.
11. Where there is factual evidence of irregular circumstances in the issuer's finances or operations.
12. There is nonconformance with provisions of these Regulations 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; provided, this shall not apply where there is non-conformance with Article 4, paragraph 2, subparagraph 1, but the measures provided in Article 5 are followed.
3. The issuer's regulatory capital adequacy ratio falls below 150 percent, or 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 9
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After the issuer receives approval as a qualified issuer of call (put) warrants and wishes to apply to the TSEC for listing of a planned call (put) warrants issue, the issuer shall apply to the TSEC with an Application for Listing of Call (Put) Warrants (Attachment 2) filled out in full and with the required documents attached. Following TSEC approval of the issuer's issuance plan, the TSEC will immediately issue a letter of approval, with a copy to the competent authority, provided that depending on the condition of the issuer's financial business, the status of the underlying securities, the number of call (put) warrants already listed on the market with identical or similar types of underlying securities and their expiration dates and distributions, the TSEC may withhold approval, limit the number of warrants to be listed, or impose other conditions.
After receiving a TSEC approval letter and submitting a copy to the competent authority, the issuer may entrust an underwriter with underwriting of the issue or it may sell the warrants itself, and provide a prospectus to the subscribers.
The guidelines for information to be published in public offering prospectuses will be adopted by the TSEC in accordance with Article 13 of the Regulations Governing Applications for Issuance of Call (Put) Warrants by Issuers and shall take force upon ratification by the competent authority.
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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. Applications for issuance of warrants whose underlying is the Taiwan 50 Index may be exempt from the provisions of this subparagraph.
5. The issuer is not in compliance with Article 4, paragraph 2, subparagraphs 1 and 2; provided, this shall not apply where there is non-conformance with Article 4, paragraph 2, subparagraph 1, but the measures provided in Article 5 are followed.
6. The total of the issuer's currently listed, OTC-listed, and OTC contract-based call (put) warrants whose term of validity has not yet expired together with the projected issue of call (put) warrants is subject to any of the following conditions:
(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 eligible net regulatory 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 eligible net regulatory 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 eligible net regulatory 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 eligible net regulatory 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 eligible net regulatory capital adequacy requirement.
The above-mentioned eligible net regulatory capital adequacy requirement shall be calculated based on the methods set forth within the Regulations Governing Securities Firms, for Taiwan issuers.
If the issuer is a foreign institution, the aforesaid eligible net regulatory capital is calculated by (the net worth on the most recent financial reports of its branch(es) within the Republic of China or branch(es) established within the Republic of China by its wholly owned subsidiaries) x (net available funds multiplier).
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 Article 8 of these Regulations.
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Article 13
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In the case of a call (put) warrant listing where the issuer has obtained approval documents from the TSEC, the issuer shall sign a listing agreement with the TSEC, and shall announce market listing of the warrants after obtaining approval from the competent authority.
After the competent authority approves the listing agreement referred to in the preceding paragraph, the agreement may be annulled by reporting to the competent authority for approval under the following conditions:
1. Where, prior to market listing, there is a discovery by the competent authority or a letter of report from the TSEC of any of the conditions under Article 8.
2. The issuer applies to annul the agreement.
For call (put) warrants already issued pursuant to the preceding paragraph, the issuer shall return the price with statutory interest included within 10 days from receipt of TSEC notice of approval for annulment of the listing agreement.
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Article 14
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Issuers shall apply to the TSEC to open a segregated account at the time of their initial call (put) warrants issue. Where the issuer will be self-hedging or partially self-hedging, the account shall be used exclusively for establishing a hedge position after issuance of the warrants and for future performance of obligations when the investors exercise the warrants. Where the issuer entrusts another institution with hedging, the account shall be used for performance of obligations when the investors exercise the warrants, and the risk management institution is also required to open a segregated account with the issuer for the purpose of establishing a hedge position after issuance of the warrants.
The segregated accounts of issuers referred to in the preceding paragraph shall without exception be opened under securities dealer accounts. For foreign issuers applying to issue warrants through a branch institution established in the territory of the ROC by a subsidiary which is either directly or indirectly wholly-owned, the foreign issuer shall open a segregated hedge account in the securities brokerage department of that branch institution; the segregated hedge account opened with the issuer by the risk management institution shall be opened in the securities brokerage department. The account numbers of the aforesaid segregated accounts shall without exception be 888888-8. The above-mentioned accounts shall be reported to the TSEC in advance, and may only be used for trading in financial hedging instruments as announced by the TSEC and call (put) warrants issued by the issuer itself. In addition, the securities in the segregated hedging account for the call (put) warrants issue without exception may
not be pledged.
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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 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 17
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Trading conducted by the dealing department of the issuer for its own account and hedge trading conducted by it in connection with call (put) warrants issued by it may not affect the fairness of market prices or harm shareholder equity, and an effective internal control system shall be established and executed in connection with such trading.
An issuer of call (put) warrants shall issue a letter of report to the TSEC by the 5th of each month, providing information on purchases and sales of the underlying securities of its issued warrants by its dealing department for the preceding month (including the trading day, the name of the security and the volume of the transaction).
The provisions of the preceding two paragraphs will apply mutatis mutandis to the risk management institutions engaged by issuers using outsourced risk management, and, where the issuer is a foreign institution, to the dealing department of its branch institution within ROC territory or the dealing department of a branch institution established within ROC territory by a directly or indirectly wholly-owned subsidiary of such a foreign institution.
Except where regulations provide otherwise, during the duration of the call (put) warrants, there may be no inter-account transfers of the warrants' underlying security between the issuer's dealing department and positions in the security held in the issuer's hedge accounts.
The "dealing department" referred to in the preceding four paragraphs includes any unit or trading account that is equivalent to a dealing department.
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Article 19
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(deleted)
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Article 20
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Except where the circumstances set forth under Article 10, subparagraph 6, item 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 or a risk management institution engaged by it 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 the issuer 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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Article 21
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Where any of the circumstances under Article 13, Paragraph 2 apply with respect to the issuer, the TSEC may restrict the issuer from further applications for call (put) warrant issues during the subsequent one-month period.
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Article 23
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Where the issuer is in violation of the provisions of Article 16-1, paragraph 4, or Article 17, paragraph 1, This Corporation may restrict the issuer from further applications for call (put) warrant issues during the subsequent three-month period.
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