| Title： |
Taiwan Stock Exchange Corporation Rules Governing Review of Call (Put) Warrant Listings(2008.02.13) |
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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.
The provisions of the preceding paragraph shall apply mutatis mutandis to an issuer that whose incorporation is registered in ROC territory and is wholly owned, either directly or indirectly, by a foreign institution.
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Article 10
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An application for TSEC listing approval for an issue of call (put) warrants shall conform to each of the following conditions:
1. The issue shall comprise 20 million or more issuance units, or 10 million or more units with a total value of NT$200 million or more.
An issuance unit shall represent one share (one beneficial unit) or a basket of single shares, or every 2 issuance units shall represent one share (one beneficial unit) or a basket of single shares, or every 5 issuance units shall represent one share (one beneficial unit) or a basket of single shares, or every 10 issuance units shall represent one share (one beneficial unit) or a basket of single shares, or every 100 issuance units shall represent one share (one beneficial unit) or a basket of single shares. The price of the underlying security must be NT200 (inclusive) or higher, however, before there may be an issuance in which every 100 issuance units represent one share (one beneficial unit) or a basket of single shares.
2. Distribution of warrant holders:
(1) There must be 100 or more warrant holders. At least 80 warrant holders must hold between 1,000 and 50,000 issuance units, and their cumulative holdings must comprise 20% or more of the total listed issuance units.
(2) The number of issuance units held by any single warrant holder may not exceed 10% of the total volume of listed issuance units; where a warrant holder is the issuer, the number of issuance units held may not exceed 30% of the total volume of listed issuance units, provided that where the issuer entrusts another institution with risk management, the risk management institution in question may not hold the warrants issued.
(3) The total number of issuance units held by the issuer and the issuer's associated persons and employees may not exceed 35% of the total volume of listed issuance units.
(4) During the sale of the call (put) warrants, the issuer shall restrict the directors, supervisors, and managers of the company whose securities are represented in the call (put) warrants, as well as major shareholders with shareholdings of 10% or more in that company, from holding warrants through which they may subscribe to a number of shares in excess of the number of shares of the underlying security they already hold, with the exception of the TSEC Taiwan 50 Index, Taiwan Mid-Cap 100 Index, and Taiwan Technology Index exchange-traded funds (respectively, "the Taiwan 50 Index," "the Taiwan Mid-Cap 100 Index," and "the Taiwan Technology Index").
3. Period of validity: Calculated from the date of listing, the period of validity shall be between six months and two years, inclusive.
4. Restriction on total issuance volume of the underlying represented by a warrant: The total number of shares of the underlying security that may be called (or put) through the call (put) warrants and the shares of the same underlying security represented by other existing call (put) warrants already listed on the TSEC may not exceed 22% of the total number of outstanding shares of the domestic issuing company after deduction of each of the following types of shareholdings. The total number of shares of the underlying securities that may be called (put) through the offshore call (put) warrants, combined with the number of those issued overseas and representing the same underlying securities, may not exceed three percent of the total number of outstanding shares of the issuing company after deduction of each of the following types of shareholdings:
(1) The total percentage of shares held by directors and supervisors under statutory shareholding ratio requirements.
(2) Already pledged securities.
(3) The number of centrally deposited shares mandatory for newly listed companies.
(4) Shares already repurchased under the Rules Governing Share Repurchase by Listed and OTC Companies and not yet cancelled.
(5) Shares with restrictions on listing or trading imposed by the competent authority. When the underlying security is the Taiwan 50 Index, Taiwan Mid-Cap 100 Index, or Taiwan Technology Index, the total number of shares of the underlying that may be called (or put) through the call (put) warrants and the shares of the same underlying represented by other existing call (put) warrants already listed on the TSEC, combined with those issued overseas by the issuer or its correspondent institution overseas and representing the same underlying, may not exceed the total number of outstanding shares of the issuing company, provided that this shall not affect the validity of any call (put) warrants already issued.
5. When the underlying security is the Taiwan 50 Index, Taiwan Mid-Cap 100 Index, or Taiwan Technology Index, consent shall be obtained from the institution creating the fund's underlying index.
6. The issuance plan shall contain the following terms and conditions:
(1) The issuance date and the period of validity.
(2) Detailed information on the underlying security or basket of securities (for the underlying securities of the warrants issued, in addition to the financial statement of the most recent period audited or certified by a certified public accountant and showing no losses, there shall also be a statement of the reason for issuing warrants based on the underlying securities).
(3) The type of call (put) warrant, the volume of issuance units and total value of the issue.
(4) Terms of issuance (such terms, including issuance price, strike price, exercise period and number of shares or beneficial units represented per issuance unit; conditions regarding upper and lower price caps for knock-out call or put warrants; and the fact that when the closing price of the underlying security reaches the upper or lower price cap, it will be the final trading day for the given warrant, which will be deemed to be at maturity on the following business day, with automatic cash settlement taking place uniformly at the closing price of the underlying security on the last day of trading, shall be set out in a prominent typeface). For a call warrant, the strike price referred to may not exceed 150% of the underlying security's price at market close on the date of application; for a put warrant, the strike price may not be lower than 50% of the underlying security's price at market close on the date of application, provided that the above ratios may be exceeded when the strike price and the
closing price of the underlying security differ by less than NT$30. There shall be reasonable cause and explanation for any terms of issuance that do not conform to the above standards, and full disclosure shall be given to investors.
(5) The method by which the issuance price is calculated, including the price of the underlying security, the strike price, the period of validity, the interest rate, the rate of fluctuation of the underlying security and other elements used in the calculation, and a table of comparison with other warrants in the preceding year that took the same listed security as the underlying security.
(6) Detailed information on the guarantor and the guaranty agreement or collateral.
(7) Procedures for exercising the option and the terms for cancellation of already-exercised call (put) warrants.
(8) Strategies for offsetting foreseeable risks.
(9) The policy of the issuer regarding adjustment of the strike price of the call (put) warrant and related items along with the distribution of dividends and bonuses, increases or decreases in capitalization, stock splits or consolidations, and handling of other related matters by the issuing company of the underlying securities, or the distribution of Taiwan 50 Index exchange-traded fund dividends and handling of other matters by the securities investment trust enterprise. Where the issuer does not make such adjustments in accordance with the TSEC reference formula, that fact shall be noted in bold lettering in the issuance prospectus.
(10) Methods of handling merger by the company issuing the underlying securities, or alteration in the trading method, suspension of sale, or de-listing of the securities, or delisting when the securities investment trust enterprise of the underlying Taiwan 50 Index fund undergoes dissolution or bankruptcy, or its approval its revoked
(11) Methods of handling market listing of the call (put) warrants, or suspension of trading or de-listing of the warrants by the TSEC.
(12) Terms stipulating that upon expiration of the period of validity, where the market price of the underlying securities is higher than the strike price of a call warrant (or the strike price of a put warrant is higher than the market price of the underlying securities) and where there is value in the exercise of the option and the terms of exercise require cash settlement, the warrant holder shall be deemed to have exercised the warrant and to have given notice to that effect.
(13) Terms stipulating that the warrant issuer may not substitute another warrant with a period of validity longer than that of the original warrant, or any other security, for the originally issued warrant.
(14) Procedures for delivery and payment when the warrant holder exercises the option.
(15) Terms stipulating that where settlement after exercise of the option referred to in the preceding paragraph shall be in cash, the cash settlement amount shall be calculated based on the closing price of the underlying securities on the exercise date.
(16) Terms stipulating the methods for handling distribution of securities centrally deposited in the Taiwan Depository and Clearing Corporation account where the issuer fails to perform its delivery of the underlying securities or the cash price differential within the prescribed time period.
(17) Clarification of whether or not there are plans for a reverse issue of call (put) warrants against the same underlying securities within the coming three months.
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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, Taiwan Mid-Cap 100 Index, or Taiwan Technology 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. When the total of the currently listed, OTC-listed, and OTC contract-based call (put) warrants issued domestically by the issuer whose term of validity has not yet expired, and the call (put) warrants issued overseas 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 Rules 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 Rules 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 Rules.
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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 issue of domestic call (put) warrants and offshore call (put) warrants for which the underlying security is a domestic security. 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 hedge 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 for hedging purpose and in call (put) warrants issued by the issuer itself. In addition, the securities in the segregated hedging account without exception may not be pledged.
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Article 16
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The financial instruments employed by the issuer in warrant hedging shall be relevant securities or financial derivatives with the same underlying securities.
An issuer's hedge positions in any domestically listed call (put) warrants, contract-based call (put) warrants, structured instruments, equity derivatives, or offshore call (put) warrants with the same underlying securities may be mutually offset.
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Article 18
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During the period of validity for listed warrants, the issuer shall input hedging information to the TSEC-designated information reporting website daily regarding estimated hedging positions and actual hedging positions. Where the issuer uses entrusted external hedging, it shall also report hedging information on the risk management institution in accordance with regulations.
Where the issuer's estimates of hedging positions differ from actual hedging positions by more than a 20% positive or negative value for three consecutive business days or for any three business days during any recent period of six business days, the TSEC shall request an explanation from the issuer and may perform an on-site investigation. Should the TSEC find the issuer's explanation unreasonable, it may give the issuer a demerit point; an issuer may be barred from applying to issue warrants for a one-month period after accumulating three demerit points. For any positive or negative discrepancy between estimated and actual open positions greater than 50%, the TSEC may require mandatory implementation of risk-offsetting strategies by the issuer.
Where the issuer is a foreign institution, and its reporting on hedge positions in accordance with the first paragraph shows actual hedge positions to be less than the estimated hedge positions, the issuer shall place an amount in its special hedge account equal to the market value of the underlying securities represented by the discrepancy between the open positions and the issuer's estimate.
The provisions of each paragraph of this Article apply mutatis mutandis to an issuer that issues offshore call (put) warrants with a domestic security as underlying for hedging purposes.
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