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Taiwan Stock Exchange Corporation Rules Governing Review of Call (Put) Warrant Listings(2008.12.31) |
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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 Rules 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 Rules 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. The latest financial report, audited and attested or reviewed by a CPA, fails to conform with the standards of Article 4, paragraph 2, subparagraphs 1 and 2, provided that this shall not apply where there is non-conformance with the standards of 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 issuer's financial and business condition, the status of the underlying securities or the underlying index, 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 Rules 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 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 10 million to 50 million issuance units. An issuance unit for non-index warrants shall represent one share (one unit) or a basket of single shares, or every 2 issuance units shall represent one share (one unit) or a basket of single shares, or every 5 issuance units shall represent one share (one unit) or a basket of single shares, or every 10 issuance units shall represent one share (one unit) or a basket of single shares, or every 100 issuance units shall represent one share (one 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 unit) or a basket of single shares. For index warrants, the issuer will determine the index points represented by each issuance unit; one index point corresponds to NT$1.
2. Period of validity: Calculated from the date of listing, the period of validity shall be between six months and two years, inclusive.
3. Restriction on total issuance volume of the underlying represented by a warrant: (1) When the underlying security is a stock, 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. Where the issuer and any of its overseas subsidiaries (whose warrant issuing operations are guaranteed or secured by the mother company) issue offshore call (put) warrants, 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:
(i.) The total percentage of shares held by directors and supervisors under statutory shareholding ratio requirements.
(ii.) Already pledged securities.
(iii.) The number of centrally deposited shares mandatory for newly listed companies.
(iv.) Shares already repurchased under the Rules Governing Share Repurchase by Listed and OTC Companies and not yet cancelled.
(v.) Shares with restrictions on listing or trading imposed by the competent authority.
(2) When the underlying security is the certificates of beneficial interest of an ETF announced by the TSEC, 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 beneficial interest units already issued by the fund, provided that this shall not affect the validity of any call (put) warrants already issued.
(3) When the underlying security is Taiwan Depository Receipts, the total number of units of the underlying that may be called (or put) through the call (put) warrants and the units of the same underlying represented by other existing call (put) warrants already listed on the TSEC may not exceed 22 percent of the already listed units of the receipts.
4. When the underlying security is an ETF announced by the TSEC, consent shall be obtained from the institution creating the fund's underlying index.
5. 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 index, security, or basket of securities (when the underlying securities of the warrants issued are stocks, 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 or exercise index level, exercise period and number of shares, beneficial units, depository receipt units, or index points represented per issuance unit; conditions regarding upper and lower price caps or index levels 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 or the closing level of the underlying index reaches the exercise index level, 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 or the closing level of the underlying index on the last day of trading, shall be set out in a prominent typeface). For a call warrant, the strike price or exercise index level referred to may not exceed 150% of the underlying security's price or the closing level of the underlying index 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 or the closing level of the underlying index 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 or underlying index, the strike price or exercise index level, 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 with the same listed security or index as the underlying security.
(6) Detailed information on the guarantor and the guaranty agreement or collateral.
(7) Items that must be included in the issuance plan in accordance with Article 8 of the Taiwan Stock Exchange Corporation Directions for Call (Put) Warrant Liquidity Provider Operations.
(8) Procedures for exercising the option and the terms for cancellation of already-exercised call (put) warrants.
(9) Strategies for offsetting foreseeable risks.
(10) 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.
(11) 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
(12) Methods of handling market listing of the call (put) warrants, or suspension of trading or de-listing of the warrants by the TSEC.
(13) Terms stipulating that upon expiration of the period of validity, where the market price of the underlying securities or the closing level of the underlying index is higher than the strike price or the exercise index level of a call warrant (or the strike price or exercise index level of a put warrant is higher than the market price of the underlying securities or the closing level of the underlying index) 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.
(14) 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.
(15) Procedures for delivery and payment when the warrant holder exercises the option.
(16) 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 or the closing level of the underlying index on the exercise date.
(17) 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.
(18) Clarification of whether or not there are plans for a reverse issue of call (put) warrants against the same underlying securities or underlying index within the coming three months.
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Article 11
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For applications for TSEC approval for listing of call (put) warrants, when the underlying securities are stocks, they shall conform to each of the following conditions:
1. Market value of underlying security: NT$10 billion or more.
2. The volume of shares traded during the most recent three calendar months shall account for 20% of the total of outstanding shares, or the average monthly volume of shares traded in the most recent three months shall reach 100 million shares or more.
3. The financial report for the most recent period, certified or audited by a certified public accountant, shall show no losses, or shall show no accumulated deficit if losses exist.
Conformance of underlying securities with the standards of the preceding paragraph shall be based on quarterly TSEC announcements, provided that if during the period for announcement the financial report required under Article 36 of the Securities and Exchange Law does not conform with Subparagraph 3 of the preceding paragraph, the TSEC will announce cancellation of the given security's qualification as the underlying of a call (put) warrant.
In applications to the TSEC for approval for listing of call (put) warrants, 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.
When the underlying security in an application for TSEC approval for listing of call (put) warrants is Taiwan Depository receipts, each of the following conditions must be met:
1. 100 million units or more must be listed.
2. The ratio of the number units transacted during each the preceding three months to the number of units listed must be 20 percent or more.
Applications with the TSEC for approval for listing of call (put) warrants whose underlying security is beneficial interest certificates or an index shall be limited to ETFs or indexes announced by the TSEC.
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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 an ETF announced by the TSEC may be exempt from the provisions of this subparagraph.
5. The issuer's CPA audited and attested or CPA reviewed financial report for the most recent period is not in compliance with the standards of Article 4, paragraph 2, subparagraphs 1 and 2, provided that this shall not apply where there is non-conformance with the standards of Article 4, paragraph 2, subparagraph 1, but the measures provided in Article 5 are followed.
6. When the combined total of the issue price 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, and the projected issue of call (put) warrants, together with the amount of the guarantee or the assets provided as collateral for the overseas subsidiary's offshore call (put) warrant issuing business 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 combined total 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 combined total 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 combined total 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 combined total 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 combined total 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 19
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The issuer shall supply a liquidity provision mechanism for the warrants it issues, either by acting as the liquidity provider itself or by engaging other liquidity providers. Directions for the operations of liquidity providers will be separately adopted by the TSEC.
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