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Regulations Governing Securities Firms(2008.12.23) |
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Article 2
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A securities firm shall, according to the Criteria Governing Internal Control Systems of Services Enterprises in the Securities and Futures Market set by the Financial Supervisory Commission, Executive Yuan (the “Commission”), and other securities firm internal control regulations set by the Taiwan Stock Exchange Corporation (hereinafter referred to as "the Stock Exchange"), and other securities-related institutions, establish its own internal control system.
The operation of securities firm shall be in accordance with laws and regulations, articles of incorporation, and the internal control system referred to in the preceding Paragraph.
Any amendments to be made to the internal control system referred to in Paragraph 1 per the notice of the Commission or a securities-related institution shall be made within the specified time limit.
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Article 19-6
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Derivative financial product trading business operated by a securities firm may not be linked to any of the below-listed underlyings, unless it is in trading with a qualified institutional investor and an application has been made under Article 19-7:
1. Securities privately placed domestically or abroad.
2. Securities issued overseas by domestic enterprises or certificates of beneficial interest issued overseas by domestic securities investment trust enterprises.
3. Any Taiwan stock index compiled by a domestic or foreign institution and related financial commodities, provided that this restriction shall not apply to an index compiled by the GTSM or the Taiwan Stock Exchange Corporation, either singly or in cooperation.
4. Any product involving or subject to the Act Governing Relations Between Peoples of the Taiwan Area and the Mainland Area or an act or regulation adopted under that Act.
5. Any foreign exchange product involving a requirement of approval by the Central Bank.
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Article 40
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A securities firm accepting orders to trade securities shall not place the securities deposited by the customers under its custody. It shall deliver such securities to the centralized securities depository on the same day; provided that the securities firms which are located in areas other than Taipei City and Taipei County may deliver the securities for centralized custody on the following business day.
The provisions in the preceding Paragraph shall also apply to any of the following conditions:
1. Where a customer that indicates when placing a buy order that he/she will withdraw the securities for his/her own custody fails to do so on the day on which the securities firm is to deliver the securities;
2. Where a customer places a sell order but no transaction is consummated, and the securities have been previously delivered to the securities firm but not been claimed;
3. Where a customer engages the securities firm to deliver the securities to the centralized depository for custody; or
4. Where a customer engages the securities firm to withdraw securities deposited in the centralized depository but fails to take delivery as scheduled.
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Article 59
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A securities firm, unless concurrently operated by a financial institution and subject to other acts or regulations, shall maintain an appropriate ratio between its regulatory capital and its overall risk equivalent, except as approved by the Commission.
The appropriate ratio referred to in the preceding paragraph is called the regulatory capital adequacy ratio and its calculation method is the net amount of eligible regulatory capital divided by the overall risk equivalent.
For those foreign securities firms having Taiwan branches, if their home-country head office have already calculated their regulatory capital adequacy ratio under their local laws with the overall risk of their Taiwan branch office already entered into the calculation, and have met the standard, they may send those documents and information relating to the said regulatory capital adequacy ratio which have met the standard to the Commission to apply for a waiver of application of the provisions in this Chapter. However, unless specifically approved by the Commission, a monthly report on the head offices' regulatory capital adequacy ratio shall still be reported according to Paragraph 3 of Article 21.
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Article 59-1
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The calculation of the net amount of eligible regulatory capital and the overall risk equivalent of the regulatory capital adequacy ratio as referred to in paragraph 2 of the preceding article is categorized into a simple calculation method and an advanced calculation method.
The securities firms to which the advanced calculation method for the regulatory capital adequacy ratio under the preceding paragraph applies, and the implementation date, shall be prescribed by the FSC.
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Article 60
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The net amount of eligible regulatory capital referred to in the simple calculation of the regulatory capital adequacy ratio is the balance of the sum total of the Tier 1 capital and Tier 2 capital items as set out below minus the following items on the balance sheet: financial assets reported at fair value with changes in fair value included in "profit or loss - noncurrent, available-for-sale financial assets - current and noncurrent, held-to-maturity financial assets - current and noncurrent, bond portfolios that include no active market bonds - current and noncurrent, prepayments, special funds, long-term equity investments under equity method, long-term equity investments held for disposal, fixed assets, intangible assets, operating bonds, clearing and settlement funds, refundable deposits, deferred debits, assets leased to others, idle assets, deferred income tax assets - noncurrent, restricted assets - noncurrent:
1. Tier 1 capital: the total of capital stock (common stock, perpetual non-cumulative preferred stock), capital reserve, retained earnings or accumulated losses, unrealized losses on financial products, accumulated translation adjustment, treasury stock, net loss not recognized as pension cost, and the profit/loss of the current year up to the current month.
2. Tier 2 capital: the total of capital stock (perpetual cumulative preferred stock), trading loss reserve, default reserve, unrealized gains on financial products.
Deduction amounts for deductible assets under the preceding paragraph shall be prescribed by the Commission.
Where the amount of Tier 2 capital exceeds that of Tier 1 capital, calculation shall be based on the amount of Tier I capital.
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Article 61
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The overall risk equivalent referred to in the simple calculation of the regulatory capital adequacy ratio is the overall risk equivalent for each category as calculated by securities firms according to the following calculation methods:
1. Market risk: refers to risks of on-balance-sheet and off-balance-sheet positions arising from pricing changes; which means the equivalent price fluctuation risk amount derived by multiplying the fair value of the above described positions by certain risk coefficients.
2. Credit risk: refers to risks arising from counterparties to transactions; this is calculated by referring to those transactions within the business scope of the securities firm for which there is a possibility that counterparties will not perform their obligations, and based upon each different type of counterparty and transaction method. After calculating those factors separately, the total added sum is the risk equivalent.
3. Operational risk: refers to risks arising from carrying out business operations; this is calculated by using the fiscal year to which the date of calculation belongs as the referenced point and according to 25% of the operation cost for the fiscal year preceding the reference points, in order to calculate the equivalent risk amount.
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Article 62
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The risk coefficients of on-balance-sheet and off-balance-sheet positions and the relevant risk coefficients of credit risk and their calculation methods referred to in the preceding Article shall be handled according to the risk coefficient table used by securities firms for calculating their regulatory capital adequacy ratio.
The particulars and method of calculation of the risk coefficient table used by securities firms to calculate their regulatory capital adequacy under the preceding paragraph shall be prescribed by the Commission.
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Article 62-1
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Terms used in the advanced calculation method for the regulatory capital adequacy ratio are defined as follows:
1. Net amount of eligible regulatory capital: means the sum total of the Tier 1 capital, eligible Tier 2 capital, and eligible and employed Tier 3 capital.
2. Eligible Tier 2 capital: means the eligible Tier 2 capital that is available for use to cover credit risk, market risk, and operational risk.
3. Eligible and employed Tier 3 capital: means the Tier 3 capital that is actually employed to cover market risks.
4. Perpetual preferred stock: means preferred stock meeting any of the following criteria:
(1) No maturity date, and if there is any redemption clause, the redemption rights belong to the securities firm, and the stocks may not be redeemed until 5 years after the issuance date and subject to the FSC's approval.
(2) There is a stipulation for compulsory conversion into common stock.
5. Cumulative preferred stock: means preferred stock for which any missed dividend payments in a year in which the securities firm does not post a profit go into arrears and must be made up in a year when there is a profit.
6. Subordinated bonds: means bonds for which the bond holders' right to receive payment is ranked below that of investors and other ordinary creditors to whom the securities firm has settlement obligations for securities or funds deliverable or payable.
7. Overall risk equivalent: means the sum total of the credit risk equivalent, market risk equivalent, and operational risk equivalent, provided that the amount already deducted from the eligible regulatory capital is not included in the overall risk equivalent.
8. Credit risk equivalent: means the risk equivalent measuring the risk of losses to the securities firm arising from counterparty default. The measurement of such risk is expressed as the sum total of the securities firm's on-balance-sheet and off-balance-sheet transactions multiplied by the weighted risk coefficients.
9. Market risk equivalent: means the risk equivalent measuring the risk of losses on the securities firm's on-balance-sheet and off-balance-sheet transactions arising from fluctuation of market prices (interest rates, exchange rates, and stock prices).
10. Operational risk equivalent: means the risk equivalent measuring the risk of losses to the securities firm arising from inadequate or failed internal processes, people, and systems, or from external events.
11. Issue period: refers to the period from the issue date to the maturity date. If early redemption or repayment is permitted, the issue period shall be calculated based on the earliest available redemption or repayment date, provided that this rule does not apply where early redemption or repayment requires advance approval by the FSC.
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Article 62-2
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For the advanced calculation method for the regulatory capital adequacy ratio, the scope of Tier 1 capital is the sum total of common capital stock, subscribed common capital stock, perpetual non-cumulative preferred stock, non-cumulative subordinated bonds without a maturity date, capital reserve, retained earnings or accumulated deficit, unrealized loss from financial instruments, cumulative translation adjustments, treasury stock, net loss not recognized as pension cost, and cumulative profit/loss of the current year as of the end of the current month, minus the amount that shall be deducted from Tier 1 capital as required by the FSC.
Where perpetual non-cumulative preferred stock and non-cumulative subordinated bonds without a maturity date as referred to in the preceding paragraph are listed as Tier 1 capital, their sum total thereof may not exceed 15% of the sum total of the following amounts; the excess portion may be included in Tier 2 capital:
1. The Tier 1 capital as calculated pursuant to the preceding paragraph.
2. The amount of investments in other businesses deducted from Tier 1 capital.
For purposes in connection with Tier 1 capital, "perpetual non-cumulative preferred stock" and "non-cumulative subordinated bonds without a maturity date" shall meet the following requirements:
1. The entire amount of any given issue must be collected in full.
2. The securities firm or its affiliate enterprises have not provided any guarantees or collateral to advance the seniority ranking of the holders.
3. The order of seniority of holders of non-cumulative subordinated bonds without maturity dates is lower than that of holders of subordinated bonds included in Tier 2 capital and that of other ordinary creditors.
4. The securities firm may not pay interest on subordinated bonds if the securities firm had no earnings during the previous fiscal year and did not issue common stock dividends, provided that this restriction does not apply if the amount of undistributed earnings exceeds the interest payment, and the payment does not alter the originally stipulated conditions for interest payment.
5. If a securities firm's regulatory capital adequacy ratio is lower than the minimum required ratio of the time of issuance, and the securities firm fails to achieve compliance with the requirement within six months, all non-cumulative subordinated bonds without maturity dates must thereupon be converted in full to non-cumulative perpetual preferred stock; or else it shall be stipulated that prior to achieving the aforementioned minimum ratio, the payment of principal and interest shall be deferred, and that during the course of the securities firm's rehabilitation or liquidation the seniority ranking of the holders of such bonds without maturity dates shall be the same as that of non-cumulative perpetual preferred stock shareholders.
6. Ten years after issuance, if the calculation of the securities firm's regulatory capital adequacy ratio after redemption meets the minimum ratio requirement of the time of issuance, and the FSC grants its approval, early redemption is permitted. For any not redeemed early, the securities firm may increase, one time, the stipulated interest rate thereupon. The maximum limit of this increase shall be one percentage point annual interest rate or 50 percent of the additional point margin stipulated for the interest rate in the original contract.
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Article 62-3
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For the advanced calculation method for the regulatory capital adequacy ratio, the scope of Tier 2 capital is the sum total of perpetual cumulative preferred stock, cumulative subordinated bonds without maturity dates, trading loss reserve, default loss reserve, 45% of the unrealized gains from financial instruments, convertible bonds, long-term subordinated bonds, and non-perpetual preferred stock, minus the amount that shall be deducted from Tier 2 capital as required by the FSC.
For purposes in connection with Tier 2 capital, "perpetual cumulative preferred stock," "cumulative subordinated bonds without maturity dates," and "convertible bonds" shall meet the following requirements:
1. The entire amount of any given issue must be collected in full.
2. The securities firm or its affiliate enterprises have not provided any guarantees or collateral to advance the seniority ranking of the holders.
3. When the securities firm's regulatory capital adequacy ratio is lower than the minimum ratio requirement of the time of issuance due to interest payment, the payment of dividends and interest shall be deferred, and no interest may further be accrued on the deferred dividends and interests.
4. If a securities firm's regulatory capital adequacy ratio is lower than the minimum ratio requirement of the time of issuance, and the deficit that needs to be covered exceeds the sum of legal reserve and capital reserve, and the securities firm fails to meet the requirement within a period of six months, all cumulative subordinated bonds without maturity dates and convertible bonds must be converted in full to cumulative perpetual preferred stock; or else it shall be stipulated that at any time when the aforementioned minimum ratio has not yet been met or the deficit to be covered still exceeds the sum of legal reserve and capital reserve, the payment of principal and interest shall be deferred, and that during the course of the securities firm's rehabilitation or liquidation, the seniority ranking of the holders of such bonds shall be the same as that of cumulative perpetual preferred stock shareholders.
5. Five years after issuance, if the calculation of the securities firm's regulatory capital adequacy ratio after redemption meets the minimum ratio requirement of the time of issuance and the FSC grants its approval, early redemption is permitted. For any not redeemed early, the securities firm may increase, once, the stipulated interest rate thereupon. The maximum limit of this increase shall be one percentage point annual interest rate or 50 percent of the additional point margin stipulated for the interest rate in the original contract.
6. The convertible bonds are subordinated bonds with an issue period of less than 10 years.
7. The convertibles bonds shall be converted to common stock or perpetual preferred stock on the maturity date, and before the maturity date may be converted only to common stock or perpetual preferred stock; any other conversion method shall require approval by the FSC.
If any long-term subordinated bonds or non-perpetual preferred stock as referred to in paragraph 1 are listed in Tier 2 capital, the sum total thereof shall not exceed 50% of Tier 1 capital, and shall meet the following requirements:
1. The entire amount of any given issue must be collected in full.
2. The securities firm or its affiliate enterprises have not provided any guarantees or collateral to advance the seniority ranking of the holders.
3. The issue period is 5 years or longer.
4. The amount included in the calculation of the eligible regulatory capital must decrease progressively by at least 20 percent each year during the final 5 years of the issue period.
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Article 62-4
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For the advanced calculation method for the regulatory capital adequacy ratio, the scope of Tier 3 capital is of the sum total of short-term subordinated bonds and non-perpetual preferred stock.
For purposes in connection with Tier 3 capital, "short-term subordinated bonds" and "non-perpetual preferred stock" shall meet the following requirements:
1. The entire amount of any given issue must be collected in full.
2. The securities firm or its affiliate enterprises have not provided any guarantees or collateral to advance the seniority ranking of the holders.
3. The issue period is 2 years or longer.
4. Repayment may not be made before the stipulated repayment date, provided that this rule does not apply if the FSC has granted its approval.
5. When the securities firm's regulatory capital adequacy ratio is lower than the minimum ratio requirement of the time of issuance due to interest or principal payment, the payment of dividends, interest, and principal shall be deferred.
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Article 62-5
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If any circumstance listed below exists in connection with common stock, preferred stock, or subordinated bonds issued by a securities firm, when calculating the regulatory capital adequacy ratio and the regulatory capital by the advanced calculation method, the securities firm shall be deemed to have not issued such capital instruments:
1. The securities firm, at the time of issuance or after issuance, provides funds to holders of such capital instruments, thus impairing the substantive benefits of using them as capital instruments, and the FSC requests that such capital instruments be deducted from the capital.
2. A subsidiary of the financial holding company to which the securities firm belongs holds such capital instruments.
If capital instruments issued by the securities firm are funded and invested by the securities firm's parent financial holding company with external capital, the securities firm shall determine the capital type based upon the lower of the capital instruments issued by the securities firm and the capital instruments issued by the parent company.
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Article 62-6
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In the advanced calculation method for the regulatory capital adequacy ratio, the net amount of eligible regulatory capital is the sum total of Tier 1 capital, eligible Tier 2 capital, and eligible and employed Tier 3 capital, provided that the sum of eligible Tier 2 capital and eligible and employed Tier 3 capital shall not exceed Tier 1 capital.
The eligible Tier 2 capital and eligible and employed Tier 3 capital as referred to in the preceding paragraph shall meet the following requirements:
1. The capital required to cover credit risk and operational risk is limited to Tier 1 capital and Tier 2 capital only, and the Tier 2 capital employed may not exceed the Tier 1 capital used to cover credit risk and operational risk.
2. The capital used to cover market risk shall meet the following requirements:
(1) The capital used to cover market risk must include Tier 1 capital. The remainder of the Tier 2 capital after being used to cover credit risk and operational risk may be used to cover market risk.
(2) Tier 3 capital may be used only to cover market risk. When Tier 2 capital and Tier 3 capital are used to cover market risk, the sum total of these two shall not exceed 250% of the Tier 1 capital used to cover market risk.
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Article 62-7
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The calculation of the credit risk, market risk, and operational risk equivalents under the advanced calculation method for the regulatory capital adequacy ratio shall be done in accordance with the calculation method for the securities firm's regulatory capital and risk equivalent.
The calculation method for the securities firm's regulatory capital and risk equivalent referred to in the preceding paragraph shall be prescribed by the FSC.
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Article 63
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Securities firms, other than those concurrently operating financial institutions and foreign securities firms who have Commission approval for waiver of this Chapter's regulations, shall fill out the Itemized Statement of the Regulatory Capital Adequacy of the Securities Firm monthly in accordance with the applicable calculation method, and by the 10th of the next month, report it according to the method prescribed in Paragraph 3 of Article 21. When necessary, the Commission shall require securities firms to file reports at any time.
The format of the Itemized Statement of the Regulatory Capital Adequacy of the Securities Firm referred to in the preceding paragraph shall be prescribed by the Commission.
In addition to disclosing capital adequacy information of the securities firm pursuant to the requirements of the FSC, the Taiwan Stock Exchange, or other relevant institutions, a securities firm shall disclose the most recent regulatory capital adequacy ratio information in the annual report.
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