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GreTai Securities Market Rules Governing Over-the-Counter Trading of Financial Derivatives by Securities Firms(2008.09.05) |
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Article 16
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The securities firm shall formulate a set of thorough know-your-customer assessment procedures for natural-person customers in order to ascertain the suitability of the sale of a given product and the customer's investment attributes, understanding of risk, and degree of risk tolerance.
When a securities firm undertakes a financial derivatives trade, it shall not encourage or induce the trading counterparty to conduct trades through borrowing funds or debt financing, and shall limit the amount of each trade based on the counterparty's financial condition, cash management status, and degree of professional expertise, or it may request the provision of collateral.
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Article 20
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A securities firm that undertakes a bond derivatives transaction that has an underlying of foreign bonds and is denominated and settled in New Taiwan Dollars or foreign exchange shall do so only with a high net-worth individual that meets the requirements for wealth management transactions as set out by the securities firm.
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Article 24
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A securities firm that undertakes an interest rate derivatives transaction with a foreign currency interest rate product as its underlying and denominated and settled in New Taiwan Dollars or in foreign exchange shall do so only with a high net-worth individual that meets the requirements for wealth management transactions as set out by the securities firm.
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Article 29
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As used in these Rules, "structured instrument" means a hybrid contract combining features of fixed-income and financial derivatives products.
The scope of eligible linked underlying assets of structured instruments is given in Appendix 3.
The duration of a structured product transaction, from the initial transaction date to the date the contract matures, shall be a maximum of 10 years.
Where the structured instruments sold by a securities firm are linked to the publicly offered certificates of beneficial interest of a securities investment trust fund, consent from the securities investment trust enterprise (SITE) shall be obtained prior to the sale. When the sales staff recommend or sell products to investors, relevant documents involving description of the fund shall comply with the Code of Conduct for Members of the Securities Investment Trust and Consulting Association of the ROC and Their Sub-distributors Governing the Advertising and Business Activities of Securities Investment Consulting Enterprises. An explanation shall be given to non-institutional investors that these products are not funds.
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Article 31
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When a securities firm undertakes transactions in structured instruments linked to foreign financial products and denominated in New Taiwan Dollars, the contracts shall clearly state that matters connected with foreign exchange settlement are to be carried out in accordance with the Regulations Governing the Declaration of Foreign Exchange Receipts and Disbursements or Transactions.
When a securities firm undertakes structured instrument transactions and a dispute arises in the course of trade, it shall handle the matter promptly in accordance with the business dispute resolution procedures provided by its internal control system.
When a securities firm enters into structured instrument transactions with customers, it shall establish an after-sale product information disclosure system. The content, frequency, and method of disclosure shall be stipulated between the securities firm and the customer; the content of disclosures shall include market prices, price quote information for early cancellation of structured instrument transactions, and profit and loss status.
When structured instruments with the same transaction terms and conditions are sold to ten or more parties, the securities firm shall disclose on its website relevant market price information or price quote information for early cancellation, and shall also disclose relevant information through the GreTai information system.
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Article 43
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When the trading counterparty of a securities firm is the writer of an equity option or a person engaged in the business of equity derivatives denominated in foreign currencies or linked to foreign underlying securities, the counterparty must be a high net-worth individual that meets the requirements for wealth management transactions as set out by the securities firm.
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Article 49
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When the trading counterparty of the securities firm is the credit protection seller, that trading counterparty must be a high net-worth individual that meets the requirements for wealth management transactions as set out by the securities firm.
The securities firm shall assess the capacity and the appropriateness of the trading counterparty of the preceding paragraph for the credit derivative transaction, and at minimum shall inform the counterparty of the following matters:
1. The trading counterparty shall itself assess and monitor the credit risk of the credit entity under the management contract and the credit risk of the securities firm.
2. Returns on a credit derivative product derive primarily from bearing credit risk associated with the credit entity under the contract; losses may be incurred if a stipulated credit event occurs.
3. The securities firm shall provide a complete explanation defining the stipulated credit default event, the method of settlement to be used after the occurrence of a credit default event, the scope of debt obligations deliverable in the case of physical settlement, and the method of calculation for settlement of the spread in cash.
4. Credit derivative-related contracts typically lack market liquidity, and if such a contract contains a stipulation for early rescission, an explanation must be provided of the costs and the maximum possible loss that will be borne by the trading counterparty should the trading counterparty demand early rescission.
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Article 53
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A securities firm may not engage in financial derivatives trades related to Taiwan equities with any of the following parties:
1. A director, supervisor, or officer of the securities firm, or a shareholder that directly or indirectly holds 10 percent or more of its total shares.
2. A spouse, minor child, or nominee of any of the persons referred to in subparagraph 1.
3. Any investee company in which 10 percent or more of total shares are directly or indirectly held by any person referred to in the preceding two subparagraphs.
4. The issuer of the stocks underlying conversion securities, linked securities, or securities underlying equity derivatives, or any person related to the issuer as set out in the preceding 3 subparagraphs.
Calculation of the total shareholdings of the shareholders under subparagraph 1 above shall include shareholdings of spouses, minor children, and nominees of the persons under subparagraph 1.
Before a securities firm engages in a financial derivatives trade referred to in the preceding paragraph with a trading counterparty, the counterparty shall sign an undertaking stating that it is not a related party as set out in paragraph 1.
A securities firm may enter into trades with the qualified institutional investors of paragraph 1, subparagraphs 1 through 3, provided that the terms it accords those persons may not be more favorable than those accorded others in the same class of counterparties, and that the trades may be undertaken only after passage of a resolution by three-fourths or more of the company directors in attendance at a director's meeting with a two-thirds quorum, or after a resolution granting authorization to the relevant department.
The restrictions of paragraph 1, subparagraphs 1 through 3 do not apply when the price of a trade by a securities firm, with one individual non-institutional investor, is less than NT$1 million, or when the cumulative price of unexpired trades is less than NT$5 million.
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