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GreTai Securities Market Regulations Governing Over-the-Counter Trading of Financial Derivatives by Securities Firms(2012.04.06) |
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Article 5
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"Financial derivatives," as used in these Regulations, means forward contracts, options contracts, or swaps, or combinations of two or more of the above, or hybrid contracts that also include fixed-income products, whose value, in conformity with regulations or common practice on domestic or foreign OTC markets, is derived from stocks, interest rates, currencies, indexes, commodities, credit, or other interests.
Except where otherwise provided in these Regulations, the financial derivatives of the preceding paragraph may not be linked to any of the following underlying products:
- Securities privately placed domestically or abroad.
- Securities issued overseas by domestic enterprises or certificates of beneficial interest issued overseas by domestic securities investment trust enterprises.
- 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.
- Any of the following commodities or contracts related to the mainland China area:
- Securities of mainland China securities markets.
- Securities issued or traded by a government, enterprise, or institution of the mainland China area.
- Mainland China area stock indexes or stock index futures.
- Interest rate indexes related to the mainland China bond or currency market.
Any financial derivative business conducted by a securities firm that involves foreign exchange business shall be subject to approval by the Central Bank.
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Article 15
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Except where these Regulations provide otherwise, a securities firm that enters into a financial derivatives trade with a counterparty shall execute a written contract with that counterparty stipulating the rights and obligations of both parties. The securities firm shall separately confirm the conditions applicable to each individual trade with the trading counterparty.
When the trading counterparty of the preceding paragraph is a natural person, the written contract shall stipulate agreement that the competent authority and the GTSM may collect, process, and use the person's personal data.
When a securities firm enters into a contract with an ordinary customer, it may proceed only after meeting the requirement that an appropriate unit or personnel review the contract signing procedures and the completeness of the information provided by the customer.
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Article 15-1
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When entering into a financial derivatives trade with an ordinary customer, a securities firm shall fully specify in the written contract the important content of the trade and disclose the risks, and shall comply with the following requirements:
- It shall adhere to the principle of good faith, and shall use a method that the customer is capable of fully understanding.
- All information or data in all explanations or disclosures must be accurate. All statements or diagrams shall be fairly presented, and there may not be any falsehood, fraud, concealment, or anything that otherwise could be misleading. The aforesaid information or data shall be dated.
- The language used in sales documents shall be Chinese, and every effort shall be made to ensure that it is clear and easy to understand. When necessary, the original language text may be appended in notes.
- All sales documents must use printed page numbers or another appropriate method to enable customers to confirm whether they have received complete information.
When a securities firm specifies important content and discloses risks to the customer pursuant to the preceding paragraph, it shall retain the relevant materials on file, and incorporate them into the securities firm's internal control and auditing systems for management.
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Article 15-2
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The "important content" in the preceding article is as follows:
- The method for and restrictions on the exercise, amendment, rescission, and termination of the rights of the customer with respect to the financial derivatives trade.
- The important rights, obligations, and duties of the securities firm with respect to the financial derivatives trade.
- The fees and financial penalties the customer is required to bear, including the times at which they are to be collected and the method of their calculation and collection.
- Whether the financial derivatives trade is protected by deposit insurance, an insurance stabilization fund, or other relevant safeguard mechanisms.
- Channels for resolution and complaints/appeals for disputes arising in connection with financial derivatives trades provided by the securities firm.
- Other matters required to be reported regularly or from time to time, and other matters required to be specified, in connection with any of the financial derivatives trades pursuant to laws and regulations.
The important content of the preceding paragraph shall be expressed in the written contract by a conspicuous typeface or method.
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Article 15-3
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When entering into a financial derivatives trade with an ordinary customer, a securities firm shall specify in the written contract whether the dispute resolution procedures of the Financial Consumer Protection Act shall apply in the event of a financial consumer dispute.
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Article 54
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A securities firm that undertakes a financial derivatives transaction with a trading counterparty shall provide the counterparty with a risk disclosure statement, and in that statement, or in individual trade confirmations, it shall indicate by a conspicuous typeface or method the maximum possible loss or principal protection percentage, along with a description of the major risks involved, such as liquidity risk, foreign exchange risk, interest rate risk, tax risk, and cancellation risk.
If the "maximum possible loss" and the foreign exchange risk involved in the product under the preceding paragraph cannot be expressed in numerical quantities, they may be expressed in words.
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Article 64
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When any of the following circumstances applies to a securities firm, the GTSM may notify it to take supplementary or corrective action within a prescribed time period:
- Violation of Article 5-1, Article 5-2, Articles 15 through 20, Articles 22 through 34, Article 38, Articles 40 through 43-1, Article 45, the portion of Article 46 requiring the mutatis mutandis application of Articles 34 and 38, Articles 47 through 50, Article 53, Article 53, or Article 56.
- Execution of financial derivatives trades not in conformance with the relevant portions of the securities firm's application or filing.
- A regulatory capital adequacy ratio less than 200 percent.
- Execution of trades not in conformance with the securities firm's "procedures for handling financial derivatives transactions" or its internal control or auditing systems.
- Violation of the applicable provisions of other GTSM Regulations, regulations, operating procedures, guidelines, directions, supplementary Regulations, public announcements, or circulars.
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