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Taipei Exchange Regulations Governing Over-the-Counter Trading of Financial Derivatives by Securities Firms(2015.10.16) |
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Article 6
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"Professional customer," as used in these Regulations, means a juristic person or natural person that meets any of the following conditions:
- A professional institutional investor: means a foreign or domestic bank, insurance company, bills finance company, securities firm, fund management company, government investment institution, government fund, pension fund, mutual fund, unit trust, securities investment trust company, securities investment consulting company, trust enterprise, futures commission merchant, futures service enterprise, or other institution approved by the competent authority.
- A high net worth juristic person investor: means a juristic person that has applied to the securities firm in writing, and that concurrently meets all of the following conditions.
- Net worth exceeds NT$20 billion according to its latest CPA-audited or reviewed financial report; however, the financial reports of juristic persons outside of the Republic of China need not be CPA-audited or reviewed.
- Has a dedicated investment unit, staffed by capable professionals and the person in charge of the unit meets one of the following conditions.：
- Has 3 years or more of work experience engaging in financial product investment business at a financial, securities, futures, or insurance institution.
- Has 4 years or more of work experience related to financial product investment.
- Possesses other academic or professional qualifications or experience sufficient to show that he or she has professional knowledge and management experience in financial product investment, and can soundly and effectively manage the business of an investment department.
- Holds securities position or derivatives product portfolios reaching NT$1 billion according to its latest CPA-audited or reviewed financial report; however, the financial reports of juristic persons outside of the Republic of China need not be CPA-audited or reviewed.
- Has an internal control system with suitable investment procedures and risk management measures.
- A juristic person or fund whose CPA-audited or reviewed financial report for the most recent period shows total assets in excess of NT$50 million; however, the financial reports of juristic persons outside of the Republic of China need not be CPA-audited or reviewed.
- A natural person that meets each of the three following conditions and has applied in writing with the securities firm for the status of professional customer:
- Proof of financial resources of NT$30 million or more; or, a single trade in excess of NT$3 million combined with total investment assets at the given securities firm in excess of NT$15 million, along with provision of a statement of financial resources showing total assets of NT$30 million or more.
- Possession of adequate professional knowledge or trading experience with respect to financial products.
- Complete awareness that the securities firm may be exempted from liability for financial derivatives trades undertaken with a professional customer, and consent to sign for trades as a professional customer.
- A trust enterprise entering into a trust agreement, the trustor of which meets the conditions of subparagraph 2, 3, or 4.
The securities firm shall carry out to the full its responsibility to make a reasonable investigation of the qualifications required of a professional customer under each subparagraph of the preceding paragraph, and shall obtain reasonable and reliable supporting evidence from the customer.
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Article 15
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A securities firm providing financial derivatives trading services to a professional institutional investor or high net worth juristic person investor shall enter into an ISDA Master Agreement with the trading counterparty, or be subject to other standard agreements and market practices. If the financial derivative product contract that a securities firm enters into with a customer other than a professional institutional investor or high net worth juristic person investor, and the trading documents so furnished, including the master agreement (or ISDA Master Agreement), product prospectus, risk disclosure statement, and trade confirmation document, are in the English language, the securities firm shall provide a Chinese-language translation thereof.
When the trading counterparty of the preceding paragraph is a natural person, the written contract shall stipulate agreement that the competent authority and the TPEx may collect, process, and use the person's personal data.
When a securities firm enters into a contract with a customer other than a professional institutional investor or high net worth juristic person investor, 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.
The financial derivative product contract that a securities firm enters into with the counterparty may stipulate the method for determining the amount payable for settlement in the event of early termination of a trade, which shall reflect and calculate the current market value of the trade, including the value that originally would be paid under the early-terminated trade upon expiration after the early termination date.
The conditions for early termination of a trade and the method for determining the amount payable for settlement in the event of early termination, as referred to in the preceding paragraph, shall be clearly specified in relevant contracts or otherwise fully disclosed to the counterparty.
The contracts entered into between a securities firm and its customers, and other written documents required for the provision of financial derivative services to customers, may be made in the form of electronic documents as defined in the Electronic Signatures Act.
The execution, signing, or signing as confirmation, specified in these Regulations may be done by electronic signature, digital signature, or other means agreed upon between the parties.
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Article 19
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A securities firm that provides financial derivatives trading services to customers shall do so with the due care of a good administrator, in accordance with fiduciary obligations, and based on the principle of good faith.
When a securities firm undertakes a financial derivatives trade with a customer other than a professional institutional investor or high net worth juristic person investor, it shall not encourage or induce the customer to conduct trades through borrowing funds or debt financing, and shall establish a system for protection of customer rights and interests based on product suitability, notification and disclosure of product risks, and handling of trading disputes. Trades shall be carried out in accordance with the operating procedures set out under that system.
When a securities firm provides financial derivatives trading services to a customer that is not a professional institutional investor, the securities firm shall establish a product suitability system, which shall at the least include a set of know-your-customer assessment procedures, customer characteristic assessments, and product characteristic assessments in order to clearly ascertain the customer's investment experience, the status of the customer's assets, the customer's trading objectives, the customer's understanding of the product, and the suitability of the product for trading by the customer.
A securities firm may not provide an ordinary customer with financial derivatives trading services that exceed the level appropriate to the customer, nor may it sell to an ordinary customer any financial derivative product that is restricted to investment by professional customers or that is a complex high risk product. This restriction, however, does not apply to trades of financial derivatives other than structured instruments that an ordinary customer enters into with a securities firm for hedging purposes.
A securities firm entering into trading of any complex high-risk product with a customer other than a professional institutional investor or high net worth juristic person investor shall fully explain to the customer the important content of the financial derivative products and related services and contracts, including the important parts of the transaction terms and conditions, and shall disclose associated risks. Unless the transaction is made in an automated manner other than in person or the customer disagrees, a record of the above explanation and disclosure shall be retained by audio or video recording.
"Complex high-risk product" in these Regulations means a financial derivative that has more than three settlement or price comparison periods, and that contains an embedded put option, but excluding the following
- Structured instruments.
- Swaps.
- A series of plain vanilla options or forward exchange transactions under a single signing of a contract for multiple transactions, of which the customer may rescind a specific number of the transactions at any time.
- Other types of products as approved by the competent authority.
With respect to a securities firm conducting the business of financial derivatives trades, the compliance requirements, such as product suitability, product risk notification and disclosure, method of audio or video recording, and the types of financial derivatives that may be provided to an ordinary customer who is a natural person, will be prescribed by the TPEx, and will be publicly announced after submission to and approval by the competent authority.
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Article 42
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A securities firm undertaking a financial derivatives transaction with a customer other than a professional institutional investor or high net worth juristic person investor shall in the risk disclosure statement or individual trade confirmation indicate by a conspicuous typeface or other 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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