||Operating Rules for Securities Business Money Lending by Securities Firms(2011.01.12)
In securities business money lending conducted by a securities firm, if the customer intends to post collateral in the form of securities that it is purchasing, the customer shall file an application by 11 a.m. on the second business day after the transaction date, and have the securities firm or custodian institution transfer the customer's purchased securities into the loan collateral account opened by the securities firm at the Taiwan Depository & Clearing Corporation (TDCC); the financing period shall be from the second business day after the transaction date to the fifth business day after the transaction date.
When the customer of the preceding paragraph submits the loan application by a method other than in person, it shall submit a written statement of consent for exemption from the use of a signature or seal on the loan application. If the securities firm has verified and kept that consent statement on file, it is not necessary for the customer to sign/seal the application.
When the customer applies to borrow money from a securities firm by personal telephone call, the securities firm shall make a synchronous recording of the call, which shall be kept at its place of business and retained for at least 2 months. In the event of any dispute, the recording shall be retained until the dispute has been eliminated.
The value of the collateral in paragraph 1 shall be confined to 100 percent to 125 percent of the monetary amount of the financing provided to the customer by the securities firm. The value of the collateral shall be calculated as the closing price of the business day preceding the financing date or as 80 percent of the face value of government strip bonds.
The closing price referred to in the preceding paragraph and in Articles 18, 24, and 25 shall be determined pursuant to Article 58-3, paragraph 3 of the TWSE Operating Rules and Article 35, paragraph 3 of the GreTai Securities Market Rules Governing Securities Trading on the GTSM.
When the customer files an application pursuant to paragraph 1 herein and is notified by the securities firm to post collateral in the form of TWSE or GTSM listed securities or government strip bonds that it holds, the application-related provisions of paragraph 1 shall apply mutatis mutandis.
When the customer makes partial repayment prior to the expiration of the financing period, the securities firm shall return to the customer on a proportional basis the securities it originally posted as collateral, provided that increments of less than one trading unit may not be returned.
When the customer has purchased securities for which suspension of margin purchases and short sale transactions has been announced, due to a resolution of the Surveillance Operations Oversight Committee of the TWSE or GTSM or due to other circumstances under which those transactions are inappropriate, then during the effective period of the disposition, that security may not be accepted as the additional financing collateral referred to in paragraph 1 above and in Article 16, paragraph 1.
In securities business money lending conducted by a securities firm, if the customer posts collateral in the form of securities that it holds, the financing calculation standards for the collateral provided by the customer shall be as listed below:
1. Common stock of TWSE-announced component companies of the Taiwan 50 Index, Taiwan Mid-Cap 100 Index, or Taiwan Technology Index; ETFs and common stock of their component companies, offshore ETFs; and common stock of MSCI Taiwan Index component companies announced by Morgan Stanley Capital International, shall be calculated at 60 percent of the closing price on the business day prior to the financing, excluding any portion of less than one trading unit.
2. Government strip bonds shall be calculated at 80 percent of their face value.
With respect to subparagraph 1 of the preceding paragraph and Article 13, paragraph 4, if there is no closing price of the business day preceding the financing date, it shall be replaced by the price determined by the principles set out in Article 58-3, paragraph 2, subparagraph 2 of the TWSE Operating Rules or Article 57, paragraph 1 of the GreTai Securities Market Rules Governing Securities Trading on the GTSM.
The financing calculation standards for collateral set out in paragraph 1 may be adjusted by the TWSE in consultation with the GTSM based on the circumstances regarding that collateral.
In securities business money lending conducted by a securities firm, if a customer posts collateral in the form of securities that it holds, the customer's overall-account and individual-transaction collateral maintenance ratio for money lent to the customer shall be calculated as follows:
Collateral maintenance ratio = (market value of the collateral + market value of additional collateral securities [for government strip bonds: 80 percent of face value]) divided by the financing amount, and multiplied by 100 percent.
The market value of the securities referred to in the preceding paragraph shall be calculated on the basis of closing price. If there is no current day's closing price for a given security, the market value shall be determined by the following principles:
(1) If the current day's highest buy order price at the close of market is higher than the current day's auction reference price at market opening for a TWSE listed security, or than the current day's benchmark price at trade opening for a GTSM listed security, use the highest buy order price.
(2) If the current day's lowest sell order price at the close of market is lower than the current day's auction reference price at market opening for a TWSE listed security, or than the current day's benchmark price at trade opening of trading for a GTSM listed security, use the lowest sell order price.
(3) When neither of the above circumstances applies, use the current day's auction reference price at market opening for a TWSE listed security, or the current day's benchmark price at trade opening for a GTSM listed security.
If the customer has posted collateral in the form of securities that it holds, the securities firm shall mark-to-market the customer's collateral maintenance ratio each business day. If the customer's collateral maintenance ratio is lower than 120 percent due to a change in the value of the collateral or additional collateral securities, the securities firm shall notify the customer to cover the collateral shortfall and bring the collateral maintenance ratio above 166 percent within 2 business days from receipt of the notice, and the following provisions shall be complied with:
1. If the customer fails to cover the collateral shortfall within 2 business days from the date upon which the notice is served and the collateral maintenance ratio is still lower than 120 percent, beginning from the third business day, the securities firm shall dispose of the customer's collateral beginning from the third business day under the mutatis mutandis application of Article 27, paragraph 1.
2. If the customer fails to cover the collateral shortfall within 2 business days from the date on which the notice is served and the collateral maintenance ratio has risen to 120 percent or higher, the securities firm may temporarily refrain from disposing of the collateral on the third business day. However, on any subsequent business day in which its collateral maintenance ratio is again lower than 120 percent and where the customer does not deposit additional collateral on its own initiative on the afternoon of that day, its collateral shall be disposed of beginning on the next business day under the mutatis mutandis application of Article 27, paragraph 1.
3. If the collateral maintenance ratio returns to 166 percent or higher even though the customer has not covered, or has covered only a portion of, the collateral shortfall, or if the customer makes successive collateral deposits sufficient in total to cover the shortfall as stated in the notice prior before its collateral has been disposed of under the preceding subparagraphs, the record of the collateral call shall be expunged.
In securities business money lending conducted by a securities firm, if the customer posts financing collateral in the form of securities that it holds, any and all individual loans of funds in the financing account for which the collateral maintenance ratio is below 120 percent are shortfalls that is required to be covered pursuant to the preceding paragraph, and shall be subject to a collateral call.
If, as a result of any change in share price, there is an increase in the net value of the collateral in a customer's financing account less the customer's obligations, the securities firm is prohibited from delivering to the customer any cash or securities equivalent to the amount of the increase.
The disposal of collateral under paragraph 2, subparagraphs 1 and 2 shall be carried out in accordance with Article 27 of the Operating Rules. If such disposal is insufficient to make repayment, the customer shall be notified to make repayment within a certain time period, with interest accruing at the financing interest rate from the date on which the claim occurred until the date of repayment.
A securities firm conducting securities business money lending may, except in the case of a cash capital increase, beginning from 6 business days before the ex-rights date of the collateral and additional collateral securities provided by a customer, calculate the collateral maintenance ratio for each day based on that day's closing price of each security on each given day minus the value of the share rights or dividends, and the provisions of the preceding article shall apply mutatis mutandis.
In securities business money lending conducted by a securities firm, if a customer posts collateral in the form of securities that it holds, the additional collateral securities that the customer shall provide to cover a collateral shortfall under Article 23 shall be limited to common shares of TWSE Taiwan 50 Index, TWSE Taiwan Mid-Cap 100 Index, or TWSE Taiwan Technology Index component companies, ETFs and common shares of their component companies, offshore ETFs, common shares of MSCI Taiwan Index component companies announced by Morgan Stanley Capital International, government strip bonds, or other collateral approved by the competent authority.
The valuation percentage for calculating the collateral value of additional collateral securities under the preceding paragraph shall be subject, mutatis mutandis, to Article 18, paragraph 1.
Securities to which either of the circumstances listed below applies may not be used as additional collateral:
1. Securities comprising less than one trading unit.
2. Where the securities are registered shares of the issuing company acquired by its shareholders or capital contributors as a result of that company's conduct of a capital increase from earnings, capital increase through contributions by that company's employees out of their bonuses to the industry in which they serve, or capital increase by a venture capital company out of undistributed earnings pursuant to Article 13 of the Statute for Encouragement of Investment or Articles 16 and 17 of the Act for Upgrading Industries, and such shares have not been transferred or reported for taxes.
When calculating a customer's overall account collateral maintenance ratio, a securities firm is not required to apply a haircut to the value of the additional collateral securities.
If the rate of bonus shares or stock dividend shares distributed on collateral or additional collateral securities provided by a customer is 20 percent or higher, except where the Competent Authority has imposed restrictions on trading of the securities, all such new shares shall serve as collateral, and the right to defer income tax shall be waived. The Taiwan Depository & Clearing Corporation shall transfer the shares by book-entry transfer into the segregated loan collateral account opened by each securities firm, and the provisions of Article 33 of the Regulations Governing the Handling of Stock Registration and Transfer Services by Public Companies shall not apply.
Bonus shares or stock dividends referred to in the preceding paragraph may not be used as collateral for borrowing securities from the TWSE securities lending system or for obtaining refinancing from a securities finance enterprise.
The provisions of Article 24 shall not apply to bonus shares or stock dividend shares used as collateral. After ex-rights trading has commenced, the market value of such shares shall be calculated at 60 percent of the closing price of the TWSE or GTSM listed securities. After the shares have been transferred to the securities firm's segregated loan collateral account, the haircut need not be applied to the calculation of their value.
The provisions of Article 18, paragraph 2 shall apply mutatis mutandis to paragraph 1 and the preceding paragraph.