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Article 19
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When handling securities lending business, a securities firm may accept the following types of assets as collateral, to be valued at the valuation percentages indicated:
- Cash.
- Book-entry central government bonds. Calculate at 90 percent of face value.
- Securities eligible for margin purchases and short sales. The collateral value of securities eligible for margin purchase and short sale transactions shall be 70 percent of the most recent closing price if they are TWSE listed securities, or 60 percent of the most recent closing price if they are GTSM listed securities.
The "most recent closing price" in subparagraph 3 of the preceding paragraph shall mean, prior to the close of market on the given day, the closing price for the preceding business day, and after the close of market on the given day, shall mean the closing price on the given day. The aforesaid closing price shall be set pursuant to Article 58-3, paragraph 3 of the TWSE Operating Rules or Article 35, paragraph 3 of the GreTai Securities Market Rules Governing Securities Trading on the GTSM .
If no closing price is available for the preceding business day, the price determined by the principles under 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 shall substitute for the closing price.
If the closing price for a given day is not available, the most recent closing price shall be determined by one of the following principles:
- When, on the day the security is loaned, the highest bid price at market close is higher than the auction reference price at market opening or the base price for first trading, the highest bid price shall be used.
- When, on the day the security is loaned, the lowest ask price at market close is lower than the auction reference price at market opening or the base price for first trading, the lowest ask price shall be used.
- When neither of the above circumstances applies, the auction reference price at the opening of market or the base price for first trading shall be used.
The preceding paragraph shall apply mutatis mutandis to the current day closing price referred to in Articles 25 and 37 herein.
Securities collateral that a securities firm collects from a customer shall be limited to securities that the customer itself owns.
The collateral valuation percentages in paragraph 1 may be adjusted by the TWSE in conjunction with the GTSM based on the condition of the collateral. The lender and borrower may separately agree to a collateral valuation percentage lower than the prescribed percentage.
A securities firm may reject, or lower the valuation percentage for, any security that would otherwise be eligible collateral under paragraph 1, subparagraph 3 if the securities firm so deems appropriate having regard to the market liquidity and risk status of that collateral; if any such security has been accepted and received as collateral for a lending transaction, the securities firm may notify the borrower to replace the collateral.
Where a security eligible for margin purchases and short sales under paragraph 1, subparagraph 3 is during a trading halt announced by the TWSE or GTSM, that security may not be the collateral for a lending transaction; if any such security has been accepted and received as collateral for a lending transaction, the securities firm may proceed with the collateral in accordance with the preceding paragraph.
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Article 19-1
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A dedicated account shall be established for management of the collateral under paragraph 1, subparagraph 1 of the preceding article. The collateral may only be New Taiwan Dollars. Offshore overseas Chinese and foreign nationals, however, may use a foreign currency as cash collateral ("foreign currency collateral"), but that currency may only be US Dollars. Dedicated accounts for foreign currency collateral shall be established at banks that have been approved by the Central Bank to handle foreign exchange business ("designated banks").
Securities firms shall abide by the following provisions when accepting foreign currency collateral:
- Foreign currency collateral may be returned to customers only in the original currency, and may not be converted to New Taiwan Dollars.
- Foreign currency collateral shall be only in the form of bank deposits and used only as needed for carrying out securities lending business, and only as collateral for securities lending through the TWSE securities lending system.
- The collateral value of foreign currency collateral will not be discounted.
- The exchange rate a securities firm uses for marking foreign currency collateral to market shall be the foreign currency rate posted by the designated bank at which the securities firm opened the dedicated foreign currency deposit account or the exchange rate for marking the foreign currency to market that is publicly announced through the TWSE securities lending system.
If a securities firm uses foreign currency collateral when making interest rate swaps, then in addition to observing the self-regulatory rules of the Taiwan Securities Association, the securities firm shall also handle the swaps in accordance with the following provisions, and the following provisions shall be made part of the securities firm's internal control system:
- Swaps may only be carried out with designated banks, and any New Taiwan Dollars obtained must first be transferred into the dedicated New Taiwan Dollar cash collateral account before being otherwise utilized.
- "Utilization" under the preceding paragraph shall be restricted to the uses set out Article 28, paragraph 1 of the Regulations Governing Securities Lending by Securities Firms.
A securities firm shall file information on its utilization of cash collateral for recordation with the TWSE during the following month, along with the filing of its monthly accounting summary.
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Article 38
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The total monetary value of securities loaned by a securities firm conducting securities lending business may not exceed 250 percent of its net worth.
In conducting securities margin purchase and short sale business, the total monetary value of securities loaned to customers for short sales, plus the total monetary value under the preceding paragraph, may not exceed 400 percent of its net worth.
The total amount of foreign currency collateral accepted by a securities firm when engaging in securities lending business may not exceed 30 percent of its net worth. The exchange rate used in calculating the total amount of foreign currency collateral shall be as set out in Article 19-1, paragraph 2, subparagraph 4.
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