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Article 7
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When a securities broker accepts an order to sell shares on the spot market, the broker shall confirm whether the order quantity exceeds the aggregate sum of the balance of those securities deposited in the principal's depository account and the quantity of the principal's cash purchases of the securities executed the same day. If the order exceeds that sum, the securities broker also shall confirm that it has a sufficient quantity of the securities, for the broker to lend to the principal for settlement purposes in the event that the principal fails to complete an opposite purchase to close out the day trade.
Where the quantity of sold spot securities reported by the dealing department of a securities firm (securities trading account number: 000000-0) exceeds the aggregate sum of the balance of the securities in the depository account which it keeps and the quantity of cash purchases of the securities executed the same day, the securities firm shall confirm with the brokerage department that it has a sufficient quantity of the securities for transfer into the account for settlement purposes in the event that an opposite purchase to close out the day trade is not completed.
The sources of securities for lending or transfer out of the account by a securities broker as referred to in paragraphs 1 and 2 shall be limited to securities borrowed by said broker from a customer, proprietary securities transferred by the dealing department of said broker, or securities borrowed through securities lending business conducted by said broker; or securities borrowed from another securities broker that borrows the securities from its own customers, proprietary securities transferred by the dealing department of such other broker, or securities borrowed through securities lending business conducted by such other broker; and relent to the securities broker.
A public company's directors, supervisors, managerial officers, and greater than 10 percent shareholders (including their spouses, minor children, and any other persons in whose names they hold shares) may not borrow or lend stock of that public company under paragraphs 1 and 2 herein. Stock of that public company placed in trust by those persons also may not be lent.
The rate charged for lending of securities to cover a shortfall in securities deliverable in day trading under paragraphs 1 and 2 shall not exceed 7 percent of the closing price of the securities on the day of their sale. Subject to the shortfall in securities deliverable in day trading being made up, the securities firm may borrow from those with confirmed intent to lend, in ascending order of lending rate.
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Article 9
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When a principal or the dealing department of a securities firm has sold spot securities but fails to complete an opposite purchase, the securities broker shall, on the first business day after the trade date of the sale of the spot securities, make a forced repurchase through a "special account for handling shortfalls in securities deliverable in day trading" (securities trading account number: 889999-9) set up by the broker's headquarters, for purposes of returning the securities borrowed under Articles 7 and 8. If it is unable to make a forced repurchase of the full quantity on the first business day after the trade date of the sale of the spot securities, it shall, beginning from the second business day after the trade date of the sale of the spot securities, continuously repurchase the securities until the full quantity has been repurchased. Forcibly repurchased securities shall be used, in first priority, to return securities borrowed through bidding and negotiation procedures under Article 8.
If the securities broker is unable, on the first business day after the trade date of the sale of the spot securities, to make a forced repurchase of the full quantity of the securities borrowed under Article 7, it shall notify the party that lent the securities and the principal that borrowed the securities to continue lending and borrowing the securities that have not yet been forcibly repurchased until the full quantity has been repurchased. The party that lent the securities may not request the early return of the securities. The securities lending rate shall be as provided in Article 7, paragraph 5, and shall be calculated based on the closing price on the day of the continued lending. If there is no closing price for the securities on the current day, it shall be calculated based on the auction reference price at market opening of the current trading session.
If the securities broker is unable, on the first business day after the trade date of the sale of the spot securities, to make a forced repurchase of the full quantity of the securities borrowed through bidding or negotiation procedures under Article 8, it shall continue to authorize the financial enterprise to bid or negotiate on its behalf for the borrowing of the quantity of securities not yet forcibly repurchased.
Forced repurchases under this article may be made in ordinary trading, after-hours fixed-price trading, odd-lot trading, or block trading. However, the "special account for handling shortfalls in securities deliverable in day trading" referred to in paragraph 1 may be used only to make purchases in the spot market, and may not be used to make sales. Also, an omnibus account may not be used for forced repurchases, nor may an account number correction be reported.
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