||Operating Rules for Securities Firms Handling Non-Restricted Purpose Loan(2017.11.27)
The clients of non-restricted purpose loan of a securities firm are limited to the following:
Before applying for non-restricted purpose loan, a client shall already open a securities trading account with the securities firm and shall open a securities depository account with TDCC (hereinafter as Centrally Deposited Account) or open a central government securities account with central government securities settlement bank to proceed with book-entry transfer of the collaterals.
- An R.O.C. national who has reached their 20th year of age with full capacity to make juridical acts.
- Domestic juristic person organized and registered under the R.O.C. law.
- Onshore overseas Chinese and foreign nationals.
In case that the client in the first paragraph is a director, supervisor, manager of a TWSE or TPEx listed company, or a shareholder holding more than 10% of the total outstanding shares of the company (hereinafter as Insider) and the client intends to use the shares of the company he/she belongs to as financing collateral or provide these shares as additional collateral, pledge shall be created over these share for the above purpose.
Shares held by the Insider shall include such shares held by his/her spouse, minor child/children or those held in another's name.
In case where a client becomes an Insider after he/she has signed the non-restricted purpose loan contract, the provisions of paragraph 3 shall apply to all transactions that take place subsequently as well as the collateral he/she has provided.
Matters relating to creation of pledge, removal of pledge, and exercise of pledge under paragraph 3 shall all be processed in accordance with the Operating Rules of the Taiwan Depository & Clearing Corporation (TDCC) and the TDCC Instructions on Participant's Pledge and Delivery of Securities for Book-Entry Transfer.
A securities firm that conducts non-restricted purpose loan may charge its clients interest and processing fees for the loans; the interest rate and fee rate shall be decided by each securities firm. The interest rate shall be calculated on a per annum basis and be posted at its place of business.
When there is an adjustment to the interest rate and fee rate of the preceding paragraph, for the portion of funds already financed but not yet repaid, from the adjustment date, such portion shall be calculated, collected and paid according to the post-adjustment rates.
The interest of paragraph 2 shall be calculated based on the number of days from the financing date of the securities firm until the day before the settlement date.
The client shall be responsible for costs relating to creation of pledge.
After receiving a client's application, a securities firm conducting non-restricted purpose loans may conduct such loan only after examining the client's credit and executing non-restricted purpose loan contract with the client.
Securities firm's entering into non-restricted purpose loan contract with its client under the preceding paragraph shall be conducted according to the following rules:
The copies of the identity verification documents, juristic person registration (change of registration) card, and the original copy of the Power of Attorney referred to in the preceding paragraph shall be retained by the securities firm, the copies shall be stamped with the wording "It has been reviewed and confirmed that this person or the authorized person did apply for the loan in person, and this is a true and faithful copy of the original".
- If the client is domestic natural person, he/she shall, in person, present his/her original ID card and related document proving his/her income and assets.
- If the client is domestic juristic person, the authorized person shall submit power of attorney, the original ID cards of the authorized person and the representative of such juristic person, the original copy of the corporate registration (or change of registration) card, and its original certification of incorporation.
- When onshore overseas Chinese and foreign natural person entering into non-restricted purpose loan contracts, he/she shall obtain an identity number and submit an application along with related document proving his/her income and assets to securities firm according to the following rules:
- Onshore overseas Chinese and foreign natural person: Passport and Overseas Compatriot Identity Certificate (or Alien Resident Certificate).
- Foreign Institute Investor: Recognition certificate issued by Ministry of Economic Affairs, company registration certificate, and ID (or Alien Resident Certificate or passport) of the responsible person.
- A client who is not an Insider under Article 6, paragraph 3 shall submit a statement.
When accepting application of applicant who meets the conditions in paragraph 2 for entering into non-restricted purpose loan contract, a securities firm may handle by correspondence or electronic means that the securities firm can sufficiently identify the client as the applicant him/her/itself and confirm his/her/its expression of intent.
The template of non-restricted purpose loan contract will be drafted by Taiwan Securities Association and submitted to the competent authority for record.
For the collateral in the form of securities or other commodities provided by a client applying non-restricted purpose loan, a securities firm or custodian institution shall transfer the client's collateral to the collateral account opened by the securities firm at the TDCC or central government securities settlement bank. Such collateral account, excluding that for securities on which pledge shall be created under Article 6, paragraph 3, may be shared with the loan collateral account of Article 16, paragraph 1 of the Operating Rules for Securities Business Money Lending by Securities Firms. If a collateral is purchased in the securities firm's name, the authorized securities firm shall keep a registration log for management purposes.
After a securities firm completes the process set forth in the preceding paragraph, it shall transfer the financing amount to the client's designated financial institutes account. The account shall be the client's own account and the transfer fee shall be born by the client.
The financial institutes account of the preceding paragraph shall be stated clearly in the non-restricted purpose loan contract. If there is any change to such financial institutes account, Article 13 of these Operating Rules shall apply.
For the transfer of the financing amount set forth in paragraph 2, a securities firm may make in a lump sum or separately per client's application by calculating, once or separately, the finance limit for the collateral provided by the client according to Article 16 and the transfer method shall be stipulated by both parties.
For the application of paragraph 1, if a client submits the loan application by a method other than in person, the client shall submit a consent letter for exemption from affixing signature or seal on the loan application. If a securities firm has verified and retained the record of the consent letter on file, the securities firm may proceed with loan application related matters accordingly without requiring the client to affix signature or seal on the loan application.
When a client repays the loan by cash or by selling the collateral, it shall fill out a Non-Restricted Purpose Loan Repayment Application Form.
When repaying the loan by cash, the client shall deposit (transfer) the repayment amount into the designated financial institute account, or authorize the securities firm in the non-restricted purpose loan contract to deduct the financing amount from the financial institute account. A securities firm or custodian institute shall transfer the collateral and supplementary collateral to the client's designated account from the collateral account opened according to paragraph 1 Article 17 on the next business day. If the collateral and supplementary collateral is not owned by the client, the security firm shall transfer to the owner's depository account or central government securities account. For the collateral on which pledge is created under Article 6, paragraph 3, the securities firm may remove the pledge on the collateral before transferring it to the account designated by the client.
When repaying the loan by selling the collateral, the client shall agree in writing that the securities firm sells the collateral in the designated account opened with the securities firm, and related handling fee and tax shall be born by the client. After the transaction is completed, the securities firm shall calculate the financing principal and interest amount payable by the client, if the selling price is higher than such amount, a security firm shall return the surplus to the client. If the selling price is not sufficient to repay the loan, a securities firm may deduct the shortfall from any returned amount from other financing transaction. If it is still not sufficient to repay the loan, within the scope of debt repayment, the securities firm may dispose the account balance in the client warranted finance account or other credit account, and any surplus shall be returned to the client. If it is still not sufficient to repay the loan, the securities firm may collect the debt according to the laws and regulations. The handling fee for transferring the surplus amount shall be born by the client. In case of creation of pledge under Article 6, paragraph 3, the securities firm shall proceed to exercise the pledge.
A securities firm shall engage a securities firm to place a sell order on the TWSE or the TPEx for the sale prescribed in the preceding paragraph in accordance with the amount and price prescribed by the client. Nevertheless, the sale of central book-entry bonds, municipal bonds, common corporate bonds or financial bonds may be handled through price negotiation at the business place of the securities firm.
When repaying the financing amount by selling the collateral under Paragraph 3, both parties may agree in the non-restricted purpose loan contract that the client may repay the financing amount with the proceeds from placing an order to sell the securities in the securities trading account opened with the securities firm in writing, correspondence, or electronic methods. In case of creation of pledge under Article 6, paragraph 3, the securities firm shall proceed to remove the pledge.
If the collateral sold by the client for repayment is beneficial certificates of open-end securities investment trust funds or beneficial certificates of futures trust funds, the repayment shall be made after the securities firm's redemption.
Where a client repaying the financing amount according to paragraph 1 has agreed with the securities firm that part of or all of the collaterals need not to be returned according to paragraph 3 of Article 4, the securities firm may follow such agreement.
The client may use the securities or other commodities prescribed under Article 2 to cover the finance shortfall, and the supplementary value may be calculated according to Article 16. However, the collateral to which either of the circumstances listed below applies may not be used as supplementary collateral:
When calculating a client's overall account collateral maintenance ratio, a securities firm is not required to apply a haircut to the value of the supplementary collateral securities or other commodities.
- Securities comprising less than one trading unit.
- 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.
If the rate of bonus shares or stock dividend shares distributed on collateral or additional collateral securities or other commodities provided by a client is 20% or higher, except where the competent authority has imposed restrictions on trading of the securities or pledge has been created under Article 6, paragraph 3, all such new shares shall serve as collateral, and the right to defer income tax shall be waived. The TDCC 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 Criteria Governing Handling of Stock Affairs by Public Stock 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 21 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% of the closing price of the TWSE or TPEx 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.
For the calculation standard set forth in paragraph 1 and preceding paragraph, a securities firm may adopt a stricter standard depending on the market status of the collateral and the client credit risk.
The interest of the collaterals and supplementary collaterals belongs to the collateral owner, and the issuer or its institute agent shall directly distribute to the owner's designated book-entry account or centralized custody account. In case of creation of pledge under Article 6, paragraph 3, the securities firm and the owner of such collateral shall have a separate agreement on this matter.
Where a client posts central book-entry bonds as collateral and supplementary collateral securities, the securities firm may collect any interest payment on behalf of the client through the central government securities settlement bank and shall, before the next business day of the interest payment date, transfer the interest to the client after deducting the tax withheld on the client's behalf, according to the agreement between the parties.