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Amendments

Title：

Operating Rules for Securities Firms Handling Non-Restricted Purpose Loan  CH

Amended Date： 2024.09.20 (Articles 31 amended,English version coming soon)
Current English version amended on 2023.12.28 
Categories： Securities Exchange Market > Borrowing of Money
Article Content Chapter Content Search Article No. Search Legal Basis Amended Article Legislative History Chinese

Title： Operating Rules for Securities Firms Handling Non-Restricted Purpose Loan(2022.01.14)
Date：
Article 1     These Operating Rules are adopted pursuant to the proviso of paragraph 1 of Article 45 of the Securities and Exchange Act ("the Act") and Point 6 of the Order of Financial Supervisory Commission 28 December 2021 Jin-Guan-Zheng-Quan-Zi No. 1100365649.
Article 2     When conducting non-restricted purpose loan business, securities firms shall abide by the Securities and Exchange Act, these Operating Rules, and related Rules, Regulations, Announcements, Explanations of the Taiwan Stock Exchange Corporation ("TWSE"), Taipei Exchange (TPEx), Taiwan Depository & Clearing Corporation ("TDCC").
    The non-restricted purpose loan business prescribed under these Operating Rules is limited to financing with securities, claims in outstanding settlement funds receivable or other instruments as collaterals and the scope of collaterals are as follows:
  1. TWSE or TPEx listed securities, but not including securities of Taiwan Innovation Board (TIB) listed companies and TIB primary listed companies, ETF beneficial certificates traded in foreign currency and international bonds, shares subject to an altered trading method, or TPEx managed stocks.
  2. TPEx traded open-end funds beneficial certificates or physical gold.
  3. Beneficial certificates of securities investment trust funds or futures trust funds that are domestically offered and that invest domestically (hereinafter as beneficial certificates of open-end securities investment trust funds or beneficial certificates of futures trust funds).
  4. claims in outstanding settlement funds receivable
  5. Other collateral approved by the competent authority.
    The TPEx traded open-end funds beneficial certificates of the above paragraph refer to beneficial certificates of securities investment trust funds registered for trading on TPEx according to Taipei Exchange Rules Governing the Review of Beneficial Certificates of Open-end Funds for Trading on the TPEx; the beneficial certificates of open-end securities investment trust funds or beneficial certificates of futures trust funds refer to trust funds prescribed under Article 23 of Regulations Governing Securities Investment Trust Funds and Article 8, 9, 10, and 10-1 of Regulations Governing Futures Trust Funds.
    The beneficial certificates of open-end securities investment trust funds or beneficial certificates of futures trust funds of the above Paragraph shall be limited to those denominated in New Taiwan Dollar.
    The claims in outstanding settlement funds receivable mentioned in paragraph 2, subparagraph 4 refers to the price receivable after a set-off of the prices of the securities under paragraph 2, subparagraph 1 purchased and sold by the securities firm’s clients on the date of application and the preceding business day, less any outstanding amount after the clients have applied before the date of application for lodging the claims in outstanding settlement funds receivable as security.
Article 4     For non-restricted purpose loan conducted by securities firms, the financing period applied by clients shall be limited within 6 months. Prior to the expiration of the financing period, the client may apply for extension, and a securities firm may grant an extension for 6 months depending on each client's credit status. Prior to the expiration of 1 year, a securities firm may grant another extension of 6 months upon reviewing such client's credit status, provided the financing period is limited to two business days if claims in outstanding settlement funds receivable are lodged as security.
    Save the claims in outstanding settlement funds receivable which are lodged as security, the collaterals provided by the clients of the preceding paragraph may be replaced during the financing period, the application method shall be stipulated by both parties.
    If a client makes partial repayment for the loan before the expiration of the financing period, save the claims in outstanding settlement funds receivable which are lodged as security, a securities firm may return to the client the collateral it originally provided on a proportional basis, the returning method shall be stipulated by both parties. However, where it is less than one trading unit, the collateral shall not be returned. Notwithstanding, a securities firm and its client may also agree that after the repayment of the loan, a securities firm may be exempted from returning part of or all the collaterals, and the client may apply for non-restricted purpose loan again in respect of such collaterals not returned.
    For the non-restricted purpose loan prescribed under Paragraph 1, a securities firm shall notify its client in writing or through communication, electronic methods agreed by its clients 10 business days prior to the expiration of the financing period, the notification methods shall be clearly stated in the non-restricted purpose loan contract.
Article 9     Collateral that a securities firm obtains in conducting non-restricted purpose loans and for which a client has issued a collateral transfer agreement may not be transferred for any other purposes except for the purposes listed below, and shall be deposited in central custody:
  1. As collateral for securities borrowing through the securities lending system of the TWSE.
  2. As collateral for securities borrowing or refinancing through a securities finance enterprise.
    If the collateral in the preceding paragraph is provided in the form of a fund purchased in the securities firm's name in accordance with the latter part of paragraph 1, Article 17 or in the form of a client’s claims in outstanding settlement funds receivable, the securities firm may not further use such collateral for security purposes or use the same for other purposes.
Article 11     A securities firm shall decide the credit limit that may be extended to its client according to the credit investigation result under Article 3. If a client already has a line of credit approved by the securities firm for other credit extension business before signing the non-restricted purpose loan contract, the credit limit and the already approved line of credit shall be calculated in the aggregate and the proof of assets provided by the client shall reach at least 30% of the amount of the total aggregate credit line. After entering into the non-restricted purpose loan contract, any line of credit that the client applies for under any other credit extension business at the securities firm shall be calculated as part of the aggregate. Notwithstanding, no line of credit secured by claims in outstanding settlement funds receivable counts toward the credit limit.
    The proof of assets that shall be provided for the customer's total aggregate line of credit under the preceding paragraph means proof of income and various assets provided by the client for the past one year.
    The proof of assets of the first paragraph shall consist of only the following papers and documents of the client or the client's spouse, parents, or adult children.
  1. Photocopy of certificate of ownership, transcript of the registration, or tax return for real property. The securities firm shall calculate the value of the real property after checking whether there are encumbrances on the real property.
  2. Documentary evidence of deposits at a financial institution (such as a certificate of deposit balance, bankbook, or certificate of deposit). The basis of calculation will be the average balance for the past month.
  3. Documentary evidence of securities holdings.
  4. Documentary evidence of deposit balance in a gold account issued by a financial institution (such as a gold account passbook, or a certificate of balance for gold passbook or gold account).
  5. Documentary evidence of trust assets in a money trust, a securities trust, or a real estate trust issued by a trust enterprise (such as a reconciliation statement, list of trust assets, or certificate of trust assets). Both the trustor and the beneficiary of the trust must be the client, and trust assets may only consist of real estate, deposits at financial institutions, securities, and the balance in a gold account at financial institutions.
    If the client provides proof of financial assets not owned by the client, the actual owner of the assets must be a joint and several guarantor of the client.
Article 16     The collateral financing calculation standards for a securities firm that operate non-restricted purpose loan business shall be as follows, save in the event of fractions of one trading unit or of one unit of beneficial rights.
  1. The value of TWSE and TPEx traded securities, except for central book-entry bonds, municipal bonds, common corporate bonds and financial bonds, is 60% of the closing price of the business day immediately prior to financing. However, for securities not eligible for margin purchase and short sale, the value shall be calculated as 40% of the closing price of the business day immediately prior to financing.
  2. The value of beneficial certificates of open-end funds traded on the TPEx is 60% of the net asset value of each unit of beneficial rights of the business day immediately prior to financing. The value of physical gold is 60% of the closing average at the closing of the business day immediately prior to financing.
  3. The value of beneficial certificates of open-end securities investment trust funds or futures trust funds is 60% of the net asset value of the business day immediately prior to financing. The value of physical gold is 60% of the closing average of the business day immediately prior to financing.
  4. The value of central book-entry bonds is 80% of the face value.
  5. The value of municipal bonds, common corporate bonds and financial bonds is 60% of the face value.
  6. The financing amount is calculated as below where claims in outstanding settlement funds receivable are lodged as security:
    7. Financing amount = (Price payable by the securities firm to the client on the date of application) + (Price payable by the securities firm to the client on the day prior to the date of application) – (Price receivable by the securities firm on the date of application) – (Price receivable by the securities firm on the day prior to the date of application) – (Outstanding amount after the client has applied before the date of application for lodging the claims in outstanding settlement funds receivable as security). The securities firm may also calculate and grant the financing amount after deducting the financing interest from the financing amount first mentioned above.
    A security firm may adopt a stricter standard of the calculation standard of preceding paragraph in accordance with the market status of the collateral market and the client credit risk.
    If there is no closing price of the business day immediately prior to financing prescribed under subparagraph 1 of paragraph 1, the price shall be replaced with the price calculated according to the principles prescribed in Article 58-3, paragraph 2, subparagraph 2 of the Operating Rules of the Taiwan Stock Exchange Corporation or Article 57, paragraph 1 of the Taipei Exchange Rules Governing Securities Trading on the TPEx.
    The financing calculation standard of the collateral set forth in paragraph 1 may be adjusted by TWSE in consultation with TPEx based on the conditions of the collateral.
Article 17     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 provided in the form of a fund purchased in the securities firm's name or claims in outstanding settlement funds receivable, the authorized securities firm shall keep a registration log for management purposes.
    A client that lodges security in the form of claims in outstanding settlement funds receivable shall submit an application for the review and approval of the securities firm and complete pledge procedures.
    After a securities firm completes the process set forth in the preceding two paragraphs, 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 borne 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 the preceding paragraph 3, 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.
Article 18     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.
    Where a client lodges security in the form of claims in outstanding settlement funds receivable, the securities firm will cancel the pledge and apply the settlement funds toward discharge of loan obligations, including finance interest, handling fee, etc., after the settlement funds are remitted to its settlement account. Any balance after such application shall be credited to the financial institution account designated by the client. The client is not required to fill out a Non-Restricted Purpose Loan Repayment Application Form.
    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 borne 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 4, 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.
Article 20     In non-restricted purpose loan business conducted by a securities firm, the client's overall-account collateral maintenance ratio shall be calculated as follows:
    Collateral maintenance ratio＝（market value of the collateral＋market value of the supplementary collateral） ÷ （financing amount）×100%
    In regard to the market value of collateral referred to in the preceding paragraph, the market value of TWSE and TPEx listed securities is the closing price of the current day; that of central book-entry bonds is 80 percent of their face value; that of municipal bonds, common corporate bonds and financial bonds is 60% of their face value; that of physical gold is the Closing Average of the current day, and that of TPEx traded beneficial certificates of open-end funds, open-end securities investment trust funds and futures trust funds is the net asset value of the preceding business day, provided claims in outstanding settlement funds receivable that are lodged as security as excluded from the calculation of the collateral maintenance ratio. If there is no current day's closing price for a given TWSE or TPEx 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 TPEx listed security, the market value shall be 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 TPEx listed security, the market value shall be the lowest sell order price.
  3. When neither of the above circumstances applies, the market value shall be 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 TPEx listed security.
    A securities firm shall calculate a client's overall account collateral maintenance ratio each business day. If a client's overall account collateral maintenance ratio is lower than 130% due to a change in the value of the collateral or supplementary collateral, the securities firm shall notify the client to cover the collateral shortfall and bring the collateral maintenance ratio above 166% within 2 business days from receipt of the notice, and the following provisions shall be complied with, unless the parties agree otherwise:
  1. If the client fails to cover the collateral shortfall within 2 business days from the date on which the notice is served and the overall account collateral maintenance ratio is still lower than 130%, from the third business day, the securities firm shall dispose of the client's collateral under the mutatis mutandis application of Article 25, Paragraph 1.
  2. If the client fails to cover the collateral shortfall within 2 business days from the date on which the notice is served and the overall account collateral maintenance ratio has risen to 130% or higher, the securities firm may temporarily refrain from disposing of the collateral on the third business day. However, if on any subsequent business day in which its overall account collateral maintenance ratio again falls below than 130% and the client does not deposit additional collateral on its own initiative in the afternoon of that day, its collateral shall be disposed of from the next business day under the mutatis mutandis application of Article 25, paragraph 1.
  3. If the collateral maintenance ratio rises to 166% or higher even though the client has not covered, or has covered only a portion of, the collateral shortfall, or if the total collateral deposits made by the client is sufficient to cover the shortfall notified to cover in the notice before its collateral has been disposed of according to the preceding subparagraphs, the record of the collateral call shall be expunged.
    The covering of shortfall under the preceding paragraph is for the situation where the overall account collateral maintenance ratio of the financing account is below 130%.
    If, as a result of any change in share price, there is an increase in the net value of the collateral in a client's financing account less the client's obligations, the securities firm is prohibited from delivering to the client any cash or securities equivalent to the amount of the increase. However, this does not apply when the client applies to change the credit limit, and the securities firm reapproves its credit limit.
    The disposal of collateral under subparagraph 1 and 2, Paragraph 3 shall be carried out in accordance with Article 25 of these Operating Rules. If the proceed from such disposal is insufficient to make repayment, the client 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.
    The supplementary collateral under these Operating Rules means the securities or other commodities provided by the client or any third party when the overall account collateral maintenance ratio is lower than the required ratio and such collateral is supplemented to make up the shortfall upon the notification made by the securities firm.