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Article 5
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Where an issuer does not conform to the standards set forth in Article 1, Subparagraph 1, but has shareholder equity of at least NT$1 billion, it shall execute an agreement with a financial institution which, according to both the laws of its country of registration and its own articles of incorporation, may act as a guarantor; the issuer shall, at the time of application for listing of call (put) warrants, execute an unconditional and irrevocable guaranty agreement with that guarantor institution, which will act as joint guarantor to ensure the issuer's performance of the call (put) warrants listing agreement for the given issue; however, the guarantor institution shall conform to the standards set forth in Paragraph 2, subparagraphs 1 to 3, of the preceding article.
The amount of the guaranty under the guaranty agreement referred to in the preceding paragraph shall be a sum equal to at least (the total shares of the call (put) warrants issue) x (the strike price [or strike index]) x (20% of the multiplier).
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Article 10
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An application for TWSE listing approval for an issue of call (put) warrants shall conform to each of the following conditions:
1. The issue shall comprise 10 million to 50 million issuance units. An issuance unit for non-index warrants shall represent one share (one unit) or a basket of single shares, or every 2 issuance units shall represent one share (one unit) or a basket of single shares, or every 5 issuance units shall represent one share (one unit) or a basket of single shares, or every 10 issuance units shall represent one share (one unit) or a basket of single shares, or every 100 issuance units shall represent one share (one unit) or a basket of single shares. The price of the underlying security must be NT200 (inclusive) or higher, however, before there may be an issuance in which every 100 issuance units represent one share (one unit) or a basket of single shares. For index warrants, the issuer will determine the index points represented by each issuance unit; one index point corresponds to NT$1.
2. Period of validity: Calculated from the date of listing, the period of validity shall be between six months and two years, inclusive.
3. Restriction on total issuance volume of the underlying represented by a warrant: (1) When the underlying security is a stock, the total number of shares of the underlying security that may be called (or put) through the call (put) warrants and the shares of the same underlying security represented by other existing call (put) warrants already listed on the TWSE may not exceed 22% of the total number of outstanding shares of the domestic issuing company after deduction of each of the following types of shareholdings. Where the issuer and any of its overseas subsidiaries (whose warrant issuing operations are guaranteed or secured by the mother company) issue offshore call (put) warrants, the total number of shares of the underlying securities that may be called (put) through the offshore call (put) warrants, combined with the number of those issued overseas and representing the same underlying securities, may not exceed three percent of the total number of outstanding shares of the issuing company after deduction of each of the following types of shareholdings:
(i.) The total percentage of shares held by directors and supervisors under statutory shareholding ratio requirements.
(ii.) Already pledged securities.
(iii.) The number of centrally deposited shares mandatory for newly listed companies.
(iv.) Shares already repurchased under the Rules Governing Share Repurchase by Listed and OTC Companies and not yet cancelled.
(v.) Shares with restrictions on listing or trading imposed by the competent authority.
(2) When the underlying security is an exchange-traded securities investment trust fund announced by the TWSE, the total number of shares of the underlying that may be called (or put) through the call (put) warrants and the shares of the same underlying represented by other existing call (put) warrants already listed on the TWSE, combined with those issued overseas by the issuer or its correspondent institution overseas and representing the same underlying, may not exceed the total number of beneficial interest units already issued by the fund, provided that this shall not affect the validity of any call (put) warrants already issued.
When the underlying security is an offshore exchange-traded fund announced by the TWSE, the total number of units of the underlying that may be called (or put) through the call (put) warrants and the units of the same underlying represented by other existing call (put) warrants already listed on the TWSE may not exceed the total number of units of that fund offered and sold domestically within the ROC territory.
(3) When the underlying security is Taiwan Depository Receipts, the total number of units of the underlying that may be called (or put) through the call (put) warrants and the units of the same underlying represented by other existing call (put) warrants already listed on the TWSE may not exceed 22 percent of the already listed units of the receipts.
4. When the underlying security is an exchange-traded securities investment trust fund or offshore exchange-traded fund announced by the TWSE, if an authorization is required to be obtained, consent shall be obtained from the institution creating the fund's underlying index; when the underlying index is an index announced by the TWSE, consent shall be obtained from the institution creating the given underlying index.
5. The issuance plan shall contain the following terms and conditions:
(1) The issuance date and the period of validity.
(2) Detailed information on the underlying index, security, or basket of securities (when the underlying securities of the warrants issued are stocks, in addition to the financial statement of the most recent period audited or certified by a certified public accountant and showing no losses, there shall also be a statement of the reason for issuing warrants based on the underlying securities).
(3) The type of call (put) warrant, the volume of issuance units and total value of the issue.
(4) Terms of issuance (such terms, including issuance price, strike price or exercise index level, exercise period and number of shares, beneficial units, depository receipt units, or index points represented per issuance unit; conditions regarding upper and lower price caps or index levels for knock-out call or put warrants; and the fact that when the closing price of the underlying security reaches the upper or lower price cap or the closing level of the underlying index reaches the exercise index level, it will be the final trading day for the given warrant, which will be deemed to be at maturity on the following business day, with automatic cash settlement taking place uniformly at the closing price of the underlying security or the closing level of the underlying index on the last day of trading, shall be set out in a prominent typeface). For a call warrant, the strike price or exercise index level referred to may not exceed 150% of the underlying security's price or the closing level of the underlying index at market close on the date of application; for a put warrant, the strike price may not be lower than 50% of the underlying security's price or the closing level of the underlying index at market close on the date of application, provided that the above ratios may be exceeded when the strike price and the closing price of the underlying security differ by less than NT$30. There shall be reasonable cause and explanation for any terms of issuance that do not conform to the above standards, and full disclosure shall be given to investors.
(5) The method by which the issuance price is calculated, including the price of the underlying security or underlying index, the strike price or exercise index level, the period of validity, the interest rate, the rate of fluctuation of the underlying security and other elements used in the calculation, and a table of comparison with other warrants in the preceding year with the same listed security or index as the underlying security.
(6) Detailed information on the guarantor and the guaranty agreement or collateral.
(7) Items that must be included in the issuance plan in accordance with Article 8 of the Taiwan Stock Exchange Corporation Directions for Call (Put) Warrant Liquidity Provider Operations.
(8) Procedures for exercising the option and the terms for cancellation of already-exercised call (put) warrants.
(9) Strategies for offsetting foreseeable risks.
(10) The policy of the issuer regarding adjustment of the strike price of the call (put) warrant and related items along with the distribution of dividends and bonuses, increases or decreases in capitalization, stock splits or consolidations, and handling of other related matters by the issuing company of the underlying securities, or the distribution of dividends and handling of other matters by the securities investment trust enterprise in relation to the underlying exchange-traded securities investment trust fund or by the offshore fund management institution or its designated institution in relation to the underlying offshore exchange-traded fund. Where the issuer does not make such adjustments in accordance with the TWSE reference formula, that fact shall be noted in bold lettering in the issuance prospectus.
(11) Methods of handling merger by the company issuing the underlying securities, or alteration in the trading method, suspension of sale, or de-listing of the securities, or delisting when the securities investment trust enterprise of the underlying exchange-traded securities investment trust fund undergoes dissolution or bankruptcy, or its approval its revoked, or the beneficial certificates, fund shares, or investment units of the underlying offshore exchange traded fund are delisted by the TWSE after approval by the competent authority.
(12) Methods of handling market listing of the call (put) warrants, or suspension of trading or de-listing of the warrants by the TWSE.
(13) Terms stipulating that upon expiration of the period of validity, where the market price of the underlying securities or the closing level of the underlying index is higher than the strike price or the exercise index level of a call warrant (or the strike price or exercise index level of a put warrant is higher than the market price of the underlying securities or the closing level of the underlying index) and where there is value in the exercise of the option and the terms of exercise require cash settlement, the warrant holder shall be deemed to have exercised the warrant and to have given notice to that effect.
(14) Terms stipulating that the warrant issuer may not substitute another warrant with a period of validity longer than that of the original warrant, or any other security, for the originally issued warrant.
(15) Procedures for delivery and payment when the warrant holder exercises the option.
(16) Terms stipulating that where settlement after exercise of the option referred to in the preceding paragraph shall be in cash, the cash settlement amount shall be calculated based on the closing price of the underlying securities or the closing level of the underlying index on the exercise date.
(17) Terms stipulating the methods for handling distribution of securities centrally deposited in the Taiwan Depository and Clearing Corporation account where the issuer fails to perform its delivery of the underlying securities or the cash price differential within the prescribed time period.
(18) Clarification of whether or not there are plans for a reverse issue of call (put) warrants against the same underlying securities or underlying index within the coming three months.
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Article 12
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Where any of the following conditions apply, the TWSE may withhold approval for an application for market listing of a projected issue of call (put) warrants:
1. The required application documents submitted by the issuer are incomplete, and it has failed to supplement the required documents by the deadline prescribed by the TWSE.
2. The particulars of the issuer's application do not conform to laws and regulations, or the issuer has made false and misleading presentations in the application.
3. The issuer or an affiliated company of the issuer has, during the month preceding application, released information or predictions relating to the price of the underlying securities or the underlying index of its projected warrants issue.
4. The issuer or its directors, supervisors, managers, employees, or shareholders hold 10% or more of the issuer's shares, or any of the above hold 10% or more of the shares of another company, and are at the same time a director, supervisor, manager, or shareholder with a stake of 10% or more in the issuing company of the underlying security or any of the issuing companies of the basket of underlying listed securities. Applications for issuance of warrants whose underlying is a Taiwan Depository Receipt, index, exchanged-traded securities investment trust fund or offshore exchanged-traded fund announced by the TWSE may be exempt from the provisions of this subparagraph.
5. The issuer's CPA audited and attested or CPA reviewed financial report for the most recent period is not in compliance with the standards of Article 4, paragraph 2, subparagraphs 1 and 2, provided that this shall not apply where there is non-conformance with the standards of Article 4, paragraph 2, subparagraph 1, but the measures provided in Article 5 are followed.
6. When the combined total of the issue price of the currently listed, OTC-listed, and OTC contract-based call (put) warrants issued domestically by the issuer whose term of validity has not yet expired, and the call (put) warrants issued overseas whose term of validity has not yet expired, and the projected issue of call (put) warrants, together with the amount of the guarantee or the assets provided as collateral for the overseas subsidiary's offshore call (put) warrant issuing business is subject to any of the following conditions:
(1) The issuer's credit rating is a Taiwan Ratings Corporation Class A rating or above, a Fitch Ratings Limited, Taiwan Branch rating of A (twn) or above, a Moody's Investors Service rating of A.tw or above, a Moody's Investors Service Class A rating or above, a Standard & Poor's Corp. Class A rating or above, or a Fitch Inc. Class A rating or above, and the combined total exceeds 60% of its eligible net regulatory capital adequacy requirement.
(2) The issuer's credit rating is a Taiwan Ratings Corporation Class BBB- rating or above, a Fitch Ratings Limited, Taiwan Branch rating of BBB- (twn) or above, a Moody's Investors Service rating of Baa1.tw, Baa2.tw, Baa3.tw or above, a Moody's Investors Service Class Baa1, Baa2, Baa3 rating or above, a Standard & Poor's Corp. Class BBB- rating or above, or A Fitch Inc. Class BBB- or above, and the combined total exceeds 50% of its eligible net regulatory capital adequacy requirement.
(3) The issuer's credit rating is a Taiwan Ratings Corporation Class BB+ rating or above, a Fitch Ratings Limited, Taiwan Branch rating of BB+ (twn) or above, a Moody's Investors Service rating of Ba1.tw or above, a Moody's Investors Service Class Ba1 rating or above, a Standard & Poor's Corp. Class BB+ rating or above, or a Fitch Inc. Class BB+ or above, and the combined total exceeds 30% of its eligible net regulatory capital adequacy requirement.
(4) The issuer's credit rating is a Taiwan Ratings Corporation Class BB rating or above, a Fitch Ratings Limited, Taiwan Branch rating of BB (twn) or above, a Moody's Investors Service rating of Ba2.tw or above, a Moody's Investors Service Class Ba2 rating or above, a Standard & Poor's Corp. Class BB rating or above, or a Fitch Inc. Class BB rating or above, and the combined total exceeds 20% of its eligible net regulatory capital adequacy requirement.
(5) The issuer's credit rating is a Taiwan Ratings Corporation Class BB- rating or above, a Fitch Ratings Limited, Taiwan Branch rating of BB- (twn) or above, a Moody's Investors Service rating of Ba3.tw or above, a Moody's Investors Service Class Ba3 rating or above, a Standard & Poor's Corp. Class BB- rating or above, or a Fitch Inc. Class BB- rating or above, and the combined total exceeds 10% of its eligible net regulatory capital adequacy requirement.
The above-mentioned eligible net regulatory capital adequacy requirement shall be calculated based on the methods set forth within the Rules Governing Securities Firms, for Taiwan issuers.
If the issuer is a foreign institution, the aforesaid eligible net regulatory capital is calculated by (the net worth on the most recent financial reports of its branch(es) within the Republic of China or branch(es) established within the Republic of China by its wholly owned subsidiaries) x (net available funds multiplier).
7. The issuer is a foreign institution, and at the time of application to issue call (put) warrants, the inward remittance of capital required for a hedge on the issue (the amount remitted into Taiwan minus the amount not required for a hedge on the issue) is less than the market value of the underlying securities represented by the non-matured listed or OTC-listed call (put) warrants (including the current issue). In addition, where a letter of undertaking stating that the premiums collected for the given issue of warrants will only be remitted into Taiwan after the expiration of the period of validity of the warrant or proof of an existing line of credit at a Taiwan bank in an amount equivalent to the premiums collected on the given issue have not been issued.
8. There are irregular fluctuations in the price of the underlying security within the three months prior to the date of application, and a penalty has been imposed in accordance with the Taiwan Stock Exchange Corporation Rules Governing Implementation of the Stock Market Monitoring System.
9. There is any other factor arising out of the nature of the enterprise or exceptional circumstances that may be deemed to adversely affect the applicant's performance of the option or the price of the underlying securities.
10. There are any of the conditions set forth in Article 8 of these Rules.
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