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Article 7
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A securities finance enterprise handling securities trading margin purchases and short sales shall sign margin purchase and short sale contracts with its principals and open respective margin accounts.
The content of the contracts of the preceding paragraph shall be prescribed by the securities finance enterprise and reported to the competent authority for approval.
The following items shall be recorded in the margin purchase and short sale contracts:
- The ratio, and the time limit for replenishment, pursuant to the provisions of Article 11.
- Disposition of the collateral pursuant to the provisions of Article 13.
- Utilization of securities and funds, the obligation to deliver the same kind of securities as those utilized, and the interest rate that shall be paid on the proceeds from short sales and the margins for short sales, pursuant to the provisions of Article 15.
- The interest rates for margin purchases and the handling fees for short sales pursuant to the provisions of Article 16.
- Other items the competent authority requires be recorded therein.
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Article 8
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Securities finance enterprises that handle the opening of principals' margin accounts are limited to opening one margin account for any one principal. The principal may only open one margin account through any one securities firm that handles margin purchases and short sales.
A securities finance enterprise that handles the opening of margin accounts for principals shall make a credit search in accordance with the terms of the regulations governing account opening.
The terms governing account opening referred to in the preceding paragraph shall be prescribed by the securities finance enterprises and reported to the competent authority for approval.
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Article 11
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Securities finance enterprises handling securities margin purchases and short sales shall calculate the ratio of the collateral value of each margin account to principals' debts every day, and shall immediately inform principals to replenish any shortfall within a prescribed period if it is lower than the prescribed ratio.
The ratio and time limit for replenishment under the preceding paragraph shall be prescribed by the securities finance enterprise and reported to the competent authority for approval.
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Article 12
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The margin for short sales, and the replenishment of shortfalls pursuant to the preceding article may, be paid in the form of securities or other commodities.
The types of securities or commodities and the standard of payment in the preceding paragraph shall be prescribed by the securities finance enterprise and reported to the competent authority for approval.
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Article 13
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When a margin purchaser or short seller fails to satisfy a margin call pursuant to Article 11 or has failed to satisfy a call after the stipulated date, the securities finance enterprise shall dispose of their collateral immediately. However, this rule does not apply if the two parties have stipulated otherwise.
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Article 14
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When a change in prices results in an increase, after deduction of the principal's debt, in the net collateral value in a principal's margin account, a securities finance enterprise handling margin purchases and short sales may not transfer the increased value to the principal in the form of funds, securities, or commodities, nor may it use such value to offset a margin purchase margin or short sale margin.
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Article 16
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The interest rates for margin purchases and the handling fees for short sales shall be prescribed by the securities finance enterprise and reported to the competent authority for its records.
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Article 19
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If, during the effective duration of a margin purchase or short sale relationship, trading on the securities market is suspended either across the board or for a particular security due to a natural disaster or other extraordinary event and no time has been set for resumption of trading, the securities finance enterprise shall notify the short seller or margin purchaser to close out the margin purchase or short sale by the following means within the agreed period:
- For securities acquired through margin purchase, redemption of the securities by cash payment and withdrawing the securities.
- For securities sold short, redemption by delivery of spot securities in return for the monetary proceeds from the short sale and the margin. However, if the seller is unable to cover the short sale with spot securities, the securities finance enterprise may apply to the stock exchange or the OTC exchange to purchase the securities through public reverse auction. The cost of the reverse auction shall be borne by the short seller.
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