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Article 29
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When a securities firm operating the business of financial derivatives related to Taiwan equities needs to trade TWSE listed and TPEx listed stocks and convertible (exchangeable) corporate bonds for hedging purposes, it shall open a hedging account at the TWSE and the TPEx.
The hedging accounts of the preceding paragraph shall uniformly be "888888-1" accounts under the securities dealers' accounts. However, a foreign securities firm that applies to open a hedging account through a branch unit established within the territory of the ROC by a directly or indirectly wholly-owned subsidiary shall establish a dedicated hedging account under the offshore foreign institutional investor account it opened in the ROC.
No securities in the hedging account of paragraph 1 may be made the subject of a pledge, loan, or withdrawal.
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Article 30
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As required for hedging purposes, a securities firm that operates the business of trading financial derivatives related to Taiwan equities may borrow or sell short the underlying security without being subject to the restriction that the price of the securities borrowed or sold short may not be lower than the closing price of the previous business day.
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Article 31
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When the securities firm elects to sell shares of the underlying security by borrowing from security holders in a securities borrowing and lending transaction, if the security is a TWSE listed or TPEx listed stock, it shall first establish a contract for the securities loan in accordance with Article 32-1, paragraph 2 of the Regulations Governing Securities Firms. The lender shall then apply, through its securities firm, to the Taiwan Securities Central Depository Co., Ltd. for a transfer of all loaned shares into the hedge account of the securities firm, or shall first earmark the loaned shares and then, as required for hedging purposes, transfer the shares into the hedge account in separate lots upon application by the securities firm.
When the securities firm elects to short-sell shares in a TWSE or TPEx listed stock, it shall open a margin account with another securities firm or with a non-affiliate securities finance company, and report information relating to such account by letter to the TPEx and the TWSE.
The opening of the aforementioned margin account shall be carried out in accordance with the Operating Regulations for Securities Firms Handling Margin Purchases and Short Sales of Securities and the provisions of the various securities finance companies related to the aforesaid Regulations.
The securities broker at which the aforementioned margin account is opened may only accept short sale orders or buy-to-cover orders from securities firms seeking to hedge financial derivatives and applications to cover short sales with spot securities. When the securities firm uses the margin account to engage in short sales or buy-to-cover transactions for the purpose of hedging, reports of out-trades and account number corrections may not be filed for this account, except in cases where the appointed securities broker has committed an error.
The holders of the underlying security referred to in paragraph 1 may not be any person regulated under Article 22-2, paragraph 1 or 3 of the Securities and Exchange Act.
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Article 32
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For the purpose of stabilizing the price of an underlying security, after closing out the related transaction, a securities firm may make a transfer of the linked underlying stock in the hedge account to its proprietary trading account.
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