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Article 11
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A securities firm applying for operating the business of OTC trading of financial derivatives shall meet the following requirements:
- It must be an integrated securities firm that concurrently engages in brokerage, underwriting, and dealership business.
- Its CPA audited or reviewed financial report for the most recent period shows net worth not lower than paid-in capital, and its financial condition meets the provisions of Articles 13, 14, 16, 18, 18-1 and 19 of the Regulations Governing Securities Firms.
- It must have reported a regulatory capital adequacy ratio for each month of the preceding half year that meets the requirements of the competent authority.
- It must not have received of any of the following sanctions:
- Any sanction during the preceding 3 months equal to or greater than provided in Article 66, subparagraph 1 of the Securities and Exchange Act or Article 100, paragraph 1, subparagraph 1 of the Futures Exchange Act.
- Any sanction during the preceding 6 months equal to or greater than those under Article 66, paragraph 1, subparagraph 2 of the Securities and Exchange Act or Article 100, subparagraph 2 of the Futures Trading Act.
- Any sanction from the competent authority during the preceding year requiring a suspension of business.
- Any sanction from the competent authority during the preceding 2 years voiding approval for any part of its business.
- Any sanction during the preceding year whereby the TPEx, the Taiwan Stock Exchange Corporation, or the Taiwan Futures Exchange Corporation, acting pursuant to its operating Regulations or corporate bylaws, has suspended or restricted the firm's trading privileges.
A securities firm that falls out of compliance with the conditions of subparagraph 4 of the preceding paragraph but that effects improvement and subsequently receives approval from the competent authority shall not be subject to the restrictions of that subparagraph.
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Article 12
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A foreign securities firm intending to apply for operating the business of OTC trading of financial derivatives shall furnish an approval letter or a performance undertaking from its board of directors, and shall then have an application submitted to the TPEx in the name of the foreign securities firm via a branch unit in the territory of the ROC, or via a branch unit established in the territory of the ROC by its directly or indirectly wholly-owned subsidiary. The foregoing branch unit in the territory of the ROC shall meet the qualification requirements set out in the preceding article, but for the regulatory capital adequacy ratio requirement, it may substitute the ratio of its head office, provided that the head office meets a standard similar to the requirement of paragraph 1, subparagraph 3 of the preceding article.
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Article 37-1
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A securities firm operating the business of options on convertible (or exchangeable) corporate bond asset swaps ("asset swaptions") related to Taiwan equities shall do so in compliance with the following provisions:
- The securities firm shall confirm that the total of the unearned notional principal of asset swaptions with the same underlyings purchased by the customer from various financial institutions, plus the notional principal of the asset swaptions with the same underlyings currently being purchased by the customer shall not exceed 10 percent of the par value of the underlying convertible (or exchangeable) corporate bonds; the securities firm shall obtain a written statement issued by the customer of compliance with the aforesaid requirement, and shall not help the customer to evade the customer transaction ceiling in this subparagraph.
- The securities firm shall not help the customer or underwriter to evade the rules set out in Articles 27 and 43-1 of the Taiwan Securities Association Rules Governing Underwriting and Resale of Securities by Securities Firms.
- With respect to the reasonableness of the price of convertible (or exchangeable) corporate bonds purchased through OTC negotiated trading, the securities firm shall establish an internal evaluation system to analyze the difference from market prices.
- With respect to the business of convertible (or exchangeable) corporate bonds asset swaptions related to Taiwan equities, the securities firm shall establish an internal evaluation system for the prevention of illegal transactions.
The securities firm shall incorporate the provisions of the preceding paragraph into its internal control and internal audit items. It shall undertake regular review and analysis, and produce records for future audit or inspection.
Purchases made by the customer and his or her spouse, minor children, and nominees shall be included in the calculation of the ceiling set out in paragraph 1, subparagraph 1.
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Article 39
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A securities firm engaging in financial derivatives business may not damage fair market price formation or investor rights and interests when conducting hedging operations or when calculating product gains or carrying out settlement upon cancellation or expiration. The securities firm shall formulate and implement an effective internal control system addressing the aforementioned considerations.
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Article 40
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A securities firm that operates OTC financial derivatives transactions may not use any such transaction, on its own behalf or on behalf of a customer, for the purpose of merger or acquisition, or to otherwise engage in an unlawful transaction, and it may not use any such transaction to embellish or manipulate financial statements by, for example, deferring or concealing losses, falsely reporting earnings, or recognizing earnings early. In options transactions, the securities firm shall take care to avoid using premiums (especially for long-term or extremely short-term options) to embellish financial statements.
A securities firm shall stipulate with the customer that the customer may not refuse a request from the competent authority for review of relevant data (including data on the ultimate beneficial owner) for the purpose of market regulation.
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Article 54
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When any of the following circumstances applies to a securities firm, the TPEx may impose a penalty of not less than NT$50,000 and not more than NT$3 million.
- Violation of Article 5, Articles 8 to 10, Article 37-1, paragraph 1, subparagraph 2, Article 39, or Article 40.
- Failure to take supplementary or corrective action within the time period prescribed in the preceding article.
- A violation of these Regulations or of related TPEx Regulations that has a material effect on the rights and interests of investors or orderly trading in the market.
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