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Amended Article

Title：

Regulations Governing the Conduct of Securities Trading Margin Purchase and Short Sale Operations by Securities Firms  CH

Amended Date： 2015.11.26 
Article Content Content Search Article No. Search Legal Basis Subordinate Legislation Amended Article Legislative History Chinese
Article 14     When a securities firm conducts securities margin purchase and short sale business, the total amount of margin purchases, or the total amount of short sales plus securities loaned under Article 22, paragraph 1, subparagraphs 5 to 7, that it provides to customers may not exceed 250% of its net worth.
    When the regulatory capital adequacy ratio of a securities firm conducting margin purchase and short sale business reaches 250% or more for three consecutive months, the total amount of margin purchases, or the total amount of short sales plus securities loaned under Article 22, paragraph 1, subparagraphs 5 to 7,that it provides to customers may not exceed 400% of its net worth.
    If, after a securities firm has proceeded in accordance with the preceding paragraph, its regulatory capital adequacy ratio falls below 250% for two consecutive months and moreover the total amount of margin purchases, or the total amount of short sales plus securities loaned under Article 22, paragraph 1, subparagraphs 5 to 7, that it provides to customers exceeds 250% of its net worth, it shall temporarily suspend margin purchases or short sales for customers or securities lending under Article 22, paragraph 1, subparagraphs 5 to 7. Once the total amount of margin purchases or short sales has fallen below 250% of its net worth or its regulatory capital adequacy ratio has reached 250% for three consecutive months, it may then proceed in accordance with the two preceding paragraphs, respectively.
    When a securities firm conducts margin purchase and short sale business, the total amount of margin purchases that it provides to customers, plus the total amount of any monetary financing that it provides in connection with securities business, may not exceed 400 percent of its net worth; the total amount of short sales and securities loaned under Article 22, paragraph 1, subparagraphs 5 to 7 that it provides to customers, plus the total amount of securities loaned in conducting securities borrowing and lending business, may not exceed 400 percent of its net worth.
    If a securities firm is concurrently operated by a financial institution, the net worth referred to in the preceding four paragraphs shall be calculated based on the specially allocated operations capital; provided that the amount may not exceed the highest net worth of the securities firm referred to in the preceding four paragraphs in the same period and the limit set by the competent authority.
    The ratio referred to in paragraph 1 to paragraph 4 above may be adjusted by thecompetent authority, depending on the domestic economic and financial status and the conditions of the securities market and business of securities firms.
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Article 18     In the event that a customer of a securities firm fails to pay the maintenance margin in accordance with the provisions of paragraph 1 of the preceding Article or fails to settle the transaction within the agreed time limit, the securities firm shall dispose of the collateral. However, this rule does not apply if otherwise stipulated between the parties.
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Article 19     The margin for short sale and the maintenance margin to be made up in accordance with paragraph 1 of Article 17 may be satisfied by the transfer of securities or other commodities.
    The types and the standards for transfer of securities or other commodities referred to in the preceding paragraph shall be prescribed by stock exchange and OTC exchange and reported to the competent authority for approval.
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Article 20     When a securities firm conducts securities margin purchase and short sale business, if due to price fluctuation the net value of the collateral in a customer's margin account less the customer's debit balance increases, the securities firm may not deliver to the customer the money or securities or commodities equivalent to the excess equity or apply such excess against the margins required for margin purchase or for short sales.
Article 22     In conducting margin purchase and short sale business, a securities firm shall not use securities for any purpose other than those listed below and shall deposit the securities in the central depository:
  1. As a source of securities for conducting short sale business.
  2. As collateral for refinancing of funds or securities by securities finance enterprises.
  3. As a source of securities to lend in conducting securities lending and borrowing business.
  4. As collateral for borrowing securities through the TWSE securities lending system.
  5. To lend to a securities firm or securities finance enterprise conducting securities borrowing and lending business as a source of securities for conducting securities borrowing and lending business or securities margin purchase and short sale business.
  6. To lend through the TWSE securities borrowing and lending system.
  7. To participate in competitive auction lending transactions or negotiated lending transactions conducted by a securities finance enterprise.
    A securities firm using securities referred to in the preceding paragraph shall be responsible for delivering securities of the same type upon settlement of margin purchases and short sales.
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Article 23     A securities firm conducting margin purchase and short sale business shall cease providing short sales or loans when the combined total balance of short sales of any given type of securities plus the balance of loans of that type of securities in securities lending business, and the balance of loans under paragraph 1, subparagraphs 5 to 7 of the preceding article reaches the combined total amount of all of the following amounts for the given type of securities:
  1. The balance of margin purchases of that type of securities.
  2. The securities firm's own holdings of that type of securities.
  3. Borrowings made from the Stock Exchange securities lending system of that type of securities.
  4. Securities borrowed from customers in conducting securities borrowing and lending business.
  5. Securities borrowed from securities firms or securities finance enterprises conducting securities borrowing and lending business or securities margin purchase and short sale business.
     A securities firm that borrows securities from a securities firm or securities finance enterprise conducting securities borrowing and lending business shall allocate on a monthly basis a performance bond that accounts for a certain percentage of the total monetary amount of the borrowed securities.
     The performance bond under the preceding paragraph shall be deposited with the TWSE. The regulations governing the deposit, custody, payment, and return of the performance bond shall be jointly drafted by the TWSE and TPEx, and submitted to the competent authority for final approval.
Article 26     When a customer makes full payment and settlement, the securities firm conducting margin purchase and short sale business shall deliver to the customer the stocks acquired by the customer through the margin purchase or the monetary proceeds from the short sale together with the margin or the securities or commodities transferred for collateral.
Article 31     These Regulations shall be in force from the date of issuance, with the exception of Articles 18 to 20, and 26, amended and issued on 26 November 2015, which shall be in force from 30 November 2015, and Articles 14, 22 and 23, which shall be in force from 1 February 2016.