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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 instrument of its projected warrants issue.
4. When the underlying instrument of the projected issue of warrants is a domestic stock, and the issuer or its directors, supervisors, managers, employees, or shareholders hold 10 percent or more of the issuer's shares, or any of the above hold 10 percent 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 percent or more in the issuing company of the underlying security or any of the issuing companies of the basket of underlying listed securities. But this provision shall not apply to a follow-on issue of call (put) warrants.
5. When the combined total of the issue price of the currently listed, GTSM listed, and GTSM 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:
A.For a domestic issuer:
a.For an issuer assessed under the Operation Directions for Securities Firm Risk Management Assessment Systems and given a level 1 rating, when its combined total exceeds 70 percent of its net eligible regulatory capital.
b.For an issuer assessed under the Operation Directions for Securities Firm Risk Management Assessment Systems and given a level 2 rating, when its combined total exceeds 60 percent of its net eligible regulatory capital.
c. For an issuer assessed under the Operation Directions for Securities Firm Risk Management Assessment Systems and given a level 3 rating, when its combined total exceeds 40 percent of its net eligible regulatory capital.
d. For an issuer assessed under the Operation Directions for Securities Firm Risk Management Assessment Systems and given a level 4 rating, when its combined total exceeds 30 percent of its net eligible regulatory capital.
e.For an issuer that has not been assessed under the Operation Directions for Securities Firm Risk Management Assessment Systems, when its combined total exceeds 40 percent of its net eligible regulatory capital.
B.A foreign issuer's combined total exceeds 60 percent 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.
The aforesaid eligible net regulatory capital of a foreign issuer is calculated by (the allocated operating capital in the most recent financial reports of its branch office(s) within the Republic of China ("ROC") or branch office(s) established within the ROC by its wholly owned subsidiaries) x (net available funds multiplier).
6. When a foreign issuer applies for issuing call (put) warrants, the dollar amount of the hedging funds required to be remitted to the ROC (i.e. the remittance amount less the amount not required for the current hedging) or the collateral supplied to provide a guarantee of performance, in a form such as certificates of deposit or government bonds pledged to the TWSE or a performance guaranty agreement issued by a financial institution, is less than 20 percent of the market value of the underlying securities represented by the non-matured listed or GTSM 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.
7. There are irregular fluctuations in the price of the underlying security within the 3 months prior to the date of application, and a penalty has been imposed in accordance with the TWSE Rules Governing Implementation of the Stock Market Monitoring System, or the underlying security has been the subject of a notice of attention by the TWSE on 2 of the preceding 6 business days.
8. 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 instrument.
9. On the day of application, any financial or transaction indicator of the issuer of the underlying securities is marked with a warning in the Key Financials and Transactional Information Section of the TWSE Market Observation Post System (MOPS), provided that this does not apply in the case of a follow-on issue of call (put) warrants.
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Article 14
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Issuers shall apply to the TWSE to open a segregated account at the time of their initial issue of domestic call (put) warrants and offshore call (put) warrants for which the underlying security is a domestic security. Where the issuer will be self-hedging or partially self-hedging, the account shall be used exclusively for establishing a hedge position after issuance of the warrants and for future performance of obligations when the investors exercise the warrants. Where the issuer entrusts another institution with hedging, the account shall be used for performance of obligations when the investors exercise the warrants, and the risk management institution is also required to open a segregated account with the issuer for the purpose of establishing a hedge position after issuance of the warrants.
The segregated accounts of issuers referred to in the preceding paragraph shall be opened under securities dealer accounts. When an issuer issues domestic call (put) warrants, for hedging needs to which Article 2-3 of the Securities Transaction Tax Act applies, the account number of the aforesaid account of a domestic issuer shall be 888888-8, provided when an issuer issues overseas call (put) warrants, he aforesaid hedging needs do not apply, in which case a domestic issuer's account number shall be 888888-1. Aforeign issuer applying to issue warrants through a branch office established in the territory of the ROC by a subsidiary which is either directly or indirectly wholly-owned shall open such account in the securities brokerage department of that branch office; the segregated hedge account opened with the issuer by the risk management institution shall be opened in the securities brokerage department. The domestic risk management institution's account number shall be 888888-8 when an issuer issues domestic call (put) warrants and888888-9when an issuer issues overseas call (put) warrants. The above-mentioned accounts shall be reported to the TWSE in advance, and may only be used for trading in financial hedging instruments for hedging purpose and in call (put) warrants issued by the issuer itself. In addition, the securities in the segregated hedging account without exception may not be pledged.
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Article 16
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The financial instruments employed by the issuer in warrant hedging shall be the underlying instruments, relevant securities, or financial derivatives.
An issuer's hedge positions in any domestically listed call (put) warrants, contract-based call (put) warrants, structured instruments, equity derivatives, or offshore call (put) warrants with the same underlying instruments may be mutually offset within hedge accounts established for hedging needs to which Article 2-3 of the Securities Transaction Tax Act either applies or does not apply, respectively..
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Article 17
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Trading conducted by the dealing department of the issuer for its own account and hedge trading conducted by it in connection with call (put) warrants issued by it may not affect the fairness of market prices or harm shareholder equity, and an effective internal control system shall be established and executed in connection with such trading.
An issuer of call (put) warrants shall issue a letter of report to the TWSE by the 5th of each month, providing information on purchases and sales of the underlying securities of its issued warrants by its dealing department for the preceding month (including the trading day, the name of the security and the volume of the transaction).
The provisions of the preceding two paragraphs will apply mutatis mutandis to the risk management institutions engaged by issuers using outsourced risk management, and, in the event of a foreign issuer, to the dealing department of its branch office within ROC territory or the dealing department of a branch office established within ROC territory by a directly or indirectly wholly-owned subsidiary of such a foreign institution.
Except where regulations provide otherwise, during the duration of the call (put) warrants, there may be no inter-account transfers of the warrants' underlying security between the issuer's dealing department and positions in the security held in the issuer's hedge accounts.The same also applies to positions in the same underlying securities in hedge accounts established for hedging needs to which Article 2-3 of the Securities Transaction Tax Act applies and does not apply, respectively, except where the issuer of the underlying securities carries out a cash capital increase or issues stock dividends out of capital surplus or reserve.
The "dealing department" referred to in the preceding four paragraphs includes any unit or trading account that is equivalent to a dealing department.
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