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Amended Article

Title:

Rules Governing the Proprietary Trading of Foreign Bonds by Securities Firms  CH

Amended Date: 2020.09.15 
Article 1     These Rules are adopted pursuant to Article 19-1, paragraph 2 of the Regulations Governing Securities Firms and Article 5, paragraph 1 of the Regulations Governing Securities Trading on the Taipei Exchange.
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Article 4     For the purposes of these Rules, the following terms shall have the following meanings:
  1. "Foreign bonds": means any foreign currency denominated bonds issued outside the Republic of China by a local or a foreign issuer.
  2. "Derivative-based hedging": means any transactions involving financial derivatives that are engaged in by securities firms for hedging purposes, as needed in connection with proprietary trading of foreign bonds.
  3. "Professional Investor": means a professional investor as defined in Article 3, paragraph 3 of the Regulations Governing Offshore Structured Products.
  4. "Non-professional investor": means an investor other than a professional investor as defined in the preceding subparagraph.
  5. "Professional institutional investor": means a professional institutional investor as defined in Article 3, paragraph 3 of the Regulations Governing Offshore Structured Products.
  6. "High net worth juristic person investor": means a high net worth juristic person investor as defined in Article 3, paragraph 3 of the Regulations Governing Offshore Structured Products.
  7. "Professional investor juristic person or fund": means a professional investor juristic person or fund as defined in Article 3, paragraph 3 of the Regulations Governing Offshore Structured Products.
  8. "High-asset customer ": means a high-asset customer as defined in Article 3-1 of the Regulations Governing Securities Firms Accepting Orders to Trade Foreign Securities.
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Article 5-1     The foreign currency denominated structured bonds that a securities firm may trade with high-asset customers shall meet the product criteria set out in Article 17, paragraph 1, subparagraphs 1 to 3 of the Regulations Governing Offshore Structured Products. Unless the securities firm is a designated foreign exchange bank, or a bank's offshore banking branch, that concurrently operates securities dealing business, which are instead subject to the application and operational requirements set out in the Regulations Governing Banks Conducting Financial Products and Services for High-Asset Customers, the securities firm shall meet the following conditions and submit application documentation to the TPEx for review and further forwarding to the competent authority for approval before conducting such trading:
  1. Regulatory capital adequacy ratio: its regulatory capital adequacy ratio reported for the half-year prior to the application shall exceed 200 percent.
  2. Its financial position shall meet any of the following conditions:
    1. Its CPA audited and attested financial report for the most recent period shows a net worth of NT$10 billion or more and also not less than its paid-in capital.
    2. Its CPA audited and attested financial report for the most recent period shows a net worth of NT$7 billion or more and also not less than its paid-in capital, and it makes specific promises to increase substantive investments, business size, and number of employees in Taiwan in the next 3 years, and the overall implementation plan is approved by the competent authority.
  3. Legal compliance:
    1. It has not been subject to any penalty imposed under Article 66, subparagraph 1 of the Securities and Exchange Act or Article 100, paragraph 1, subparagraph 1 of the Futures Trading Act in the last 3 months.
    2. It has not been subject to any penalty imposed under Article 66, subparagraph 2 of the Securities and Exchange Act or Article 100, paragraph 1, subparagraph 2 of the Futures Trading Act in the last 6 months.
    3. It has not been subject to any penalty involving suspension of business activities imposed by the competent authority in the last year.
    4. It has not been subject to any penalty involving partial voidance or revocation of business permission imposed by the competent authority in the last 2 years.
    A securities firm's failure to meet the conditions of subparagraph 3 of the preceding paragraph may be disregarded if it has made corrections as demonstrated by specific evidence.
    If a securities firm that conducts the business under paragraph 1 with the approval of the competent authority has failed to meet any of the applicable requirements for regulatory capital adequacy ratio or net worth set out in paragraph 1 for 2 consecutive months, it shall suspend the conduct of that business and may resume the business only after its regulatory capital adequacy ratio or net worth, as the case may be, has complied with the applicable requirement for 3 consecutive months and approval has been obtained from the competent authority.
    A securities firm granted with approval based on paragraph 1, subparagraph 2, item B to conduct the business under paragraph 1 shall, after the end of a 3-year period starting from the date of approval, report to the competent authority within 5 business days on the implementation of its promised plan to increase substantive investments, business size, and number of employees in Taiwan. If the securities firm fails to fulfill its promises and the failure is of material nature, then unless there is a legitimate reason, the competent authority may revoke its approval to conduct the business under paragraph 1.
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Article 6     Proprietary trading of foreign bonds may be conducted over the counter (OTC) at the securities firm's business premises or through the TPEx's trading system.
    A securities firm shall first apply to the TPEx for registration of a foreign bond and receive approval from the TPEx before trading the foreign bond over the counter. However the preceding restriction does not apply to foreign bonds that have already been registered by other securities firms.
    Where there is a change to the registration data of a foreign bond mentioned in the preceding paragraph, the originally registering securities firm shall complete the updating of the registration data within 5 days after the change has occurred.
    Except as otherwise provided by law or regulation or these Rules, the foreign bonds mentioned in paragraph 2 hereof may not be structured bonds. The information to be registered for a foreign bond shall include its issuer, place of issue, International Securities Identification Number (ISIN), long-term credit rating, denominated currency, date of issue, maturity date, coupon dates, coupon rate, terms for interest and principal repayment, and other early call (put) provisions.
    Before the 10th of each month, the TPEx shall compile relevant information on foreign bonds it has approved for registration in the previous month and submit a report to the competent authority for recordation.
    The trading hours for proprietary trading of foreign bonds by securities firms using negotiated OTC trading are from 9 a.m. to 3 p.m. However, if a securities firm has already adopted internal operating rules for extended trading hours, it may extend its trading hours and publicly announce the extended hours at its place of business or on its website.
    If a securities firm adopts internal operating rules referred to in the preceding paragraph, those rules, and any amendments to them, shall be approved by the chairman of the board of directors.
    Except as otherwise provided by these Rules, when a securities firm conducts proprietary OTC trading of foreign bonds with professional investors other than professional institutional investors, the foreign bonds must comply with the scope of foreign bonds allowed in brokerage trading conducted by securities firms for professional investors as set out in Article 6 of the Regulations Governing Securities Firms Accepting Orders to Trade Foreign Securities. However, if the securities firm meets the requirements of paragraph 1 of the preceding article, when it conducts proprietary trading of foreign bonds with high net worth juristic person investors or high-asset customers, the foreign bonds are not subject to the restriction of Article 6, paragraph 1 of the Regulations Governing Securities Firms Accepting Orders to Trade Foreign Securities with respect to the credit rating of foreign bonds.
    Foreign bonds traded by securities firms in OTC trading with professional institutional investors and high net worth juristic person investors may be foreign currency denominated structured bonds that meet the product criteria set out in Article 17, paragraph 1, subparagraphs 1 to 3 of the Regulations Governing Offshore Structured Products, and, in the case of trading with professional institutional investors, the linked underlyings furthermore may be those described in Article 17, paragraph 2 of the Regulations Governing Offshore Structured Products.
    An offshore banking branch also may engage in OTC trading of foreign currency denominated structured bonds that meet the product criteria set out in Article 17, paragraph 1, subparagraphs 1 to 3 of the Regulations Governing Offshore Structured Products with professional investor juristic persons or funds that have total assets exceeding NT$100 million stated on their financial reports, and, in the case of trading with professional institutional investors, the linked underlyings furthermore may be those described in Article 17, paragraph 2 of the Regulations Governing Offshore Structured Products.
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Article 6-1     The following provisions shall apply with respect to a foreign currency denominated structured bond traded by a securities firm in OTC trading with high-asset customers:
  1. The offshore issuer or guarantor of the foreign currency dominated structured bond shall have its parent company or a branch or subsidiary in the territory of the Republic of China (Taiwan), which shall serve as the domestic agent thereof. The domestic agent shall be jointly and severally liable with the issuer or guarantor for the obligations of the foreign currency denominated structured bond. The domestic agent shall be a securities firm, bank, or insurance company established with the approval of the competent authority.
  2. If the offshore issuer of the foreign currency denominated structured bond is an overseas investee subsidiary or branch of a securities firm or domestic bank, the provisions of Article 6-2, paragraph 2 of the Regulations Governing Securities Firms Accepting Orders to Trade Foreign Securities shall be complied with.
  3. If the securities firm meets the requirements of Article 5-1, paragraph 1, it may trade the foreign currency denominated structured bond meeting the requirements of the preceding subparagraph in OTC trading with professional institutional investors or high net worth juristic person investors.
  4. If the securities firm is a designated foreign exchange bank, or a bank's offshore banking branch, that concurrently operates securities dealing business, the relevant provisions of the Regulations Governing Banks Conducting Financial Products and Services for High-Asset Customers shall also apply.
    The relevant reporting requirements of Article 10 of the Regulations Governing Offshore Structured Products shall apply mutatis mutandis to the aforementioned domestic agent in the territory of the Republic of China (Taiwan) of the offshore issuer or guarantor of the foreign currency dominated structured bond.
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Article 6-2     To trade a foreign currency denominated structured bond with high-asset customers, a securities firm shall agree with or obtain written confirmation from the domestic agent on the following matters:
  1. During the term of the product, in addition to providing product information and marketing materials in English, relevant product information, such as the product's material characteristics, risk profile, and reference prices, shall also be provided in Chinese to investors needing to receive such information in Chinese.
  2. Upon occurrence of an investment dispute involving any liability of the issuer or guarantor, the domestic agent shall assist the securities firm in handling relevant matters and act as the agent for service of process and all other document correspondence with respect to the investment dispute.
  3. Upon occurrence of an event materially affecting the rights and interests of investors, the domestic agent shall produce a plan to address the issue and shall report the plan to the securities firm within 3 days from the occurrence of the event for forwarding to all relevant high-asset customers.
Article 6-3     To trade foreign currency denominated structured bonds with high-asset customers, a securities firm shall establish an appropriate product suitability system, which shall at least include a set of product characteristic assessments, know-your-customer procedures, and customer characteristic assessments, to ascertain whether a product is suitable for trading by a customer.
    To conduct the trading under the preceding paragraph, a securities firm shall establish review standards of its product review panel for the launch of products, review procedures, and monitoring and control mechanisms, and submit them to the board of directors for approval. The monitoring and control mechanisms shall include risk identification, measurement, monitoring and control operations, and handling of product investment disputes.
    When conducting the trading under paragraph 1, if a product is assessed as high risk, a securities firm shall additionally provide customers with a risk disclosure statement to fully explain and disclose the product's conditions and risks. The securities firm may trade the product with a customer only after the customer fully understands its investment risks and signs the risk disclosure statement.
Article 7     Securities firms may conduct proprietary trading of foreign bonds outright or under repurchase or reverse repurchase agreements.
     When securities firms buy or sell foreign bonds over the counter, the counterparties of such transactions shall be limited to professional investors. However, this restriction does not apply to repo transactions.
     When a securities firm engages in foreign bond repo transactions with non-professional investors, the credit rating of the subject bonds shall comply with the provisions of Attachment 1, and the subject bonds also shall meet the following conditions:
  1. The bonds may not be structured bonds, bonds with equity characteristics, or subordinated bonds.
  2. The interest shall be calculated by a fixed rate (which may be zero interest) or a positive floating rate.
Article 16     A securities firm conducting proprietary trading of foreign bonds shall, immediately after the execution of a trade has been confirmed, enter the trade information into the TPEx information system within the deadline and using the format prescribed by the TPEx. However, for a trade that is executed after 5 p.m., the information shall be reported before 5 p.m. on the next business day. The securities firm shall also, within 10 days after the end of each month, enter the month's balance of proprietary trading of foreign currency denominated structured bonds into the TPEx information system using the format prescribed by the TPEx.