Once a fixed-price or competitive bid transaction is executed through matching by the TWSE of corresponding borrowing and lending quotes, a securities loan agreement shall then come to existence and take effect between the borrower and the lender concerned. From the time the transaction is executed through such matching, the TWSE will undertake obligations in the place of both the borrower and the lender, for which it also acquires the corresponding claims in relation to the same subject matter, and assume the claims of the borrower against the lender, and also of the lender against the borrower, thereby acting as the counterparty to both the borrower and the lender in that transaction. In such capacity, the TWSE will guarantee the performance of the loan agreement pursuant to these Rules and have responsibility for giving notice to the central securities depository to proceed with the receipt and delivery of the subject securities underlying the loan transaction (hereinafter, the "subject securities"), the receipt and deposit of collateral supporting the borrowing of securities ("loan collateral") and any further procedures in relation to marking-to-market, return or redelivery, and entitlement compensation. Any loan collateral thus received by the TWSE shall be held for the benefit of the lender and not constitute the property of the TWSE.
In the case of a negotiated transaction, the TWSE shall not be responsible for guaranteeing the performance of the loan agreement or any obligation, and the borrower and the lender shall handle such issues as the receipt and deposit, marking-to-market, and return between themselves regarding the loan collateral; the TWSE will only assume the responsibility that, upon confirmation that the loan terms and conditions reflected in the report on the execution of the lending transaction entered into the TWSE securities lending system are consistent with those reflected in the corresponding report on the execution of the borrowing transaction entered, it shall give notice to the central securities depository to effect a book-entry transfer for the delivery, return, and compensation of any entitlement arising from the securities, as the case may be.
In view of any risk of loss it might incur when taking action to buy in securities for return of a securities loan, the TWSE shall set aside a reserve from, and of a certain percentage of, each loan service fee it receives, and in the event of deficiency, it shall pay out of its own funds.