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Article NO. Content


Taiwan Stock Exchange Corporation Guidelines for Securities Brokers in Reporting Failed Trades and Defaults by Principals  CH

Amended Date: 2016.03.08 
Categories: Securities Exchange Market > Out-trade
5     Procedures for handling default:
  1. A securities broker reporting on the default of a principal in accordance with Article 91, paragraph 1 of the TWSE Operating Rules shall immediately undertake settlement procedures on behalf of the principal. For handling of securities, or funds for the price thereof, received as a result of settlement, the broker shall engage another securities broker to dispose or purchase securities on the Exchange no later than the first day following the principal's default. Resulting gains or losses shall be handled in accordance with Article 19 of the TWSE Regulations Governing Brokerage Contracts of Securities Brokers.
  2. The securities broker shall make separate reports on defaults on settlement obligations for securities purchased or sold by the same principal, and the total amount of securities, or funds for the price thereof, received through effecting settlement on behalf of the principal shall be entrusted to another securities broker for handling and may not be offset by the securities broker. However, for the same securities traded through the same account on the same reporting day, securities brokers may offset trades of the same volume.
  3. The provisions of the preceding paragraph shall apply to the handling of default in day trades of securities; when making the default reports for the day trades, there is no need to cancel the already reported day trade positions.
  4. When the securities broker engages another securities broker, in accordance paragraph 1, to handle the funds or securities received, and during the period of handling the principal repays to the securities broker the debt owed for the default and any related fees, the reverse transactions may be discontinued, and any balances not yet handled or for which the reverse transaction has not yet been completed may be returned, and the matter thereafter handled in accordance with Point 8.
  5. Following handling of a default in accordance with paragraph 2, the securities broker shall enter information on the handling of the default into the computers of the TWSE, and notify the principal, no later than 10 a.m. on the second business day after the handling of it.
  6. When the default of a principal has been reported in accordance with Article 91, paragraph 3 of the TWSE Operating Rules, the securities broker shall buy back the securities in question from the Exchange in accordance with the time period stipulated under paragraph 6 of the same Article, and thereafter seek compensation from the principal himself.
  7. Where the aggregate number of [shares represented by] the share certificates of securities received by a securities broker handling settlement on behalf of a principal under paragraph 1 during the period of a single breach reaches 5 percent or more of the number of shares of the underlying securities already issued, and furthermore reaches or exceeds the average daily volume of the underlying securities during the 20 trading days prior to reporting of the breach, the securities broker may adopt either of the following measures to handle the breach:
    1. If handling of the breach cannot be completed through reverse transactions during the three consecutive business days from the day next following the date of confirmation of the breach by the principal, the securities broker, by reaching a mutual agreement with the principal or by notice to the principal, may, depending on market conditions, in accordance with the content of the agreement or the notice, complete handling of the breach through reverse transactions within 180 days, and report the agreement or notice to this Corporation via letter for recordation.
    2. The securities broker may reach an agreement with the principal setting a price(s) to serve as the basis for calculating profit/loss, and submit the written agreement reached between the parties to this Corporation via letter for recordation.
  8. If a securities broker fails to handle the default in accordance with the provisions above, the TWSE may, in accordance with Article 136 of the TWSE Operating Rules, notify the broker to take supplemental action or rectify the situation.