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Article 52
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Where a securities firm charges a customer a short sale fee, expenses incurred from refinancing from a securities finance enterprise due to a shortfall in the security shall be borne by the securities firm.
Where a securities firm charges a customer a short sale handling fee, the various fees and expenses required for any competitive bid loan, negotiated transaction, or purchase by tender offer conducted by a securities finance enterprise shall be borne by the customer. The securities firm shall further calculate pursuant to the following principles for short sellers the fees and expenses for each share of the security sold short based on the short balance for that security for which a short sale handling fee is charged, on the date the shortfall in the security occurs, and then collect payment from each short seller in the short sales in an amount determined by the number of shares it sells short:
- If the margin balance is larger than or equal to the short balance of the security for which a short sale handling fee is charged, and the balance of Borrowed Securities and Proprietary Securities is smaller than the balance of securities lent through securities lending, securities lent to securities firms and securities finance enterprises conducting money lending in connection with securities business, and securities lent through the TWSE securities lending system ("Lending Balance") plus the short balance for which a short sale fee is charged, the short seller does not have to bear the fees.
- If the margin balance is smaller than the short balance for which a short sale handling fee is charged, and the balance of Borrowed Securities and Proprietary Securities is larger than or equal to the Lending Balance plus the short balance for which a short sale fee is charged, the short seller shall bear the fees in full.
- If the margin balance is smaller than the short balance for which a short sale handling fee is charged, and the balance of Borrowed Securities and Proprietary Securities is smaller than the Lending Balance plus the short balance for which a short sale fee is charged, the short seller shall bear a proportion of the fees as calculated pursuant to the following formula:
(short balance for which a short sale handling fee is charged - margin balance)/[(short balance for which a short sale handling fee is charged - margin balance) + (Lending Balance + short balance for which a short sale fee is charged) – (balance of Borrowed Securities and Proprietary Securities)]
The securities firm may collect the fees and expenses receivable under the preceding paragraph by deducting the amount from the short sale collateral funds in the customer's margin account.
During the suspension or halting of trading of the securities, if there is a difference in the number of the securities, the securities firm may borrow from the securities finance company. The securities finance company may purchase securities by tender offer according to Chapter 3 of the TWSE Rules Governing Purchase of Listed Securities by Reverse Auction or according to Chapter 3 of the TPEx Rules Governing Reverse Auction of TPEx Listed Securities in the event of inadequate sources of securities.
For shares of securities obtained and distributable as a result of a securities finance enterprises conducting a purchase by tender offer, the securities firm shall distribute the shares to those short sellers who have a short balance for which a short sale handling fee is charged in the security, on the date the security falls short, in a quantity decided on a pro rata basis in accordance with the principles of paragraph 2 and rounded to an integral trading unit, for them to buy in to cover their short positions; any quantity remaining after the distribution shall further be distributed to these short sellers in the order of the size of the decimal portion of their respective distributable quantity, and if for a decimal number there are multiple short sellers, to one or more of them determined by drawing lots.
Where two or more tender offer purchases are conducted [to cover securities shortfalls arising in the course of short sale operations], the dollar amounts of the purchases that are allocable to the short sellers shall be calculated by the weighted average method.
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