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Article 4
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- The parties subject to the early warning under these Rules are categorized in the following seven groups according to the type of their business activities:
- Securities firms engaging in brokerage, underwriting and dealing businesses at the same time
- Securities firms engaging only in securities brokerage
- Financial institutions concurrently acting as securities brokers
- Securities firms engaging in brokerage mainly by accepting engagements from qualified institutional investors for trading of securities
- Qualified securities dealers or underwriters
- Financial institutions dealing in GTSM-traded bonds concurrently only
- Taiwanese branches of foreign securities firms
- Index scores of general risks are given to parties subject to early warning in each group as samples by evaluating the difference of the various index values for an individual securities firm against the average for the sample group and are calculated as follows:
- Either of the two calculations below for index scores may apply depending on the nature of a party:
- The larger the value of an index, the smaller the risk, in which case the following formula is used for calculation of the index scores of an individual securities firm:
Index Value － Average
──────────────────
Standard Deviation
250
×───── ＋75
10
- The smaller the value of an index, the smaller the risk, in which case the following formula is used for calculation of the index scores of an individual securities firm:
Average － Index Value
──────────────────
Standard Deviation
250
×───── ＋75
10
- The highest score is 100 and the lowest score is zero.
- The extreme values outside three standard deviations of each index are excluded.
- Special requirements (rules) on index scores:
- Where the net worth of a securities firm is less than its paid-in capital, its debt to net worth ratio index score is as follows:
- If the ratio of net worth to paid-in capital is below 100% and higher than 90%, its debt to net worth ratio index score is 50 points.
- If the ratio of net worth to paid-in capital is below 90% and higher than 80%, its debt to net worth ratio index score is 40 points.
- If the ratio of net worth to paid-in capital is below 80% and higher than 70%, its debt to net worth ratio index score is 30 points.
- If the ratio of net worth to paid-in capital is below 70% and higher than 60%, its debt to net worth ratio index score is 20 points.
- If the ratio of net worth to paid-in capital is below 60% and higher than 50%, its debt to net worth ratio index score 10 points.
- If the ratio of net worth to paid-in capital is below 50%, its debt to net worth ratio index score is zero.
- If the current ratio, debt to net worth ratio, and ratio of real estate and equipment and non-operating real estate to total assets fail to satisfy the standards established by the Financial Supervisory Commission, the score in each of the indexes is zero. If these indexes satisfy the standards but the score is below 60 points, the score shall be 60 points.
- If the current ratio index is 1.5 times higher but the score is lower than 75 points, the score shall be 75 points.
- If the debt to net worth ratio index is two times lower but the score is lower than 75 points, the score shall be 75 points.
- If the current ratio is 1.2 times lower and the ratio of real estate and equipment and non-operating real estate to total assets is higher than 30%, these two index scores shall be 30 points each. If the current ratio is 1.2 times lower and the ratio of real estate and equipment and non-operating real estate to total assets is higher than 60%, these two index scores shall be 30 points and zero point respectively. If the current ratio is one time lower and the ratio of real estate and equipment and non-operating real estate to total assets is higher than 30%, these two index scores shall be zero point and 30 points respectively.
- If the return on net worth is a positive value but scores below 60 points, the score shall be 60 points.
- The ratio of losses of operating securities assessed by profits and losses based on fair value (including underwriting and dealing) to net worth is a positive value, provided that if the "ratio of the amount of treasury stocks (including underwriting and dealing) to net worth" scores below 60 points, the score shall be 60 points.
- Rating standards and early warnings for securities firms are as follows:
- General risk indexes:
- The weighted scores covering scores of all the monthly scoring indexes shall be the general scores. The fluctuation levels shall be calculated by dividing the standard deviation of the general scores of the securities firm for the preceding 12 months by the average scores (the standard deviation will be adjusted if the score shows signs of growth). The securities firm will be assigned one of four grades based on the evaluation of both its general scores and fluctuation levels. See the attached table for the grading criteria.
- An early warning may be given in the event of a weekly scoring index as below:
- The business dispersion ratio is not less than the average plus two standard deviations, and any of the indexes from Indexes a, b or d is not less than the average plus one standard deviation, or the business dispersion ratio is not less than the average plus three standard deviations.
- The TWSE or GTSM has imposed a delinquency fine of NT$ 60,000 or more for late settlement.
- An early warning may be given in the event of a special risk index as below:
- Ratio of bonds business:
- Warning 1: The index value for the current period is 20% or above.
- Warning 2: The index value for the previous two periods has been 10% or above, or the average of the index value for the previous two periods is 10% or above and the index value for the most current period is higher than that for the previous period.
- Ratio of risk equivalent of money trust and securities trust under wealth management to net self-owned capital: The index value is 20% or above.
- Ratio of risk equivalent in OTC derivatives market to net self-owned capital: The index value is 10% or above.
- Ratio of total dollar amount of firm underwriting that remains available to net worth: The index value is 300% or above.
- Ratio of balance of funds and securities loans and margin transactions by securities firm to net worth: The index value is 100% or above.
- Ratio of balance of subject small-cap stocks in funds and securities loans and margin transactions by securities firm to total balance: The index value is 50% or above.
- Ratio of balance of subject securities whose price is too volatile or trading volume is excessively abnormal in funds and securities loans and margin transactions by securities firm to total balance: The index value is 20% or above.
- Ratio of amount of monthly loss on valuation of issue of call (put) warrants to balance of issued call (put) warrants by end of month: The index value is 20% or above.
- Ratio of risk equivalent in client's funds and securities in securities firm's custody to net self-owned capital: The index value is 20% or above.
- 10. Ratio of profits and losses to net worth of invested businesses: The index value reaches -3% or above.
- Exclusions
- The monthly scoring indexes and general scores do not apply to financial institutions concurrently acting as securities brokers.
- For categories of financial institutions concurrently acting as securities brokers, securities firms engaging in brokerage mainly by accepting engagements from qualified institutional investors for trading of securities, qualified securities dealers or underwriters, and Taiwanese branches of foreign securities firms, the various index values would be listed. An early warning should be given if the value of any single index is notably abnormal and shall be referred to in the selected review (audit).
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