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Article 19
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A securities firm that provides financial derivatives trading services to customers shall do so with the due care of a good administrator, in accordance with fiduciary obligations, and based on the principle of good faith.
When a securities firm undertakes a financial derivatives trade with a customer other than a professional institutional investor or high net worth juristic person investor, it shall not encourage or induce the customer to conduct trades through borrowing funds or debt financing, and shall establish a system for protection of customer rights and interests based on product suitability, notification and disclosure of product risks, and handling of trading disputes. Trades shall be carried out in accordance with the operating procedures set out under that system.
When a securities firm provides financial derivatives trading services to a customer other than a professional institutional investor or high net worth juristic person investor, the securities firm shall establish a product suitability system, which shall at the least include a set of know-your-customer assessment procedures, customer characteristic assessments, and product characteristic assessments in order to clearly ascertain the customer's investment experience, the status of the customer's assets, the customer's trading objectives, the customer's understanding of the product, and the suitability of the product for trading by the customer.
The customer characteristic assessments and rated assessment results produced by the securities firm under the product suitability system referred to in the preceding paragraph shall be reviewed by an appropriate unit or personnel, and shall be reexamined at least once per year. The assessment results, and any subsequent amendment thereto, must furthermore be confirmed by the customer by affixing its signature or seal of record or by another method agreed upon between the parties.
A securities firm, except as otherwise provided, may not provide an ordinary customer with financial derivatives trading services that exceed the level appropriate to the customer, nor may it sell to an ordinary customer any financial derivative product that is restricted to investment by professional customers or that is a complex high risk product. This restriction, however, does not apply to trades of financial derivatives other than structured instruments that an ordinary customer enters into with a securities firm for hedging purposes.
A securities firm entering into trading of any complex high-risk product with a customer other than a professional institutional investor or high net worth juristic person investor shall fully explain to the customer the important content of the financial derivative products and related services and contracts, including the important parts of the transaction terms and conditions, and shall disclose associated risks. Unless the transaction is made in an automated manner other than in person or the customer disagrees, a record of the above explanation and disclosure shall be retained by audio or video recording.
"Complex high-risk product" in these Regulations means a financial derivative that has more than three settlement or price comparison periods, and that contains an embedded put option, but excluding the following
- Structured instruments.
- Swaps.
- A series of plain vanilla options or forward exchange transactions under a single signing of a contract for multiple transactions, of which the customer may rescind a specific number of the transactions at any time.
- Other types of products as approved by the competent authority.
With respect to a securities firm conducting the business of financial derivatives trades, the compliance requirements, such as product suitability, product risk notification and disclosure, method of audio or video recording, and the types of financial derivatives that may be provided to an ordinary customer, will be prescribed by the TPEx, and will be publicly announced after submission to and approval by the competent authority.
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