|
Article 44
|
When a securities firm operates the business of OTC trading of financial derivatives, it shall establish its risk management system pursuant to the Risk Management Best-Practice Principles for Securities Firms announced and implemented by the TPEx together with the TWSE and the Taiwan Securities Association (TSA) to implement and manage the procedures for identifying, measuring, monitoring, and reporting transaction risks, and shall also comply with the following provisions:
- The securities firm conducting financial derivatives business shall follow appropriate review and approval procedures, and its senior management shall work together with the managerial officers involved in the relevant business to study and adopt a risk management system. Limits on risk tolerance and the use of derivatives shall be regularly reviewed and submitted to the board of directors for examination and approval.
- Financial derivatives business trading operations and settlement operations shall not be concurrently handled by the same personnel. The securities firm shall establish a risk management unit outside of and independent from its trading division to carry out such tasks as identifying, measuring, and monitoring risks. The risk management unit shall regularly report position risks and valuations of gains and losses to the senior management.
- The securities firm shall set the frequency of valuation of financial derivatives positions individually according to the nature of each type of position. In the case of trading positions, valuation shall in principle be carried out in real time or daily marking-to-market. For hedging transactions conducted for the purposes of the securities firm's own business requirements, valuation shall be carried out at least once per month.
- The securities firm shall adopt operational rules for the internal review of new products, with the authority and duties of each relevant department specified therein, and a product review panel shall be formed and consist of managerial officers in charge of finance and accounting, legal compliance, risk control, products, or business units. Before its launching, a new financial derivative shall be subject to review by the product review panel in accordance with the aforementioned rules. When the new product is a complex and high-risk one, it shall be examined by the product review panel and then submitted to the board of directors or the board of managing directors for approval. The securities firm's rules for internal product review shall cover at least the items listed below:
- Review of the nature of products.
- Review of the operational strategy and business policy.
- Review of risk management.
- Review of internal controls.
- Review of accounting methods.
- Review of safeguards of customer rights and interests.
- Review of compliance with laws and regulations and required legal documents.
- The securities firm shall adopt a remuneration and reward system as well as assessment principles for associated persons conducting the financial derivatives business. The system and principles shall avoid a direct connection with the sales performance of specific financial derivatives, and shall incorporate non-financial criteria that include items such as whether there is any violation of applicable laws and regulations, self-regulatory rules, or operating directions, deficiency discovered in an audit, customer dispute, and faithful implementation of know-your-customer procedures; the system and principles shall be approved by the board of directors.
- When formulating its pricing policy for financial derivatives, the securities firm shall take factors such as the position valuation, risk cost, and operating cost of the financial derivatives into consideration, and shall establish internal operating procedures to carefully review the reasonableness of the prices at which the securities firm conducts financial derivative transactions with customers.
- The securities firm shall establish and maintain an effective valuation and control mechanism for financial derivatives to prudently review the reasonableness of the transaction quotation and mark-to-market value of products.
The branch unit established within the territory of the ROC by a foreign securities firm may implement the risk management system in accordance with the provisions of the head office, provided that it shall still comply with the provisions of the preceding paragraph.
The TPEx may carry out special audits on the state of risk management implementation at securities firms or request explanations from securities firms, and when necessary may demand that securities firms take corrective action.
|