A dedicated account shall be established for management of the collateral under paragraph 2, subparagraph 1 of the preceding article. The collateral may only be New Taiwan Dollars. Offshore overseas Chinese and foreign nationals, however, may provide a collateral in foreign currency. The types of foreign currency are limited to US Dollar, Euro, Japanese Yen, British Pound, Australian Dollar and Hong Kong Dollar). Dedicated accounts for foreign currency collateral shall be established at banks that have been approved by the Central Bank to handle foreign exchange business ("designated banks").
Securities firms shall abide by the following provisions when accepting foreign currency collateral:
If a securities firm uses foreign currency collateral when making interest rate swaps, then in addition to observing the self-regulatory rules of the Taiwan Securities Association, the securities firm shall also handle the swaps in accordance with the following provisions, and the following provisions shall be made part of the securities firm's internal control system:
- Foreign currency collateral may be returned to customers only in the original currency, and may not be converted to New Taiwan Dollars.
- Foreign currency collateral shall be only in the form of bank deposits and used only as a source of funds of securities business money lending by offshore securities branches and as needed for carrying out securities lending business, and only as collateral for securities lending through the TWSE securities lending system.
- The collateral value of foreign currency collateral will not be discounted.
- The exchange rate a securities firm uses for marking foreign currency collateral to market shall be the foreign currency rate posted by the designated bank at which the securities firm opened the dedicated foreign currency deposit account or the exchange rate for marking the foreign currency to market that is publicly announced through the TWSE securities lending system.
A securities firm shall file information on its utilization of cash collateral for recordation with the TWSE during the following month, along with the filing of its monthly accounting summary.
- Swaps may only be carried out with designated banks, and any New Taiwan Dollars obtained must first be transferred into the dedicated New Taiwan Dollar cash collateral account before being otherwise utilized.
- "Utilization" under the preceding paragraph shall be restricted to the uses set out Article 14, paragraph 1 of the Regulations Governing Securities Lending by Securities Firms.
- Interest rate swaps among foreign currencies shall be handled by offshore securities branches.