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III.Book Entries for Securities Lending by Securities Firms
- In General
┌─────────┬─────────┬──────────┐
│Recording Time │Lender │Borrower │
├─────────┼─────────┼──────────┤
│1. Securities │1. Securities as │1. Securities │
│Firms Receiving │collateral: No │ received shall be│
│Collateral From │accounting entries│ separately │
│the Borrower For │required. However,│ presented in the │
│Securities lending│the securities │ financial │
│ │firm shall set up │ statements or │
│ │a separate account│ disclosed in the │
│ │ledger for each │ notes. │
│ │customer and │2. Cash Collateral │
│ │record the │Dr.: refundable │
│ │collateral related│collateral for │
│ │transaction │securities lending │
│ │matters on a │Cr.: bank deposits │
│ │transaction-by-tra│ │
│ │2. Cash collateral│ │
│ │Dr.: bank deposits│ │
│ │Cr.: securities │ │
│ │lending refundable│ │
│ │deposits │ │
├─────────┼─────────┼──────────┤
│2. Securities Lent│1. Collateral │Record as a │
│ By the Lender │securities │memorandum entry │
│ │purchased on │ │
│ │margin or lent │ │
│ │securities │ │
│ │borrowed through │ │
│ │the TWSE │ │
│ │securities lending│ │
│ │system: only noted│ │
│ │in the financial │ │
│ │statements but not│ │
│ │recorded in the │ │
│ │accounting books │ │
│ │2. Lent out by │ │
│ │securities held │ │
│ │for its own │ │
│ │account │ │
│ │Dr.: lent │ │
│ │securities │ │
│ │Cr.: operating │ │
│ │securities - │ │
│ │dealing │ │
│ │(underwriting) │ │
│ │or Cr.: securities│ │
│ │invested by │ │
│ │brokers │ │
├─────────┼─────────┼──────────┤
│3. Borrower Sold │NIL │T Day │
│out the Borrowed │ │Dr.: operating │
│Securities │ │securities │
│ │ │Cr.: Liabilities on │
│ │ │sale of borrowed │
│ │ │securities - hedge │
│ │ │(non-hedge) │
│ │ │ │
│ │ │T+2 Day │
│ │ │Dr.: bank deposits │
│ │ │Cr.: operating │
│ │ │securities │
├─────────┼─────────┼──────────┤
│4. End of Month │1. Eg: Gains on │1. Eg: Loss on │
│and Balance Sheet │valuation │ valuation │
│Date │Dr.: valuation │Dr.: losses on │
│1. Lender shall │adjustment on lent│valuation price for │
│value the lent │securities │borrowed securities │
│securities, │Cr.: operating │and securities │
│borrower shall │securities gains -│borrowing and short │
│value the │dealer │sales of bonds with │
│Liabilities on │(underwriter) │reverse repurchase │
│sale of borrowed │or Cr.: gains on │agreements │
│securities │valuation of │Cr.: Liabilities on │
│ │securities │sale of borrowed │
│2. Expense │invested by │securities - hedge │
│(revenue) from │brokers (can │(non-hedge) │
│securities lending│reverse the │valuation │
│estimated and set │valuation at the │adjustments (can │
│aside │beginning of next │reverse the │
│ │month) │valuation at the │
│3. Interest │2. Revenue from │beginning of next │
│expense (income) │securities lending│month) │
│estimated and set │estimated and set │2. Expense incurred │
│aside │aside │ from securities │
│ │Cr.: accounts │ lending estimated│
│ │receivable │ and set aside │
│ │Dr.: revenue from │Dr.: securities │
│ │securities lending│borrowing fee │
│ │3. Interest │Cr.: account payable│
│ │expense estimated │3. Interest income │
│ │and set aside │estimated and set │
│ │Dr.: interest │aside │
│ │expense │Dr.: other account │
│ │Cr.: other account│receivable - │
│ │payable - │non-related parties │
│ │non-related │Cr.: interest income│
│ │parties │ │
├─────────┼─────────┼──────────┤
│5. Collateral │1. Securities as │1. Securities │
│calls made to the │collateral: No │ received shall be│
│borrower as the │accounting entries│ separately │
│collateral ratio │required. However,│ presented in the │
│of the borrower │the securities │ financial │
│account is lower │firm shall set up │ statements or │
│than overall │a separate account│ disclosed in the │
│collateral │ledger for each │ notes. │
│maintenance ratio │customer and │2. Cash Collateral │
│ │record the │Dr.: refundable │
│ │collateral related│collateral for │
│ │transaction │securities lending │
│ │matters on a │Cr.: bank deposits │
│ │transaction-by-tra│ │
│ │2. Cash collateral│ │
│ │Dr.: bank deposits│ │
│ │Cr.: securities │ │
│ │lending refundable│ │
│ │deposits │ │
├─────────┼─────────┼──────────┤
│6. Covering of │- │Dr.: operating │
│securities │ │securities │
│borrowed by the │ │Cr.: bank deposits │
│borrower │ │ │
├─────────┼─────────┼──────────┤
│7. Borrower return│Dr.: operating │Dr.: Liabilities on │
│borrowed │securities - │sale of borrowed │
│securities to the │dealer │securities - hedge │
│lender │(underwriter) │(non-hedge) │
│ │or Dr.: securities│Dr.: losses on the │
│ │invested by │covering of │
│ │brokers │securities borrowing│
│ │Cr.: securities │and short sales of │
│ │lent out │bonds with reverse │
│ │ │repurchase │
│ │ │agreements │
│ │ │Cr.: operating │
│ │ │securities │
│ │ │Cr.: gains on the │
│ │ │covering of │
│ │ │securities borrowing│
│ │ │and short sales of │
│ │ │bonds with reverse │
│ │ │repurchase │
│ │ │agreements │
├─────────┼─────────┼──────────┤
│8. Pay for │Dr.: bank deposits│Dr.: securities │
│expenses in │Cr.: revenue from │borrowing fee │
│related to │securities lending│account payable │
│securities lending│Cr.: account │Cr.: bank deposits │
│ │receivable │ │
├─────────┼─────────┼──────────┤
│9. Lender return │1. Securities as │Cash collateral │
│collateral and pay│collateral: No │Dr.: bank deposits │
│interest for cash │accounting entries│Cr.: refundable │
│collateral │required. However,│collateral for │
│ │the securities │securities lending │
│ │firm shall set up │Cr.: interest income│
│ │a separate account│Cr.: other account │
│ │ledger for each │receivable - │
│ │customer and │non-related parties │
│ │record the │ │
│ │collateral related│ │
│ │transaction │ │
│ │matters on a │ │
│ │transaction-by-tra│ │
│ │2. Cash collateral│ │
│ │Dr.: collateral │ │
│ │deposited for │ │
│ │securities lending│ │
│ │Dr.: interest │ │
│ │expense │ │
│ │Dr.: other account│ │
│ │payable - │ │
│ │non-related │ │
│ │parties │ │
│ │Cr.: bank deposits│ │
└─────────┴─────────┴──────────┘
- Compensation for Entitlements and Subscription Rights to New Shares
┌─────────┬─────────┬──────────┐
│Recording Time │Lender │Borrower │
├─────────┼─────────┼──────────┤
│1. Cash Dividend │A. Lent securities│Dr.: other account │
│ │held for own │receivable - │
│ │account │non-related parties │
│ │Dr.: other account│Cr.: receipts under │
│ │receivable - │custody │
│ │non-related │Dr.: bank deposits │
│ │parties │Cr.: other account │
│ │Cr.: dividend │receivable - │
│ │revenue │non-related parties │
│ │ │ │
│ │Dr.: bank deposits│Dr.: receipts under │
│ │Cr.: other account│custody │
│ │receivable - │Cr.: bank deposits │
│ │non-related │ │
│ │parties │※ Borrowed │
│ │ │securities that are │
│ │※ Borrowed │sold │
│ │securities that │Dr.: loss from │
│ │are sold by the │securities borrowing│
│ │borrower │transactions │
│ │Dr.: other account│Cr.: other account │
│ │receivable - │payable - │
│ │non-related │non-related parties │
│ │parties │Cr.: dividend │
│ │Cr.: revenue from │revenue │
│ │sale of securities│Dr.: other account │
│ │ │payable - │
│ │Dr.: bank deposits│non-related parties │
│ │Cr. other account │Cr.: bank deposits │
│ │receivable - │ │
│ │non-related │ │
│ │parties │ │
│ │ │ │
│ │B. Lend out │ │
│ │securities │ │
│ │borrowed through │ │
│ │lending centers │ │
│ │(borrower will │ │
│ │return to the │ │
│ │dealer, which will│ │
│ │then return to the│ │
│ │lender from the │ │
│ │lending center) │ │
│ │Dr.: other account│ │
│ │receivable - │ │
│ │non-related │ │
│ │parties │ │
│ │Cr.: receipts │ │
│ │under custody │ │
│ │Dr.: bank deposits│ │
│ │Cr.: other account│ │
│ │receivable - │ │
│ │non-related │ │
│ │parties │ │
│ │Dr.: receipts │ │
│ │under custody │ │
│ │Cr.: bank deposits│ │
├─────────┼─────────┼──────────┤
│2. Share Dividend │A. Lent securities│1. Lender choose to │
│ │held for own │ accept return by │
│ │account │ shares │
│ │1. Lender chooses │Make a memorandum │
│ │to accept return │entry on the number │
│ │by shares and make│of share dividend to│
│ │a note of increase│be received. │
│ │in the number of │Make a memorandum │
│ │shares. Decrease │entry on the number │
│ │in unit cost will │of share dividend │
│ │be reflected on │received and return │
│ │the actual unit │the share dividend │
│ │selling price │to the lender. │
│ │ │ │
│ │2. Lender choose │2. Lender choose to │
│ │to accept return │ accept return by │
│ │by cash │ cash │
│ │Dr.: other account│Dr.: share dividend │
│ │receivable - │receivable │
│ │non-related │Cr.: other account │
│ │parties │payable - │
│ │Cr.: revenue from │non-related parties │
│ │sale of securities│Dr.: operating │
│ │3 │securities │
│ │Dr.: bank deposits│Cr.: share dividend │
│ │Cr.: other account│receivable │
│ │receivable - │Dr.: other account │
│ │non-related │payable - │
│ │parties │non-related parties │
│ │ │Cr.: bank deposits │
│ │※ Borrowed │ │
│ │securities that │※ Borrowed │
│ │are sold by the │securities that are │
│ │borrower │sold │
│ │1. Lender chooses │1. Lender choose to │
│ │to accept return │ accept return by │
│ │by shares and make│ shares │
│ │a note of increase│Dr.: loss from │
│ │in the number of │securities borrowing│
│ │shares. Decrease │transactions │
│ │in unit cost will │Cr.: Liabilities on │
│ │be reflected on │sale of borrowed │
│ │the actual unit │securities │
│ │selling price │Dr.: operating │
│ │ │securities │
│ │2. Lender choose │Cr.: bank deposits │
│ │to accept return │Dr.: losses on the │
│ │by cash │covering of │
│ │Record account │securities borrowing│
│ │receivable based │and short sales of │
│ │on stock's │bonds with reverse │
│ │ex-rights │repurchase │
│ │reference price │agreements │
│ │and Cr. revenue │Cr.: operating │
│ │from sale of │securities │
│ │securities │Cr.: gains on the │
│ │Dr.: other account│covering of │
│ │receivable - │securities borrowing│
│ │non-related │and short sales of │
│ │parties │bonds with reverse │
│ │Cr.: revenue from │repurchase │
│ │sale of securities│agreements │
│ │Dr.: bank deposits│ │
│ │Cr.: other account│2. Lender choose to │
│ │receivable - │ accept return by │
│ │non-related │ cash │
│ │parties │Dr.: loss from │
│ │ │securities borrowing│
│ │B. Lenders from │transactions │
│ │the lending │Cr.: other account │
│ │centers choose to │payable - │
│ │accept return by │non-related parties │
│ │cash (borrower │Dr.: other account │
│ │will return to the│payable - │
│ │dealer, which will│non-related parties │
│ │then return to the│Cr.: bank deposit │
│ │lender from the │ │
│ │lending center) │ │
│ │Dr.: other account│ │
│ │receivable - │ │
│ │non-related │ │
│ │parties │ │
│ │Cr.: receipts │ │
│ │under custody │ │
│ │Dr.: bank deposits│ │
│ │Cr.: other account│ │
│ │receivable - │ │
│ │non-related │ │
│ │parties │ │
│ │Dr.: receipts │ │
│ │under custody │ │
│ │Cr.: bank │ │
│ │deposits. │ │
├─────────┼─────────┼──────────┤
│3. Subscription │A. Lent securities│Dealer would not │
│Rights to New │held for own │borrow securities │
│Shares │account │from another dealer │
│ │Dr.: securities │(or companies │
│ │receivable 5 │engaging in the │
│ │Cr.: bank deposits│securities finance │
│ │Dr.: operating │business) but only │
│ │securities │through securities │
│ │Cr.: securities │lending centers. If │
│ │receivable │such lender intends │
│ │ │to subscribe new │
│ │B. Lend out │shares, then he/she │
│ │securities │will pass the fund │
│ │borrowed through │to the borrower who │
│ │lending centers │will then subscribe │
│ │(receive capital │new shares on behalf│
│ │increase share │of the lender. │
│ │price from the │ │
│ │lender from the │※ If the borrower │
│ │lending center, │has not yet sold the│
│ │delivery such fund│borrowed securities │
│ │to the borrower │Dr.: bank deposits │
│ │who will subscribe│Cr.: receipts under │
│ │new shares on │custody │
│ │behalf of the │Dr.: receipts under │
│ │lender) │custody │
│ │Dr.: bank deposits│Cr.: bank deposits │
│ │Cr.: receipts │ │
│ │under custody │※ If the borrower │
│ │Dr.: receipts │has sold the │
│ │under custody │borrowed securities │
│ │Cr.: bank deposits│Dr.: bank deposits │
│ │ │Dr.: loss from │
│ │ │securities borrowing│
│ │ │transactions │
│ │ │Cr.: Liabilities on │
│ │ │sale of borrowed │
│ │ │securities │
│ │ │Dr.: operating │
│ │ │securities │
│ │ │Cr.: bank deposits │
│ │ │Dr.: losses on the │
│ │ │covering of │
│ │ │securities borrowing│
│ │ │and short sales of │
│ │ │bonds with reverse │
│ │ │repurchase │
│ │ │agreements │
│ │ │Cr.: operating │
│ │ │securities │
│ │ │Cr.: gains on the │
│ │ │covering of │
│ │ │securities borrowing│
│ │ │and short sales of │
│ │ │bonds with reverse │
│ │ │repurchase │
│ │ │agreements │
└─────────┴─────────┴──────────┘
2 Tax accounting shall be handled in accordance to Decree No.009600210970 issued by the MOF on August 20, 2007 in related to the tax levied for securities lending. Tax levy for compensation for entitlement shall be handled according to the following principle: if the rights/ dividends are collected by the borrower, income tax is not levied on the borrower (as that is receipts under custody). Cash or the par value of the securities received by the lender is considered share dividend, and any amount calculated based on stock's ex-rights reference price and in excess of the par value is considered revenue from securities lending and are tax free, but nonetheless should be included in the amount of basic income. If the ex-rights/ex-dividends are collected by a third party other than the lender or the borrower, it should be deemed as the borrower has sold the borrowed securities and thus are not considered share dividends. When the borrower returns the compensation for entitlement of dividend to the lender, it should be deemed as the lender has sold his/her revenue form securities lending and should be included in the amount of basic income in accordance to the regulations.
3 In regards to tax accounting when the rights/ dividends are collected by the borrower, the lender's compensation for entitlement of dividend are reimbursed by cash instead, and recording for share dividend should be made based on the par value of the share, and Cr. the residual amount (calculated by the stock's ex-rights reference price minus par value) as share dividend income.
4 "Share dividend receivable", "Share dividend paid on behalf of others" shall be respectively recorded as subsidiary accounts under "101790 Other Financial Assets - current - other" and "201989 Other Financial liabilities - current- other). The securities firms shall set up such subsidiary accounts.
5 "Securities receivable" is the subsidiary account under "101790 Other Financial Assets - current - other". The securities firms shall set up such subsidiary accounts.
- When any of the circumstances referred to in Article 32 of the Operating Rules for Securities Lending by Securities Firms occurs, securities firms lending other securities (the lending party) shall dispose of securities collateral or makes necessary repurchases.
┌─────────┬─────────┬──────────┐
│Recording Time │Lender │Borrower │
├─────────┼─────────┼──────────┤
│1-1 Disposes of │Dr.: securities │Residuals from cash │
│cash collateral │lending refundable│collateral used for │
│delivered by the │deposits │purchasing │
│borrower or makes │Cr.: bank deposits│securities can be │
│necessary │(note: securities │returned to the │
│repurchases │purchasing price) │customer │
│ │Cr.: other account│ │
│ │payable - │If cash collateral │
│ │non-related │is insufficient to │
│ │parties │purchase securities,│
│ │ │the customer will be│
│ │Dr.: securities │notified to make up │
│ │lending refundable│the deficiency │
│ │deposits │within the lime │
│ │Dr.: other account│given │
│ │receivable- │ │
│ │non-related │ │
│ │parties (note: buy│ │
│ │in price) │ │
├─────────┼─────────┼──────────┤
│1-2 Dispose of │Dispose of │Proceeds from │
│securities │securities │dispose of │
│collateral │collateral is │securities │
│delivered by the │presented in the │collateral can be │
│borrower and make │dealer's operating│returned to the │
│necessary │statements but not│customer │
│repurchases │in the accounting │ │
│ │books. │If proceeds from │
│ │ │dispose of │
│ │Dr.: bank deposits│securities │
│ │Cr.: bank deposits│collateral is │
│ │(note: securities │insufficient to │
│ │purchasing price) │purchase securities,│
│ │Cr.: other account│the customer will be│
│ │payable- │notified to make up │
│ │non-related │the deficiency │
│ │parties │within the lime │
│ │ │given │
│ │Dr.: bank deposits│ │
│ │Cr.: other account│ │
│ │payable- │ │
│ │non-related │ │
│ │parties (note: buy│ │
│ │in price) │ │
├─────────┼─────────┼──────────┤
│2. Return of │1. When securities│ │
│Securities │firms lent │ │
│ │securities │ │
│ │borrowed through │ │
│ │the securities │ │
│ │lending system or │ │
│ │collateral │ │
│ │securities │ │
│ │obtained through │ │
│ │handling margin │ │
│ │purchases and │ │
│ │short sales of │ │
│ │securities, as │ │
│ │these will be only│ │
│ │presented in the │ │
│ │financial │ │
│ │statements and not│ │
│ │the accounting │ │
│ │books, then same │ │
│ │procedure shall │ │
│ │apply for dispose │ │
│ │of securities │ │
│ │collateral and │ │
│ │return of │ │
│ │securities. │ │
├─────────┼─────────┼──────────┤
│3. Under Article │Dr.: bank deposits│ │
│33 of the │Cr.: other account│ │
│Operating Rules │receivable- │ │
│for Securities │non-related │ │
│Lending by │parties │ │
│Securities Firms, │Cr.: other │ │
│it shall be deemed│non-operating │ │
│to be in default │revenues and gains│ │
│when the borrower │- other │ │
│fails to make │ │ │
│compensation by │ │ │
│the payment date │ │ │
│for compensation │ │ │
│for entitlements │ │ │
│as prescribed │ │ │
│under Article 32 │ │ │
│paragraph 3 of the│ │ │
│same Rules. As │ │ │
│such, a securities│ │ │
│firm may, from the│ │ │
│default date until│ │ │
│the date of │ │ │
│settlement, │ │ │
│collect a default │ │ │
│penalty of 10 % of│ │ │
│the stipulated │ │ │
│lending rate on │ │ │
│the shortfall │ │ │
│portion. │ │ │
└─────────┴─────────┴──────────┘
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