Title：Accounting Treatment of Securities Borrowing and Lending Transactions by Securities Firms（2009.08.12）
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Categories：
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Securities Exchange Market > Borrowing of Securities
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1
I.Accounting Principles
- Legal Basis
These accounting treatment rules are specific rules regulating "securities borrowing and lending transaction," specified under Regulations Governing Securities Lending by Securities Firms: Chapter III Lending of Other Types of Securities and Taiwan Stock Exchange Corporation Securities Borrowing and Lending Rules.
- Sources of Securities for Lending
Other securities lending by securities firms came from three sources (pursuant to Article 22 of the Regulations Governing Securities Lending by Securities Firms) including: securities held for its own account, securities borrowed through the securities lending system of a securities exchange and collateral securities obtained in connection with customer margin purchases when conducting securities trading margin purchase and short sale business. To proceed with lending securities held for its own account (including operating securities possessed by dealers and underwriters, and securities invested by brokers) the original account name should be changed to "lending securities" and price as of the valuation date should be based on the fair value. Gains and losses shall be recorded under the original account prior to the lending of securities. As for the latter two sources of securities for leading, if the securities firms have not made entries into accounts (only recorded as a memorandum entry and would only record as "payable securities" when the securities firm sold the borrowed securities), and that the collateral securities obtained when conducting securities trading margin purchase and short sale business are perceived as collateral received from customers; then those securities are not recorded as the securities firm's assets (provided that a separate account ledger should be set up for each customer to control the entries). Accordingly, the latter two sources of securities will be described in the securities firm's operational statements but not recorded as accounting entries.
- Collateral
No accounting entries are needed if the collateral received from other securities lending by securities firms (pursuant to Article 25 of the Regulations Governing Securities Lending by Securities Firms) are securities, provided that the securities firm shall set up a separate account ledger for each customer and record the collateral related transaction matters on a transaction-by-transaction basis as prescribed under Article 9 of the Operating Rules for Securities Lending by Securities Firms. In the event of cash collateral, it should be recorded in the "securities lending refundable deposits" account under the current liabilities. When securities are provided by the borrower as collateral, they shall be separately presented in the financial statements or disclosed in the notes. In the event of cash collateral, it should be recorded in the "securities borrowing margin" account under the current assets. Cash collateral should be recorded as excess interest (revenue) on an accrual basis.
- Income from securities lending, Service Fee and Default Penalty
Income from securities lending and service fee received from other securities lending by securities firms should be recorded as "income from securities lending". Also, default penalties received from borrowers in pursuant to Article 33 paragraph 2 of the Operating Rules for Securities Lending by Securities Firms should be recorded as "other non-operating revenues and gains - other".
- Selling and Returning of Borrowed Securities by the Borrower
Securities borrowed by the borrower are only recorded as a memorandum entry. When the borrowed securities are sold, they should be recorded as "Liabilities on sale of borrowed securities" in accordance to the selling price, price as of the valuation date should be based on the fair value of the borrowed securities and any price difference should be recorded as "gain on valuation of borrowed securities and bonds with resale agreement -short sales". Securities purchased in the market by the borrower for purpose of returning should be recorded as "operating securities" and make entries as "gains (losses) on the covering of securities borrowing and short sales of bonds with reverse repurchase agreements" when actually returned to the lending securities firms. Securities firms carry out securities lending with securities held for its own account should off set "lent securities" when the borrower returned the borrowed securities and make record in the original account.
- Collateral Calls Made to the Borrower
When the value of the collateral is insufficient to cover the securities loan and the securities firms made collateral calls in order to increase the overall value of the collateral, the process shall comply with paragraph III above. Collateral calls paid by cash shall comply with accounting principles for cash collateral. A separate account ledger for each customer should be set up for collateral calls paid by securities and collateral related transaction matters should be recorded on a transaction-by-transaction basis.
- Compensation for Entitlement of Dividends During the Term of a Securities Loan
When customers purchased securities on margin and offered the same for short sales, if the issuing company is forced into a lock up period as a result of distributing stock dividend, cash dividend and shareholders' meeting, the short sales account shall satisfy the requirement of returning the borrowed securities in order to effect title transfer. Therefore, if securities firms purchased securities on margin and used the same as lending securities, they should carry out self-scheduling tasks such as requesting for early return of borrowed securities, borrowing securities through securities lending centers or return securities by securities held for its own account in order to facilitate title transfer, so that there can be no situations such as compensation for entitlements or that the short sales account cannot exercise its subscription rights to new shares. Where securities firms return securities to short sales account through borrowed securities or securities held for its own account, compensation for entitlements should be made to the same securities firms which lent out the securities, and such securities firms should make different accounting entries based on whether the lent securities are borrowed from securities lending centers or held on its own account. For the compensation for entitlements arising out of securities held for the securities firms' own account, they should be recorded as dividend revenue or gain on selling of securities. For the compensation for entitlements arising out of securities borrowed from the securities lending centers, as the lending securities firms are also the borrower to the securities lending centers, such compensation for entitlements shall be returned to the lender of the securities lending center and be considered as payments or receipts under custody.
- Subscription Rights to New Shares During the Term of a Securities Loan
【Lender】
When the securities loaned by the securities firm carry subscription rights to new shares and the securities firm intends to subscribe, the securities firm shall deliver the subscription price to the customer before the expiration of the subscription period as stipulated, and at the same time Dr. as "securities receivable" and Cr. as "bank deposits".
【Borrower】
Borrowers should merely record as loans for cash capital increase collected and paid on behalf of others on the payment date for the lender's new shares subscription. If the borrower sold the borrowed securities but has purchased in the market securities equivalent to the price of cash capital increase, then a credit entry as "Liabilities on sale of borrowed securities" should be made based on the actual purchase price, and any price difference should be recorded as "loss from securities borrowing transactions". If the borrower did not purchase securities equivalent to the price of cash capital increase on the payment date for the lender's new shares subscription, then a Cr. entry as "Liabilities on sale of borrowed securities" should be made based on the closing price of the said payment date, and any price difference should be recorded as "loss from securities borrowing transactions". The price difference between the actual purchase price of securities equivalent to the price of cash capital increase and the aforementioned closing price on the payment date should be recorded as "losses on covering of borrowed securities and bonds with resale agreement -short sales".
2
II.Presentation of the Financial Statements
- Balance Sheet
┌──────┬─────────────┬┬────────┐
│Account │Explanation ││Amount │
├──────┼─────────────┼┼────────┤
│Current │ ││ │
│Asset │ ││ │
├──────┼─────────────┼┼────────┤
│Refundable │Original account entry was││XX │
│Collateral │101460 securities lending ││ │
│for │collateral, change the ││ │
│Securities │account entry in Chinese. ││ │
│Lending │ ││ │
├──────┼─────────────┼┼────────┤
│Lent │Add new account 101043 as ││XX │
│securities 1│a subsidiary account for ││ │
│ │"financial assets held for││ │
│ │trading - current". ││ │
├──────┼─────────────┼┼────────┤
│Valuation │Newly added account 101044││XX │
│adjustment │ ││ │
│on lent │ ││ │
│securities │ ││ │
├──────┼─────────────┼┼────────┤
│Other │Existing account 101790, ││XX │
│financial │e.g.: "dividend ││ │
│assets - │receivable", "securities ││ │
│current - │receivable". Securities ││ │
│other │firms should set up ││ │
│ │subsidiary accounts. ││ │
├──────┼─────────────┼┼────────┤
│Current │ ││ │
│Liabilities │ ││ │
├──────┼─────────────┼┼────────┤
│Other │Existing account 201989, ││XX │
│Financial │e.g.: "dividend payable", ││ │
│Liabilities │"securities receivable". ││ │
│- current - │Securities firms should ││ │
│other │set up subsidiary ││ │
│ │accounts. ││ │
├──────┼─────────────┼┼────────┤
│Securities │Newly added account 201340││XX │
│lending │ ││ │
│refundable │ ││ │
│deposits │ ││ │
├──────┼─────────────┼┼────────┤
│Liabilities │Existing account 201420 ││XX │
│on sale of │(201450) ││ │
│borrowed │ ││ │
│securities -│ ││ │
│Hedging │ ││ │
│(non-hedging│ ││ │
│) │ ││ │
├──────┼─────────────┼┼────────┤
│Valuation │Existing account 201440 ││XX │
│adjustment │(201470) ││ │
│on │ ││ │
│liabilities │ ││ │
│on sale of │ ││ │
│borrowed │ ││ │
│securities │ ││ │
│(Non-hedge) │ ││ │
└──────┴─────────────┴┴────────┘
1 "Lent securities" is a subsidiary account under "financial assets held for trading - current". Whether they are "operating securities" or "investment on own funds" can be shown by the format used: format 1 for operating securities and format 3 for other securities. In this way, the applicable limits can be controlled.
- Income Statement
┌──────┬─────────────┬┬────────┐
│Account │Explanation ││Amount │
├──────┼─────────────┼┼────────┤
│Income and │ ││ │
│Revenue │ ││ │
├──────┼─────────────┼┼────────┤
│Revenue from│Newly added account ││XX │
│Securities │403000, which is revenue ││ │
│Lending │and service fee collected ││ │
│ │from the borrower by the ││ │
│ │lender ││ │
├──────┼─────────────┼┼────────┤
│Interest │Existing account 421000, ││XX │
│income │borrower makes record ││ │
├──────┼─────────────┼┼────────┤
│Other non-op│Existing account 440999, ││XX │
│erating │default penalty collected ││ │
│revenues and│from the borrower ││ │
│gains-other │ ││ │
├──────┼─────────────┼┼────────┤
│Gains on the│Existing account 421610, ││XX │
│Covering of │borrower makes record ││ │
│Securities │ ││ │
│Borrowing │ ││ │
│and Short │ ││ │
│Sales of │ ││ │
│Bonds with │ ││ │
│Reverse │ ││ │
│Repurchase │ ││ │
│Agreements │ ││ │
├──────┼─────────────┼┼────────┤
│Gains on │Existing account 421610, ││ │
│Valuation │borrower makes record ││ │
│Price for │ ││ │
│Borrowed │ ││ │
│Securities │ ││ │
│and │ ││ │
│Securities │ ││ │
│Borrowing │ ││ │
│and Short │ ││ │
│Sales of │ ││ │
│Bonds with │ ││ │
│Reverse │ ││ │
│Repurchase │ ││ │
│Agreements │ ││ │
├──────┼─────────────┼┼────────┤
│Loss and │ ││XX │
│Expense │ ││ │
├──────┼─────────────┼┼────────┤
│Securities │Existing account 530330, ││XX │
│borrowing │which is paid by the ││ │
│fee │borrower to the lender ││ │
│ │including securities ││ │
│ │borrowing fee and service ││ │
│ │fee ││ │
├──────┼─────────────┼┼────────┤
│Loss from │Newly added account ││XX │
│securities │521620, where the borrowed││ │
│borrowing │securities are sold, the ││ │
│transactions│borrower shall record loss││ │
│ │based on the value of the ││ │
│ │distributed cash dividend ││ │
│ │or share dividend, or any ││ │
│ │price that is in excess of││ │
│ │the price on the payment ││ │
│ │date for new share ││ │
│ │subscription ││ │
├──────┼─────────────┼┼────────┤
│Interest │Existing account 521200, ││XX │
│Expense │lender makes record ││ │
├──────┼─────────────┼┼────────┤
│Losses on │Existing account 521600, ││XX │
│the Covering│borrower makes record ││ │
│of │ ││ │
│Securities │ ││ │
│Borrowing │ ││ │
│and Short │ ││ │
│Sales of │ ││ │
│Bonds with │ ││ │
│Reverse │ ││ │
│Repurchase │ ││ │
│Agreements │ ││ │
├──────┼─────────────┼┼────────┤
│Losses on │Existing account 521610, ││XX │
│Valuation │borrower makes record ││ │
│Price for │ ││ │
│Borrowed │ ││ │
│Securities │ ││ │
│and │ ││ │
│Securities │ ││ │
│Borrowing │ ││ │
│and Short │ ││ │
│Sales of │ ││ │
│Bonds with │ ││ │
│Reverse │ ││ │
│Repurchase │ ││ │
│Agreements │ ││ │
└──────┴─────────────┴┴────────┘
3
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. │ │ │
└─────────┴─────────┴──────────┘
4
IV.Accounting Examples of Lending of Securities by Securities Firm
【Precedent 1】Borrower applies to the securities firm for securities lending
【Precedent 2】Borrower of securities receives rights/ dividends (or subscription rights of new shares) of the underlying securities (Borrower has not sold securities before the ex-rights/ex-dividends date.)
【Precedent 3】Third party receives rights/ dividends (or subscription rights of new shares) of the underlying securities (Borrower has sold securities before the ex-rights/ex-dividends date.)
【Precedent 4】Borrower fails to provide required supplementary collateral
(see attachment for the Precedent 1~4)