Taiwan Stock Exchange - Rules & Regulations Directory

Title：Rules Governing Rating of Issuers of Call (Put) Warrants（2022.11.10）

Categories：	Primary Market > Review Securities Exchange Market > Trading > Call (Put) Warrants

Article 1
These Rules are established according to Article 12-1 of the Taiwan Stock Exchange Corporation (hereinafter referred to as "TWSE") Rules Governing Review of Call (Put) Warrant Listings and Article 12-1 of the Taipei Exchange (hereinafter referred to as "TPEx") Rules Governing the Review of Call (Put) Warrants for Trading on the TPEx.

Article 2
For the purposes of discrepancy management of issuers of call (put) warrants, the TWSE and TPEx will give a quarterly rating according to the indicators listed in Article 3.

Article 3
The indicators and weight of ratings of issuers of call (put) warrants are as follows:
Indicator and weight of turnover rate:

The average daily turnover rate of the issuer's listed (TWSE/TPEx) warrants reaches 30%.
Indicators and weight of the quality of market making:

The standard deviation of the implied volatility of each day's two-week best warrant in a purchase order (hereinafter referred to as "Standard Deviation of TWBIV") reaches 30%.
The price difference ratio of buy and sell of the best warrant in a purchase and sale order each day (hereinafter referred to as "Daily Price Difference Ratio of Buy and Sell") reaches 20%. If the Daily Price Difference Ratio of Buy and Sell is lower than 0.5%, it will be deemed 0.5%.
The amount of the best warrant in a purchase order (hereinafter referred to as "Daily Best Buy Amount") reaches 20%. If the Daily Best Buy Amount is higher than $500,000, it will be deemed $500,000.

Article 4
The data source and scope of ratings of issuers of call (put) warrants include the following:

The transaction amount of the issuer's listed (TWSE/TPEx) warrants.
The market value of the issuer's listed (TWSE/TPEx) warrants.
From the information on the platform of warrant information, select the warrants that are 10% in the money to 20% out of the money and warrants which are over 20% out of money but where the price of the issuer’s best warrant in a purchase order is greater than or equal to $0.6, with the TWSE/TPEx listings of each object totaling 10 or more, provided warrants maturing within 15 trading days are excluded from such scope of selection.

Article 5
Issuers of call (put) warrants are rated as follows:

On the last business day of each quarter, the TWSE may, according to the following principle, calculate the issuers' scores in each indicator of the turnover rate and quality of market making of the specific quarter:

Score of each indicator of turnover rate: calculate the daily turnover rate of the transaction amount of each issuer in the particular quarter by dividing the daily transaction amount of each TWSE/TPEx listed warrant by the turnover rate of the transaction amount of the calculation day of the market value of the particular warrant of the day. The percentage rate number (hereinafter referred to as "PR Value") of such indicator of the issuer is the score of the indicator.
Score of each indicator of quality of market making: calculate first the Standard Deviation of TWBIV, 1 divided by the Daily Price Difference Ratio of Buy and Sell minus the PR Value, and the PR Value of the Daily Best Buy Amount, of the warrants of the same object each day; then calculate the quarterly average value of the above-mentioned three values of each type of issuer. The PR value of the quarterly average value of each indicator of the issuer is the score of each indicator, provided only TWSE/TPEx listings of each object that total 10 or more after deduction of those with no outstanding units on the preceding trading day are included in the calculation of the Daily Best Buy Amount.

Issuers are classified into five classes, namely A, B, C, D and E based on their weighted score of the score of each indicator of turnover rate and the quality of market making, as below:

┌───┬──────────────────────────┐
│Class │Classification Standard                             │
├───┼──────────────────────────┤
│A     │Weighted score of the indicators of turnover rate   │
│      │and quality of market marking ≧ 0.70 point, and    │
│      │weighted score of the indicator of the Standard     │
│      │Deviation of TWBIV ≧ 0.21 point                    │
├───┼──────────────────────────┤
│B     │Weighted score of the indicators of turnover rate   │
│      │and quality of market marking ≧ 0.50 point, and    │
│      │weighted score of the indicator of the Standard     │
│      │Deviation of TWBIV ≧ 0.15 point                    │
├───┼──────────────────────────┤
│C     │Not Class A, B, D or E                              │
├───┼──────────────────────────┤
│D     │Weighted score of the indicators of turnover rate   │
│      │and quality of market making < 0.20 point           │
├───┼──────────────────────────┤
│E     │Weighted score of the indicators of turnover rate   │
│      │and quality of market making = 0 point              │
└───┴──────────────────────────┘

Rating of an issuer will commence from the quarter after the end of a three-month period from its initial issuance of call (put) warrants following the recognition of its call (put) issuer qualification by the competent authority, or commence from the following quarter where no issuance has taken place in the six-month period immediately prior to the date of issuance of call (put) warrants.

Article 6
According to the rating results in the preceding article, subject to Article 7, issuers in Class A and Class B may be entitled to the following incentives in the following quarter:

The issuance amount of Class A issuers, apart from the applicable percentage of eligible net self-owned capital according to the risk management evaluation level, will increase by 30% of eligible net self-owned capital; the issuance amount of Class B issuers by 20%.
Where a Class A issuer issues warrants based on domestic stocks and Taiwan Depository Receipts as the underlying warrants, the issuance amount of the underlying warrants is governed by the limits under Subparagraph 3, Article 11 of the TWSE Rules Governing Review of Call (Put) Warrant Listings or Subparagraph 3, Paragraph 1, Article 11 of the Taipei Exchange Rules Governing Review of Call (Put) Warrants for Trading on the TPEx, and each issuer may increase the percentage of the number of securities of the call (put) object represented by the warrant issuance unit, of the total issued shares of the company issuing the underlying securities minus 1% of the unit of shares specified in that subparagraph and listed (TWSE/TPEx) depository receipts.
Class A issuers may, in addition to applying for issuing warrants on the underlying securities announced per quarter by the TWSE and TPEx, further apply for issuing warrants on the additional underlying securities that result from either of the following: in relation to the TWSE, a change of the value of the listed securities to NTD 7 billion according to Paragraph 1, Article 10 of the TWSE Rules Governing Review of Call (Put) Warrant Listings, and in relation to the TPEx, a change of the value of TPEx listed securities to NTD 3 billion according to Paragraph 1, Article 10 of the Taipei Exchange Rules Governing Review of Call (Put) Warrants for Trading on the TPEx. The additional underlying securities shall be as specified in the quarterly announcement of the TWSE and the TPEx.
The listing (TWSE/TPEx) fee of each warrant is reduced by NTD 5,000 for Class A issuers and by NTD 2,000 for Class B issuers.

According to the rating results in the preceding article, issuers in Class D or E will have their issuance amount reduced by 20% or 40% of their eligible net self-owned capital in the following quarter.

Article 7
An issuer rated as Class A and B according to Article 5 on the last business day of each quarter by the TWSE shall not be entitled to the incentives set forth in the preceding paragraph if the following occurs in respect of such issuer in the relevant quarter:

According to the Directions for the Handling of Malfunctions in the Quotation System for Liquidity Providers of Call (Put) Warrants, the accumulated number of times a malfunction in the quotation system is entered reaches five or more.
In violation of the TWSE Rules Governing Review of Call (Put) Warrant Listings, the Taipei Exchange Rules Governing Review of Call (Put) Warrants for Trading on the TPEx, the TWSE and the TPEx Directions Governing Liquidity Providers of Call (Put) Warrants for two times or more.

Issuers rated as Classes C, D or E according to Article 5 on the last business day of each quarter by the TWSE shall have their issuance amounts reduced by 10%, 20% or 30%, respectively, of their eligible net self-owned capital, if either of the circumstances in the preceding paragraph occurs in respect of such issuers in the relevant quarter.

Article 8
These Rules shall be drafted by the TWSE and the TPEx jointly, and take effect after having been submitted to and approved by the competent authority. Subsequent amendments thereto shall be effected in the same manner.