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Guidelines for the Exercise of Call (Put) Warrants by Holders and Their Mandated Securities Firms:
- A warrant holder may not request exercise of call (put) warrants until the second business day after the date on which they are purchased, and only if it has been confirmed that the warrants have been transferred into a central securities depository account.
- the Taipei Exchange (TPEx) has engaged Taiwan Depository & Clearing Corporation (TDCC) to handle all matters in connection with the exercise of TPEx listed call (put) warrants. TDCC accepts exercise requests from securities brokers until 2:30 p.m. each business day.
- A securities broker may perform matters in connection with the exercise of call (put) warrants on the holder's behalf only after the holder has filled out an Application Form for the Exercise of Call (Put) Warrants, and shall do so in accordance with the instructions therein.
- If a holder requests to exercise a put warrant, and the performance method for the warrant is "delivery of securities provided that the holder may choose cash settlement", the holder shall specify the method for performance at the time the exercise request is made.
- There are three performance methods for the exercise of call (put) warrants for which a holder requests exercise:
- Delivery of securities.
- Cash settlement.
- Delivery of securities, provided that the issuer (or warrant holder) may choose cash settlement.
If the method for performance upon exercise is cash settlement, the amount of the cash settlement shall be calculated based on the closing price of the underlying security on the exercise date. For warrants that are exercised on the expiration date of the warrants, the amount of the cash settlement is calculated based on that day's simple arithmetic mean trade price of the underlying security during the 60 minutes prior to market close, the underlying settlement index, or the underlying futures settlement price. If there is no executed trade price for the underlying securities during the aforesaid timeframe, the calculation shall be based on the most recent trade price. In circumstances where trading hours are extended in accordance with Article 35, paragraph 4 of the Rules Governing Securities Trading on the TPEx (the Rules), trade prices or index levels during the extended hours shall also be incorporated into the calculation. The underlying settlement index and underlying futures settlement price mentioned above shall be calculated in accordance with Article 11, paragraph 1, subparagraphs 6 and 7 of the Taipei Exchange Rules Governing the Review of Call (Put) Warrants for Trading on the TPEx. However, for call (put) warrants of which the underlying assets are foreign securities or foreign indices, the amount of the cash settlement shall be calculated based on the most recent closing price of the underlying securities prior to 6 p.m. on the warrant expiration date, converted into New Taiwan Dollars at the closing mid-price of the spot exchange rate quoted by the Bank of Taiwan on the given day, or calculated based on the most recent closing index level of the underlying index.
In addition to the aforesaid cash settlement method of performance, if a warrant holder fails to apply for exercise in a timely manner when a warrant has exercise value at expiration, the issuer may adopt the "automatic cash settlement if in-the-money at expiration" method and automatically perform cash settlement based on the simple arithmetic mean trade price of the underlying securities during the 60 minutes prior to market close on the warrant's expiration date. If there is no trade price for the underlying securities during the aforesaid timeframe, then the calculation shall be based on the most recent trade price. In circumstances where trading hours are extended in accordance with Article 35, paragraph 4 of the Rules, trade prices during the extended hours shall also be incorporated into the calculation.
If the call (put) warrant for which a holder requests exercise involves one of the following three performance methods, the securities firm must collect in advance from the holder any funds or securities required for exercise performance:
- Call (put) warrants involving "delivery of securities".
- Call warrants involving "delivery of securities, provided that the issuer may choose cash settlement".
- Put warrants involving "delivery of securities, provided that the holder may choose cash settlement", and for which the holder has already designated "delivery of securities".
However, for call warrants for which the method for performance upon exercise is "delivery of securities, provided that the issuer may choose cash settlement" (i.e. paragraph 2 above), if the issuer selects "cash settlement" or the holder's distribution involves "cash settlement", the securities firm shall, on the first business day after the date on which the holder requests exercise, refund the funds it collected in advance.
For a capped call warrant or capped put warrant, the day on which the closing price of the underlying securities, the closing index level of the underlying index, or the simple arithmetic mean trade price of the underlying futures during the last minute before 1:30 p.m., reaches the cap price or point is deemed the warrant's last trading day. Such warrants reach maturity on the second business day thereafter, and without exception the automatic cash settlement performance method is adopted based on the closing price of the underlying securities, the closing index level of the underlying index, or the simple arithmetic mean trade price of the underlying futures during the last minute before 1:30 p.m. on the last trading day of the warrant.
For a callable bull contract or callable bear contract, or extendable callable bull or bear contract, the day on which the closing price of the underlying securities, the closing value of the underlying index, or the simple arithmetic mean trade price of the underlying futures during the last minute before 1:30 p.m., reaches the knock-out price or point is deemed the contract's last trading day, in which case the contract shall expire on the second business day after, and is settled automatically in cash based on the simple arithmetic mean price of the underlying securities, the underlying settlement index, or the underlying futures settlement price on the business day following the last trading day. If there is no trade price for the underlying security, the auction base price for the opening of trading of the underlying security on the expiration date of the contract shall be used. If the trading of the underlying security or underlying futures is halted or suspended on the first business day following the last trading day of the contracts or on the expiration date, the closing price of the underlying security or the daily settlement price of the underlying futures on the last trading day of the contracts shall be used. The underlying settlement index and the underlying futures settlement price and daily settlement price mentioned above shall be handled in accordance with Article 11, paragraph 1, subparagraph 6, subparagraph 7, and subparagraph 8, item G of the Taipei Exchange Rules Governing the Review of Call (Put) Warrants for Trading on the TPEx.
- A securities broker shall carry out receipt/payment operations separately for different warrant holders and for funds in connection with the exercise of different warrants. The securities broker, after collecting funds paid in advance by a warrant holder, shall deposit them in the segregated account for receipt and payment of funds in connection with the exercise of warrants (not the settlement account) at its bank. The securities broker shall transfers funds payable to the holder only after it has completed receipt/payment operations with the TPEx on the second business day following the date on which the holder requests exercise.
The amounts receivable/payable between a securities broker and the TPEx in connection with exercise by a warrant holder shall be received/paid in netted amounts. However, if the securities broker is the same securities firm that is mandated by the issuer, it shall carry out separately with the TPEx the receipt/payment of, and may not subject to netting, funds of which it conducts receipt/payment on behalf of the issuer with the TPEx, and funds in connection with exercise by the holder. Funds in connection with the exercise of TPEx listed warrants may not be offset, between a holder and a securities broker, or between a securities broker and the TPEx, against the settlement price of securities traded on the TPEx.
- The securities broker mandated by a holder of call (put) warrants shall, by 3:30 p.m. on the day the exercise is requested, retrieve, through a computer connected with the Taiwan Depository and Clearing Corporation (TDCC), and print out a summary statement of the total volume of call (put) warrants for which the holder has requested exercise that day, and settle accounts based on that statement.
- For call (put) warrants for which the performance method for exercise is "cash settlement", the TPEx calculates the exercise value at expiry using the standards described below:
- Call warrants
Index warrants possess exercise value if the result of the following calculation is greater than zero: (settlement index － strike point) × corresponding monetary amount per index point × number of units of warrants × exercise ratio － (settlement index － strike point) × corresponding monetary amount per index point × number of units of warrants × exercise ratio × securities transaction tax rate.
Futures warrants possess exercise value if the result of the following calculation is greater than zero: (settlement price － strike point) × corresponding monetary amount per point × number of units of warrants × exercise ratio － (settlement price － strike point) × corresponding monetary amount per point × number of units of warrants × exercise ratio × securities transaction tax rate.
Other call warrants possess exercise value if the result of the following calculation is greater than zero: (settlement price － strike price) × quantity of the underlying － (settlement price － strike price) × quantity of the underlying × securities transaction tax rate.
- Put warrants
Index warrants possess exercise value if the result of the following calculation is greater than zero: (strike point － settlement index) × corresponding monetary amount per index point × number of units of warrants × exercise ratio － (strike point － settlement index) × corresponding monetary amount per index point × number of units of warrants × exercise ratio × securities transaction tax rate.
Futures warrants possess exercise value if the result of the following calculation is greater than zero: (strike point － settlement price) × corresponding monetary amount per point × number of units of warrants × exercise ratio － (strike point － settlement index) × corresponding monetary amount per point × number of units of warrants × exercise ratio × securities transaction tax rate.
Other put warrants possess exercise value if the result of the following calculation is greater than zero: (strike price － settlement price) × quantity of the underlying － (strike price － settlement price) × quantity of the underlying × securities transaction tax rate.
Calculation of the securities transaction tax rate shall be based on the tax rate set forth in the Securities Transaction Tax Act, and collected accordingly.
Guidelines for the exercise value calculations above are as follows:
- The exercise processing fee collected by a securities firm is not deducted from the basis for exercise value calculation. Therefore, when the amount receivable by the holder as a result of exercise, after subtraction of the transaction tax, is less than the exercise processing fee calculated pursuant to Article 12 of the Taipei Exchange Rules Governing Trading of Call (Put) Warrants, the exercise processing fee collected by the securities firm may not be higher than the amount receivable by the holder as a result of exercise.
- The TDCC, after accepting a securities firm's application requesting to exercise a call (put) warrant for which the performance method is "cash settlement", will review and approve the application in accordance with the standards for calculating exercise value. When the call (put) warrant for which the securities firm requests exercise has no exercise value according to the calculation formulas above, the TDCC will reverse it.
- Any exercise of a TPEx listed call (put) warrant at a holder's request or the automatic exercise of a call (put) warrant on a holder's behalf by the TPEx must be done through a securities broker that has signed with the TPEx into a Contract for Trading of Securities on the TPEx. If an account balance of call (put) warrants of a warrant holder is recorded in a central securities depository account opened by a TDCC participant that has not signed with the TPEx a Contract for Trading of Securities on the TPEx, the holder may request exercise only after it transfers the call (put) warrants into a central securities depository account opened by a securities broker that has signed a Contract for Trading of Securities on the TPEx. For warrants subject to automatic exercise, however, the TPEx will still carry out exercise on the holder's behalf even if the abovementioned transfer has not been carried out.
- The quantity of any exercise of a call (put) warrant by the holder must be one trading unit or an integer multiple thereof.
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Guidelines for the Exercise of Call (Put) Warrants by Issuers and Their Mandated Securities Firms:
- The securities firm mandated by the issuer of call (put) warrants shall, by 3:30 p.m., retrieve, through a computer connection with the TDCC, and print out a summary statement of the total volume of call (put) warrants for which the holder has requested exercise that day and the volume for which the issuer has applied for cancellation, and immediately notify the issuer.
- Upon notification by the issuer, the securities firm mandated by an issuer of warrants for which the method for performance upon exercise is "delivery of securities, provided that the issuer may choose cash settlement" must, by 4:30 p.m. on the day on which the holder requests exercise, input the volume for which the issuer desires cash settlement through the TDCC network connection. After the cut-off time, all performance will be done by "delivery of securities".
- Pursuant to Article 12 of the Taipei Exchange Rules Governing Trading of Call (Put) Warrants, liquidity providers of call (put) warrants shall report to the TPEx a central securities depository account before listing of the warrants on the TPEx is applied for. Except for call (put) warrants in that account for which exercise may not be requested, the TPEx shall, at expiration of the call (put) warrants, use that account to carry out book-entry transfer matters in connection with cancellations.
Pursuant to Article 19 of the Taipei Exchange Rules Governing the Review of Call (Put) Warrants for Trading on the TPEx, issuers of call (put) warrants and risk management institutions shall report to the TPEx a central securities depository account before listing of the warrants on the TPEx is applied for. The TPEx may use that account to carry out securities transfer for performance upon exercise.
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For domestic call (put) warrants of which the underlyings are foreign securities or foreign indices, the issuer of the warrants shall, by 6 p.m. on the warrant expiration date, report the following information on the internet information reporting system designated by the TPEx:
- The most recent closing price of the underlying securities or the most recent closing index value of the underlying index.
- The closing mid-price of the Bank of Taiwan spot exchange rate on the given day.
- The amounts of the most recent closing price and the newest strike price of the underlying securities, respectively converted into New Taiwan Dollars at the exchange rate provided in the preceding subparagraph.
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Guidelines for the Exercise of Contract-Based Call (Put) Warrants by Investors:
- Only after the TPEx has approved the trading of contract-based call (put) warrants and the investor has signed a contract-based call (put) warrant contract with the selling securities firm, may the investor then request exercise according to the terms of the contract.
- To exercise a contract-based call (put) warrant, the investor must engage directly with the securities firm that original sold that warrant.
- The performance methods for the exercise of contract-based warrants for which the investor requests exercise can be divided into the following methods:
- Delivery of securities.
- Cash settlement.
- Delivery by securities with the option of cash settlement at the securities firm's or the investor's discretion, depending on the terms agreed upon in the trade contract.
Whether contract-based call warrants are subject to "automatic cash settlement if in-the money at expiration " if the investor does not exercise before expiration shall depend on the terms agreed upon in the trade contract.
- Contract-based put warrants exercised at the investor's request must be settled in cash.
Whether contract-based put warrants are subject to "automatic cash settlement if in-the-money at expiration" if the investor does not exercise before expiry shall depend on the terms agreed upon in the trade contract.
- Upon exercising a contract-based call (put) warrant, the method for collection and payment of funds and securities shall depend on the terms agreed upon in the trade contract.
- The provisions of these Guidelines regarding the standards for calculation of whether TPEx listed warrants have exercise value shall apply mutatis mutandis to the calculation of whether contract-based call (put) warrants have exercise value.
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Guidelines for Securities Firms in Handling the Exercise of Contract-based Call (Put) Warrants:
- If the performance method for the exercise of contract-based call (put) warrants is the delivery of securities, the centralized securities depository enterprise shall be engaged to handle the delivery. In such case, the securities firm shall inform TDCC to carry out the operations for delivery of the securities by inputting the information regarding the exercised warrant into TDCC's online computer system no later than by the second business day after the investor requests exercise.
- Contract-based put warrants exercised by the securities firm at the investor's request must be settled in cash.
- Securities firms are required to report to the TPEx on any requests by investors for the exercise of contract-based call (put) warrants, and input information relevant to the exercise request into the Internet reporting system designated by the TPEx no later than 5 p.m. on the day the exercise request is made.
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Guidelines for the Exercise, by Holders and Their Mandated Securities Firms, of Call (Put) Warrants of Which the Underlying is Spot Gold Registered for Trading on the TPEx ("spot gold call (put) warrants"):
- A warrant holder may not request exercise of spot gold call (put) warrants until the second business day after the date on which they are purchased, and only if it has been confirmed that the warrants have been transferred into a central securities depository account.
- The Taipei Exchange (TPEx) has engaged Taiwan Depository & Clearing Corporation (TDCC) to handle all matters in connection with the exercise of spot gold call (put) warrants. TDCC accepts exercise requests from securities brokers until 3:30 p.m. each business day.
- A securities broker may perform matters in connection with the exercise of spot gold call (put) warrants on the holder's behalf only after the holder has filled out an Application Form for the Exercise of Call (Put) Warrants, and shall do so in accordance with the instructions therein.
- If a holder requests to exercise a spot gold put warrant, and the performance method for the warrant is "physical delivery, provided that the holder may choose cash settlement", the holder shall specify the method for performance at the time the exercise request is made.
- There are two performance methods for the exercise of spot gold call (put) warrants for which a holder requests exercise:
- Cash settlement.
- Physical delivery of securities, provided that the issuer (or warrant holder) may choose cash settlement.
If the method for performance upon exercise as mentioned above is cash settlement, the amount of the cash settlement shall be calculated based on the average price at closing of the underlying spot gold on the exercise date; the same shall apply if the exercise date is the expiration date of the warrants.
If the method for performance upon exercise as mentioned above is physical delivery, the smallest delivery unit is 1 Taiwan tael or an integer multiple thereof; any portion of less than 1 Taiwan tael shall be settled by cash settlement.
In addition to the aforesaid cash settlement method of performance, if a warrant holder fails to apply for exercise in a timely manner when a warrant has exercise value at expiration, the issuer may adopt the "automatic cash settlement if in-the-money at expiration" method and perform cash settlement based on the average price at closing of the underlying spot gold on the expiration date of the warrants.
If the spot gold call (put) warrant for which a holder requests exercise involves one of the following two performance methods, the securities firm must collect in advance from the holder any funds or securities required for exercise performance:
- Spot gold call warrants involving "physical delivery, provided that the issuer may choose cash settlement".
- Spot gold put warrants involving "physical delivery, provided that the holder may choose cash settlement", and for which the holder has already designated "delivery of securities".
However, for call warrants for which the method for performance upon exercise is "physical delivery, provided that the issuer may choose cash settlement", if the issuer selects "cash settlement" or the holder's distribution involves "cash settlement", the securities firm shall, on the first business day after the date on which the holder requests exercise, refund the funds it collected in advance.
For a capped spot gold call warrant or capped spot gold put warrant, the day on which the average price at closing of the underlying spot gold reaches the capped call (or put) price is deemed the warrant's last trading day. Such warrants reach maturity on the second business day thereafter, and the automatic cash settlement performance method is adopted based on the average price at closing of the underlying spot gold on the last trading day of the warrant.
For a callable bull spot gold contract or callable bear spot gold contract, or extendable callable spot gold bull or bear contract, the day on which the average price at closing of the underlying spot gold reaches the knock-out price is deemed the contract's last trading day, in which case the contract shall expire on the second business day after, and is settled automatically in cash based on the average price at closing of the underlying spot gold on the first business day following the last trading day of the contract. If the trading of the underlying spot gold is halted or suspended on the first business day following the last trading day of the contracts or on the expiration date, the average price at closing of the underlying spot gold on the last trading day of the contracts shall be used.
- The securities broker mandated by a holder of spot gold call (put) warrants shall, by 4 p.m. on the day the exercise is requested, retrieve, through a computer connected with TDCC, and print out a summary statement of the total volume of the call (put) warrants for which the holder has requested exercise that day, and settle accounts based on that statement.
- For spot gold call (put) warrants for which the performance method for exercise is "cash settlement", the TPEx calculates the exercise value at expiry using the standards described below:
- Call warrants possess exercise value if the result of the following calculation is greater than zero: (settlement price － exercise price) × quantity of the linked underlying － (settlement price － exercise price) × quantity of the linked underlying × securities transaction tax rate.
- Put warrants possess exercise value if the result of the following calculation is greater than zero: (exercise price － settlement price) × quantity of the linked underlying － (exercise price － settlement price) × quantity of the linked underlying × securities transaction tax rate.
Calculation of the securities transaction tax rate shall be based on the tax rate set forth in the Securities Transaction Tax Act, and collected accordingly.
Guidelines for the exercise value calculations above are as follows:
- The exercise processing fee collected by a securities firm is not deducted from the basis for exercise value calculation. Therefore, when the amount receivable by the holder as a result of exercise, after subtraction of the transaction tax, is less than the exercise processing fee calculated pursuant to Article 12 of the Taipei Exchange Rules Governing Trading of Call (Put) Warrants, the exercise processing fee collected by the securities firm may not be higher than the amount receivable by the investor as a result of exercise.
- The TDCC, after accepting a securities firm's application requesting to exercise a call (put) warrant for which the performance method is "cash settlement", will review and approve the application in accordance with the standards for calculating exercise value. When the call (put) warrant for which the securities firm requests exercise has no exercise value according to the calculation formulas above, the TDCC will reverse it.
- The provisions of these Guidelines regarding TPEx listed call put warrants shall apply mutatis mutandis to spot gold call (put) warrants with respect to the method for payment and receipt of funds, the method for request of exercise by holders, and quantity units for exercise.
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Guidelines for the Exercise of Spot Gold Call (Put) Warrants by Issuers and Their Mandated Securities Firms:
- The securities firm mandated by the issuer of spot gold call (put) warrants shall, by 4 p.m., retrieve, through a computer connection with the TDCC, and print out a summary statement of the total volume of call (put) warrants for which the holder has requested exercise that day and the volume for which the issuer has applied for cancellation, and immediately notify the issuer.
- Upon notification by the issuer, the securities firm mandated by an issuer of warrants for which the method for performance upon exercise is "physical delivery, provided that the issuer may choose cash settlement" must, by 4:30 p.m. on the day on which the holder requests exercise, input the volume for which the issuer desires cash settlement through the TDCC network connection. After the cut-off time, all performance will be done by "physical delivery".
- Pursuant to Article 12 of the Taipei Exchange Rules Governing Trading of Call (Put) Warrants, liquidity providers of call (put) warrants shall report to the TPEx a central securities depository account before listing of the warrants on the TPEx is applied for. Except for call (put) warrants in that account for which exercise may not be requested, the TPEx shall, at expiration of the call (put) warrants, use that account to carry out book-entry transfer matters in connection with cancellations.
Pursuant to Article 19 of the Taipei Exchange Rules Governing the Review of Call (Put) Warrants for Trading on the TPEx, issuers of spot gold call (put) warrants and risk management institutions shall report to the TPEx a central securities depository account before listing of the warrants on the TPEx is applied for. The TPEx may use that account to carry out securities transfer for performance upon exercise.
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