Article 25 |
As used in these Rules, "structured instrument" means a contract for a hybrid product combining fixed-income and options features.
The scope of eligible linked underlying assets of options in structured notes is given in Appendix 3.
The duration of a structured product transaction, from the initial transaction date to the date the contract matures, shall be a minimum of one month and a maximum of 10 years.
A securities firm that sells a structured instrument must stipulate that the original transaction price is the maximum potential loss that will be borne by the customer, provided that when it sells a structured instrument under the name of a principal-guaranteed product or with a claim of principal guarantee benefits, the stipulated principal protection percentage at maturity may not be lower than 80 percent of the transaction price. |
Article 26 |
Before commencing structured instrument transactions with a trading counterparty, a securities firm shall first execute a master agreement with the counterparty, and for each individual transaction undertaken thereafter shall further execute a separate contract with the counterparty stipulating the rights and obligations of the two parties.
When a securities firm undertakes transactions in structured instruments linked to foreign financial products and denominated in New Taiwan Dollars, the contracts shall clearly state that matters connected with foreign exchange settlement are to be carried out in accordance with the Regulations Governing the Declaration of Foreign Exchange Receipts and Disbursements or Transactions and that such settlements will be counted toward the total allowed cumulative foreign exchange settlement amount of the counterparty.
When a securities firm undertakes structured instrument transactions and a dispute arises in the course of trade, it shall handle the matter promptly in accordance with the business dispute resolution procedures provided by its internal control system.
The securities firm shall provide price quote information for early cancellation of structured instrument transactions at its place of business or on its website. |
Article 26-1 |
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Article 26-2 |
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Article 27 |
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Article 28 |
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Article 29 |
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Article 30 |
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Article 31 |
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Article 31-1 |
The method of hedging adopted by a securities firm with respect to structured instrument transactions may consist of any, or any combination, of the following: offsetting with a position used to hedge other structured instruments, equity options, OTC contract-based call (put) warrants, or call (put) warrants with the same underlying security as the instrument it is transacting; outsourcing the hedging to another institution; or taking underlying securities that it is entitled to borrow from the holders for the purpose of short hedging, and either selling the underlying securities short on a securities market, or selling the underlying securities for the purpose of transaction needs or contract performance as set out in Article 82-1 of the Operating Rules of the Taiwan Stock Exchange Corporation.
When the securities firm elects to sell shares of the underlying security by borrowing from the holders in a securities borrowing and lending transaction, if the security is an exchange- or OTC-listed stock, it shall first establish a contract for the securities loan in accordance with Article 32-1, paragraph 2 of the Regulations Governing Securities Firms. The lender shall then apply through its securities firm to the Taiwan Securities Central Depository Co., Ltd. for a transfer of all loaned shares into the hedge account of the securities firm, or shall first earmark the loaned shares and, at later times, transfer the shares into the hedge account in separate lots upon application by the securities firm as required for hedging purposes.
When the securities firm elects to short-sell shares in an exchange- or OTC-listed stock, it shall open a margin account with another securities firm or with a non-affiliate securities finance company, and report information relating to such account by letter to the GTSM and the TSEC.
The opening of the aforementioned margin account shall be done in accordance with the Operating Rules for Securities Firms Handling Margin Purchases and Short Sales of Securities, the Terms for Establishment of Margin Accounts With Securities Firms for Margin and Stock Loans, and the provisions of the various securities finance companies related to the aforesaid Rules and Terms.
The securities broker at which the aforementioned margin account is opened may only accept short sale orders or buy-to-cover orders from securities firms seeking to hedge structured instruments, as well as applications to cover short sales with spot securities. Reports of out-trades and account number corrections may not be filed for this account.
When a securities firm sells securities through borrowing or short sale and does not enter into a structured instrument transaction according to plan or the instrument reaches maturity, it shall close out its open position by the next business day following the start date or the maturity date of the product.
The holders of the underlying security referred to in paragraph 1 may not be any person regulated under Article 22-2, paragraph 1 or 3 of the Securities and Exchange Act. |
Article 31-2 |
In conducting financial derivatives business for hedging purposes, or in calculating a product's income or carrying out settlement upon cancellation or expiration, a securities firm may not prejudice the process of fair price formation or the rights and interests of investors. |
Article 32 |
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Article 33 |
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Article 34 |
As used in these Rules, "equity option transaction" refers to a contract in which a securities firm and a trading counterparty agree that a stock, stock index, or exchange-traded fund (ETF) will serve as the underlying of an option, and that the buyer will pay a premium in exchange for the right to buy or sell the underlying, and that the buyer may, at a specified maturity date or during a specified future period, buy or sell the stipulated underlying of the option under terms and conditions that specify the price and volume of the purchase or sale. The writer of the option bears the obligation to perform the agreement as stipulated when the buyer exercises the option, or the two parties may agree to settle the difference prior to or at the time of maturity.
The subject of an equity option transaction between a securities firm and its trading counterparty must be one of the stocks, stock indexes, or ETFs given in Appendix 3 of these Rules, which provides a list of eligible linked underlying assets of structured notes handled by securities firms. |
Article 35 |
When the trading counterparty of a securities firm is the writer of an equity option, the counterparty must be a qualified institutional investor, which includes both foreign and domestic banks, insurance companies, bills finance companies, securities firms, fund management companies, government investment institutions, government funds, pension funds, mutual funds, unit trusts, securities investment trust companies, securities investment consulting companies, trust enterprises, and futures commission merchants. |
Article 36 |
The duration of the contract for an equity option transaction, calculated from the date of transaction, shall be one year or less, provided that this restriction shall not apply when there has been separate approval of another duration.
When a securities firm enters into a contract for an equity option on domestic exchange-listed or OTC-listed stocks, the number of the underlying shares that could potentially be exchanged upon exercise of the option, plus the number of underlying shares that would be exchanged upon exercise of all the outstanding and unexpired call (put) warrants and contract-based call (put) warrants of all securities firms, may not exceed 10 percent of the total number of the underlying shares issued by the issuer after deduction of the shares set out in each of the following items:
(1) The total percentage of shares held by directors and supervisors under statutory shareholding ratio requirements.
(2) Pledged shares.
(3) The number of shares that newly exchange-listed or OTC-listed companies are required to place in compulsory central custody.
(4) Shares repurchased under the Regulations Governing Share Repurchase by Listed and OTC Companies, but not yet retired.
(5) Shares on which the competent authority has imposed restrictions for exchange or OTC listing and trading. |
Article 37 |
The first time a securities firm enters into an equity options transaction with a trading counterparty, it shall execute a "master equity options transaction agreement" with the counterparty.
When a securities firm enters into an equity options transaction with trading counterparties, except for trading counterparties that are qualified institutional investors as given in Article 35, the securities firm shall execute an individual agreement with each trading counterparty with respect to each equity option transaction.
The provisions of Article 26-1 apply mutatis mutandis to the required content of the "master equity options transaction agreement" of paragraph 1.
The provisions of Article 26-2 apply mutatis mutandis to the required content of the individual contracts of paragraph 2 to be signed between the securities firm and individual trading counterparties in equity options transactions. |
Article 38 |
The two parties may stipulate the manner in which equity options are to be exercised, either by settlement in cash or by physical delivery of the linked underlying securities by the securities firm or another institution approved by the competent authority to perform physical settlement.
When the underlying of the equity options of the preceding paragraph is a stock index, the method of exercise shall be settlement in cash.
The provisions of Article 27, paragraph 2, Article 28, Article 31, Article 31-1, and Article 31-2 shall apply mutatis mutandis to equity options transactions, provided that a securities firm need not perform hedging when it is the purchaser of the options. |
Article 39 |
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