| Article 7 |
Instruments traded over the financial derivative trading system are limited to the following:
- Bond options.
- Bond forwards.
- Interest rate swaps.
- Forward rate agreements.
Any instrument under the preceding paragraph that involves foreign currency exchange shall be subject to the permission of the Central Bank.
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| Article 8 |
The term "bond option" in these Rules means an option under which the option buyer pays a premium to obtain a right to buy or sell the underlying bond on a specific future date at a specific strike price and in a specific quantity. The option seller has an obligation to deliver the underlying bond as agreed if the option buyer demands to exercise the option. The bid price quoted by a Participant represents the premium that the option buyer is willing to pay, given the volatility of the underlying bond; the ask price represents the premium that the option seller is willing to receive, given the volatility of the underlying bond. The specifications for price quotes for trading by Participants shall include:
- The underlying bond shall be a book-entry central government bond with not less than 1 year left until maturity.
- The contract duration may be 1, 2, 3, or 4 weeks.
- Only European options are allowed.
- Options are available in call or put variations.
- The strike prices shall be separately announced by the TPEx based on consideration of the price volatility of government bonds.
- Contracts are traded in units of NT$100 million.
- The tick size of bid and ask quotes is 0.01%; no limits are imposed on upward or downward price movement.
- The contract is settled by delivering the underlying asset. However, cash settlement is allowed subject to the consent and agreement of both counterparties.
Participants trading over the financial derivative trading system that adopt the request-for-quote method and set their own customized trade terms are not subject to the restrictions of the preceding paragraph, except for paragraph 1, subparagraph 1.
The volatility and option premiums mentioned in paragraph 1 are calculated by the TPEx using Black's Model based on the last trade price of the underlying bond and other publicly announced relevant parameters.
The last trade price of the underlying bond mentioned in the preceding paragraph means the most recent market price of any quote that was issued to more than 70 counterparties by a securities firm over the TPEx's Electronic Bond Trading System and was executed.
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| Article 9 |
The term "bond forward" in these rules means a contract in which two counterparties agree to buy and sell an underlying bond on a specified future date at a specified price and quantity. The bid price quoted by a Participant represents the yield that the buyer is willing to pay to purchase the underlying bond; the ask price represents the yield that the seller is willing to receive to sell the underlying bond. The specifications for price quotes for trading by Participants shall include:
- The underlying bond shall be a book-entry central government bond with not less than 1 year left until maturity.
- The contract duration may be 1, 2, 3, or 4 weeks.
- Contracts are traded in units of NT$50 million.
- The tick size of the bid and ask quotes is 0.0001%; no limits are imposed on upward or downward price movement.
- The contract is settled by delivering the underlying asset. However, cash settlement is allowed subject to the consent and agreement of both counterparties.
Participants trading over the financial derivative trading system that adopt the request-for-quote method and set their own customized trade terms are not subject to the restrictions of the preceding paragraph.
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| Article 9-1 |
For the purposes of this trading system, "interest rate swap" means a contract under which the difference between a fixed rate and a floating rate is settled for a specific period in the future in accordance with market practice.
The Floating Rate Option with respect to the floating rate under the preceding paragraph shall be separately prescribed by the TPEx.
A bid quote by a participant means a quote for receiving the floating rate and paying the fixed rate; an ask quote means a quote for paying the floating rate and receiving the fixed rate.
The tick size of bid and ask quotes under the preceding paragraph is 0.001%.
The specifications for trading of interest rate swaps are as follows:
- Notional Amount: may be NT$300 million or NT$500 million.
- Tenor: may be 1, 2, 3, 4, 5, 7, 10, 15 or 20 Years.
- Effective Date: trade date plus 2 business days (T+2).
- Calculation Period: 3 months, from the Effective Date to the Termination Date.
- Payment Date: last day of the calculation period.
- Reset Date: 2 business days before the first day of the Calculation Period.
- Day Count Fraction: actual/365.
- Business Day Convention: Modified Following Business Day.
The relevant ISDA Definitions apply to the terminology in the contract specifications of the preceding paragraph.
In a trade in which a participant employs the trading system's request-for-quote function, the participant is not subject to the restrictions of paragraph 5, subparagraphs 1 and 2.
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| Article 9-2 |
For the purposes of this trading system, "forward rate agreement" means a contract under which the difference between an agreed upon rate and a floating rate is settled at a specific date in the future in accordance with market practice.
The Floating Rate Option with respect to the floating rate under the preceding paragraph shall be separately prescribed by the TPEx.
A bid quote by a participant means a quote for receiving the floating rate and paying the agreed rate; an ask quote means a quote for paying the floating rate and receiving the agreed rate.
The tick size of bid and ask quotes under the preceding paragraph is 0.001%.
The specifications for trading of forward rate agreements are as follows:
- Notional Amount: NT$1 billion.
- Calculation Period: 3 months; the Payment Date may be 1, 2, 3, 6, or 9 months after the Effective Date; respectively expressed as 1×4, 2×5, 3×6, 6×9, and 9×12.
- Effective Date: trade date plus 2 business days (T+2).
- Floating Interest Reset Date: 2 business days before Payment Date.
- Day Count Fraction: actual/365.
- Business Day Convention: Modified Following Business Day.
The relevant ISDA Definitions apply to the terminology in the contract specifications of the preceding paragraph.
In a trade in which a participant employs the trading system's request-for-quote function, the participant is not subject to the restrictions of paragraph 5, subparagraphs 1 and 2.
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| Article 10 |
The financial derivative trading system adopts the same business days as does the TPEx's Electronic Bond Trading System.
Trading hours for bond options and bond forwards are from 9 a.m. to 1:30 p.m; trading hours for interest rate swaps and forward rate agreements are from 9 a.m. to 4 p.m.
The TPEx may change the business days and trading hours in the preceding paragraph, subject to the approval of the competent authority.
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| Article 11 |
If a trade quote submitted by a Participant over the financial derivative trading system is a firm quote, it shall be executed immediately after the parties have reached agreement.
Participants may make requests for quotes from other Participants. A quote made by a Participant in response to a request for a quote will be automatically voided if not executed within 1 minute. A Participant who makes a quote in response to a request for a quote may withdraw the quote at any time before the quote is executed.
Once execution of a trade has been confirmed, the system will rapidly report the confirmed trade information to the two counterparties.
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| Article 12 |
In the event that a Participant issues an erroneous quote and the quote is executed in accordance with the previous article, the Participant may notify the TPEx to correct the error or cancel the trade (collectively referred to as "correction") in accordance with the following provisions:
- For bond options or bond forwards, after the Participant obtains the consent of the other party, by 2:30 p.m. on the trade date, both parties shall issue written documentary evidence.
- For interest rate swaps or forward rate agreements, after the Participant obtains the consent of the other party, by 2:30 p.m. on the next business day following the trade date, both parties shall issue written documentary evidence. However, if both parties to the trade agree to change one of the trading counterparties to a third party, then all three parties shall issue written documentary evidence.
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| Article 13 |
For Participants to use the financial derivative trading system, both counterparties to a trade shall sign an ISDA Master Agreement (the Master Agreement).
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| Article 14 |
If Participants in the financial derivative trading system complete settlement on their own, they shall do so based on the system trade records.
If a Participant will entrust the TPEx with the handling of settlement operations for interest rate swap or forward rate agreement trades, the Participant shall open a segregated cash account for that purpose, and report it to the TPEx, and shall also report to the TPEx when there is any change of the account.
For settlement operations under the preceding paragraph, the Participants shall carry out settlement with the TPEx of the net of the price receivable and price payable as specified on the Interest Rate Derivative Settlement Statement, in accordance with the following provisions:
- If there is a price payable by a Participant, the Participant shall proceed directly to deposit (remit) it into the TPEx's financial derivative trading system cash account by 11 a.m. on the Payment Date.
- If there is a price receivable by a Participant, the TPEx will proceed directly to deposit (remit) it into the Participant's cash account by 11 a.m. on the Payment Date.
A Participant is in default if the participant is unable to perform a settlement obligation under the preceding paragraph. The TPEx may eliminate the defaulting participant's trade before carrying out settlement operations, and furthermore may suspend or terminate the defaulting Participant’s participation in the financial derivative trading system.
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| Article 14-1 |
If both Participants that are parties to the trade agree, they may carry out early termination of an interest rate swap or forward rate agreement trade through the system at a fair price calculated by the TPEx.
The provisions of Articles 14 and 15 shall apply mutatis mutandis to the operations for settlement, and for handling of default, in cases of early termination under the preceding paragraph.
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| Article 15 |
When Participants carry out settlement under Article 14, paragraph 1, in the event that a Participant’s counterparty to a trade defaults on the counterparty’s settlement obligations, the Participant shall, by 4 p.m. on the default date, first notify the TPEx, and immediately also issue a written report to the TPEx, and simultaneously send a copy notifying the counterparty.
In the event that a Participant's counterparty to a trade defaults on the counterparty's settlement obligations or there is default as referred to in Article 14, the Participant shall of its own accord pursue compensation from the defaulting counterparty.
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