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These Operation Guidelines are adopted pursuant to Article 11 of the TWSE Rules Governing Trading of Beneficial Certificates.
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A securities investment trust enterprise (SITE), futures trust enterprise ("futures trust enterprise"), or offshore fund manager or an institution designated thereby ("offshore fund institution"), that offers offshore exchange-traded funds ("ETFs"), under the Regulations Governing Securities Investment Trust Funds, Regulations Governing Offshore Funds, or Regulations Governing Futures Trust Funds, shall select liquidity providers ("liquidity providers") respectively for exchange-traded fund beneficial certificates (hereinafter all referred to as "ETF beneficial certificates"). An offshore fund institution may engage a general agent to report by letter to the TWSE.
An SITE shall appoint one of the liquidity providers of the beneficial certificates of an ETF securities investment trust fund as the liquidity provider of additional ETF beneficial certificates.
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A liquidity provider shall meet the following requirements:
- A liquidity provider must be qualified as a participating securities firm that conducts the business of creation and redemption of ETF beneficial certificates, and also as a securities firm that conducts proprietary securities trading business.
- It must be approved by the TWSE to operate the business of an ETF beneficial certificates liquidity provider.
- It must have entered into a contract for provision of ETF beneficial certificates market liquidity ("liquidity contract") with a SITE, futures trust enterprise, or offshore fund institution that issues ETF beneficial certificates.
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The liquidity contract shall at least prescribe the following matters with respect to the responsibilities and obligations of a liquidity provider (the standards below shall all include the number of matches, trading price, and order price of unexecuted portions, as calculated for the 30 minutes prior to commencement of trading and a certain period of time prior to close of trading):
- The calculation formula for the best bid/ask spread of the ETF beneficial certificates as disclosed in the TWSE centralized securities exchange market is as follows:
(the best bid/ask spread) = [(lowest unexecuted ask quote) - (highest unexecuted bid quote)]/( lowest unexecuted ask quote)
- The minimum number of participations by a liquidity provider in matching of the ETF beneficial certificates. The number of participations in matching means the designated minimum number of participations in matches in the TWSE's trading system in a buy or sell order in which the price is within a specified range above the previous lowest unexecuted ask quote, within a specified range below the previous highest unexecuted bid quote, or within a specified range above and below the execution price. Minimum numbers shall be set for participations in matches of bid and ask quotes calculated as specified above.
- The minimum amount of buy/sell quotes that a liquidity provider shall make during a suspension of matching when there occurs a circumstance specified in paragraphs 4 and 5 of Article 58-3 of the TWSE Operating Rules with respect to the ETF beneficial certificates beneficial certificates during the trading session.
- Except when the price of the ETF beneficial certificates goes limit-up or limit-down, the disclosure of market trading prices is limited only by the duration of time of bid or ask prices; however, the aforesaid calculation of time may be excluded when matching time must be postponed due to a circumstance specified in paragraphs 4 and 5 of Article 58-3 of the TWSE Operating Rules.
- Agreement that the TWSE provide to the SITE, the futures trust enterprise, or the general agent for offshore funds all the buy/sell quotes and itemized statements of trading of the ETF beneficial certificates done through the liquidity provider's segregated ETF account.
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If a SITE, a futures trust enterprise, or an offshore fund institution adds a liquidity provider, it shall, by 3 p.m. on the day 3 days before the effective day of the contract, notify the TWSE by letter, annexing the certificates and documents proving the qualifications specified in Point III of these Operation Guidelines; in the case of termination of a liquidity provider, notification shall be made by letter to the TWSE by 3 p.m. on the day 3 days before the termination day of the contract. An offshore fund institution may engage a general agent to report by letter to the TWSE.
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Preferential treatment for liquidity providers
- A liquidity provider may, during the same settlement period, use netting when settling block trades, regular trades, after-hours fixed-price trades, and odd-lot trades, and spot trades on the same day, of ETF beneficial certificates. If there remains a balance of sell trades of the ETF beneficial certificates after netting, the liquidity provider may, within the same day, borrow those ETF beneficial certificates through the TWSE's securities lending system or from a securities firm pursuant to regulations and, no later than the second business day following the transaction day, apply to borrow securities to perform settlement pursuant to Article 109 of the TWSE Operating Rules.
- A liquidity provider that applies to borrow securities for settlement pursuant to Article 109 of the TWSE Operating Rules may be exempted from the relevant sanctions on its general manager, managerial officer, and responsible staff member.
- The TWSE provides a discount on transaction charges for liquidity providers that achieve a certain performance level. Relevant requirements and criteria shall be separately prescribed by the TWSE.
- If the amount of securities borrowed to perform settlement pursuant to Article 109 of the TWSE Operating Rules as aforementioned exceeds the number of beneficial units per unit of such ETF beneficial certificates, the liquidity provider's eligibility for discounts or exemption of transaction charges for the current month shall be cancelled.
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If any of the following circumstances applies to the liquidity provider, the TWSE may cancel its qualification as a liquidity provider, or may, depending on the severity of circumstance, temporarily suspend the preferential treatment as mentioned in Point VII of these Operation Guidelines.
- Violation of relevant regulations prescribed by the competent authority or the TWSE.
- Termination of the liquidity contract with a SITE, a futures trust enterprise, or an offshore fund institution.
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These Operation Guidelines shall take effect after having been submitted to and approved by the competent authority. Subsequent amendments thereto shall be effected in the same manner.
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