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These Directions are adopted pursuant to Article 25 of the Taipei Exchange Rules Governing the Review of Call (Put) Warrants for Trading on the TPEx.
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An issuer may serve as its own liquidity provider or appoint another liquidity provider to provide liquidity for the warrants that it issues. Only one liquidity provider may be appointed for a single warrant. The issuer may appoint different liquidity providers for each issue of warrants.
For an appointment referred to in the preceding paragraph, a contract shall be entered into specifying the rights and obligations of both parties.
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A liquidity provider shall be a domestic securities firm that operates proprietary securities trading business, provided that this restriction does not apply to a foreign issuer that makes the application through a branch office established in the territory of the Republic of China by a directly or indirectly wholly-owned subsidiary and that furthermore serves as its own liquidity provider. A liquidity provider shall assign at least one associated person to be in charge of liquidity providing business. If the issuer changes liquidity providers during the period of validity of call (put) warrants, it shall notify the TPEx 3 business days prior to the change, and input the following matters into the TPEx-designated Internet reporting system:
- Abbreviation and code of the call (put) warrants.
- Name of the replacing liquidity provider.
- Contact telephone number of the replacing liquidity provider (not applicable to a liquidity provider that performs the quoting obligation by means of "voluntary quoting").
- Effective date of the change.
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A liquidity provider shall apply with the TPEx to establish a segregated account. If the issuer serves as its own liquidity provider, the segregated account shall be established under its dealer account, and the account number of the domestic securities dealer shall be 888888-5. If the issuer appoints another securities firm to serve as the liquidity provider, the segregated account shall be established under the dealer account of the institution so appointed, and the account number of the domestic securities dealer shall be 888888-6. In the case of a foreign issuer making the application through a branch office established in the territory of the Republic of China by its directly or indirectly wholly-owned subsidiary and serving as its own liquidity provider, the segregated account shall be established under the account of the securities brokerage department of the branch office. The aforementioned segregated accounts shall be used only for the trading of warrants issued by the liquidity provider or of warrants for which it has been appointed to provide liquidity, and buy and sell quotes from the same account may not be executed against each other. No warrant in the segregated account may be made the subject of a pledge.
When a liquidity provider providing liquidity for warrants engages, through the segregated account referred to in the preceding paragraph, on the same day, in any trades of such warrants by means of the automated trade matching system, after-market fixed-price trading, or block trading, that will be settled on a T+2 basis, it may carry out the settlement on the basis of the net balance after offsetting the purchases and sales of the warrants.
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An issuer shall, prior to the TPEx listing of call (put) warrants, transfer the unsold warrants into the segregated account established by the liquidity provider, and the hedge account for call (put) warrants that the issuer has opened pursuant to Article 19 of the Taipei Exchange Rules Governing the Review of Call (Put) Warrants for Trading on the TPEx may not be used for the trading of call (put) warrants issued by the issuer.
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A liquidity provider shall, starting from 5 minutes after the TPEx trading market opens until the market closes, perform its quoting obligations by means of "responding to requests for quotes" or "voluntary quoting"; the operational guidelines are as follows:
- Responding to requests for quotes
- A liquidity provider shall, within 5 minutes after receiving an investor's price inquiry, respond with a quote, and this quote shall remain posted for at least 1 minute.
- No single bid quote for warrants may be for less than 100 trading units or NT$100,000 in total. Under any of the following circumstances, however, this restriction may be lifted, provided that the quote may not be for less than 10 trading units:
- When there is insufficient liquidity in spot shares.
- When the underlying security is a stock placed under disposition measures.
- During the period from 5 minutes to 15 minutes after market opening and the 5 minutes prior to market close.
- No single ask quote for warrants may be for less than 10 trading units.
- A liquidity provider shall make a synchronous recording of the phone call with which an investor requests a quote, and the recording shall be preserved for at least 1 year.
- Voluntary quoting:
- Price quotes by a liquidity provider shall include bid prices and ask prices, and the time in force may not be immediate-or-cancel or fill-or-kill.
- A liquidity provider shall on its own initiative provide quotes at least once every 5 minutes, and such quotes shall remain posted for at least 30 seconds, provided that this 30-second restriction shall not apply when quotes are updated due to fluctuations in order price or order volume of the underlyings.
- A liquidity provider shall set the maximum price difference between the highest quoted bid price and the lowest quoted ask price at 10 ticks.
- No single bid quote for warrants may be for less than 100 trading units or NT$100,000 in total. Under any of the following circumstances, however, this restriction may be lifted, provided that the quote may not be for less than 10 trading units:
- When there is insufficient liquidity in spot shares.
- When the underlying security is a stock placed under disposition measures.
- During the period from 5 minutes to 15 minutes after market opening and the 5 minutes prior to market close.
- No single ask quote for warrants may be for less than 10 trading units.
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A liquidity provider is not required to provide quotes at the following times:
- During the initial 5 minutes after opening of the TPEx trading market.
- During any halt of trading of the underlyings of the warrants.
- When the quantity of warrants in the liquidity provider's segregated account cannot satisfy the minimum units required for a single ask quote, the liquidity provider may provide merely a bid quote.
- Within the 15 days before the expiration date of the warrant, the liquidity provider may provide merely a bid quote.
- Other times as prescribed by the issuer at its own discretion.
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An issuer shall specify on the issuance plan, sale notice, public sale prospectus, and listing notice of call (put) warrants the name of the liquidity provider, the method for performance of price quoting obligations, and the times when quotes will not be provided. If the liquidity provider performs its quoting obligation by means of "responding to requests for quotes," the telephone number of the liquidity provider and the requirements under Point 6, subparagraph 1, items A to C shall also be specified. If the liquidity provider performs its quoting obligation by means of "voluntary quoting," the requirements under Point 6, subparagraph 2, items B to E shall also be specified.
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If the liquidity provider does not comply with the price quoting rules, or if on a given day it is discovered that in trading of the warrants there has arisen any circumstance that meets a standard of "irregularity" under Article 2 of the Taipei Exchange Operation Directions for Announcement or Notice of Attention to Trading Information and Dispositions, the TPEx will immediately request an explanation by the liquidity provider and may conduct an on-site inquiry. If the liquidity provider's explanations are found obviously unreasonable, the TPEx may, depending on the severity of the circumstances, proceed in accordance with Articles 27 to 30 and Article 32 of the Taipei Exchange Rules Governing the Review of Call (Put) Warrants for Trading on the TPEx, applied mutatis mutandis. The TPEx also may notify the issuer to change liquidity providers.
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These Operation Directions, and any amendments hereto, shall be implemented by public announcement after submission to and approval by the competent authority.
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