| 1 |
These Directions are established pursuant to Article 14 of the Taipei Exchange Rules Governing Trading of Exchange-Traded Fund Beneficial Certificates.
|
| 2 |
A securities investment trust enterprise (SITE) that offers exchange-traded funds (ETFs) in accordance with the Regulations Governing Securities Investment Trust Funds shall appoint liquidity providers that satisfy the criteria described in Point 4 to provide liquidity for the ETF beneficial certificates.
|
| 3 |
When appointing a liquidity provider, the SITE is shall sign an ETF Beneficial Certificate Market Liquidity Agreement (the "Liquidity Agreement") with the liquidity provider and notify the TPEx by letter of the appointment. The SITE also shall notify the TPEx by letter of any appointment of an additional liquidity provider or termination of an existing liquidity provider and furnish relevant documentary proof no later than 3 p.m. 3 business days before the contract is to take effect or be terminated.
|
| 4 |
A liquidity provider must meet the following requirements. However, the requirements set forth in subparagraphs 3 to 7 may be waived provided that specific improvements have been made to remedy the circumstance, and approval is granted by the competent authority:
- It is a securities dealer that is also a participating firm of the ETF beneficial certificates for which liquidity is to be provided.
- Its latest CPA audited and attested financial statements show a net worth per share no less than face value, and its financial status complies with the Regulations Governing Securities Firms.
- It has not been issued any warning by the competent authority under Article 66, subparagraph 1 of the Securities and Exchange Act or Article 100, paragraph 1, subparagraph 1 of the Futures Trading Act within the previous 3 months.
- It has not been subject to any penalty imposed by the competent authority under Article 66, subparagraph 2 of the Securities and Exchange Act or Article 100, paragraph 1, subparagraph 2 of the Futures Trading Act within the previous 6 months.
- It has not been subject to any penalty of imposed by the competent authority of suspension of business activities within the past year.
- It has not been subject to any penalty imposed by the competent authority of voidance of any part of its permission for business within the past 2 years.
- It has not been subject to any penalty imposed by the Taipei Exchange, Taiwan Stock Exchange Corporation, or Taiwan Futures Exchange Corporation of suspension or restriction of trading within the past year.
- Other requirements prescribed by the competent authority.
|
| 5 |
All market-making trade quotes made by the liquidity provider shall be placed through its ETF account (777777~7 under the securities dealer's account).
For the purpose of hedging, a liquidity provider may open an ETF hedge account (777777~8 under the securities dealer's account) for making quotes for short selling of borrowed securities, and the quantities of such short selling are not subject to the daily limit set for short selling of borrowed securities during the regular trading sesion. However, the borrowed securities on which quotes for short selling are made through the ETF hedge account may be transferred into that account only from its ETF account (777777~7 under the securities dealer's account), and any balance of those securities in the hedge account may only be transferred back to the original ETF account.
|
| 6 |
The Liquidity Agreement shall cover the following details 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 the close of trading):
- The formula for calculation of the best buy-sell spread of the ETF beneficial certificates as disclosed in the TPEx automated trade matching system is as follows:
"best buy-sell spread" = [(lowest unmatched sell quote) - (highest unmatched buy quote)] / (lowest unmatched sell quote).
- The minimum number of Effective Quotes that the liquidity provider needs to place for the ETF beneficial certificates. The term "Effective Quote" refers to a buy or a sell quote that falls within a certain range above the lowest unmatched sell and within a certain range below the highest unmatched buy in the previous match, or within a certain range above and below the trade price. The liquidity provider shall be required to place a minimum number of Effective Buy Quotes and a minimum number of Effective Sell Quotes.
- The minimum quantity of buy quotes and of sell quotes that a liquidity provider shall make during a suspension of matching when there occurs a circumstance specified in Article 35, paragraph 4 or Article 35-11 of the TPEx Rules Governing Securities Trading on the TPEx with respect to the ETF beneficial certificates.
- 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 buy or sell prices; however, the calculation of time under the preceding paragraph may be excluded when matching time must be postponed due to a circumstance specified in Article 35, paragraph 4 or Article 35-11 of the TPEx Rules Governing Securities Trading on the TPEx.
|
| 6-1 |
If any of the following circumstances in the disclosure of market trading prices has existed in respect of any ETF beneficial certificates for 3 consecutive months, the TPEx will notify the SITE issuing the ETF beneficial certificates to take corrective measures within 2 months commencing from the month following that in which the notification is made. The TPEx will issue a warning letter if the SITE fails to take corrective measures within the time limit, and continued failure to take corrective measures within 2 months from the following month shall be deemed a breach of the listing contract, and the TPEx will impose a penalty of NT$30,000 on the SITE, and further investigation will be conducted once every 3 months and consecutive penalties may be imposed until such time as correction is made.
With respect to the beneficial certificates of domestic component securities ETFs or the beneficial certificates of leveraged or inverse ETFs of which the underlying index component securities are all domestic securities, there may not be more than two occurrences per month, respectively, of any of the following circumstances in the disclosure of market trading prices from 30 minutes prior to the commencement of trading to the close of trading (including the disclosed trading prices as calculated within a certain period of time before commencement of trading and close of trading):
- With the exception of the disclosure of limit-up or limit-down prices, in the disclosure of market trading prices, only either a posted buy price or a posted sell price is available, and the circumstance has continued for more than 3 minutes.
- The best buy-sell spread is higher than 1 percent, and the circumstance has continued for more than 10 minutes.
- When the TPEx encounters any circumstance under Article 35, paragraph 4 or Article 35-11 of the TPEx Rules Governing Securities Trading on the TPEx, and has to postpone matching for a period of time, such postponement may be excluded from the calculation of the time periods set out above.
With respect to the beneficial certificates of a foreign component securities ETF, the beneficial certificates of a leveraged or inverse ETF of which the underlying index component securities include one or more foreign securities, the beneficial certificates of a domestic component bond ETF, or the beneficial certificates of a leveraged or inverse ETF with domestic bond components, there may not be more than six occurrences per month, in total, of the following circumstances in the disclosure of market trading prices from 30 minutes prior to the commencement of trading to the close of trading (including the disclosed trading prices as calculated within a certain period of time before commencement of trading and close of trading):
- With the exception of the disclosure of limit-up or limit-down prices, in the disclosure of market trading prices, only either a posted buy price or a posted sell price is available, and the circumstance has continued for more than 10 minutes.
- The best buy-sell spread is higher than 3 percent, and the circumstance has continued for more than 10 minutes.
- When the TPEx encounters any circumstance under Article 35, paragraph 4, or Article 35-11 of the TPEx Rules Governing Securities Trading on the TPEx and has to postpone the matching for a period of time, such postponement may be excluded from the counting of the number of occurrences set forth above.
- In the case of the underlying index component securities of a foreign component securities ETF or bond component ETF, if the foreign securities market is closed on a given day, the disclosure of market trading prices of the beneficial certificates of such foreign component securities ETF or bond component ETF for that given day shall be excluded from the counting of the number of occurrences set forth above.
- In the case of the underlying index component securities of a leveraged or inverse ETF, if the foreign securities market is closed on a given day, the disclosure of market trading prices of the beneficial certificates of such leveraged or inverse ETF for that given day shall be excluded from the counting of the number of occurrences set forth above.
|
| 7 |
The SITE may obtain written consent from the liquidity provider, authorizing the TPEx to furnish details of the liquidity provider's ETF account trading quotes and executed trades to the SITE that issued the ETF.
|
| 8 |
For all market-making trades of ETF beneficial certificates that are placed through the liquidity provider's ETF account and are matched by the TPEx automated trade matching system, block trading system, after-market fixed-price trading system, and odd-lot trading system, buy and sell trades may be settled by offsetting against each other if they fall within the same settlement settlement. Settlement of any net balance of sell positions after such offsetting may be handled by borrowing those beneficial certificates in accordance with securities borrowing and lending rules, or by borrowing securities in accordance with Article 86-1 of the Rules Governing Securities Trading on the TPEx no later than the second business day.
A liquidity provider that opts to settle by borrowing securities under the preceding paragraph may be exempted from the imposition of relevant penalties on its general manager, managerial officers, and handling personnel.
|
| 9 |
The TPEx may adopt incentive measures to encourage liquidity providers to proactively provide liquidity for ETF beneficial certificates. The rules governing such incentives will be issued in a separate announcement by the TPEx.
|
| 10 |
The TPEx may, depending on the seriousness of the circumstances, cancel the liquidity provider's eligibility, or suspend part or all of its market-making activities, if the liquidity provider is found to have violated any relevant rules of the competent authority or the TPEx.
|
| 11 |
These Directions, and any amendments hereto, shall be publicly announced and implemented after approval by the competent authority.
|