Article 38 |
Customers with whom a securities finance enterprise may engage in securities lending transactions shall be limited to the following:
- Customers who have had an established a brokerage contract with the securities finance enterprise for a period of 3 months or more.
- Other customers who are approved by the competent authority.
"Securities lending" in the preceding paragraph refers to business in which securities are lent to a customer by a securities finance enterprise with a stipulation for repayment by the customer of securities of the same class and quantity.
When a securities finance enterprise handles securities lending through an agent securities firm, it shall sign an agency agreement with that securities firm and submit the agreement to the competent authority for approval.
When the securities firm of the preceding paragraph is authorized by the competent authority to engage in securities lending business, the securities finance enterprise shall terminate the agency relationship with the securities firm. For an unsettled balance on a securities lending transaction undertaken for a customer prior the termination, however, the securities firm may continue to act as agent until the settlement of the balance.
|
Article 39 |
The scope of subject securities that may be loaned by securities finance enterprises is as follows:
- Securities eligible for margin purchase and short sale transactions.
- Other securities that are approved by the competent authority.
The sources from which a securities finance enterprise may obtain securities for lending purpose are as follows:
- The securities finance enterprise's own holdings.
- Securities borrowed from the TWSE securities lending system.
- Securities collateral for margin purchases obtained through securities margin purchase and short sale business.
|
Article 40 |
The term of a securities lending transaction may be no longer than 6 months at most from the initial date of the lending transaction.
With the approval of the securities finance enterprise, a customer may apply for an extension prior to the expiration of the term of the loan. Such an extension may not exceed 6 months and shall be granted once only; the customer may not demand alteration of any other terms or conditions of the loan.
|
Article 41 |
A securities finance enterprise that engages in securities lending shall sign a securities lending agreement with the customer and open an account for securities lending transactions.
The content of the securities lending agreement of the preceding paragraph shall be formulated by the securities finance enterprise and submitted to the competent authority for approval.
The following matters shall be expressly stated in the securities lending agreement:
- The term of the loan.
- Loan fees.
- The use of the loaned securities.
- The methods of custody and redelivery of the securities and terms and conditions in regard to early redelivery.
- The types of collateral, substitution of collateral, and calculation of collateralization rates and maintenance levels.
- The return of collateral when value exceeds requirements and the offsetting of excess collateral against other requirements.
- The calculation and payment of interest on cash collateral.
- Compensation of entitlements.
- The handling of defaults.
- Handling of customer information.
- Causes for termination of the agreement.
|
Article 42 |
A securities finance enterprise shall be limited to opening only one securities lending transaction account per customer; a customer shall be limited to opening only one securities lending transaction account at any place of business of a securities firm that acts as agent in securities lending business.
A securities finance enterprise shall conduct a credit review in respect of a customer opening a securities lending transaction account.
A securities finance enterprise shall approve the amount of securities that a customer may borrow based on the results of the credit review and provide a risk disclosure statement outlining the possible risks associated with securities lending transactions.
|
Article 43 |
A securities finance enterprise engaging in securities lending business shall collect collateral from customers at the collateral ratio required by the competent authority.
The collateral referred to the preceding paragraph shall be limited to the following types:
- Cash.
- Book-entry central government bonds.
- Securities eligible for margin purchase and short sale transactions.
A securities finance enterprise shall mark to market daily the ratio of the value of collateral deposited by each customer to the dollar amount of the securities loaned to that customer. When that ratio is below the prescribed percentage, it shall immediately issue a margin call requiring the customer to cover the shortfall within a prescribed period of time.
The method of calculation of the value of the collateral, the substitution of collateral, the collateralization rate, and the time limit for provision of additional maintenance collateral shall be formulated by the securities finance enterprise and submitted to the competent authority for approval.
|
Article 44 |
When a securities finance enterprise engages in securities lending and a customer exceeds the deadline for satisfying the required collateral maintenance level or fails to return the securities by the stipulated date, the securities finance enterprise shall thereupon dispose of the customer's collateral.
|
Article 45 |
When a securities finance enterprise engages in securities lending, neither the subject securities loaned nor those accepted as collateral may include any of the following:
- Pledged shares.
- Shares or other equity-type securities of the securities finance enterprise itself that it has acquired through share repurchase, gifts from others, merger, transfer of business, or otherwise.
|
Article 46 |
When a securities finance enterprise engages in securities lending business, the use of its securities shall be restricted to the following:
- For use by customers in brokered sales of the securities through a securities firm.
- For use by securities finance enterprises and customers for redelivery of borrowed securities or as compensation for securities entitlements.
- For use by securities finance enterprises as a source of securities for securities margin purchase and short sale business.
- For use by securities finance enterprises as a source of securities for the return of customer collateral in connection with securities margin and short sale business.
- For redelivery by customers of spot securities borrowed in short sales.
- For use by securities finance enterprises in covering shortfalls of securities occurring in short sale business.
- For performance by customers of settlement on call/put warrants, equity options, and other equity-type financial instruments.
- For use by customers in in-kind creation or redemption of exchange traded fund (ETF) units or offshore ETF units.
- Other uses as approved by the competent authority.
|
Article 47 |
Securities collateral that a securities finance enterprise receives in a securities lending transaction may not be used for purposes other than the following, and shall be delivered for deposit in a central depository:
- As collateral for securities borrowed through the TWSE securities lending system.
- As collateral for refinancing from another securities finance enterprise.
A securities finance enterprise utilizing securities collateral in accordance with the preceding paragraph shall obtain a letter of consent from the customer permitting re-hypothecation of collateral.
Article 15, paragraphs 2 and 4 apply mutatis mutandis to the cash collateral obtained by a securities finance enterprise in a securities lending transaction.
|
Article 48 |
A securities firm conducting securities lending business shall cease lending a given type of securities immediately when for that type of securities, the aggregate total of the outstanding balance of shares it lends to securities borrowers in conducting securities lending business, plus the outstanding balance of shares it lends to short sellers in conducting securities margin purchase and short sale business, plus the safety stock amount under Article 18, paragraph 2 reaches the aggregate total of the items in the following three subparagraphs:
- Its financing balance in securities margin purchase and short selling business.
- The shares owned by the securities finance enterprise.
- The number of shares it has borrowed from the TWSE securities lending system.
|
Article 49 |
Where a securities finance enterprise is unable to obtain stock dividends, cash dividends, or any other entitlements as a result of having loaned securities in a securities lending transaction, the borrower shall repay the same to the securities finance enterprise or otherwise make repayment in cash as may be agreed between the two parities.
|
Article 50 |
When a securities finance enterprise engages in a securities lending transaction, the customer may redeliver the borrowed securities early at any time during the stipulated term of the loan.
A securities finance enterprise engaging in a securities lending transaction must first obtain the consent of the customer in order to request early redelivery of the borrowed securities by the customer.
|
Article 51 |
A securities finance enterprise that engages in securities lending shall establish operating rules for such business and submit them to the competent authority for approval.
The operating rules referred to in the preceding paragraph shall expressly state the following matters:
- Opening of securities lending accounts.
- Applications for loans of securities and their redelivery.
- Types of eligible collateral and its substitution.
- Calculation of the collateral required, collateral supplementation, and disposal of collateral.
- Method of obtaining shortfalls in loaned securities.
- Transfer of title to securities collateral.
- Other matters that shall be included pursuant to the regulations of the competent authority.
The securities finance enterprise shall carry out securities lending transactions in accordance with the operating rules of the first paragraph.
|
Article 52 |
Delivery and redelivery of the subject securities and collateral in a securities lending transaction shall be effected by book transfer or by transfer registration.
A securities finance enterprise shall transmit information about any delivery and redelivery of the subject securities of the loan and the collateral securities to the TWSE and the TPEx, which shall notify the centralized securities depository enterprise to deliver the securities by book-entry transfer or notify the clearing bank to carry out account transfer registration.
|
Article 53 |
A securities finance enterprise engaging in securities lending business shall publish the following information at its place of business or on its website and transmit such information to the TWSE and the TPEx:
- Types and amounts of securities loaned each day.
- Securities lending fees and service charges.
- Other information for which the competent authority required disclosure.
|
Article 54 |
If, during the duration of a securities lending agreement, trading on the securities market is suspended across the board or for a particular security due to a natural disaster or other extraordinary event and no time has been set for resumption of trading, the securities finance enterprise shall notify the customer within the prescribed period of time and settle the securities lending transaction according to the following methods:
- By redelivery of spot securities.
- By an application to the securities exchange or over-the-counter securities market by the securities finance enterprise for purchase of the subject securities by public tender offer, with any expense arising from the public tender offer to be borne by the customer.
- By an agreement between the two parties for repayment in cash.
|