Article 3 |
A leverage transaction merchant that provides structured product trading services to customers other than professional institutional investors and high net worth juristic person investors shall implement the following controls over the sales process:
- Providing a product prospectus.
- PProviding a notice to customers.
- PReading aloud or using electronic equipment to explain to customers the important content of the notice to customers and retaining a record by means of audio recording or using electronic equipment to retain a trail of the relevant procedures carried out. However, in the case of a professional customer, it may instead deliver the information in writing or by means of an audiovisual medium.
- PA leverage transaction merchant that provides structured product trading services to a natural person customer shall assign dedicated personnel to explain the products. If the products provided are non-principal-protected products, the leverage transaction merchant shall use audio or video recording means to retain a record of the content of the explanatory procedures carried out by the designated personnel. Once it has done so, the leverage transaction merchant will subsequently be exempted from assigning dedicated personnel to give explanations to that customer regarding trading of the same type of structured products.
- PWhen providing structured product trading services to a professional customer, the leverage transaction merchant shall inform the customer that, "Professional customers are not covered by the protections of the Financial Consumer Protection Act."
A leverage transaction merchant that provides structured product trading services to customers under the preceding paragraph shall fully disclose and explicitly inform the customer of relevant information, including all fees involved and the means of their collection, how the transaction is structured, and the possible risks associated with the product.
The fees, the means of their collection, and the transaction structure that shall be disclosed to the customer under the preceding paragraph shall be detailed in the product prospectus as provided in Articles 4 to 8 of these Directions.
A leverage transaction merchant that has implemented the controls over the sales process in accordance with paragraph 1 may, with the approval of the customer, be exempted from repeating the procedures in paragraph 1 when providing trading services for the same structured product to the same customer within 1 year subsequently.
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Article 4 |
The product prospectus of the preceding article shall be prepared as provided below:
- The content shall be written in clear, understandable language and may not contain any false statement, non-disclosure, omission, or other misleading representation.
- The content shall be up to date. Any transaction or other event that occurs before the publishing of the prospectus and is sufficient to affect customers' judgments shall also be disclosed.
- The risks associated with the product shall be disclosed in a simple, easily understandable way.
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Article 5 |
The product prospectus of Article 3 shall include at least the following details:
- A summary of important information.
- The terms and conditions of the product or transaction and a description of the maximum possible losses and the scenarios under which they could occur.
- A description of all fees and transaction procedures involved.
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Article 6 |
The summary of important information under subparagraph 1 of the preceding article shall include the following:
- The product's Chinese name. The name shall properly convey the product's characteristics and be free of wording that might mislead customers. The product's foreign name, if any, shall also be disclosed.
- The product's risk level, presented in a conspicuous font.
- The risk profile of customers for which the product is intended and whether it is restricted to professional customers only, presented in a conspicuous font.
- The review period applicable to the product. For a product for which a review period is not required, a note shall be added specifying this.
- The phrase, "Customers shall read the content of the product prospectus carefully and take note of the risks associated with the product."
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Article 7 |
The "terms and conditions of the product or transaction and a description of the maximum possible losses and the scenarios under which they would occur," as referred to in Article 5, subparagraph 2, shall set out the following details:
- The denomination currency, the transaction date/effective date/maturity date, and any other important dates according to the nature of the product.
- The principal protection rate at maturity in the denomination currency, accompanied by the note: "The pre-tax settlement amount at maturity is ___ percent of the principal in the original denomination currency, provided that no early termination event has occurred and that the Company is not in default at maturity. The principal protection rate of this product is the principal protection rate at maturity in the denomination currency. The denomination currency may be different from the currency of the original source of funds. In the case of structured products denominated in a foreign currency, the principal protection rate will not be calculated in New Taiwan dollars, even if the original source of funds was in New Taiwan dollars."
- The categories of underlyings or the assets to which the structured product is linked. Descriptions shall be given of the linked underlyings and any related information, factors associated with investment performance, the weighting of the underlying assets, and the criteria and means for adjustment of the linked underlyings.
- The methods by which investment income principal and interest is calculated and paid, including the currency or underlyings for settlement at maturity.
- Scenario analysis explaining the possible annualized rates of return or average annualized rates of return on the product, and the maximum losses possible. A note shall be added that the results of the scenario analysis do not guarantee future performance. The scenario analysis shall use an illustrative table or text to describe the rates of return on investment or amounts of income or losses that would be obtained under the terms and conditions of trading of the product based on various price comparison results. If the product does not require price comparison, a description shall be given of the possible rates of return or amounts of income at the date of payment of income or date of maturity. However, the use of historical back-testing of the linked underlyings to describe possible returns, in place of using the aforesaid scenario analysis, shall be avoided.
- If the terms and conditions of the transaction include a provision for early maturity, then the criteria for triggering early maturity shall be disclosed, or a description shall be given of the leverage transaction merchant's right to declare early maturity and the amounts payable upon settlement at early maturity or the method of their calculation.
When a leverage transaction merchant provides structured product trading services to a natural person customer, it shall require the customer to affix his or her signature or seal of record by the principal protection rate product description referred to in subparagraph 2 of the preceding paragraph, or otherwise confirm it by another method agreed upon between the parties.
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Article 8 |
The description of charges and transaction procedures involved as referred to in Article 5, subparagraph 3 shall set out the following details:
- For products with standardized terms and conditions of trading, the first date on which investments will be accepted, the date of settlement at early maturity, and the date at which customers may apply for early termination.
- When a leverage transaction merchant provides a structured product, it shall state the minimum required investment amount and the method by which that amount is to be paid, provided that if there are other stipulations regarding payment method, those stipulations will apply. If under certain circumstances a transaction will not be executed, those circumstances shall be explained, and if the amount invested is to be collected in advance, the method and date on which the investment amount will be returned shall also be explained.
- Leverage transaction merchants are required to disclose all fees borne by the customer (if applicable) and the method for collecting the fees, e.g., processing fees and handling charges for customers' applications for investment or early termination, and any other fees.
- If a customer has the option to request early termination, the leverage transaction merchant shall disclose the method of calculation and method of payment of the amount that the customer may receive when the transaction is terminated.
- Channels for complaints regarding transaction disputes.
- Any other matters that, as provided by the competent authority, shall be disclosed, or shall be included in the product prospectus because they are deemed material to customer rights and interests.
In these Directions, the term "products with standardized terms and conditions of trading" refers to the provision by a leverage transaction merchant to an unspecified plurality of persons of products with fixed terms and conditions of trading (e.g., duration, interest rate, exchange rate, conversion criteria, and linked underlyings).
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Article 9 |
When "informing the customer of the possible risks associated with the product" under Article 3, paragraph 2, the following shall be explained:
- The possibility of the loss of the principal or an amount greater than the initial principal invested in the given structured product, caused directly by changes in an interest rate, exchange rate, securities market price, or relevant indicator associated with the given structured product.
- The possibility of the loss of the principal or an amount greater than the initial principal invested in the given structured product, caused directly by changes in the business performance or monetary assets of the leverage transaction merchant or another person.
- The possibility of the loss of the principal or an amount greater than the initial principal invested in the given structured product, caused directly by any other material matters sufficient to affect investors' judgments.
- The maximum monetary amount of losses possible with the given structured product.
When a leverage transaction merchant provides structured product trading services to customers other than professional institutional investors and high net worth juristic person investors, it shall provide a risk disclosure statement to the customer that contains warning language about the risks of investment and a product risk description. However, for a professional customer that is a juristic person, the content and delivery procedures for the risk disclosure statement may be handled in accordance with the leverage transaction merchant’s internal operating rules.
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Article 10 |
The investment risk warning language included in the risk disclosure statement under paragraph 2 of the preceding article shall contain the following text:
- "Due to the complexity of this product, the investor shall be made aware of the associated risks by trained personnel before committing to the investment. Do not make an investment if you do not fully understand what the product entails."
- "This product is an investment, not a deposit, and hence is not protected by deposit insurance."
- "The customer shall carefully read the product prospectus and the risk disclosure statement prior to investing. The customer shall also exercise their own personal judgment and will be solely liable for any gains or losses."
- "This product is an investment product, and the market risks of the product and the credit risk of the leverage transaction merchant shall be borne solely by the investor."
- "Investors are advised not to sign or place their seal on any related document until they have fully understood the product prospectus, the contract terms, and all details contained in the document."
- " Early termination by the customer may result in the customer receiving a sum that is less than their invested principal."
- "The largest possible loss is the entire invested principal."
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Article 11 |
The product risk description referred to in Article 9, paragraph 2 shall include, but shall not be limited to, the following:
- Linked underlying risk: Includes risks such as the market price risk of the underlying asset.
- Other risks: Includes risks such as early termination risk, interest rate risk, liquidity risk, credit risk, foreign exchange risk, sovereign risk, taxation risk, legal risk, and reinvestment risk.
The disclosure regarding early termination risk shall also contain the following statement about early termination risk: "An application to terminate this product prior to its maturity will cause you to receive an amount lower than your initial investment (in the worst case scenario, the amount received may be zero). In addition, there may be circumstances in which early termination is not possible."
A leverage transaction merchant shall, in the transaction documents, remind customers of the important matters for attention below:
- Customers may be exposed to varying levels of risk, depending on the differing designs or terms and conditions of the structured product. For products that involve cash settlement, there may be full or partial impairment of the interest or principal, or the risk of other losses; when not settled in cash, there may be circumstances in which the customer's principal is converted into the underlying asset, and the customer may be required to bear the credit risk of the leverage transaction merchant and the issuer of the underlying asset.
- The factors that affect price fluctuation in financial derivatives are extremely complex; the leverage transaction merchant's risk disclosure lists only the major risks and may not be capable of describing in detail all the risks associated with the transaction or the factors that influence market prices. Customers shall therefore be reminded that they are required to thoroughly understand the nature of the structured product, and any related financial, accounting, taxation, or legal matters before making the transaction, and to review their own financial status and risk tolerance before deciding whether to proceed with the investment.
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Article 12 |
The notice to customers that a leverage transaction merchant provides under Article 3, paragraph 1, subparagraph 2 shall be a Chinese language version, with no more than 4 pages of content, and the text therein shall be in no smaller than a 12-point font.
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Article 13 |
The notice to customers under the preceding article shall contain at least the following:
- A product summary.
- A description of investment risks.
- A description of market valuation.
- Channels for complaints regarding transaction disputes.
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Article 14 |
The notice to customers shall specify the name of the structured product and contain the warning language below, at a prominent and visible location and highlighted in a bold black or red font:
- This product is rated with a risk level of ______ and is intended for customers with a risk profile of ______.
- Due to the complexity of this product, the product must be explained by trained personnel before proceeding with the investment. The customer is advised not to invest if unable to fully understand the product.
- This product is an investment, not a deposit, and hence is not covered by deposit insurance.
- Prior to making an application for investment, the customer shall read the content of the prospectus and the risk disclosure statement carefully. The customer furthermore shall exercise personal judgment and will be solely liable for any gains or losses.
- The customer shall personally assume the market risk and the leverage transaction merchant’s credit risk in connection with the product. The largest possible loss is the entire principal invested in the product.
- Investors are advised not to sign or place their seal on any related document until they have fully understood the product prospectus, the contract terms, and all details contained in the document.
- Early termination by the customer may result in the customer receiving a sum that is less than their invested principal.
- A description of the review period shall be provided or, for a product for which a review period is not required, a note shall be added specifying this.
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Article 15 |
The notice to customers shall contain the following details regarding the structured product:
- Product summary: Shall include the name of the product in Chinese, the denomination currency, the principal protection rate at maturity in the denomination currency, and the transaction date/effective date/maturity date.
- The categories of underlyings or assets to which the product is linked.
- All fees borne by the customer (if applicable) and the method for collecting the fees, e.g., processing fees or handling charges for customers' applications for investment or early termination, and any other fees.
- The methods by which investment income principal and interest is calculated and paid, including the currency or underlyings for settlement at maturity.
- If the transaction terms include a provision for early maturity, then the criteria for triggering early maturity shall be disclosed as well as the amounts payable upon settlement at early maturity, or the method by which those amounts are calculated.
- For products with standardized terms and conditions of trading, the time at which early termination will subsequently be accepted, the minimum investment sum, the minimum increment of subsequent investments, a list of all fees (if any), and circumstances under which the transaction will not be executed.
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Article 16 |
The notice to customers disclosing the various investment risks of structured products shall contain the following:
- Linked underlying risk: Includes risks such as the market price risk of the underlying asset.
- Other risks: A list shall be used to provide notice of the various secondary risks, such as early termination risk, interest rate risk, liquidity risk, credit risk, exchange rate risk, sovereign risk, taxation risk, legal risk, and reinvestment risk.
The disclosure regarding early termination risk shall also contain the following statement about early termination risk: "An application to terminate this product prior to its maturity will cause you to receive an amount lower than your initial investment (in the worst case scenario, the amount received may be zero). In addition, there may be circumstances under which early termination is not possible."
In addition to each of the risk disclosures in the preceding paragraph, when there are other matters with material effect with respect to an investor, the leverage transaction merchant shall also disclose any related investment risks.
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Article 17 |
The notice to customers shall state clearly that the leverage transaction merchant will provide trade confirmations, reconciliation statements, or other documentation to the customer, while also explaining that the market valuation information is provided only as a reference and that the amount receivable after early termination by the customer will be based on the method of calculation at early termination given in the product prospectus or in other related transaction documents.
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Article 18 |
The notice to customers shall contain methods that will further the protection of investors' rights and interests, including:
- Channels for complaints regarding disputes.
- Methods for the handling of disputes or litigation with the leverage transaction merchant.
- That customers may file complaints with the Chinese National Futures Association and the Financial Supervisory Commission in the event of a dispute with the leverage transaction merchant. In the case of a trading dispute between an ordinary customer and the leverage transaction merchant, if settlement cannot be successfully reached through the leverage transaction merchant's internal complaint handling procedures, the customer may apply to the Financial Ombudsman Institution for ombudsman service or mediation.
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Article 19 |
When a leverage transaction merchant, pursuant to Article 3, paragraph 1, subparagraph 3, reads aloud or uses electronic equipment to explain to customers the important content of the notice to customers, it shall include at least that provided in Article 14, subparagraphs 1 and 2 of Article 15, and Article 16 of these Directions. However, when it provides a structured product of the same transaction type to the same customer on the same day, it may be exempted from redundant reading aloud or explaining the content of Articles 14 and 16.
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Article 19-1 |
When a leverage transaction merchant that provides structured product trading services to a natural person customer assigns dedicated personnel to explain the products in accordance with Article 3, paragraph 1, subparagraph 4, it shall comply with the following provisions:
- The explanatory content shall include at least the important content of the notice to customers, and the calculation of investment income.
- A voice assisted method may be used to explain the important content of the notice to customers. If audio or video recording means are used to retain a record of the content of the explanatory procedures carried out by the designated personnel, such records may be kept together with those of the reading aloud of the important content of the notice to customers.
- If a customer is unwilling to listen to the explanatory content, the leverage transaction merchant shall decline to handle investment by such customer.
- If a customer has questions or concerns about the explanatory content, the dedicated personnel shall assist by providing further specific explanations and remind the customer not to make any investment before the customer has a clear understanding of the content.
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Article 20 |
When a leverage transaction merchant provides structured product trading services to customers other than professional institutional investors and high net worth juristic person investors, it shall comply with the following provisions:
- Before providing the product prospectus or notice to customers, it shall confirm that there is no inappropriate content, misrepresentation, or anything in violation of applicable law or regulation therein.
- When providing non-principal-protected structured product trading services, where furthermore the amount of such products traded accounts for a relatively high percentage of the funds flowing through the customer's account, it shall voluntarily remind the customer of the risks of relevant products, to avoid the customer suffering heavy losses as a result of overconcentration of positions.
- When performing the assessment of customer characteristics, no personnel performing the assessment may be the same person as one who sells structured products to the customer. When performing the initial assessment of customer characteristics of a natural person customer, the leverage transaction merchant shall maintain a record by means of audio or video recording or use electronic equipment to retain a trail of the relevant procedures carried out.
The personnel performing assessments under subparagraph 3 of the preceding paragraph shall meet the requirements of Article 44, paragraph 2 or 3 of the Trading Rules. When risk profile scoring of a natural person customer is done using standardized form documents and furthermore no human judgment is involved, the aforesaid requirements shall be met by at least one out of the two personnel who respectively perform the assessment of the customer characteristics of an individual customer and perform the review of that assessment.
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