| Article 12 |
A leverage transaction merchant providing leverage contract trading services to a professional institutional investor or high net worth juristic person investor shall enter into an ISDA Master Agreement with the trading counterparty or be subject to other standard agreements and market practices. If the leverage contract that a leverage transaction merchant enters into with a customer other than a professional institutional investor or high net worth juristic person investor, or any documents furnished in connection with the trade, including the master agreement (or ISDA Master Agreement), product prospectus, risk disclosure statement, and trade confirmation document, are in the English language, the leverage transaction merchant shall provide a Chinese-language translation thereof.
When the trading counterparty of the preceding paragraph is a natural person, the written contract shall stipulate agreement that the competent authority, the TPEx, or an institution(s) designated by the competent authority, may collect, process, and use the person's personal data.
When a leverage transaction merchant enters into a contract with a customer other than a professional institutional investor or high net worth juristic person investor, it may proceed only after meeting the requirement that an appropriate unit or personnel review the contract signing procedures and the completeness of the information provided by the customer.
A leverage transaction merchant and its associated persons may not accept authorization to engage in discretionary trading of leverage contracts. Customers may not engage in leverage contract trading with a leverage transaction merchant by means of a joint names contract.
The contract that a leverage transaction merchant enters into with a counterparty may stipulate the method for determining the amount payable for settlement in the event of early termination of a trade, and the method furthermore shall reflect and calculate the then-current market value of the trade, including the value that originally would have been paid for the terminated trade upon expiration after the early termination date.
Content including the conditions for early termination of a trade and the method for determining the amount payable for settlement in the event of early termination, as referred to in the preceding paragraph, shall be clearly specified in relevant contracts or otherwise fully disclosed to the counterparty of the trade.
The contracts entered into between a leverage transaction merchant and its customers, and other written documents required for use in the provision of leverage contract services to customers, may be made in the form of electronic documents as defined in the Electronic Signatures Act.
The execution, signing, or signing as confirmation, as specified in these Rules, may be done by electronic signature, digital signature, or other means agreed upon between the parties.
|
| Article 13 |
When entering into a leverage contract trade with an ordinary customer, a leverage transaction merchant shall fully specify in the written contract the important content of the trade and disclose the risks, and shall comply with the following requirements:
- It shall adhere to the principle of good faith and shall use text or other means that the customer is capable of fully understanding.
- All information or data in all explanations or disclosures must be accurate. All statements or diagrams shall be fairly presented, and there may not be any falsehood, fraud, concealment, or anything that otherwise could be misleading. The aforesaid information or data shall be dated.
- The language used in sales documents shall be Chinese, and every effort shall be made to ensure that it is clear and easy to understand. When necessary, the original language text may be appended in notes.
- All sales documents must use printed page numbers or another appropriate method to enable customers to confirm whether they have received complete information.
When a leverage transaction merchant specifies important content and discloses risks to the customer pursuant to the preceding paragraph, it shall retain the relevant materials on file, and incorporate them into the leverage transaction merchant’s internal control and auditing systems for management.
|
| Article 14 |
The "important content" in the preceding article is as follows:
- The method for and restrictions on the customer's exercise of rights, amendment, rescission, and termination with respect to the leverage contract trade.
- The important rights, obligations, and duties of the leverage transaction merchant with respect to the leverage contract trade.
- The fees and financial penalties the customer is required to bear, including the times at which they are to be collected and the method of their calculation and collection.
- Provisions governing the method for collection of margins and any other payments, the currency in which they are to be collected, the method of foreign exchange settlement, and ownership of interest accrued on funds deposited in the customer margin account.
- Whether the leverage contract trade is protected by deposit insurance, an insurance stabilization fund, or other relevant safeguard mechanisms.
- Channels for resolution and complaints/appeals for disputes arising in connection with leverage contract trades provided by the leverage transaction merchant.
- Other matters required to be reported regularly or from time to time, and other matters required to be specified, in connection with any of the leverage contract trades pursuant to laws and regulations.
The important content of the preceding paragraph shall be expressed in the written contract by a conspicuous font or method.
|
| Article 15 |
When entering into a leverage contract trade with an ordinary customer, a leverage transaction merchant shall specify in the written contract whether the dispute resolution procedures of the Financial Consumer Protection Act shall apply in the event of a financial consumer dispute.
|
| Article 16 |
When a leverage transaction merchant conducting leverage contract trading business collects margins from a customer, it shall open a customer margin account with the institution designated by the competent authority, and that account shall be designated as a customer margin account for leverage contract trades.
When a leverage transaction merchant carries out operations for the collection and payment of margins, it shall do so through the customer margin account. All withdrawals from that account shall be made through account transfers, with detailed and accurate records and receipt and payment documents.
When the leverage transaction merchant collects margin from a customer, the margin, if other than cash, shall be posted in the form of securities approved by the competent authority for use as collateral, and shall be limited to securities owned by the customer itself. The haircut rates for securities posted as collateral shall be handled as set out in Article 50, paragraph 2 of the Futures Trading Act and related regulations.
The margin and customer margin account under paragraph 1 and 2 shall be handled as set out in Articled 42, paragraphs 2 and 4, and Article 45, and Article 47, paragraph 1 of the Regulations Governing Futures Commission Merchants.
|
| Article 17 |
A leverage transaction merchant that provides leverage contract trading services to customers shall do so with the due care of a good administrator, in accordance with fiduciary obligations, and based on the principle of good faith.
When a leverage transaction merchant enters into a leverage contract trade with a customer other than a professional institutional investor or high net worth juristic person investor, it may not encourage or induce the customer to conduct trades through borrowing funds or debt financing. It furthermore shall establish a system for protection of customer rights and interests based on product suitability, notification and disclosure of product risks, and handling of trading disputes. Trades shall be carried out in accordance with the operating procedures set out under that system.
When a leverage transaction merchant provides leverage contract trading services to a customer other than a professional institutional investor or high net worth juristic person investor, the leverage transaction merchant shall establish a product suitability system, which shall at least include a set of know-your-customer assessment procedures, customer characteristic assessments, and product characteristic assessments in order to clearly ascertain the customer's investment experience, the status of the customer's assets, the customer's trading objectives, the customer's understanding of the product, and the suitability of that leverage contract for trading by the customer.
The customer characteristic assessments and rated assessment results produced by the leverage transaction merchant under the product suitability system referred to in the preceding paragraph shall be reviewed by an appropriate unit or personnel, and shall be reexamined at least once per year. The assessment results, and any subsequent amendment thereto, must furthermore be confirmed by the customer by affixing its signature or seal of record or by another method agreed upon between the parties.
A leverage transaction merchant may not provide an ordinary customer with leverage contract trading services that exceed the level appropriate to the customer, nor may it sell to an ordinary customer any leverage contract that is limited to investment by professional customers only or that is a complex high risk product. This restriction, however, does not apply to trades that an ordinary customer, for hedging purposes, conducts with a leverage transaction merchant of leverage contracts that are not structured products.
“Structured product” in these Rules means a leverage contract, incorporating in combination therein a fixed-income product or gold, that a leverage transaction merchant, in the capacity of trading counterparty, enters into with a customer.
A leverage transaction merchant engaging in trading of any complex high-risk product with a customer other than a professional institutional investor or high net worth juristic person investor shall fully explain to the customer the important content of that financial product and related services and contracts, including the important parts of the transaction terms and conditions, and shall disclose associated risks. Unless the transaction is made in an automated manner other than in person or the customer disagrees, a record of the above explanation and disclosure shall be retained by audio or video recording.
"Complex high-risk product" in these Rules means a leverage contract that has more than three settlement or price comparison periods, and that contains an embedded put option, but does not include the following:
- Structured products.
- Swaps.
- A series of plain vanilla options or forward exchange transactions under a single signing of a contract for multiple transactions, of which the customer may rescind a specific number of the transactions at any time.
- Other types of products as approved by the competent authority.
With respect to a leverage transaction merchant conducting the business of leverage contract trades, matters such as product suitability, product risk notification and disclosure, method of audio or video recording, and the types of products that may be provided to an ordinary customer will be prescribed by the TPEx and will be publicly announced after submission to and approval by the competent authority.
|
| Article 18 |
A leverage transaction merchant shall handle customer complaint cases in a fair, reasonable, and effective manner, with the goal of protecting customer rights and interests.
A leverage transaction merchant that enters into leverage contract trades with ordinary customers shall adopt procedures for the handling of customer complaints, which shall include the following:
- Establishment of a channel for customer opinions and customer complaints.
- Adoption of appropriate methods and procedures for investigation of complaints.
- Establishment of a unit or personnel with responsibility and authority for investigations.
- Establishment of methods and procedures for responding to complaints, and procedures for follow-up management. The methods and procedures must conform to the requirements of the Financial Consumer Protection Act.
When there is a cumulative total of five unresolved customer complaints under the preceding paragraph, the general manager shall convene an internal meeting to propose methods of resolving the cases and produce a concrete plan for reducing the number of customer complaints. A record shall also be made at the meeting of related matters, the status of implementation, and an assessment of effectiveness, which shall be reported to the board of directors. Within 2 weeks after reporting to the board, the record shall be submitted by letter to the TPEx.
|
| Article 19 |
When a leverage transaction merchant’s leverage contract trading and related hedging transactions involve foreign exchange business, the foreign exchange settlement matters shall be carried out in accordance with the Regulations Governing the Declaration of Foreign Exchange Receipts and Disbursements or Transactions and related regulations.
A leverage transaction merchant may carry out hedging transactions in the capacity of a customer with designated banks and foreign financial institutions that have received Central Bank approval for derivatives and foreign exchange business.
|
| Article 20 |
When leverage contract trading business operated by a leverage transaction merchant involves foreign exchange business, matters relating to payment and receipt of settlement money and fees, and payment of funds upon early cancellation or expiration of contracts, shall be carried out as follows:
- For contracts denominated in New Taiwan Dollars, all payments and receipts of settlement money and fees between the leverage transaction merchant and the counterparty shall be in New Taiwan Dollars.
- For contracts denominated in a foreign currency, all payments and receipts of settlement money and fees between the leverage transaction merchant and the counterparty shall be in foreign currency. Payments by the counterparty may be made by account transfer from the counterparty's own foreign exchange deposit account; where foreign exchange settlement is required, it may be carried out by the counterparty at a designated foreign exchange bank, in accordance with the Regulations Governing the Declaration of Foreign Exchange Receipts and Disbursements or Transactions.
- Upon early cancellation by the counterparty or expiration of the contract, the leverage transaction merchant shall deposit the funds receivable by the counterparty, in the denominating currency and on the settlement date stipulated by the contract, in the counterparty's New Taiwan Dollar or foreign exchange deposit account.
A leverage transaction merchant operating the business of the preceding paragraph shall submit a monthly operations statement to the foreign exchange authority and the TPEx within 5 business days after the end of each month.
|
| Article 21 |
For structured products sold by a leverage transaction merchant, the maximum potential loss shall be limited to the original transaction price and a distinction shall be made between principal-protected and non-principle-protected products. However, if a structured product is sold under the name of a principal-protected product or claims principal protection benefits, it shall be stipulated that the customer may, at expiration or when early expiration is brought about in accordance with the terms of the contract, recover the total amount of the original transaction price.
|
| Article 22 |
A leverage transaction merchant that provides structured product trading services to a customer other than a professional institutional investor or high net worth juristic person investor shall carry out the assessments listed below:
- The leverage transaction merchant shall assess the customer's characteristics to ascertain whether the customer is a professional customer or an ordinary customer and shall perform an overall assessment of the customer's degree of risk tolerance on the basis of factors including the customer's age, investing knowledge and experience, status of assets, trading objectives, and understanding of the product. At least three discrete levels of risk tolerance shall be distinguished.
- The leverage transaction merchant shall undertake an assessment of the product's characteristics and retain a written record for verification. The assessment shall include at least the items listed below:
- Assessment and confirmation of the legality of the given structured product, the related investment assumptions, the reasonableness of the risk/return profile, the appropriateness of the transaction, and whether there are any conflicts of interest.
- Overall assessment and confirmation of the degree of risk inherent in structured products, in which at least three discrete levels of risk are distinguished, with respect to factors such as their characteristics, the risk and probability of principal loss, liquidity, structural complexity, and the term of the products.
- Assessment and confirmation of the adequacy and accuracy of the disclosures made in the product information and marketing documents provided to the customer.
- Confirmation of whether investment in the given structured product is limited to professional investors only.
|
| Article 23 |
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 impose the following controls on its marketing procedures:
- The leverage transaction merchant shall indicate, in a conspicuous font in the notice to customers and in the prospectus, the degree of risk for the given product, based on the assessment of the product's characteristics pursuant to Article 22, subparagraph 2.
- A leverage transaction merchant that provides structured product trading services to customers shall fulfill its duty of disclosure. For a product targeted for sale to 10 or more persons and furthermore having identical terms and conditions of transaction and a duration in excess of 6 months, the leverage transaction merchant shall provide ordinary customers with a review period of not less than 7 days to review the related contracts of the structured product, and a review period of not less than 3 days for professional customers to do the same, unless the professional customer provides a signed statement expressly indicating that the customer has fully reviewed the product. With respect to products for which a review period is not required to be given, the fact that there is no review period for the product shall be clearly stated in the product's prospectus.
- A leverage transaction merchant that provides structured product trading services to customers shall read aloud or use electronic equipment to explain to the customer the important content of the notice to customers, and shall retain an audio recording as a record or use 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.
- A 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 when trading the same type of structured product with that customer.
- When a leverage transaction merchant conducts a structured product trade with a customer that is a juristic person, then in subsequent trades with the same customer of the same type of structured product, the leverage transaction merchant may be exempt, if the customer each time signs a written consent to exemption for that specific transaction, from following the requirements of subparagraph 3.
- The term "same type of structured product" in the preceding two subparagraphs means that the product's structure, denominating currency, and linked underlying asset(s) are all completely the same.
The matters to be handled pursuant to the preceding paragraph regarding the notice to customers, the required disclosures in the product prospectus, and the method for audio recording, video recording, or for retention using electronic equipment, will be formulated by the TPEx and publicly announced after submission to and approval by the competent authority.
|
| Article 24 |
A leverage transaction merchant shall include the content of Articles 22 and 23 among its internal control and internal audit items and carry out related audits.
|
| Article 25 |
When a leverage transaction merchant provides structured product trading services to a customer, the customer may request the leverage transaction merchant to furnish it with mark-to-market information and with price quote information relating to early cancellation with respect to the customer's transaction. If a structured product is provided to an ordinary customer who is a natural person, the leverage transaction merchant shall furnish the customer with mark-to-market information.
When structured products with the same transaction terms and conditions are targeted for sale to ten or more customers, the leverage transaction merchant shall disclose on its website relevant market price information or price quote information for early cancellation and shall also disclose relevant information through the TPEx information system.
|
| Article 26 |
When a leverage transaction merchant engages in leverage contract trading, the two parties may stipulate that performance upon exercise will be done by means of cash settlement or physical delivery.
When a linked underlying for performance by physical delivery under the preceding paragraph is a TWSE listed or TPEx listed stock, the means of performance shall be limited to delivery of the linked underlying securities by the leverage transaction merchant.
The linked underlying securities for delivery under the preceding paragraph shall be transferred from the hedging account of the leverage transaction merchant, and the transfer shall be processed in accordance with the relevant provisions of the Operating Rules of the Taiwan Depository & Clearing Corporation.
|
| Article 27 |
When a leverage transaction merchant conducting a leverage contract trade related to Taiwan equities needs, for hedging purposes, to trade TWSE listed or TPEx listed stocks or convertible (exchangeable) corporate bonds then—unless the leverage transaction merchant is operated by a futures commission merchant that also operates securities proprietary trading business—the leverage transaction merchant shall open an account at a non-affiliate securities broker, and report the account information by letter to the TWSE and the TPEx. No report of an out-trade or account number correction may be made for the above account of the leverage transaction merchant, except in cases where the error has occurred on the part of the appointed securities broker.
In the case of a leverage transaction merchant that is operated by a futures commission merchant that also operates securities proprietary trading business, the futures commission merchant concurrently operating securities proprietary trading business shall contact the TWSE or the TPEx or both, as the case may require, to open a hedging account. Such hedging accounts shall uniformly be "888888-1".
Securities in a hedging account referred to in the preceding two paragraphs may not be made the subject of a pledge, loan, or application for withdrawal, unless otherwise provided by the competent authority or the TPEx.
|
| Article 28 |
A leverage transaction merchant that operates leverage contract trading business related to Taiwan equities may, based on hedging needs, borrow or sell short the underlying securities without being subject to the restriction that the price of the securities borrowed or sold short may not be lower than the closing price of the previous business day.
|
| Article 29 |
When a leverage transaction merchant elects to sell shares of the underlying security by borrowing from holders of the underlying security in a securities borrowing and lending transaction, if the security is a TWSE listed or TPEx listed stock, in addition to complying with the relevant regulations of the competent authority, it shall additionally be required that the lender apply, through its securities firm, to the Taiwan Securities Central Depository Co., Ltd. for a transfer of the number of loaned shares into the hedging account of the leverage transaction merchant, or for the loaned shares to first be earmarked, so that the leverage transaction merchant can subsequently, as required for hedging purposes, apply in installments for the shares to be transferred to the hedging account.
When the leverage transaction merchant elects to short-sell shares in a TWSE or TPEx listed stock, it shall open a margin account with another securities firm or with a non-affiliate securities finance company, and report information relating to such account by letter to the TWSE and the TPEx.
The opening of the aforementioned margin account shall be carried out in accordance with the Operating Regulations for Securities Firms Handling Margin Purchases and Short Sales of Securities and the provisions of the respective securities finance companies related to the aforesaid Regulations.
The securities broker at which the aforementioned margin account is opened may accept from hedging leverage transaction merchants only short sale orders or buy-to-cover orders, and also may accept applications therefrom to cover short sales with spot securities. When the leverage transaction merchant uses the margin account to engage in short sales or buy-to-cover transactions for hedging purposes, reports of out-trades and account number corrections may not be submitted for this account, except in cases where the error has occurred on the part of the appointed securities broker.
The holders of the underlying security referred to in paragraph 1 may not be any person regulated under Article 22-2, paragraph 1 or 3 of the Securities and Exchange Act.
|
| Article 30 |
When a leverage transaction merchant conducts structured product trading business, its utilization of the transaction prices it receives therefrom shall be limited to engaging in hedging transactions related to those products and investment in domestic and foreign fixed-income products. The leverage transaction merchant furthermore shall produce an itemized monthly statement of the utilization of funds from structured notes, to be retained for auditing purposes.
A leverage transaction merchant shall draft a set of criteria for the utilization of funds, to govern utilization of transaction prices received through transactions under the preceding paragraph. Those criteria, and any amendments thereto, shall first be passed by a resolution of the board of directors and then submitted by letter to the TPEx for recordation.
The content of the criteria for utilization of funds under the preceding paragraph shall include principles and tools for fund utilization, scope of utilization, operating procedures, liquidity control measures, and the department in charge of execution and the authority with which it is vested.
The leverage transaction merchant shall adopt rigorous standards for internal control and enhanced internal auditing based on the standards for utilization of funds of the preceding paragraph. It shall undertake regular review and analysis thereof, and produce records thereof, which shall be retained for auditing purposes.
The format of the itemized statement of the utilization of funds referred to in paragraph 1 is as shown in Attachment 5.
|
| Article 31 |
A leverage transaction merchant engaging in structured product transactions shall allocate 3 percent of the total outstanding balance of its structured product contracts each month and pay that sum to the TPEx as a performance bond. However, if the leverage transaction merchant’s adjusted net capital is lower than 50 percent of the total amount of customer margin required for the open positions of futures traders, it shall pay 5 percent of the above balance to the TPEx as a performance bond.
A leverage transaction merchant may pay the performance bond of the preceding paragraph in cash, bank certificates of deposit, or central government bonds, and shall supplement the bond amount or obtain a refund from the TPEx on or before the tenth of each month in accordance with monthly changes in the outstanding balance of the structured product contracts and in its adjusted net capital ratio mentioned above.
The TPEx shall open a segregated deposit account at a bank for the custody of performance bonds received by the TPEx, and reimburse any accrued interest, after deducting taxes and required fees, to the leverage transaction merchants by the end of January and July each year.
|
| Article 32 |
When a leverage transaction merchant engages with counterparties in the trading of leverage contracts related to Taiwan equities, the scope of eligible linked underlying assets shall be limited to the following:
- TWSE or TPEx listed stocks eligible to be the underlying in the issuance of TWSE or TPEx listed call (or put) warrants, or eligible for margin purchase or short sale transactions, provided that if the trading counterparty is an ordinary customer, the scope of eligible linked underlying assets shall be limited to TWSE or TPEx listed stocks eligible to be the underlying in the issuance of TWSE or TPEx listed call (or put) warrants.
- Exchange traded funds (ETFs), offshore ETFs, or futures ETFs.
- Taiwan depositary receipts (TDRs).
- Indexes published by the TWSE or TPEx.
- Convertible (or exchangeable) corporate bonds that have been listed on the TWSE or TPEx for no less than 5 trading days.
- Publicly offered beneficial certificates of securities investment trust funds.
- Futures or options contracts of the Taiwan Futures Exchange Corporation.
- Combinations of the foregoing eligible linked underlyings.
|
| Article 33 |
A leverage transaction merchant that trades equity derivatives linked to Taiwan equities with offshore overseas Chinese or foreign nationals shall first confirm that the trading counterparty has completed registration in accordance with the Regulations Governing Investment in Securities by Overseas Chinese and Foreign Nationals.
|
| Article 33-1 |
When a leverage transaction merchant trades leverage contracts with offshore overseas Chinese or foreign nationals, such trades shall be limited to contracts for which permission has been granted by the Central Bank and which furthermore are linked to an underlying foreign exposure. The denominating currency, trading, clearing, settlement, and collection and payment of margin for such trades all shall be in foreign currency.
|
| Article 33-2 |
A leverage transaction merchant that trades leverage contracts with overseas Chinese or foreign nationals shall first confirm that the trading counterparty has completed registration of identity with the TAIFEX or TWSE and has submitted proof of completion of registration, and may engage in such trades only after having done so.
When a leverage transaction merchant trades leverage contracts with an overseas Chinese or foreign national, unless the trading counterparty is a foreign institutional investor with a fixed place of business or business agent within the territory of the Republic of China (ROC), the leverage transaction merchant shall first confirm that the counterparty has appointed an agent or representative in the ROC to file and pay taxes on the counterparty's behalf and has completed documentation evidencing such appointment and submitted them to the competent tax authority for approval. In case of a change of agent or representative, the successor agent or representative shall complete new documentation evidencing its appointment to file and pay taxes on behalf of the counterparty, and submit the documentation to the competent tax authority for approval.
The documentation evidencing the appointment for the purpose of filing tax returns and paying taxes as described in the preceding paragraph shall be completed in the form prescribed by the Ministry of Finance.
|
| Article 33-3 |
When a leverage transaction merchant trades leverage contracts with an offshore overseas Chinese or foreign national, it shall confirm that the counterparty has appointed a local agent or representative has to carry out procedures such as the signing of an agreement for leverage contract trading, exercising rights related to trading, clearing and settlement, reporting matters, and payment of taxes.
The required qualifications for the agent or representative referred to in the preceding paragraph are as follows:
- Agent:
- If a natural person: Shall have legal disposing capacity. If the person is an overseas Chinese or foreign natural person, it is required that such person reside within the territory of the ROC with an Overseas Compatriot Identity Certificate, or holding an ROC passport with an Overseas Compatriot Identity Endorsement, or holding an Alien Resident Certificate.
- If a juristic person: Shall be established under the law of the ROC and be entitled to operate agency business.
- If a foreign juristic person: Shall have established a branch office within the territory of the ROC that is entitled to operate agency business.
- Representative: Shall be the representative at a representative office established in the ROC, or the responsible person of a branch office established in the ROC.
If a juristic person or a foreign juristic person as set forth under subparagraph 1, item B or C of the preceding paragraph is appointed as agent, it shall appoint one natural person to carry out the agency business.
|
| Article 34 |
When a leverage transaction merchant enters into an equity derivatives transaction in TWSE listed or TPEx listed stocks, the total sum of the number of shares of the underlying security that could potentially be deliverable upon exercise of the derivatives contract, plus the number of shares of the underlying security that would be deliverable upon exercise of all outstanding and unexpired equity derivatives contracts and the number of shares of the underlying security that are callable (putable) under all outstanding and unexpired contract-based call (put) warrants, of all securities firms, leverage transaction merchants, and banks as of the previous business day, may not exceed 15 percent of the total number of shares of the underlying security issued by the issuer after deduction of the shares set out in each of the following subparagraphs:
- The total percentage of shares held by directors and supervisors under statutory shareholding ratio requirements.
- Pledged shares.
- The number of shares that newly TWSE listed or TPEx listed companies are required to place in compulsory central custody.
- Shares repurchased under the Regulations Governing Share Repurchase by TWSE Listed and TPEx Listed Companies, but not yet retired.
- Shares on which the competent authority has imposed restrictions for TWSE or TPEx listing and trading.
|
| Article 34-1 |
A leverage transaction merchant operating the business of options on convertible (or exchangeable) corporate bond asset swaps ("asset swaptions") related to Taiwan equities shall do so in compliance with the following provisions:
- The leverage transaction merchant shall confirm that the total of the unearned notional principal of asset swaptions with the same underlyings purchased by the customer from various financial institutions, plus the notional principal of the asset swaptions with the same underlyings currently being purchased by the customer shall not exceed 10 percent of the par value of the underlying convertible (or exchangeable) corporate bonds; the leverage transaction merchant shall obtain a written statement issued by the customer of compliance with the aforesaid requirement, and shall not help the customer to evade the customer transaction ceiling in this subparagraph.
- The leverage transaction merchant shall not help the customer or underwriter to evade the rules set out in Articles 27 and 43-1 of the Taiwan Securities Association Rules Governing Underwriting and Resale of Securities by Securities Firms.
- With respect to the reasonableness of the price of convertible (or exchangeable) corporate bonds purchased through OTC negotiated trading, the leverage transaction merchant shall establish an internal evaluation system to analyze the difference from market prices.
- With respect to the business of convertible (or exchangeable) corporate bonds asset swaptions related to Taiwan equities, the leverage transaction merchant shall establish an internal evaluation system for the prevention of illegal transactions.
The leverage transaction merchant shall incorporate the provisions of the preceding paragraph into its internal control and internal audit items. It shall undertake regular review and analysis and produce records for future audit.
Purchases made by the customer and his or her spouse, minor children, and nominees shall be included in the calculation of the ceiling set out in paragraph 1, subparagraph 1.
|
| Article 35 |
When a leverage transaction merchant engages in any leverage contract trading business that is linked to a credit event and furthermore its trading counterparty is an assumer of credit risk, the leverage transaction merchant shall assess the capacity and the appropriateness of the trading counterparty for the transaction, and at a minimum shall inform the counterparty of the following matters:
- The trading counterparty shall itself assess and monitor the credit risk of the credit entity under the management contract and the credit risk of the leverage transaction merchant.
- Returns on the given product derive primarily from bearing credit risk associated with the credit entity under the contract; losses may be incurred if a stipulated credit event occurs.
- The leverage transaction merchant shall provide a complete explanation defining the stipulated credit default event, the method of settlement to be used after the occurrence of a credit default event, the scope of debt obligations deliverable in the case of physical settlement, and the method of calculation for settlement of the spread in cash.
- The given product typically lacks market liquidity, and if such a contract contains a stipulation for early cancellation, an explanation must be provided of the costs and the maximum possible loss that will be borne by the trading counterparty should the trading counterparty demand early cancellation.
|
| Article 36 |
If a leverage transaction merchant conducts foreign exchange margin trading or contract for differences trading business, it shall adopt a control system governing the leverage ratios and customer margins offered to customers and it furthermore shall enhance its internal auditing and undertake regular review and analysis and produce records for future audit.
|
| Article 37 |
A leverage transaction merchant operating leverage contract business may not damage fair market price formation or investor rights and interests when conducting hedging operations or when calculating product gains or carrying out settlement upon cancellation or expiration. The leverage transaction merchant shall formulate and implement an effective internal control system addressing the aforementioned considerations.
|
| Article 38 |
A leverage transaction merchant operating leverage contract trading may not use any such transaction, on its own behalf or on behalf of a customer, for the purpose of merger or acquisition, or to engage in any unlawful transaction, nor may it use any leverage contract transaction to embellish or manipulate financial statements by, for example, deferring or concealing losses, falsely reporting earnings, or recognizing earnings early. In options transactions, the leverage transaction merchant shall take care to avoid using premiums (especially for long-term or extremely short-term options) to embellish financial statements.
A leverage transaction merchant shall stipulate with the customer that the customer may not refuse a request from the competent authority for review of relevant data (including data on the ultimate beneficial owner) for the purpose of market regulation.
|
| Article 39 |
A leverage contract merchant may not engage in leverage contract trading with any person falling under the circumstances in any of the following subparagraphs:
- Anyone under the age of 20.
- Anyone who has been adjudicated bankrupt and whose rights have not been reinstated.
- Anyone who has been placed under guardianship or assistance by an adjudication that has not been voided.
- Anyone who would transact on behalf of a juristic person but fails to present documentation issued by such juristic person authorizing such transaction.
- An overseas Chinese or foreign national seeking to open an account who is unable to furnish a certificate evidencing registration with the TWSE or the Taiwan Futures Exchange (TAIFEX).
- An offshore overseas Chinese or foreign national who has entered into a contract with a custodian institution or agent and the content of the contract does not comply with the requirements of the TWSE or the TAIFEX.
- Staff and employees of the competent authority for the securities and futures industries, the TAIFEX, a futures clearing house, the Futures Association, or the TPEx.
- Anyone who has breached a futures trading contract or a securities trading contract and the case is not yet closed and 5 years have not yet elapsed.
- Anyone who within the past 5 years has been found guilty by a final and conclusive criminal judgment of a judicial authority of a violation of futures trading laws or regulations or securities trading laws or regulations.
If any of the circumstances in the subparagraphs of the preceding paragraph applies to any counterparty already engaging in leverage contract trading, the leverage transaction merchant shall immediately cease engaging in new contracts with that counterparty. This restriction shall not apply, however, to transactions necessary to deal with the contracts of currently outstanding transactions.
|
| Article 40 |
A leverage transaction merchant may not engage in leverage contract trades related to Taiwan equities with any of the following parties:
- A director, supervisor, or managerial officer of the leverage transaction merchant, or a shareholder that directly or indirectly holds 10 percent or more of its total shares.
- A spouse, minor child, or nominee shareholder of any of the persons referred to in subparagraph 1.
- Any investee company in which 10 percent or more of the total shares are directly or indirectly held by any person(s) referred to in the preceding two subparagraphs.
- The issuer of the conversion securities, linked securities, or underlying securities, or any person that has with the issuer any relationship as set out in the preceding 3 subparagraphs.
Calculation of the total shareholdings of the shareholders under subparagraph 1 above shall include shareholdings of spouses, minor children, and nominee shareholders of the shareholders under subparagraph 1.
Before a leverage transaction merchant engages in a trade referred to in paragraph 1 with a trading counterparty, the counterparty shall sign an undertaking stating whether or not it is a related party as set out in paragraph 1; when the trading counterparty is a professional institutional investor, the leverage transaction merchant may use available information to make an effective confirmation, by means of its own internal operating procedures, that the trading counterparty is not a related party under paragraph 1. However, if the leverage transaction merchant is unable to perform verification with respect to a trading counterparty, and the trading counterparty furthermore is unable to issue an undertaking, the leverage transaction merchant may not engage in trading with that counterparty.
A leverage transaction merchant may enter into trades with a professional institutional investor falling under subparagraphs 1 to 3 of paragraph 1, provided that the terms it accords to such professional investor may not be more favorable than those accorded to others in the same class of counterparties, and that such trades may be entered into only after passage of a resolution by three-fourths or more of the company directors in attendance at a director's meeting with a quorum of two-thirds of the directors, or after such a resolution granting authorization to the relevant department.
The restrictions of subparagraphs 1 to 3 of paragraph 1 do not apply to a trade by a leverage transaction merchant with a single counterparty that is not a professional institutional investor where the price of that single trade is less than NT$1 million, and furthermore the cumulative price of unexpired trades therewith is less than NT$5 million.
Without regard for the restriction of paragraph 1, subparagraph 4, a leverage transaction merchant may engage, with an issuer of stock appreciation rights, in trading of leverage contracts linked to the Taiwan stock equity of the issuer, and shall comply with the following requirements:
- The leverage transaction merchant shall ensure that the issuer engages in such trades due to a hedging need arising from the issuance of stock appreciation rights, and shall obtain reasonable and credible supporting evidence from the issuer before engaging in the trades.
- The trades shall be limited to the sale of call options linked to the stock of the issuer.
- The exercise method shall be limited to cash settlement.
|
| Article 41 |
A leverage transaction merchant engaging in a leverage contract transaction with a customer other than a professional institutional investor or high net worth juristic person investor shall in the risk disclosure statement or individual trade confirmation indicate by a conspicuous font or other method the maximum possible loss or principal protection percentage, along with a description of the major risks involved, such as liquidity risk, foreign exchange risk, interest rate risk, tax risk, and cancellation risk.
If the “maximum possible loss” and the foreign exchange risk involved in the product under the preceding paragraph cannot be expressed in numerical quantities, they may be expressed in words.
|
| Article 42 |
A leverage transaction merchant operating leverage contract trading business shall, if it is a public company, shall comply with the Regulations Governing the Acquisition and Disposal of Assets by Public Companies issued by the competent authority. In addition, regardless of whether it is a public company, it shall adopt procedures for engaging in leverage contract transactions or incorporate the procedures into its existing procedures for engaging in handling futures trades and carry out necessary risk management and information disclosure. At the same time, it must also incorporate them into its existing internal control and internal audit systems or the implementation rules thereof to provide for management and control of transactions.
A leverage transaction merchant shall complete the amendments to its internal control and auditing systems prior to any application to operate leverage contract trading business.
|
| Article 43 |
A leverage transaction merchant operating leverage contract trading business shall establish its risk management system pursuant to the Risk Management Best-Practice Principles For Futures Commission Merchants announced and implemented by the TAIFEX to implement and manage the procedures for identifying, measuring, monitoring, and reporting transaction risks, and shall also comply with the following provisions:
- The leverage transaction merchant conducting leverage contract business shall follow appropriate review and approval procedures, and its senior management shall work together with the managerial officers involved in the relevant business to study and adopt a risk management system. Risk tolerance and trading business commitment limits shall be regularly reviewed and submitted to the board of directors for examination and approval.
- Leverage contract business trading operations and settlement operations shall not be concurrently handled by the same personnel. The leverage transaction merchant shall establish a risk management unit outside of and independent from its trading division to carry out such tasks as identifying, measuring, and monitoring risks. The risk management unit shall regularly report position risks and valuations of gains and losses to the senior management.
- The leverage transaction merchant shall set the frequency of valuation of leverage contract positions individually according to the nature of each type of position. In the case of trading positions, valuation shall in principle be carried out in real time or daily mark-to-market. For hedging transactions conducted for the purposes of the leverage transaction merchant's own business requirements, valuation shall be carried out at least once per month.
- The leverage transaction merchant shall adopt operational rules for the internal review of new products, with the authority and duties of each relevant department specified therein, and a product review panel shall be formed and consist of managerial officers in charge of finance and accounting, legal compliance, risk control, products, or business units. Before a new leverage contract is launched, the product review panel shall review it in accordance with the aforementioned rules. When the new product is a complex high-risk one, it shall be examined by the product review panel and then submitted to the board of directors or the board of managing directors for approval. The leverage transaction merchant's rules for internal product review shall cover at least the items listed below:
- Review of the nature of products.
- Review of the operational strategy and business policy.
- Review of risk management.
- Review of internal controls.
- Review of accounting methods.
- Review of safeguards of customer rights and interests.
- Review of compliance with laws and regulations and required legal documents.
- The leverage transaction merchant shall adopt a remuneration and reward system as well as assessment principles for associated persons conducting the leverage contract business. The system and principles shall avoid a direct connection to sales performance for specific financial products and shall incorporate non-financial criteria that include items such as whether there is any violation of applicable laws and regulations, self-regulatory rules, or operating directions, deficiency discovered in an audit, customer dispute, and faithful implementation of know-your-customer procedures; the system and principles shall be approved by the board of directors.
- The leverage transaction merchant shall adopt a pricing policy for financial derivatives, taking into consideration factors such as the position valuation, risk cost, and operating cost of the financial derivatives, and shall establish internal operating procedures to carefully review the reasonableness of the prices at which the leverage transaction merchant conducts financial derivative transactions with customers.
- The leverage transaction merchant shall establish and maintain an effective valuation and control mechanism for financial derivatives to prudently review the reasonableness of the transaction price quotations and mark-to-market value of products.
The TPEx may carry out special audits on the state of risk management implementation at leverage transaction merchants or request explanations from leverage transaction merchants. When necessary, it may demand that leverage transaction merchants take corrective action.
|
| Article 44 |
Leverage transaction merchant personnel that handle leverage contract trading business shall have professional ability, and the leverage transaction merchant shall adopt professional qualification requirements as well as a system for training and performance evaluation.
Sales and related managerial personnel engaged in leverage contract trading shall be qualified as associated persons of futures commission merchants, and shall also possess one of the following qualifications:
- Graduation from a finance or finance-related department at the university level or higher, along with completion of six credit hours in courses in financial derivatives and risk management thereof or participation in 20 or more hours of course work in financial derivatives and risk management at a foreign or domestic financial training institute.
- Meet the qualifications under Article 51, paragraph 1, subparagraph 1 or 2 of the Regulations Governing Managed Futures Enterprises.
- Participation in 30 hours or more of courses in financial derivatives and risk management thereof offered by a foreign or domestic financial training institute.
- Holding a financial derivatives-related license.
- A half year or more of actual experience in financial derivatives business at a foreign or domestic financial institution.
Article 14 of the Regulations Governing Foreign Exchange Business of Banking Enterprises shall apply mutatis mutandis to the required qualifications and the requirements for education and training of a leverage transaction merchant’s personnel who handle leverage contract trading business involving foreign exchange, and the provisions of the same Article 14 regarding recommendation work shall apply mutatis mutandis to those among such personnel who handle leverage contract referral business involving foreign exchange.
|
| Article 45 |
A leverage transaction merchant operating leverage contract trading business shall comply with the Regulations Governing the Preparation of Financial Reports by Futures Commission Merchants issued by the competent authority and the relevant directives of the competent authority regarding accounting disclosures in relation to leverage contracts.
A leverage transaction merchant shall keep available at its place of business the accounting books that it uses and related certificates, vouchers, statements, and contracts. The period for keeping them shall be set by the TPEx and publicly announced and implemented after it has been submitted to and approved by the competent authority.
|
| Article 46 |
A leverage transaction merchant operating leverage contract trading business shall, if it is a public company, shall carry out public disclosure of information in accordance with the Regulations Governing the Acquisition and Disposal of Assets by Public Companies issued by the competent authority.
|
| Article 47 |
After a leverage contract transaction is executed, the leverage transaction merchant shall promptly input the execution data and outstanding balance into the TPEx information system by the time and in the format prescribed by the TPEx.
The procedures and format used by the leverage transaction merchant for the information reporting under the preceding paragraph shall be handled in compliance with the Taipei Exchange Administrative Directions for the Financial Derivative Trade Database.
If a leverage transaction merchant operates structured product business, then in addition to carrying out information reporting under paragraph 1, it furthermore shall carry out information reporting in connection with any over-the-counter derivative customer complaint case. The reporting media format and reporting deadlines therefor shall be separately prescribed by the TPEx.
|
| Article 48 |
In calculating the ratio of its adjusted net capital to the total amount of customer margin required for the open positions of futures traders under Article 72, paragraph 1 of the Futures Trading Act, a leverage transaction merchant shall include leverage contract trading business in the calculation, and the method of calculation shall comply with the rules of the competent authority.
After a leverage transaction merchant has obtained a permit for leverage contract trading business, any time that the net worth of the leverage transaction merchant is lower than NT$800 million, or the ratio of its adjusted net capital to the total amount of customer margin required for the open positions of futures traders is lower than 20 percent, it shall file a report with the competent authority, the TAIFEX, and the TPEx.
Any time the net worth of a leverage transaction merchant is lower than NT$600 million, or the ratio of its adjusted net capital to the total amount of customer margin required for the open positions of futures traders is lower than 15 percent, then except where necessary to deal with currently outstanding transactions, it shall immediately suspend its conducting of leverage contract trading business and submit a plan for corrective action to the competent authority, the TAIFEX, and the TPEx.
|
| Article 49 |
Any time that the ratio of a leverage transaction merchant’s adjusted net capital to the total amount of customer margin required for the open positions of futures traders is lower than 30 percent, the leverage transaction merchant may not engage in any new transactions except for hedging transactions related to the handling of leverage contract trading business. It may engage in new transactions only once the above ratio has reached 30 percent or higher.
The TPEx may require the leverage transaction merchant to submit relevant documents and conduct ad hoc audits, and when necessary, may place a limit on the total commitment of transactions undertaken by the leverage transaction merchant.
|
| Article 50 |
The TPEx may make periodic public announcements of information on leverage contract trading.
A leverage transaction merchant operating leverage contract business shall pay business service fees to the TPEx at the rate of 6/1,000,000 of the total notional principal of contracts executed in the current month.
|