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Title Taipei Exchange Directions for Creation and Redemption of Exchange Traded Fund Beneficial Certificates CH
Date 2023.09.15 ( AMENDMENT )

Article Content

1     These Directions are adopted pursuant to Article 12 and Article 12-1 of the Taipei Exchange Rules Governing Trading of Exchange-Traded Fund Beneficial Certificates.
2     Definition of terms:
  1. Participating securities firm: Refers to a securities firm that has signed a participant agreement with a securities investment trust enterprise (SITE) that issues beneficial certificates for a securities ETF or a futures trust enterprise (FTE) that issues beneficial certificates for a futures ETF, and that can engage in creation and redemption operations of the securities ETF beneficial certificates or the futures ETF beneficial certificates for its own account or on behalf of its customers.
  2. Custodian Institution: Refers to a financial institution that has signed a trust agreement with a SITE that issues securities ETF beneficial certificates or a FTE that issues futures ETF beneficial certificates.
  3. Applicant: Refers to a principal who places orders for creation or redemption of ETF beneficial certificates through a securities trading account opened with a participating securities firm. A participating securities firm that creates or redeems ETF beneficial certificates for its own account is also an applicant.
  4. Portfolio Composition File (PCF): Refers to a list prepared and published by a SITE each business day based on the reference data of the underlying index forwarded by the index provider. The PCF indicates the portfolio of securities and the estimated cash component per basket that would be required to apply for in-kind creation or redemption of one creation unit of beneficial certificates on the next business day.
  5. In-kind Creation: Refers to a participating securities firm, for its own account or on behalf of its customers, delivering the required portfolio of securities for one creation unit published in the PCF and the cash component per basket as notified by the SITE, or their integer multiples, as consideration to the SITE for the ETF beneficial certificates.
  6. In-kind Redemption: Refers to a participating securities firm, for its own account or on behalf of its customers, delivering one creation unit of ETF beneficial certificates as published in the PCF, or integer multiples thereof, as consideration to a SITE in exchange for the portfolio of securities as published in the PCF and the cash component as notified by the SITE.
  7. Cash Creation: Refers to a participating securities firm, for its own account or on behalf of its customers, delivering a cash consideration to a SITE or a FTE in exchange for ETF beneficial certificates; the basis of calculation for the monetary amount of the creation and the number of ETF units shall comply with the provisions of the trust agreement.
  8. Cash Redemption: Refers to a participating securities firm, for its own account or on behalf of its customers, delivering beneficial certificates to a SITE or a FTE in exchange for a cash consideration. The basis of calculation for the monetary amount of the redemption shall comply with the provisions of the trust agreement.
  9. Aggregate In-Kind Creation: Refers to no more than three applicants, by mutual agreement, combining their individual holdings of securities into the portfolio of securities required for one creation unit as published in the PCF, or an integer multiple thereof, then designating one among them as payer of the cash component required, and jointly engaging a participating securities firm (if one of the applicants is a participating securities firm with a proprietary trading department, the applicant will then be that participating securities firm) to subscribe to ETF beneficial certificates from a SITE using the aforementioned securities portfolio and cash component.
  10. Minimum In-kind Creation: Refers to a participating securities firm, with the consent of the SITE, creating beneficial certificates of an ETF for its own account by delivering securities that make up at least 90 percent of the portfolio of securities required as consideration for the in-kind creation, measured by each type of security in the portfolio and by the total market value calculated based on the closing price, reference yield, or price per hundred, and paying a deposit for the shortfall in the securities, and then, on the next business day after the in-kind creation, purchasing or borrowing securities to fully cover the shortfall and delivering the securities to the custodian institution.
  11. Cash in-lieu: When any of the following circumstances apply to any specific securities in the securities portfolio published in the PCF, a specific amount of cash, as calculated by the SITE, may be substituted for those securities when provided by (or returned to) the applicant as consideration during in-kind creation or redemption of ETF beneficial certificates:
    1. The applicant is restricted by law from holding or transferring the specific securities.
    2. Trading of the specific securities has been suspended or halted on the exchange.
    3. The SITE has published the specific securities in the PCF as ones for which cash may be substituted.
    4. The securities ETF does not hold the specific securities or holds an insufficient quantity of the securities and is unable to borrow sufficient securities to deliver to the applicant when the applicant redeems the ETF beneficial certificates in-kind.
    5. Situations in which the trust agreement of the securities ETF provides that cash in-lieu is permitted.
  12. Bond in lieu for securities ETFs with component bonds: If any of the following circumstances apply to a specific bond in the portfolio published in the PCF, then another bond may be substituted for that bond during the applicant's in-kind creation or redemption of ETF beneficial certificates:
    1. The applicant is restricted by law from holding or transferring the specific bond.
    2. Trading of the specific bond has been suspended or halted on the exchange.
    3. The SITE has published the specific bond in the PCF as one for which another bond may be substituted
    4. The ETF does not hold the specific bonds, or does not hold a sufficient number of the specific bonds to meet the applicant's in-kind redemption.
  13. Cash component: Refers to the amount equivalent to the cash component per basket multiplied by the number of creation or redemption units.If the cash component is positive, the applicant shall pay the amount to the SITE when creating ETF beneficial certificates or the SITE shall pay the amount to the applicant when the applicant redeems ETF beneficial certificates; if the cash component is negative, the SITE shall pay the amount to the applicant when the applicant creates ETF beneficial certificates or the applicant shall pay the amount to SITE when it redeems ETF beneficial certificates.
  14. Shortfall of Securities: Refers to securities in the portfolio of securities published in the PCF that a participating securities firm is unable to deliver when it transacts on a "minimum in-kind creation" basis.
3     Operating principles for participating securities firms that, for their own accounts or on behalf of their customers, carry out in-kind creations (or redemptions) of ETF beneficial certificates, or that on the same day concurrently sell beneficial certificates (or portfolio of securities); provided, this does not apply to the beneficial certificates of ETFs with domestic or foreign component bonds:
  1. The participating securities firm shall by means of computer link submit applications for in-kind creation (or redemption) of ETF beneficial certificates or concurrent sale on the same day of beneficial certificates (or portfolios of securities). The input time is from 9 a.m. to 3:30 p.m. on TPEx market trading days. Delivery and receipt of the relevant securities shall without exception be handled via central depository book-entry transfer. However, an application for which the central securities depository fails to complete earmarking may be corrected and input from 9 a.m. to 10:00 a.m. on the following business day.
  2. To carry out in-kind creation or redemption for its own account or on behalf of its customers, a participating securities firm shall first produce an Application for In-kind Creation or Redemption of Exchange Traded Fund Beneficial Certificates, attach the current day's PCF, and deliver it to the applicant for signing (in the case of an overseas Chinese, foreign national, or Mainland Area investor, the applicant's agent may sign on the applicant's behalf). The documents shall be retained for future reference. The aforesaid Application for In-kind Creation or Redemption of Exchange Traded Fund Beneficial Certificates shall contain the following particulars:
    1. Application No.: The code of the head office of the participating securities firm followed by a three-digit serial number.
    2. The account number(s) of the applicant(s): There shall be no more than three applicants in the case of aggregate in-kind creation.
    3. Type of Application: Application types are divided into in-kind creation, in-kind redemption, aggregate in-kind creation, minimum in-kind creation, in-kind creation and also sale of beneficial certificates, in-kind redemption and also sale of securities portfolio, minimum in-kind creation and also sale of beneficial certificates.
    4. Quantity of beneficial units for in-kind creation or redemption.
    5. Portfolio securities (or beneficial certificates) and quantities to be delivered for in-kind creation (or redemption), dividing them into the following categories: from original holdings; purchased on the application date; purchased on the business day preceding the application date; borrowed; shortfall of securities; from in-kind redemption (or creation) on the business day preceding the application date.
    6. The kind and quantity of securities for which cash in lieu is adopted, and the reasons for cash in lieu.
    7. The amount of deposit required for a shortfall of securities.
    8. An explanation of why the applicant is allowed to adopt cash in lieu in in-kind creation and redemption.
    9. An estimated cash component based on the PCF.
  3. When carrying out the in-kind creation (or redemption) of ETF beneficial certificates, the participating securities firm, based on the particulars stated in the Application for In-kind Creation or Redemption of Exchange Traded Fund Beneficial Certificates, shall examine the quantity of the portfolio of securities (or beneficial certificates) already held in the applicant's central depository account, and if the total of that quantity, together with the quantity of borrowed securities (or beneficial certificates), the balance of securities (or beneficial certificates) bought on the previous business day and bought on the day of application, and the quantity obtained through in-kind redemption (or creation) on the previous business day is sufficient for the in-kind creation (or redemption), it shall submit the application to the TPEx.
    4. The portfolio of securities (or beneficial certificates) delivered by the applicant pursuant to the preceding paragraph may not be bought on margin, and reports of trading errors or corrections of account numbers may not be submitted for the portfolio of securities (or beneficial certificates) bought on the day of application.
    After the TPEx receives the applications of paragraph 1, and after the cutoff time for the application, the TPEx will forward all application information to the central securities depository for earmarking of the securities.
  4. If the applicant uses any balance of securities purchased on the previous business day or on the day of application for the portfolio of securities (or beneficial certificates) required for in-kind creation or redemption of ETF beneficial certificates, the participating securities firm shall, on the day of application, collect the amounts payable for such balance of securities purchased.
    5. When accepting a customer order to create or redeem ETF beneficial certificates in-kind, the participating securities firm may collect in advance the cash component, cash in lieu and other relevant charges or payments calculated based on the PCF before applying for in-kind creation or redemption. After ascertaining the actual payment due and before delivering the prepaid amount to the custodian institution, the participating securities firm shall notify the applicant of any excess to be refunded or any supplemental payment required. The participating securities firm shall open a separate deposit account with its clearing bank specifically for the receipt and payment of the cash components, cash in lieu, and other relevant charges or payments associated with in-kind creation or redemption.
  5. The applicant for in-kind creation or redemption of ETF beneficial certificates, prior to the deadline for reporting, may prepare an Application for Cancellation of the In-Kind Creation or Redemption of ETF Beneficial Certificates on their own or through the participating securities firm to apply for cancellation, and the participating securities firm will submit the Cancellation Application to the TPEx. Upon receipt of the application, the TPEx will notify the participating securities firm of receipt and request it to notify the applicant to confirm. The participating securities firm shall print out the notice of TPEx receipt and retain it for record, together with the Application for Cancellation of the In-kind Creation or Redemption of ETF Beneficial Certificates signed by the applicant (in the case of an overseas Chinese, foreign national, or Mainland Area investor, the applicant's agent may sign on the applicant's behalf).
    6. The aforesaid Application for Cancellation of the In-kind Creation or Redemption of ETF Beneficial Certificates shall contain the following particulars: the application number, account number(s) of the applicant(s) (up to three in an aggregate in-kind creation), type of application, and the signatures of the applicant(s).
  6. Before submitting a customer order for purchase of a portfolio of securities (or beneficial certificates) and sale of beneficial certificates (or portfolio of securities) on the same day pursuant to Article 13 of the Taipei Exchange Rules Governing Trading of Exchange-Traded Fund Beneficial Certificates, the participating securities firm shall confirm the applicant's single-day trading limit and ask the applicant to produce, or produce for the applicant, a Report Confirmation Form for Same-Day Purchase and Sale of Exchange-Traded Fund Beneficial Certificates and the Portfolio of Component Securities of the Underlying Index of the Fund (see attached specimen), and save the confirmation form for records after signing by the applicant. The participating securities firm shall also report, via computer link, the applicant's account number and trading information relating to the applicant's in-kind creation or redemption, then proceed with the in-kind creation (or redemption) operations according to the provisions specified above, and when reporting shall also enter the types of beneficial certificates (or portfolio of securities) already sold that day and their quantities.
    7. If the total of the quantity of the portfolio of securities (or beneficial certificates) held by the participating securities firm or its customer under the preceding paragraph, in combination with the balance of securities (or beneficial certificates) bought on the previous business day and on the application day, and the borrowing quantity and quantity of in-kind redemption (or creation) on the previous business day is insufficient to meet the requirements and the quantities published in the PCF such that in-kind creation (or redemption) cannot be effected, the portion purchased shall be processed in accordance with the relevant trading rules and regulations, while the portion sold may be handled in the following manner:
    1. An order for the sale of beneficial certificates may be changed on the given day from regular sale to short sale.
    2. To settle the sale of securities not held by the applicant, securities may be borrowed before 10 a.m. two business days after the transaction date in accordance with securities lending rules.
    3. Handling in accordance with other relevant rules and regulations.
    For the purpose of risk management, a participating securities firm may collect an appropriate monetary guarantee from the applicant when accepting a buy or sell order.
    After an applicant receives the beneficial certificates (or portfolio of securities) in exchange for the in-kind creation (or redemption) on the same day, and after the completion of settlement and in-kind creation or redemption operations, any remaining securities will be transferred into the applicant's central depository account.
  7. For portfolios of securities serving as consideration for aggregate in-kind creation, with the exception of the portion handled by the participating securities firm for its own account, for which delivery may be made with the balance of securities purchased on the previous day or the same day, delivery by the other applicants must be made with securities already held or with borrowed securities. In cases of aggregate in-kind creation, a securities firm may place a sell quote for the beneficial certificates only after those certificates have been received.
  8. If an applicant is restricted by law (e.g., by Article 167 of the Company Act, Article 38 of the Financial Holding Company Act, and Article 28-2 of the Securities and Exchange Act) from holding or transferring specific securities, but the applicant may hold or sell such securities on a temporary basis for in-kind creation or redemption of ETF beneficial certificates with the written consent of the relevant competent authority, then the TPEx, if it deems necessary for control purposes after the participating securities firm has submitted the application for in-kind creation or redemption, may notify the participating securities firm to further notify the applicant to undertake the necessary disposition of its holdings of such securities. In that event, the participating securities firm shall notify the applicant on the same day it receives its notice, and shall keep a record the actions taken and report them to the TPEx.
  9. A participating securities firm that temporarily holds stock of another securities firm in association with its own in-kind creation or redemption of ETF beneficial certificates for its own account may be exempted from the application of Article 45, paragraph 3 of the Securities and Exchange Act. However, the daily position in stock of any other single securities firm held in the dedicated account (the account number shall uniformly be 777777-7) shall not exceed the quantity corresponding to 100 creation units of the in-kind creation or redemption of the respective ETFs.
  10. A participating securities firm that handles its own in-kind creation and redemption of ETF beneficial certificates shall set up a securities trading account for dedicated handling of the related deposits and transfers of securities (the account numbers of all such accounts shall be 777777～7 under the securities firm's account). The account shall be restricted to transfers of securities and other transfers necessary for the participating securities firm's own in-kind creation and redemption of the component securities of the underlying index of the ETF, as well as buying and selling ETF beneficial certificates or the portfolio of the component securities of the underlying index of the ETF. (The account may also hold the same securities as the underlying securities held by the participating securities firm for hedging purposes in connection with the issuance of call (put) warrants, and if deemed necessary, may hold alternate constituent securities.) The participating securities firm may not use the dedicated account to purchase securities and then transfer them to another dealer account with restrictions on bid and ask quotes, nor accept a transfer of securities from another dealer account and subsequently quote those securities for sale. To open such a dedicated account, the participating securities firm shall submit to the TPEx a photocopy of its participant agreement, a photocopy of the approval letter for the offering of ETFs, and photocopies of documents evidencing its qualifications.
    11. If the component securities of the underlying index of the ETF include securities listed on the Taiwan Stock Exchange (TWSE), the participating securities firm shall open a dedicated account for trading of TWSE listed securities in accordance with TWSE rules. If the component securities of the underlying index of a TWSE-listed ETF include TPEx-listed securities, the provisions of the preceding paragraph apply mutatis mutandis.
  11. If the component securities of an ETF's underlying index include TWSE listed securities, then after a participating securities firm applies for in-kind creation (or redemption) with the TPEx, the TPEx shall forward the application information to the TWSE.
4     Operating procedures for relevant entities carrying out in-kind creations and redemptions of ETF beneficial certificates:
  1. After referring to the PCF published by the SITE and accepting an application for in-kind creation or redemption with a portfolio of securities or beneficial certificates that meets the requirements of the PCF, the TPEx will compile and forward the application information to the SITE for review, and will make the review results available on the TPEx computer system for inquiry by the participating securities firm. The participating securities firm will notify the applicant for confirmation on the basis of the review results, and shall retain a record of the review results and the aforesaid application information. Regardless of whether the SITE approves the in-kind creation or redemption applications forwarded by the TPEx, it shall in each case notify the TPEx of its decision by the end of the prescribed time period on the date of application so that the TPEx can make the information available for inquiry by participating securities firms.
  2. The TPEx will compile and forward the portfolios of securities or beneficial certificates in accepted applications to the central securities depository for earmarking or to the custodian institution for confirmation. Upon receiving notice from the depository of the results of earmarking, the TPEx will forward the information to the SITEs and make the same information available on the TPEx computer system for inquiry by participating securities firms.
  3. If an application for in-kind creation or redemption is found after review by the relevant institutions to comply with requirements, the custodian institution shall complete collection and payment of the cash component, cash in lieu, monetary bond, and other relevant charges or payments on the first business day following the date of application, and the central securities depository shall complete transfer of the beneficial certificates (or portfolio of securities) created (or redeemed) no later than the second business day following the date of application. If there is cash receivable by the applicant after the completion of in-kind creation or redemption, the custodian institution, after completing the related operations, may transfer the funds to the participating securities firm for delivery to the applicant.
5     Operating rules for participating securities firms carrying out cash creation and redemption of beneficial certificates for ETFs for their own accounts or on behalf of their customers:
  1. When a participating securities firm, by computer link, carries out cash creation and redemption of ETF beneficial certificates on a TPEx market trading day, the delivery and receipt of the relevant securities shall without exception be handled via central depository book-entry transfer.
  2. When an applicant uses beneficial certificates purchased through the same account but not yet settled to meet the requirements for beneficial certificates at cash redemption, and the SITE approves, the participating securities firm shall collect from the applicant in advance, on the date of application, the price payable on the purchased balance of certificates and other relevant charges.
  3. When accepting a customer's order to create ETFs in cash, the participating securities firm may collect in advance the creation price and other relevant charges in the PCF published by the SITE or FTE, and will submit the application within the time limit prescribed by the TPEx. After the actual amount of the creation price due has been ascertained, the participating securities firm shall notify the applicant on the following business day to make additional payment if the pre-collected payment is insufficient or to receive a refund if the pre-collected payment is excessive.
  4. The participating securities firm shall open another deposit account with its settlement bank specifically for the deposit and payment of payments collected in advance, creation price, and other relevant charges required under the preceding two subparagraphs.
  5. A participating securities firm carrying out cash redemption of ETF beneficial certificates for its own account or on behalf of customers shall, in accordance with the trust agreement of the ETF, calculate the quantity of beneficial certificates in the original holdings, the quantity of borrowed securities, the balance of securities bought on the previous business day, and the quantity obtained through creation on the previous business day, and after ensuring that the total thereof reaches the amount required for cash redemption, submit the application by the time limit prescribed by the TPEx. After the time for accepting applications ends, the TPEx will forward all application information to the central securities depository for earmarking of the securities.
     If the earmarking by the central securities depository fails, the participating securities firm may correct the application and input it from 9 a.m. to 10 a.m. on the next business day following the application.
     The ETF beneficial certificates to be delivered by the applicant may not be securities that were bought on margin, and reports of trading errors or correction of account numbers may not be submitted with respect to those certificates.
     The provisions of subparagraph 10 under Point 3 apply mutatis mutandis when a participating securities firm carries out cash creation or redemption of beneficial certificates of ETFs of component securities for its own account.
6     A participating securities firm carrying out creation or redemption of ETF beneficial certificates for its own account or on behalf of its customers shall use the currency of the TPEx trading of the certificates for the receipt and payment of funds.
7     Operating rules for participating securities firms carrying out in-kind creation and redemption of beneficial certificates of ETFs with component bonds for their own accounts or on behalf of their customers:
  1. The TPEx will process the applications of participating securities firms to carry out in-kind creation (or redemption) of ETF beneficial certificates, or to concurrently sell beneficial certificates (or portfolios of bonds) on the same day by means of computer link. The input time is from 9 a.m. to 3:30 p.m. on TPEx market trading days.
  2. A participating securities firm shall first produce an Application for In-Kind Creation or Redemption of Beneficial Certificates of Exchange Traded Funds with Bond Components when carrying out in-kind creation or redemption of beneficial certificates of ETFs with component bonds. The portfolio composition file as of the application date must also be attached for the applicant's signature (in the case of an overseas Chinese, foreign national, or Mainland Area investor, the applicant's agent may sign on the applicant's behalf), and the above documents shall be retained in records.
  3. The aforesaid Application for In-Kind Creation or Redemption of Beneficial Certificates of Exchange Traded Funds with Bond Components shall contain the following particulars:
    1. Application No.: The code of the head office of the participating securities firm followed by a three-digit serial number.
    2. Applicant's account number.
    3. Type of Application: In-kind creation, in-kind redemption, in-kind creation and sale of beneficial certificates, or in-kind redemption and sale of portfolio of bonds.
    4. The quantity of beneficial units for in-kind creation or redemption.
    5. Names and quantities of securities deliverable by the applicant. If beneficiary certificates are delivered, the application form shall divide them into the following categories: from original holdings; purchased on the application date; purchased on the business day preceding the application date; borrowed, from in-kind creation on the business day preceding the application date.
    6. Where the settlement involves cash in-lieu or bonds in-lieu, a list of the cash amount or bonds must be provided.
    7. For in-kind creations or redemptions, an estimate of the cash component based on the portfolio composition file.
  4. The beneficial certificates delivered by the applicant may not be bought on margin, and reports of trading errors or corrections of account numbers may not be submitted for the beneficial certificates bought on the day of application.
  5. The applicant for in-kind creation or redemption of ETF beneficial certificates, prior to the deadline for reporting, may prepare an Application for Cancellation of the In-kind Creation or Redemption of Beneficial Certificates of ETFs with Bond Components on its own or through the participating securities firm to apply for cancellation, and the participating securities firm will submit the application to the TPEx. Upon receipt of the application, the TPEx will notify the participating securities firm of receipt and request it to notify the applicant to confirm. The participating securities firm shall print out the notice of TPEx receipt and retain it for record, together with the Application for Cancellation of the In-kind Creation or Redemption of Beneficial Certificates of ETFs with Bond Components signed by the applicant (in the case of an overseas Chinese, foreign national, or Mainland Area investor, the applicant's agent may sign on the applicant's behalf).
    6. The aforesaid Application for Cancellation of the In-kind Creation or Redemption of Beneficial Certificates of ETFs with Bond Components shall contain the following particulars: the application number, the applicant's account number, type of application, and applicant's signature.
  6. When a participating securities firm for its own account or on behalf of its customers, carries out creation of beneficial certificates of an ETF with component bonds and sells the same beneficial certificates on the same day, but is unable to complete in-kind creation as a result of failing to reach the types and amounts of securities required by the PCF, then the sale of the beneficial certificates may be handled as follows:
    1. The transaction type for the brokerage sale of beneficial certificates on the same day may be modified to short sale.
    2. An application for securities borrowing can be made before 10 a.m. on the second business day after the transaction date in accordance with securities lending rules to settle the sale of securities which the applicant did not have.
    3. Handling on the basis of other relevant rules and regulations.
  7. The provisions of the first section of subparagraph 10, Point 3 of these Directions apply mutatis mutandis when a participating securities firm carries out in-kind creation or redemption of beneficial certificates of an ETF with component bonds for its own account.
8     (deleted)
9     Operating procedures for relevant entities carrying out cash creation and redemption of ETF beneficial certificates:
  1. After the TPEx receives an application for cash creation or redemption which contains information on cash creation or redemption that meets the requirements stated in the PCF published by the SITE or FTE, the TPEx will compile and forward the application information to the SITE or FTE for review. The review results will be made available on the TPEx computer system for participating securities firms' inquiry, and the participating securities firms will notify the applicants of application results for confirmation and save the results and the aforesaid application information for future reference. Regardless whether the SITE or FTE approves the cash creation or redemption applications forwarded by the TPEx or not, it shall notify the TPEx of its decision by the end of the prescribed time on the date of application so such information may be available to participating securities firms.
  2. The TPEx will forward the beneficial certificates in accepted redemption applications to the central securities depository for handling of earmarking operations. Upon receiving notice from the central securities depository of the earmarking result, the TPEx will forward the information to the SITE or FTE and make the same information available on the TPEx computer system for participating securities firms.
  3. If an application for cash creation has been examined and found by the relevant entities to comply with requirements, the custodian institution shall complete the collection and payment of the balance of the creation price and other relevant charges, and the central securities depository shall then complete the procedures for transfer of the beneficial certificates. If an application for cash redemption has been examined and found by the relevant entities to comply with requirements, the custodian institution may transfer the funds payable to the applicant via the participating securities firm after completing the relevant cash redemption operations.
10     When a principal engages a participating securities firm for the first time to carry out the creation or redemption of any of the following beneficial certificates, the participating securities firm may accept the engagement only after the principal has signed a risk disclosure statement:
  1. Leveraged or inverse securities ETF beneficial certificates;
  2. Futures ETF beneficial certificates;
  3. Non-investment grade bond securities ETF beneficial certificates;
  4. Additional-currency ETF beneficial certificates;
  5. Beneficial certificates for which the TPEx deems necessary.
    The following are exempted from signing risk disclosure statements: professional institutional investors; privately placed securities investment trust funds managed by securities investment trust enterprises; futures trust funds offered by futures trust enterprises to persons with prescribed qualifications; discretionary investment accounts managed by securities investment trust enterprises, by securities investment consulting enterprises, or by securities brokers concurrently operating securities investment consulting enterprises; and discretionary investment accounts managed by managed futures enterprises.
    The matters that must be set out in the risk disclosure statement referred to in paragraph 1 will be separately prescribed by the TPEx.
     A principal engaging a participating securities firm for the first time to carry out the creation or redemption of beneficial certificates of leveraged or inverse securities ETFs or leveraged or inverse futures ETFs is required to meet at least one of the following conditions:
  1. The principal has opened a margin account.
  2. The principal has had at least 10 trading orders for call (put) warrants executed within the most recent one year.
  3. The principal has had at least 10 trading orders of futures trading contracts listed on the Taiwan Futures Exchange executed within the most recent one year.
     When a principal engages a participating securities firm for the first time to carry out the creation or redemption of leveraged or inverse futures ETF beneficial certificates, the principal shall complete a Leveraged or Inverse Futures ETF Beneficial Certificates Checklist, which the principal shall thoroughly read and sign.
    The format of the Leveraged or Inverse Futures ETF Beneficial Certificates Checklist under the preceding article shall be separately prescribed by the TPEx.
     Paragraphs 4 and 5 do not apply to the following: professional institutional investors that conform to the Regulations Governing Offshore Structured Products; privately placed securities investment trust funds managed by securities investment trust enterprises; futures trust funds offered by futures trust enterprises to persons with prescribed qualifications; discretionary investment accounts managed by securities investment trust enterprises, by securities investment consulting enterprises, or by securities brokers concurrently operating securities investment consulting enterprises; and discretionary investment accounts managed by managed futures enterprises.
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