Article 52 |
(Establish Default Management Group)
TAIFEX will establish a Default Management Group (DMG). Members will include clearing member representatives with expertise in cleared transaction risk management, trading and/or hedging and TAIFEX personnel. The DMG must serve as an advisory unit for TAIFEX to manage clearing member defaults, conduct default fire drills, and provide recommendations for the following matters:
- Hedging strategy for the defaulting clearing member's positions.
- Auction method for the defaulting clearing member's positions.
- Other matters relating to default management.
The composition, responsibilities and rules of procedure of the DMG in the preceding paragraph shall be separately prescribed by TAIFEX.
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Article 53 |
(Default Event of clearing member)
TAIFEX shall deem a clearing member as being in default on the occurrence of any of the following situations:
- Failure to pay the clearing margin within the deadlines specified by Rules.
- Failure to fulfill settlement obligations within the specified period.
- Violation of provisions of the clearing agreement.
If a clearing member is in default, TAIFEX will resolve the situation according to the Rules and may impose necessary measures according to the terms of the clearing agreement.
If a clearing member is likely to become unable to fulfill its clearing and settlement obligations, it must immediately notify TAIFEX.
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Article 54 |
(Failure to deposit the clearing margin or fulfill settlement obligations within the specified period)
If a clearing member fails to deposit the clearing margin or fulfill settlement obligations within the period specified by TAIFEX, it must immediately submit an explanation to TAIFEX and provide documents proving that failure to make payment was not due to circumstances within the clearing members control and not for financial reasons. After TAIFEX approves the explanation and sets an extended deadline, the clearing member must complete the payment within the extended deadline, and submit a written report on the business day immediately following the deadline. The clearing member must provide all relevant documents explaining the cause of the incident and what steps have been taken to ensure that similar events are not repeated.
In the event the situation in the preceding paragraph occurs to a clearing member, TAIFEX shall manage the situation according to the following method:
- Levy a fine of up to NT$300,000.
- Submit the incident investigation report to the Disciplinary Committee for future reference.
- Submit a report to the Competent Authority for future reference.
In the event the situation in Paragraph 1 occurs to a clearing member, TAIFEX may take the following measures when necessary:
- Suspend a part or all of the clearing member's clearing operations.
- Suspend withdrawal of the clearing member's margin.
- Either freeze or transfer funds and securities in the defaulting clearing member's OTC derivatives clearing margin account.
- The cash or funds from the disposal of securities of the clearing member's clearing account will be utilized to meet payment obligations within the same clearing account.
When the cash or funds from disposal of securities in the individual client accounts of the clearing member in Subparagraph 4 of the preceding paragraph is insufficient to cover all liabilities, TAIFEX may use cash or funds from disposal of securities in the defaulting clearing member's proprietary account to cover the shortfall.
In the event the clearing member fails to complete payment within the extended period specified by TAIFEX in Paragraph 1, TAIFEX will declare the clearing member in default.
TAIFEX may seek compensation from defaulting clearing member for costs, expenses, and losses resulting from Paragraph 3.
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Article 55 |
(Measures taken on defaulting clearing member in relation to financial factors)
In the event a clearing member is in default due to financial factors, TAIFEX may take the following measures:
- Suspend the defaulting clearing member's clearing operations and report the matter in writing to the Competent Authority.
- Suspend the defaulting clearing member's withdrawal of margin.
- Notify clearing members and make an announcement to the market.
- Check the defaulting clearing member's margin balance, bank account balance, operating bond, OTC derivatives default fund, and other assets and immediately pursue protective measures in respect of Taifex's statutory rights.
- Convene the Default Management Group to handle cleared transactions and margins of the defaulting clearing member.
- Conduct an audit of the defaulting clearing member and an investigation and analysis of the incident.
To conduct the audit in Subparagraph 6 of the preceding paragraph, TAIFEX may retrieve information or seek explanations from the defaulting clearing member, and the clearing member may not evade or reject the request.
The defaulting clearing member must immediately notify its clients after TAIFEX takes the action specified in Paragraph 1.
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Article 56 |
(Measures taken on defaulting clearing member's positions and margins)
In the event that a clearing member defaults due to financial reasons, TAIFEX may take the following actions and dispose of the clearing member's cleared transactions and margin in the following manner:
- Suspension of a defaulting clearing member's ability to submit new transactions.
- Either freeze or transfer funds and securities in the defaulting clearing member's OTC derivatives clearing margin account.
- The cash or funds from the disposal of securities of the defaulting clearing member's clearing account will be utilized to meet payment obligations within the same clearing account.
- Port non-defaulting client's cleared transactions and margins from defaulting clearing member to another clearing member selected by the non-defaulting client, or the succeeding clearing member with an agreement with the defaulting clearing member.
- Hedge cleared transactions in the defaulting clearing member's proprietary account and individual client accounts that were not ported.
- Auction cleared transactions in the defaulting clearing member's proprietary account, individual client accounts that were not ported, and hedging transactions in Subparagraph 5.
When the cash or funds from the disposal of securities in individual client accounts in Subparagraph 3 of the preceding paragraph is insufficient to cover liabilities, TAIFEX may use cash or funds from the disposal of securities in the defaulting clearing member's proprietary account to cover liabilities.
Clearing member that meets the criteria set forth by TAIFEX shall participate in the auction in Subparagraph 6 of Paragraph 1.
The operating method in Paragraph 1 and criteria in Paragraph 3 shall be separately prescribed by TAIFEX.
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Article 57 |
(Auction)
When TAIFEX conducts auctions for cleared transactions of a defaulting clearing member according to Subparagraph 6 of paragraph 1 of the preceding article, the following measures shall be taken in the absence of bids or in the situation where TAIFEX rejects bids:
- Announce auction failure and re-auction a part or all of the defaulting clearing member's cleared transactions.
- Invite non-defaulting clearing members to agree the loss allocation method for defaulting cleared transaction(s).
If TAIFEX determines that cleared transaction(s) of the defaulting clearing member cannot be managed via auction, or an agreement (as described in Subparagraph 2 of the preceding paragraph) could not be reached between clearing members and TAIFEX, TAIFEX may escalate the situation to the DMG and invoke the contract termination process in relation to cleared transaction designated by TAIFEX.
Cleared transactions referred to the preceding paragraph include the following:
- Cleared transactions of defaulting clearing member that failed to be auctioned.
- Cleared transactions held by the non-defaulting clearing member which have equal but opposite terms to the cleared transactions in the preceding subparagraph.
- Cleared transactions executed between the non-defaulting clearing member and TAIFEX for the purpose of hedging the cleared transactions in subparagraph 1.
- Other cleared transactions TAIFEX deems necessary to be designated.
Matters relating to rejection of the bids by TAIFEX in Paragraph 1 shall be prescribed by TAIFEX.
The operating method and specified period of receipt and payment for the net-sum amount from cleared transaction termination process in paragraph 2 shall be prescribed by TAIFEX.
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Article 58 |
(Default fund juniorization and the cap of Member Assessment shared by clearing member)
TAIFEX may use the following resources in the order below when a clearing member fails to fulfill its clearing and settlement obligation:
- The defaulting clearing member's clearing margin.
- The defaulting clearing member's OTC derivatives default fund.
- TAIFEX's OTC Derivatives Compensation Reserve Fund.
- Other clearing members' contributions to the OTC derivatives default fund.
- The pro rata ratio and pro rata amount cap of additional contribution on other clearing member shall be prescribed by TAIFEX.
The apportioned method in Subparagraph 5 of the preceding paragraph shall be separately prescribed by TAIFEX.
The pro rata amount cap referred to in subparagraph 5 paragraph 1 shall be determined as follows:
- When a single clearing member defaults during the cooling-off period, the cap shall be 150% of the non-defaulting clearing member's respective required contributions to the required OTC derivatives default fund contribution amount on the business day immediately preceding the first day of the cooling-off period.
- When multiple clearing members default during the cooling-off period, the cap shall be 300% of the non-defaulting clearing members' respective required contributions to the required OTC derivatives default fund contribution amount on the business day immediately preceding the first day of the cooling-off period.
"Cooling-off period" in the preceding paragraph means the period of 20 trading days beginning from the date on which a default by a single clearing member occurs. If any other clearing member default before the end of that cooling-off period, the termination date of the cooling-off period shall be 20 trading days after the date of the last-occurring default by a clearing member.
Unless otherwise stipulated, TAIFEX may specify the utilization order of clearing member contribution prescribed in Subparagraphs 4 and 5 of Paragraph 1 based on the result of Auction participation.
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Article 59 |
(The calculation basis of OTC derivatives default fund contribution amount by non-defaulting clearing member)
The amount that the non-defaulting clearing member contributes to the OTC derivatives default fund to compensate the default loss according to subparagraph 4 of paragraph 1 of the preceding article shall be the amount that is equivalent to the required OTC derivatives default fund contribution amount on the business day immediately preceding the first day of the cooling-off period. The loss pro rata ratio shall be separately prescribed by TAIFEX.
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Article 60 |
(Replenishments of OTC derivatives default fund)
TAIFEX shall calculate the total required amount of the OTC derivatives default fund and contributions to be made by clearing members on the last day of the cooling-off period.
After the OTC derivatives default fund is utilized during a cooling-off period in accordance with Article 58, Paragraph 1, Subparagraph 4, clearing members must replenish the contribution amount notified by TAIFEX within the specified period.
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Article 61 |
(Using non-defaulting clearing members' net cash receivables to cover default losses)
When the resources prescribed in Article 58, Paragraph 1, Subparagraphs 1 to 5, are insufficient to cover default losses, further default losses may be covered by the positive net amount of cash receivables from each clearing account for a specified period.
The net amount of cash receivables to be applied in the preceding paragraph is the amount of cash receivables less cash payables for each clearing account of the non-defaulting clearing member for the specified period, if the net amount is positive, it is then multiplied by a ratio specified by TAIFEX.
The ratio, calculation period, payment deadline, and related matters in Paragraph 2 shall be separately prescribed by TAIFEX.
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Article 62 |
(Voluntary Contributions from clearing member to cover default losses)
When the sum of resources prescribed in Article 58, Paragraph 1, Subparagraphs 1 to 5 and the net amount of cash receivables of clearing accounts in the preceding article are still insufficient to cover default losses, TAIFEX can notify clearing member to provide additional funds to cover the losses (hereinafter referred to "Voluntary Contributions").
After clearing members receive the notification, clearing members may voluntarily deposit the amount specified in the notice. If a clearing member decides to deposit the amount, the deposit must be completed within the period specified by TAIFEX and the clearing member may not request reimbursement.
The Voluntary Contributions made by the non-defualting clearing member shall be treated as its contribution to the OTC derivatives default fund.
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Article 63 |
(Default losses covered by TAIFEX)
TAIFEX must make up the shortfall after utilizing funds in Article 58, Article 61, and Article 62.
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Article 64 |
(Recovery order)
TAIFEX will seek compensation from defaulting clearing members for funds, interest and necessary overheads used to cover losses in accordance with these Rules.
Amounts recovered from the defaulting clearing member minus expenses must be used to make repayments in following order:
- The amount paid by TAIFEX in accordance with Article 63.
- The amount paid by clearing members in accordance with Article 62.
- The amount paid by clearing members in accordance with Article 61.
- The amount shared by clearing members in accordance with Article 58, Paragraph 1, Subparagraph 5, recovered in reverse order.
- The amount of clearing member's OTC derivatives default fund used in accordance with Article 58, Paragraph 1, Subparagraph 4, recovered in reverse order of the utilization order.
- The amount of TAIFEX's OTC Derivatives Compensation Reserve Fund used in accordance with Article 58, Paragraph 1, Subparagraph 3.
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Article 65 |
(Close-Out Netting)
In the event of a payment default by TAIFEX, the clearing member who is defaulted against may provide written notification to apply for close-out netting. TAIFEX must thereupon terminate all cleared transactions of that clearing member via close-out netting, and simultaneously terminate cleared transactions designated by TAIFEX which have equal but opposite terms to the aforesaid cleared transactions. TAIFEX also may notify all clearing members of the termination of all cleared transactions thereof via close-out netting.
The term "payment default" in the preceding paragraph means that TAIFEX fails to complete payment within the prescribed time period of clearing margins, OTC derivatives default fund, or other receivables that a clearing member applies to withdraw, and still fails to complete payment within 10 business days from the date of written notice on the payment obligation from the clearing member. However, this does not apply to failure to complete payment within the prescribed time period due to reasons not attributable to TAIFEX, such as interruption or failure of power supply, computer systems, or communication equipment, natural disasters, riots, war, or other force majeure events.
In the event of insolvency of TAIFEX, it shall promptly notify the clearing members and, ex officio or upon written application by a clearing member or members, will thereupon terminate all cleared transactions of all clearing members via close-out netting.
The term "insolvency" in the preceding paragraph means any of the following circumstances with respect to TAIFEX:
- TAIFEX's assets are insufficient to cover its debts.
- TAIFES's board of directors passes a resolution to suspend business, cease business, dissolve, or apply for composition or bankruptcy as defined in the Bankruptcy Act.
- The Competent Authority imposes a disposition ordering TAIFEX to suspend business or voiding or revoking its business permit.
- A creditor of TAIFEX applies to a court pursuant to the Bankruptcy Act for adjudication of bankruptcy of TAIFEX. This shall not apply, however, if the creditor's application obviously lacks merit or is improper in purpose.
After the early termination of cleared transactions between TAIFEX and any clearing member, TAIFEX shall calculate the termination value payable by or to each clearing account of the clearing member.
When carrying out the operations under the preceding paragraph, TAIFEX shall separately calculate the termination value of the individual client accounts and proprietary accounts of each clearing member. That termination value is the aggregate of all terminated cleared transaction receivables of the clearing member (expressed as a positive value) and payables of the clearing member (expressed as a negative value) in the clearing account and other positive and negative values of receivables and payables of the clearing account. If that aggregated net amount is positive, TAIFEX shall pay that amount to the clearing member; if it is negative, the clearing member shall pay the absolute value of that net amount to TAIFEX. The calculation also may be done in aggregate for a clearing member's proprietary and each individual client account.
The method for calculating the termination value of clearing accounts in the preceding paragraph shall be separately prescribed by TAIFEX.
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