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Title Taipei Exchange Rules Governing the Trading of Exchange-Traded Notes CH
Date 2023.12.29 ( AMENDMENT )

Article Content

Chapter I General Principles
Article 1     These Rules are adopted pursuant to Article 39-9 of the TPEx Rules Governing Securities Trading on the TPEx (the "Trading Rules").
Article 2     Unless otherwise provided by law or regulation, all trades, subscriptions and redemptions of exchange-traded notes ("ETNs") shall be governed by these Rules. Matters not covered by these Rules shall be governed by the relevant provisions of other applicable TPEx rules.
Article 3     For the purposes of these Rules, the following terms shall have the following meanings:
  1. Competent authority: means the Financial Supervisory Commission (FSC).
  2. Indicative value: means a value for an ETN, calculated by the issuer based on movements in the underlying index, accrued dividends, investor fees, and other relevant data.
  3. ETN with domestic index components: means an ETN that tracks an underlying index whose components are all domestic underlyings.
  4. ETN with foreign index components: means an ETN that tracks an underlying index whose components include one or more foreign underlyings.
  5. Leveraged or inverse ETN: means an ETN that tracks a multiple of the performance ("leveraged ETN") or inverse performance ("inverse ETN") of an index within the scope of the preceding 2 subparagraphs.
  6. Futures and options strategy ETN: means an ETN that tracks an underlying index composed of a trading strategy portfolio of spot assets, futures, options or related indexes.
  7. Best buy-sell spread: means the ratio of the difference between the lowest unmatched sell quote and the highest unmatched buy quote to the lowest unmatched sell quote, calculated as "[(lowest unmatched sell quote) - (highest unmatched buy quote)] / (lowest unmatched sell quote) ( 100%".
  8. Current-day discount or premium between closing price and closing indicative value: means the ratio of the difference between the closing price and the closing indicative value, published after market close, of an ETN on a given day to that closing indicative value, calculated as "[(closing price) - (closing indicative value)] / (closing indicative value) ( 100%".
Article 4     ETNs shall be delivered by book-entry transfer without physical securities. ETN holders may not request withdrawal of physical ETNs.
    Delivery of ETNs by book-entry transfer and cancellation of ETNs shall be handled in accordance with the relevant rules of the central securities depository.
Article 5     An issuer may not engage in trades of or related to an ETN that would affect fair market prices or prejudice the rights or interests of investors, and shall adopt and implement an effective system of internal controls over related operations.
    An issuer that serves as its own liquidity provider for an ETN issued by it and that also concurrently serves as a liquidity provider for an exchange-traded fund (ETF) shall establish mechanisms for segregation of internal information to prevent conflict of interest. The issuer may not engage in any act that would affect fair market prices or prejudice the rights or interests of investors, and shall adopt and implement an effective system of internal controls over related operations.
Article 6     An issuer may report to the TPEx and open a hedge account for its risk hedging operations with respect to an ETN issued by it. The hedge account shall be established under its dealing department, with an account number of 888888-4 for a domestic securities firm, and 998888-4 for a branch established in the ROC (Taiwan) by a foreign securities firm.
Article 7     Before processing a first-time order from a customer for subscription, redemption, or trading of ETNs, a securities firm shall designate an associated person to explain relevant risks and present a risk disclosure statement to the principal, to be signed by the principal and then retained by the securities firm on file for reference.
    The preceding paragraph does 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.
    The model template for the risk disclosure statement referred to in paragraph 1 shall be separately adopted by the TPEx.
Article 8     When subscribing, redeeming, or trading leveraged or inverse ETNs or futures and options strategy ETNs for the first time, a principal is required to meet 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 preceding year.
  3. The principal has had at least 10 trading orders for futures trading contracts listed on the Taiwan Futures Exchange Corporation (TAIFEX) executed within the preceding year.
  4. The principal has a record of executed purchase of leveraged or inverse ETNs or futures and options strategy ETNs.
  5. The principal has a record of executed purchase of leveraged or inverse securities ETF beneficial certificates or leveraged or inverse futures ETF beneficial certificates.
    A principal may submit a request to a securities firm by correspondence or electronic means that is sufficient to verify the identity and confirm the expression of intent of the principal.
    A person who has obtained leveraged or inverse ETNs or futures and options strategy ETNs by inheritance, gift, final and conclusive court judgment, or other cause reported to and approved by the TPEx may, after submitting documentary proof, sell or redeem such securities without being subject to the application of paragraph 1.
    Paragraph 1 does not apply to the following: professional 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.
    When a principal has engaged in any irregular trading for the purpose of meeting a condition under paragraph 1, the securities firm shall evaluate whether the principal has substantive experience of trading referred to in paragraph 1. When necessary it may refuse to process the subscription, redemption, or trading order from the principal.
Chapter II Trading Principles
Article 9     A securities firm shall engage in proprietary or brokerage trading of ETNs in any of the following manners:
  1. As a dealer or broker through the TPEx's automated trade matching system, block trading system, or after-hours fixed-price trading system.
  2. As a dealer conducting trades negotiated over-the-counter at securities firms.
    The provisions of the TPEx Trading Rules and other applicable rules regarding TPEx listed stocks shall apply mutatis mutandis to the trading hours, trading/execution methods, the limits on the total monetary amounts that may be quoted in proprietary and brokerage trading orders, and other relevant matters with respect to the trading referred to in the preceding paragraph.
Article 10     One trading unit of ETNs shall be 1,000 ETN units. The quote size for each trade shall be 1 trading unit or integral multiples thereof.
Article 11     The price quote for each ETN trade shall be based on 1 ETN unit.
    The tick size for the price referred to in the preceding paragraph shall be 1 cent if the market price is below NT$50, and 5 cents if the market price is NT$50 or above.
Article 12     The provision of Article 55, forepart of paragraph 3 of the TPEx Trading Rules regarding TPEx listed stocks shall apply mutatis mutandis to the daily price limit for an ETN with domestic index components.
    For a leveraged or inverse ETN of which the components of the underlying index are all domestic underlyings, the daily price limit shall be 10 percent above or below the reference price of the given day multiplied by the multiple of the ETN.
    For ETNs other than those described in the preceding 2 paragraphs, there is no daily price limit.
Article 13     The method for calculating the reference price for an ETN shall be governed mutatis mutandis by the provisions of the TPEx Trading Rules and other applicable rules regarding TPEx listed stocks. However, the reference price for an ETN on the commencement date of its TPEx trading shall be the latest indicative value for the latest available business day as provided by the issuer on the business day before its TPEx listing.
    An ETN trade for which settlement is performed on or after the commencement date of book-closure for suspension of change of entries to the list of ETN holders due to a distribution of dividends pursuant to its issuance plan, shall be an ex-dividend trade. The method for calculating the reference price for the commencement date of ex-dividend trading shall be governed mutatis mutandis by the provisions of the TPEx Trading Rules and other applicable rules regarding TPEx listed stocks.The basis price for the commencement of trading of an ETN shall be the price arrived at based on the reference price after treatment in accordance with Article 11, paragraph 2.
Article 14     A subscribed ETN may be sold only after delivery by book-entry transfer has been completed for the subscription.
Article 15     ETNs are not eligible for margin purchases and short sales, day trades, money lending in connection with securities business, money lending for unrestricted purposes, securities settlement financing, securities-based lending business, and securities borrowing and lending transactions, nor may they be used as collateral.
    The securities borrowing and lending transactions referred to in the preceding paragraph do not include securities borrowings conducted in accordance with Article 86-1 of the TPEx Trading Rules.
Article 16     A securities firm may not accept customer orders to trade ETNs through omnibus trading accounts, nor may it use ETNs as a subject matter of systematic (fixed-term, fixed-amount) investment business.
Article 17     For an ETN of which the components of the underlying index include any foreign underlying, the ETN may continue to be traded on the TPEx market when the foreign market on which the index component is traded is closed.
Chapter III Liquidity Providers
Article 18     A securities firm issuing an ETN shall itself serve or appoint another securities firm to serve as the liquidity provider to provide liquidity quotes for the ETN during the trading hours of the TPEx's automated trade matching system.
Article 19     When appointing another securities firm to serve as liquidity provider, an issuer shall sign an ETN market liquidity agreement ("liquidity agreement") with the liquidity provider.
    A securities firm appointed to serve as liquidity provider under the preceding paragraph shall meet the following conditions, obtain a written permission issued by the TPEx after review, and sign a liquidity agreement with the ETN issuer within 3 months from the date the written permission is issued:
  1. It is a securities firm with securities proprietary trading (dealing) business.
  2. The regulatory capital adequacy ratio of the securities firm has remained 150 percent or more for the preceding 6 months, except in the case of a securities firm concurrently operated by a financial institution, in which case its capital adequacy ratio shall be governed by the provisions of Article 44 of the Banking Act regarding capital adequacy ratio. However, the above does not apply to a Taiwan branch of a foreign securities firm whose head office in the home country calculates its regulatory capital adequacy ratio according to the laws and regulations of the home country, with the operating risk of the Taiwan branch factored in the calculation, where prescribed criteria are met and the competent authority has granted exemption from the regulatory capital adequacy ratio requirements that are applicable to Taiwan securities firms.
  3. The securities firm obtains a long-term debt rating at or above a prescribed level from a credit rating agency: Taiwan Ratings Corporation, twBBB- or above; Moody's Investors Service, Inc., Baa3 or above; Standard & Poor's Ratings Services, BBB- or above; Fitch Ratings Ltd., BBB- or above; or Fitch Australia Pty Ltd, Taiwan Branch, BBB-(twn) or above. In the case of a securities firm concurrently operated by a financial institution, the credit rating of the financial institution may be used. In the case of a Taiwan branch of a foreign securities firm, the credit rating of the group's holding company may be used.
    When a securities firm has been appointed to serve as liquidity provider or has obtained a written permission but has not yet signed a liquidity agreement, if its regulatory capital adequacy ratio has been below 150 percent for 2 consecutive months, the TPEx may suspend the appointed securities firm's conduct of ETN liquidity provider business. The suspension may be lifted only after the securities firm has met the requirements for regulatory capital adequacy ratio for 3 consecutive months and has obtained approval from the TPEx.
Article 20     If a securities firm appointed by an issuer to serve as liquidity provider fails to comply with any of the following conditions, the TPEx may suspend its conduct of ETN liquidity provider business, provided that, if the securities firm is in non-compliance with any of the requirements of subparagraphs 2 to 6 but has made concrete improvement and has satisfied the competent authority thereof, it is exempted from the restrictions of those subparagraphs:
  1. Its CPA (certified public accountant) audited and attested financial report for the most recent period shows net worth per share not less than face value, and its financial condition meets the requirements of the Regulations Governing Securities Firms.
  2. It has not been subject to any disciplinary warning relating to its conduct of ETN business imposed by the competent authority under Article 66, subparagraph 1 of the Securities and Exchange Act during the preceding 3 months.
  3. It has not been subject to any sanction imposed by the competent authority during the preceding 6 months ordering the securities firm to dismiss any director, supervisor, or managerial officer, or to replace any responsible person or other relevant personnel.
  4. It has not been subject to any sanction imposed by the competent authority during the preceding year requiring a suspension of business.
  5. It has not been subject to any sanction imposed by the competent authority during the preceding 2 years voiding its permission for any part of its business.
  6. It has not been subject to any sanction during the preceding year whereby the TPEx, the Taiwan Stock Exchange Corporation (TWSE), or the TAIFEX, acting pursuant to its rules, has suspended or restricted the securities firm's trading privileges.
  7. Any other conditions required by the competent authority or the TPEx.
    If the conduct of liquidity provider business by a liquidity provider appointed by an issuer is suspended by the TPEx in accordance with the preceding paragraph or paragraph 3 of the preceding article, the issuer shall, within the deadline prescribed by the TPEx, appoint itself or another qualified securities firm to serve as liquidity provider and report the appointment in writing to the TPEx.
Article 21     Before initially conducting ETN liquidity provider business, a securities firm shall report to the TPEx to open a segregated liquidity provider account. If the issuer serves as its own liquidity provider, the liquidity provider account shall be established under its dealing department, with an account number of 888888-5 for a domestic securities firm, and 998888-5 for a branch established in the ROC (Taiwan) by a foreign securities firm. If the issuer appoints another securities firm to serve as the liquidity provider, the liquidity provider account shall be established under the securities dealing department of the appointed securities firm, with an account number of 888888-6 for a domestic securities firm, and 998888-6 for a branch established in the ROC (Taiwan) by a foreign securities firm.
    A securities firm shall conduct ETN liquidity provider business through the account described in the preceding paragraph. No ETN in its book-entry depository account may be made the subject of a pledge.
    When an issuer serves as its own liquidity provider for an ETN issued by it, it shall transfer all units that are still unsold before the TPEx listing of the ETN and all subsequently added market-making inventory units to the account described in paragraph 1.
Article 22     A liquidity provider conducting liquidity providing business during the trading hours of the TPEx's automated trade matching system shall be subject to the following procedural rules:
  1. The price quotes by a liquidity provider shall include buy (bid) prices and sell (ask) prices, and the time in force may not be immediate-or-cancel or fill-or-kill.
  2. A liquidity provider shall provide quotes at least once every 5 minutes, and such quotes, if unmatched (unexecuted), shall remain for at least 30 seconds, provided that this 30-second restriction does not apply when quotes are updated due to movement in indicative value.
  3. A liquidity provider shall provide quotes with a best buy-sell spread in compliance with the following requirements:
    1. For an ETN of which the components of the underlying index are all domestic underlyings, the best buy-sell spread may not exceed 1 percent.
    2. For an ETN of which the components of the underlying index include 1 or more foreign underlyings, the best buy-sell spread may not exceed 3 percent.
  4. A liquidity provider shall provide quotes with a size in compliance with the following requirements:
    1. For an ETN that has a mechanism enabling investors to subscribe in the primary market, the minimum quote size for each buy or sell quote shall be 10 trading units.
    2. For an ETN that does not have a mechanism enabling investors to subscribe in the primary market, the minimum quote size for each buy or sell quote shall be 50 trading units.
  5. An ETN's current-day discount or premium between closing price and closing indicative value shall comply with the following requirements:
    1. For an ETN of which the components of the underlying index are all domestic underlyings, the current-day discount or premium between closing price and closing indicative value may not exceed 3 percent.
    2. For an ETN of which the components of the underlying index include 1 or more foreign underlyings, the current-day discount or premium between closing price and closing indicative value may not exceed 6 percent.
  6. A liquidity provider is not required to provide quotes for an ETN for which the TPEx has announced disposition measures in accordance with the TPEx Operation Directions for Announcement or Notice of Attention to Trading Information and Dispositions.
Chapter IV Subscription and Redemption
Article 23     Before an ETN matures, an investor/holder may instruct a securities firm that has signed with the TPEx a Contract for Trading of Securities on the TPEx by a Securities Firm to submit an ETN subscription or redemption request for the account of the investor/holder in accordance with the ETN issuance plan. A securities firm that has signed such a contract with the TPEx may submit an ETN subscription or redemption request for its own account.
    A securities firm submitting a request under the preceding paragraph for its own account or for the account of another shall report the request to the TPEx, subject to procedural rules separately adopted by the TPEx.
Article 24     If before an ETN matures a cause exists for early redemption of the ETN as specified in its issuance plan causing termination of its TPEx trading, the issuer shall, on the next business day following the day the conditions for early redemption are satisfied, submit a report to the TPEx and redeem all outstanding ETN units.
    If before an ETN matures the TPEx publicly announces termination of its TPEx trading under any of the circumstances set out in Article 12-15, paragraph 2, subparagraphs 1 to 4 and 6 of the TPEx Trading Rules, the issuer shall, on the next business day following the date of public announcement, submit a report to the TPEx and redeem all outstanding ETN units.
    When an issuer redeems ETN units under either of the preceding 2 paragraphs, it shall return the price based on the quantities specified in the list of ETN holders provided by the central securities depository.
    The price referred to in the preceding paragraph shall be calculated based on the ETN's closing indicative value published after market close on the last trading day. The issuer shall, by 11 a.m. on the next business day following the date of termination of TPEx trading, transfer all payables to the TPEx. After aggregating these payables, the TPEx will immediately transfer the amounts to the relevant securities firms for delivery to the investors.
Article 25     When an ETN matures, the issuer shall submit a report to the TPEx and redeem all outstanding ETN units, and return the price based on the quantities specified in the list of ETN holders provided by the central securities depository.
    The price referred to in the preceding paragraph shall be calculated based on the ETN's closing indicative value published after market close on the last trading day. The issuer shall, by 11 a.m. on the next business day following the date of termination of TPEx trading, transfer all payables to the TPEx. After aggregating these payables, the TPEx will immediately transfer the amounts to relevant securities firms for delivery to the investors.
Chapter V Settlement
Article 26     Unless otherwise provided, the handling of settlement, out-trades, and default with respect to ETN trades shall be governed mutatis mutandis by the provisions of the TPEx Trading Rules and other applicable rules regarding TPEx listed stocks.
Article 27     For trades of an ETN conducted by a liquidity provider through its liquidity provider account over the TPEx's automated trade matching system, block trading system, or after-hours fixed-price trading system, buy trades may be settled by offsetting (netting) against sell trades, and vice versa, if they belong to the same settlement period. If there is any net balance of sell positions after such offsetting, the issuer may report and borrow securities to fulfill its settlement obligations in accordance with Article 86-1 of the TPEx Trading Rules.
    An issuer that reports and borrows securities to fulfill its settlement obligations under the preceding paragraph may be exempted from the imposition of relevant penalties on its general manager, managerial officers, and handling personnel.
Article 28     Funds and securities receivable and payable with respect to subscriptions or redemptions of ETNs may not be offset (netted) against funds and securities receivable and payable with respect to securities trades executed on the TPEx market, or vice versa.
Chapter VI Penalties
Article 29     When any of the following circumstances exists with respect to an issuer, the TPEx may notify the issuer to take supplementary or corrective measures within a prescribed time period:
  1. An issuer does not comply with the rules of Article 5.
  2. An issuer serving as its own liquidity provider or a liquidity provider appointed by an issuer does not comply with the price quoting rules of Article 22.
Article 30     When any of the following circumstances applies with respect to an issuer, the TPEx may impose on the issuer a penalty of not less than NT$30,000 and not more than NT$100,000 and may impose consecutive penalties until such time as supplementation or correction is made:
  1. If 2 times or more within the preceding year and for the same cause the issuer has been requested in writing by the TPEx to exercise care and take corrective measures in accordance with subparagraph 1 of the preceding article.
  2. If 2 times or more within the preceding month and for the same ETN the issuer has been requested in writing by the TPEx to exercise care and take corrective measures in accordance with subparagraph 2 of the preceding article.
  3. If the issuer fails to take corrective measures within the deadline prescribed by the TPEx under the circumstance set out in Article 20, paragraph 2.
    If the issuer is in serious violation of subparagraph 1 or 2 of the preceding paragraph, the TPEx may impose a sanction of rejecting the issuer's application for issuance of a letter of approval for TPEx listing of ETNs within 1 year from the date of occurrence of the fact.
Article 31     Where a penalty is imposed by the TPEx under the preceding article, the issuer shall pay the amount to the TPEx within 5 business days following receipt of notification from the TPEx.
Chapter VII Supplementary Provisions
Article 32     Commissions or transaction charges that are collectible by securities brokers from their investor-customers, and business service fees collectible by the TPEx from the respective securities firms, after the execution of ETN trades shall be governed mutatis mutandis by the relevant provisions regarding TPEx listed stocks.
Article 33     These Rules, and any amendments hereto, shall enter into force upon public announcement after ratification by the competent authority.
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