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.
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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:
- It is a securities firm with securities proprietary trading (dealing) business.
- 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.
- 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.
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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:
- 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.
- 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.
- 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.
- It has not been subject to any sanction imposed by the competent authority during the preceding year requiring a suspension of business.
- 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.
- 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.
- 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.
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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.
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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:
- 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.
- 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.
- A liquidity provider shall provide quotes with a best buy-sell spread in compliance with the following requirements:
- 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.
- 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.
- A liquidity provider shall provide quotes with a size in compliance with the following requirements:
- 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.
- 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.
- An ETN's current-day discount or premium between closing price and closing indicative value shall comply with the following requirements:
- 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.
- 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.
- 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.
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