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Article 1
Article 2
Article 3

Article 4	A securities firm shall submit an application to the GTSM in order to engage in OTC trading of financial derivatives; following GTSM review and approval of its qualification, the approval will remain in effect indefinitely, and no further yearly applications will be required. No OTC trading of financial derivatives may be undertaken without GTSM approval of such an application.
Article 5
Article 6
Article 7
Article 8	The application documents and appended materials that shall be submitted when a securities firm applies to conduct OTC trading of financial derivatives at its places of business are given in Appendix 1. The directions for GTSM review and approval of securities firms' applications are as given in Appendix 2.

Article 9 Pursuant to this chapter, a securities firm that has obtained qualification to conduct OTC trading of financial derivatives may trade the types of contracts set out below: 1. Bond derivatives. 2. New Taiwan Dollar interest-rate derivatives. 3. Convertible bond asset swaps. 4. Structured instruments. Article 10 Article 11 When a securities firm undertakes a financial derivatives trade, it shall limit the amount of each trade based on the counterparty's financial condition, cash management status, and degree of professional expertise. Article 12 Article 12-1

Article 34	Any OTC financial derivatives transaction undertaken by a securities firm beyond the scope provided by these Rules will be deemed to involve another, different category of derivatives product; a securities firm may not undertake such business without applying for and receiving approval for such operations pursuant to applicable laws and regulations or obtaining approval from the competent authority.
Article 35	A securities firm engaging in convertible bond asset swaps or structured instrument transactions may not undertake financial derivatives trades with any of the following related parties: 1. A director, supervisor, or officer of the securities firm, or a shareholder that directly or indirectly holds 10 percent or more of its total shares. 2. A spouse, minor child, or nominee of any of the persons referred to in subparagraph 1. 3. Any investee company in which 10 percent or more of total shares are directly or indirectly held by any person referred to in the preceding two subparagraphs. 4. The issuer of the conversion securities or linked securities, or any person related, as set out in the preceding subparagraph, to the issuer. Before a securities firm carries out a financial derivatives transaction with a trading counterparty, the counterparty shall sign a declaration stating that it is not a related party as set out in paragraph 1. A securities firm may undertake hedging transactions with the following qualified institutional investors, without being subject to the restrictions of any subparagraph under paragraph 1: Domestic and foreign banks, insurance companies, bills finance companies, securities firms, fund management companies, government investment institutions, government funds, pension funds, mutual funds, unit trusts, securities investment trust companies, securities investment consulting companies, trust enterprises, and futures commission merchants.
Article 36	A securities firm that undertakes a financial derivatives transaction with a trading counterparty shall provide the counterparty with a risk disclosure statement, and in that statement, or in individual trade confirmations, it shall indicate in boldface or other prominent typeface the maximum possible risk 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. The securities firm is exempt from the requirement to provide a risk disclosure statement if the trading counterparty of the preceding paragraph is an institutional juristic person such as a banking, insurance, securities, or offshore investment institution.
Article 37	A securities firm undertaking any financial derivatives transaction shall comply with the competent authority's Regulations Governing the Acquisition and Disposal of Assets by Public Companies. In addition, it shall either adopt procedures for handling transactions in the given derivative product, or incorporate procedures for the given product into its existing procedures for handling of financial derivatives trading, and carry out necessary risk management and information disclosures, while also providing for management and control of transactions by incorporating those procedures into its existing internal control and auditing systems or implementation rules. A securities firm shall complete the amendments to its internal control and auditing systems prior to any application to engage in the business of OTC trading of financial derivatives. The relevant control and auditing measures will be separately prescribed by the GTSM.
Article 38	The basic trading principles and policies to be set out in the procedures referred to in the preceding article must include a limit on contract amounts (either in aggregate or separately for each individual counterparty), stop-loss provisions (either in aggregate or per contract), policies for screening and credit reviews of counterparties, hedging strategies, procedures for and key points of performance evaluations, market information equipment and data, methods of accounting treatment and disclosure of financial statements, experience requirements for traders and risk-management personnel and provisions relating to their training, and provisions for segregation of duties in the approval of trades. The market information equipment and data set out in the preceding paragraph shall be capable of ensuring accurate and real-time provision of relevant market information.
Article 39	The traders and risk-management personnel of a securities firm that undertakes financial derivatives trades linked to foreign financial products shall possess relevant experience in operations in the home market for the linked underlying product.
Article 40	A securities firm engaging in the business of OTC trading of financial derivatives shall comply with the competent authority's Regulations Governing the Preparation of Financial Reports by Securities Firms, the Statements of Financial Accounting Standards Nos. 27 and 34 published by the Accounting Research and Development Association of the Republic of China, and the relevant directives of the competent authority regarding accounting disclosures in relation to financial derivatives. In its financial statements or in the accompanying notes, it shall disclose contract information for the given type of transaction such as the amount of notional principal, and the nature and the terms of the transaction (including at least credit risk, market risk, possible liquidity risk, transaction cash flow, and applicable accounting policies). The method of accounting treatment and journalization for the financial derivatives of the preceding paragraph will be separately prescribed by the GTSM.
Article 41	In addition to disclosure of information on OTC trading of financial derivatives in accordance with the provisions of the Regulations Governing the Acquisition and Disposal of Assets by Public Companies, a securities firm shall also, at the time it submits monthly accounting summaries to the GTSM, submit in duplicate a set of informational materials for review and recordation by GTSM audit personnel on the derivative financial product transactions in which the securities firm has engaged, including their type, terms and conditions, and realized or unrealized gains or losses. The form for submission of the additional information with the monthly accounting report as prescribed in the preceding paragraph is shown in Appendix 5.
Article 42	After a securities firm executes a financial derivatives transaction, it shall promptly enter the transaction information and the outstanding balance into the GTSM information system at the time and in the form prescribed by the GTSM.
Article 43	A securities firm that undertakes OTC financial derivatives trading shall calculate the market risk equivalent and counterparty risk equivalent for its trading positions as prescribed in the Regulations Governing Securities Firms in order to reflect those components in the calculation of its self-owned capital adequacy ratio. Limits on amounts traded by securities firms engaging in OTC financial derivatives trading will be announced by the GTSM subsequent to their formulation and submission to the competent authority for approval.
Article 44	After a securities firm has obtained qualification for OTC financial derivatives trading, it shall undergo a credit rating annually and shall report the result to the GTSM by submitting the credit rating report within seven business days after receiving the rating. When there is any change in the securities firm's credit rating, limits on the aggregate total amount of trades by the securities firm shall be set according to the new rating. When the self-owned capital adequacy ratio of a securities firm that has obtained qualification to engage in OTC trading of financial derivatives falls below 200 percent, it may not undertake any new trades even if its operational risk equivalent does not exceed the aggregate total amount of new trades; new trades may not be undertaken until its self-owned capital adequacy ratio reaches 200 percent. In addition to regular audits of the matters in the preceding two paragraphs, the GTSM may require the securities firm to submit relevant documents and undergo a special audit, and when necessary may place a limit on the aggregate total amount of trades undertaken by the firm.

Article 45	When any of the following circumstances applies to a securities firm, the GTSM may notify it to take supplementary or corrective action within a prescribed time period: 1. Violation of Article 10, Article 11, Article 14, Article 18, Articles 22 to 28, Articles 32 to 36, or Article 38. 2. Execution of financial derivatives trades not in conformance with the relevant portions of the securities firm's application. 3. A self-owned capital adequacy ratio less than 200 percent. 4. Execution of trades not in conformance with the securities firm's "procedures for handling financial derivatives transactions" or its internal control or auditing systems. 5. Violation of the applicable provisions of other GTSM rules, regulations, operating procedures, guidelines, directions, supplementary rules, public announcements, or circulars.
Article 46	When any of the following circumstances applies to a securities firm, the GTSM may issue a warning and notify it to take supplementary or corrective action within a prescribed time period: 1. Violation of Article 16, Article 17, Articles 29 to 31, Article 31-2, Article 37, or Articles 39 to 44. 2. Failure to take supplementary or corrective action within the time period prescribed in the preceding article.
Article 47	When any of the following circumstances applies to a securities firm, the GTSM may impose a penalty of not less than NT$50,000 and not more than NT$300,000. 1. Violation of Article 4, Article 12, or Article 15. 2. Failure to take supplementary or corrective action within the time period prescribed in the preceding article.
Article 48	When any of the following circumstances applies to a securities firm, the GTSM may suspend or terminate its financial derivatives trading, provided that such action shall not affect the validity of an already-transacted derivatives product: 1. Imposition of a penalty pursuant to subparagraph 2 of the preceding article three or more times during the preceding half-year. 2. Failure to pay a penalty imposed pursuant to subparagraph 2 of the preceding article. 3. Noncompliance with the conditions of Article 5, paragraph 2, subparagraph 1 or 2. 4. The self-owned capital adequacy ratio of the securities firm has remained below 200 percent for three consecutive months. 5. Receipt of a sanction from the competent authority of a severity equal to or greater than that under Article 66, subparagraph 2 of the Securities and Exchange Act or Article 100, paragraph 1, subparagraph 2 of the Futures Trading Act. When a securities firm's qualification for trading of financial derivatives has been suspended or terminated due to circumstances under any subparagraph of the preceding paragraph, upon the extinguishment of the cause and in the absence of a cause under any other subparagraph of that paragraph, the securities firm may apply for restoration of its qualification by submitting relevant evidentiary documentation. The GTSM may restore the firm's qualification after performing a review for verification.

Article 49	The GTSM may separately adopt guidelines or other supplementary regulations with respect to these Rules or to individual financial derivatives specified herein.
Article 50	These Rules, and any amendments hereto, shall enter into force upon approval and public announcement by the competent authority after passage by the board of directors of the GTSM. Any addition, deletion, or amendment to the Appendices of these Rules shall enter into force following approval by the president of the GTSM.