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These Guidelines are specially promulgated to govern cases in which a futures commission merchant has insufficient adjusted net capital, such that its adjusted net capital is less than 30 percent of the total amount of customer margins required for the open positions of futures traders. In such cases, the futures commission merchant may apply to the Taiwan Futures Exchange Corporation (hereinafter, "the TAIFEX") for use of a TAIFEX-approved method as an emergency measure against its insufficient adjusted net capital.
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A futures commission merchant whose adjusted net capital ratio (the ratio of adjusted net capital to the total amount of customer margins required for the open positions of futures traders) is lower than 30 percent may adopt any of the following TAIFEX-approved methods as a measure against the insufficient adjusted net capital:
- An irrevocable standby letter of credit issued by a financial institution.
- An overdraft facility available from a financial institution.
- A cash capital increase approved by the board of directors.
- Issuance of subordinated corporate bonds approved by the board of directors.
The financial institutions of the preceding paragraph shall be limited to those approved by the competent authority to open customer margin accounts.
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When a futures commission merchant uses an irrevocable standby letter of credit issued by a financial institution as a measure against insufficient adjusted net capital, the following particulars shall be stated:
- The beneficiary shall be the TAIFEX.
- Upon receiving a payment demand notice from the TAIFEX, the financial institution shall promptly and unconditionally remit the funds by the means set forth in the letter of credit.
When a futures commission merchant uses an overdraft facility available from a financial institution as a measure against insufficient adjusted net capital, it may not recognize that amount until such time as the line of credit is actually used. Recognition shall be as follows:
- If the line of credit obtained from the financial institution is fully secured with real estate registered in the name of the company, the recognized amount may not exceed 100 percent of the allocated operating capital or paid-in capital.
- If the line of credit is obtained from the financial institution other than by being fully secured with real estate registered in the name of the company, the recognized amount may not exceed 50 percent of the allocated operating capital or paid-in capital.
When a futures commission merchant uses a cash capital increase approved by the board of directors as a measure against insufficient adjusted net capital, it shall comply with the following requirements:
- Submit the board meeting minutes evidencing the board's approval of the cash capital increase.
- Submit a letter of undertaking specifying the amount under the emergency measure, the schedule and plan for the cash capital increase, and other necessary matters.
- The amount under the emergency measure may not exceed the amount of the cash capital increase.
- If any change to the amount under the emergency measure becomes necessary during the emergency measures period, the TAIFEX shall be notified immediately.
When a futures commission merchant uses an issuance of subordinated corporate bonds approved by the board of directors as a measure against insufficient adjusted net capital, it shall comply with the following requirements:
- Submit the board meeting minutes evidencing the board's approval of the issuance of subordinated corporate bonds.
- Submit a letter of undertaking specifying the amount under the emergency measure, the schedule and plan for the issuance of subordinated corporate bonds, and other necessary matters.
- The amount under the emergency measure may not exceed the amount of that particular issuance.
- If any change to the amount under the emergency measure becomes necessary during the emergency measures period, the TAIFEX shall be notified immediately.
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Amounts of lines of credit under TAIFEX-approved methods used by futures commission merchants as a measure against insufficient adjusted net capital shall be governed by the following provisions:
- The line of credit shall not be counted as an addition to the adjusted net capital, nor shall additional orders be accepted to increase financial leverage. New positions may be added, however, when the total of the amount of credit provided along with the adjusted net capital amount account for more than 15% of the total customer margins required for its open positions.
- The ratio of the aggregate of the line of credit and the adjusted net capital amount to the total amount of customer margins required for the open positions of futures traders shall comply with the ratio set forth in Paragraph 2 of Article 22 of the Rules Governing Futures Commission Merchants.
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A futures commission merchant shall apply by completing a "Futures Commission Merchant Application Form for an Emergency Measure Against Insufficient Adjusted Net Capital" and submitting it to the TAIFEX, annexing the Financial Condition Improvement Plan.
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The time limit on the period for which a futures commission merchant applies for the use of a TAIFEX-approved method as a measure against insufficient adjusted net capital shall be determined by the TAIFEX in accordance with the following provisions, provided that this shall not apply to an application for an extension to a correction period made under the proviso to Point 7 of the Taiwan Futures Exchange Corporation Procedural Guidelines for Clearing Members Unable to Maintain Conformance With Clearing Member Standards:
- When an irrevocable standby letter of credit issued by a financial institution or an overdraft facility available from a financial institution is used as a measure against insufficient adjusted net capital, the time limit for the measure shall not exceed 30 business days.
- When a cash capital increase or an issuance of subordinated corporate bonds approved by the board of directors is used as a measure against insufficient adjusted net capital, the time limit for the measure shall run, at most, from the date of application for the emergency measure to the date on which the funds are received in full.
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The number of times a futures commission merchant applies for the use of a TAIFEX-approved method as a measure against insufficient adjusted net capital in any fiscal year shall be limited to only three times, and only once consecutively. However, this restriction shall not apply when the measure is a cash capital increase or an issuance of subordinated corporate bonds approved by the board of directors.
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If, during the emergency measures period, the futures commission merchant fails to faithfully implement the improvement plan or fails to make the improvements by the deadline, then depending on the circumstances or at the instruction of the Competent Authority, the TAIFEX shall suspend or cancel at any time such futures commission merchant's eligibility to use a TAIFEX-approved method as a measure against insufficient adjusted net capital. The futures commission merchant shall immediately cease to accept orders from futures traders; moreover, depending on the severity of the circumstances, the TAIFEX will report to the Competent Authority requesting partial restriction of its operations or cancellation of its business permit.
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These Guidelines shall take effect after recordation by the Competent Authority; the same shall apply to any amendments hereto.
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