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A futures commission merchant ("FCM") shall abide by these Points for Attention when engaging a securities firm to operate futures introducing broker business ("futures introducing broker") and perform the operations set forth in Article 3 of the Regulations Governing the Operation of Futures Introducing Broker Business by Securities Firms.
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Opening of Accounts and Account Management
- Upon receiving account-opening documents, an agreement for posting of securities as margin collateral, or other relevant documents for a futures trader sent by a futures introducing broker, FCM personnel responsible for account opening must review each item separately and confirm that the futures trader has signed a statement of having received full disclosure of relevant information. Account opening procedures are completed only when those items are reviewed, found to be without error, and subsequently entered into the clearing system.
- An FCM shall differentiate between the account numbers of accounts opened by internal personnel at a futures introducing broker and those of other clients. Information on such accounts shall be compiled monthly and reported to the Taiwan Futures Exchange (TAIFEX).
- An FCM shall maintain confidentiality with regard to account information for futures traders' accounts that were opened by a futures introducing broker, except where disclosure is required under a lawfully initiated inquiry.
- Internal auditing by FCMs shall include a weekly audit of account information for futures traders' accounts opened through a mandated futures introducing broker and shall provide guidance with respect to any errors by the futures introducing broker. Guidance shall be based on ensuring adherence to the provisions of Article 5 of the Regulations Governing the Operation of Futures Introducing Broker Business by Securities Firms.
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FCM Execution of Orders Placed Through Futures Introducing Brokers
- Management of margins
- Cash trading margins collected from futures traders solicited by futures introducing brokers shall be deposited in a segregated client margin account opened in the name of the FCM.
- For applications for withdrawals of cash trading margins by futures traders that are solicited by futures introducing brokers, the FCM shall first review and confirm each application, then transfer the funds for each respective application from the segregated client margin account opened in the FCM's name to the designated bank account of the futures trader.
- The deposit and withdrawal of the securities posted as collateral by futures traders solicited by futures introducing brokers shall be conducted in accordance with the Guidelines for Futures Commission Merchants and Clearing Members Conducting Operations in Relation to the Pledging of Securities as Margin Collateral and relevant regulations.
- Management of trades
- An FCM executing orders delivered by a futures introducing broker shall first confirm that the futures trader has deposited a sufficient trading margin.
- When the host computer of an FCM is linked to the trading system of a futures introducing broker, the host system shall be required to ascertain the sufficiency of futures traders' margins. Where margin is found to be insufficient, the order may not be executed.
- Risk Management
- An FCM that executes risk management during trading hours shall undertake continuous tracking of the equity in futures traders' accounts. When it is discovered that equity has fallen below the control standard, the FCM shall notify the futures introducing broker of that fact.
- When equity in the accounts of futures traders solicited by a futures introducing broker falls below the required maintenance margin during trading or after clearing, the FCM shall immediately notify the futures introducing broker and at the same time shall also issue a trading or a post-trading margin call to the given futures trader, provided that if the FCM has mandated the futures introducing broker to carry out margin call operations, the FCM and the futures introducing broker shall carry out the related operations in accordance with relevant regulations.
- The FCM shall examine the records of margin calls, and take note of whether futures traders supplemented the margins required during the specified time period; where a trader has failed to supplement the margin within the time period or in the amount required, the FCM shall liquidate the position in accordance with the mandate contract, provided that if the FCM has mandated the futures introducing broker to carry out the liquidation of positions, the FCM and the futures introducing broker shall carry out the related operations in accordance with relevant regulations.
- An FCM's principles and procedures with respect to the risk management carried out during the trading and post-trading periods by a futures introducing broker shall be set out in the company's internal control system and reported to the TAIFEX. The FCM's actual business practices on a daily basis shall conform with the content of the rules reported to the TAIFEX.
- When there is an error in a futures introducing broker's delivery of a futures trader's order, the futures introducing broker shall immediately notify the FCM, and the FCM shall process and report the error based on the futures introducing broker's notice, and shall notify the futures introducing broker of the results of the processing.
- When an FCM executes orders delivered by a futures introducing broker, it shall compile a trading report daily after settlement of accounts for delivery to the futures trader, and shall deliver related clearing statements to the futures introducing broker.
- Internal auditing at an FCM shall include a weekly audit of the orders delivered by futures introducing brokers, and guidance shall be provided with respect to any shortcomings discovered. The nature of the guidance shall be based on ensuring the futures introducing broker's adherence to Article 6 of the Regulations Governing the Operation of Futures Introducing Broker Business by Securities Firms.
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These Points for Attention and any amendments hereto, shall take force following submission to and approval by the competent authority.
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