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Title Taipei Exchange Operation Directions Governing Liquidity Providers of Exchange-Traded Fund Beneficial Certificates CH
Date 2024.02.23 ( Amended )

Article Content

1     These Directions are established pursuant to Article 14 of the Taipei Exchange Rules Governing Trading of Exchange-Traded Fund Beneficial Certificates.
2     A securities investment trust enterprise (SITE) or futures trust enterprise (FTE) that offers exchange-traded funds (ETFs) in accordance with the Regulations Governing Securities Investment Trust Funds or the Regulations Governing Futures Trust Funds shall respectively appoint liquidity providers that satisfy the criteria described in Point 4 to provide liquidity for the ETF beneficial certificates.
    If a SITE or FTE violates the provisions of the preceding paragraph for 3 consecutive months, the TPEx will issue a warning letter and impose a penalty of NT$30,000 on the SITE or FTE, and further investigation will be conducted once every month and consecutive penalties may be imposed until such time as correction is made.
2-1     If a SITE or FTE intends to sign an ETF Beneficial Certificate Market Liquidity Provision Agreement with an interested company, it shall have a resolution passed by three-fourths or more of the SITE's or FTE's directors in attendance at a board meeting with a quorum of two-thirds or more of the directors before doing so.
    If there is only one liquidity provider for the ETF beneficial certificates, it may not be an interested company.
    "Interested company" in the preceding two paragraphs means an interested company as defined in the Regulations Governing Securities Investment Trust Funds or the Regulations Governing Futures Trust Funds.
3     When appointing or adding a liquidity provider, the SITE or FTE shall sign an ETF Beneficial Certificate Market Liquidity Provision Agreement (the "Liquidity Agreement") with the liquidity provider and report the matter in writing to the TPEx for approval by 3 p.m. on the 3rd business day before the effective date of the agreement, by furnishing documentary proof of the qualifications set forth in Point 4, subparagraphs 1 and 2 of these Directions and an eligibility checklist. The SITE or FTE also shall notify the TPEx in writing of any termination of an existing liquidity provider and furnish relevant documentary proof by 3 p.m. on the 3rd business day before the termination date of the agreement.
4     A liquidity provider must meet the following requirements. However, the requirements set forth in subparagraphs 4 to 8 may be waived provided that specific improvements have been made to remedy the circumstance, and approval is granted by the competent authority:
  1. It is a securities firm that is permitted by the TPEx to conduct liquidity-providing business for ETF beneficial certificates and to act as a participating securities firm, and furthermore operates securities dealing business.
  2. It is a securities firm that, within 1 year after obtaining the written permission described in the preceding subparagraph, has entered into a Liquidity Agreement with the SITE or FTE issuing the ETF beneficial certificates.
  3. Its latest CPA audited and attested financial statements show a net worth per share no less than face value, and its financial status complies with the Regulations Governing Securities Firms.
  4. It has not been issued any warning by the competent authority under Article 66, subparagraph 1 of the Securities and Exchange Act or Article 100, paragraph 1, subparagraph 1 of the Futures Trading Act within the previous 3 months.
  5. It has not been subject to any penalty imposed by the competent authority under Article 66, subparagraph 2 of the Securities and Exchange Act or Article 100, paragraph 1, subparagraph 2 of the Futures Trading Act within the previous 6 months.
  6. It has not been subject to any penalty of imposed by the competent authority of suspension of business activities within the past year.
  7. It has not been subject to any penalty imposed by the competent authority of voidance of any part of its permission for business within the past 2 years.
  8. It has not been subject to any penalty imposed by the Taipei Exchange, Taiwan Stock Exchange Corporation, or Taiwan Futures Exchange Corporation of suspension or restriction of trading within the past year.
  9. Other requirements prescribed by the competent authority.
5     All market-making trade quotes made by the liquidity provider shall be placed through its ETF account (777777~7 under the securities dealer's account).
     For the purpose of hedging, a liquidity provider may open an ETF hedge account (777777~8 under the securities dealer's account) for making quotes for short selling of borrowed securities, and the quantities of such short selling are not subject to the daily limit set for short selling of borrowed securities during the regular trading session. However, the borrowed securities on which quotes for short selling are made through the ETF hedge account may be transferred into that account only from its ETF account (777777~7 under the securities dealer's account), and any balance of those securities in the hedge account may only be transferred back to the original ETF account.
6     The Liquidity Agreement shall prescribe at least the following details with respect to the responsibilities and obligations of a liquidity provider (covering the period from the commencement of trading to a certain period of time prior to the close of trading):
  1. The formula for calculation of the best buy-sell spread of the ETF beneficial certificates as disclosed in the TPEx automated trade matching system, which is as follows:
    2. "best buy-sell spread" = [(lowest unmatched sell quote) - (highest unmatched buy quote)] / (lowest unmatched sell quote).
  2. The minimum valid quote time by the liquidity provider for the ETF beneficial certificates. The term "valid quote" refers to a buy or a sell quote that falls within a certain range above the lowest unmatched sell and within a certain range below the highest unmatched buy in the previous match, or within a certain range above and below the trade price. Minimum requirements shall be set for the valid quote time and for the numbers of buy and sell quotes as calculated.
  3. The minimum quantity of buy quotes and of sell quotes that a liquidity provider shall make during a suspension of matching when there occurs a circumstance specified in Article 35, paragraph 4 or Article 35-11 of the TPEx Rules Governing Securities Trading on the TPEx with respect to the ETF beneficial certificates.
  4. The restrictions imposed with respect to durations of time during which only buy prices or only sell prices are disclosed in the disclosure of market trading prices; however, such restrictions do not apply when the price of the ETF beneficial certificates goes limit-up or limit-down, or when the disclosed best buy price or sell price is the market price. If matching must be postponed due to a circumstance specified in Article 35, paragraph 4 or Article 35-11 of the TPEx Rules Governing Securities Trading on the TPEx, the matching postponement period may be excluded when calculating the time restrictions.
6-1      If any of the following circumstances in the disclosure of market trading prices has existed in respect of any ETF beneficial certificates for 3 consecutive months, the TPEx will notify the SITE or FTE issuing the ETF beneficial certificates to take corrective measures within 2 months commencing from the month following that in which the notification is made. The TPEx will issue a warning letter if the SITE or FTE fails to take corrective measures within the time limit, and continued failure to take corrective measures within 2 months from the following month shall be deemed a breach of the listing contract, and the TPEx will impose a penalty of NT$30,000 on the SITE or FTE, and further investigation will be conducted once every 3 months and consecutive penalties may be imposed until such time as correction is made.
     With respect to the beneficial certificates of domestic component securities ETFs or the beneficial certificates of leveraged or inverse securities ETFs of which the underlying index component securities are all domestic stocks, there may not be more than two occurrences per month, respectively, of any of the following circumstances in the disclosure of market trading prices from the commencement of trading to the close of trading (including the disclosed trading prices as calculated within a certain period of time before close of trading):
  1. In the disclosure of market trading prices, only buy prices or only sell prices are available, and the circumstance has continued for more than 3 minutes, except in cases where the disclosed price is the limit-up, limit-down, or market price.
  2. The best buy-sell spread is higher than 1 percent, and the circumstance has continued for more than 10 minutes.
  3. When the TPEx encounters any circumstance under Article 35, paragraph 4 or Article 35-11 of the TPEx Rules Governing Securities Trading on the TPEx, and has to postpone matching for a period of time, such postponement may be excluded from the calculation of the number of occurrences set out above.
  4. When the beneficial certificates are placed under dispositive measures, the calculation of the number of occurrences set out above may be excluded.
     With respect to the beneficial certificates and additional-currency ETF beneficial certificates of a foreign component securities ETF, the beneficial certificates of a futures ETF, the beneficial certificates of a leveraged or inverse securities ETF of which the underlying index component securities include one or more foreign securities, the beneficial certificates of a domestic component bond securities ETF, or the beneficial certificates of a leveraged or inverse securities ETF with domestic bond components, there may not be more than six occurrences per month, in total, of the following circumstances in the disclosure of market trading prices from the commencement of trading to the close of trading (including the disclosed trading prices as calculated within a certain period of time before close of trading):
  1. In the disclosure of market trading prices, only buy prices or only sell prices are available, and the circumstance has continued for more than 10 minutes, except in cases where the disclosed price is the limit-up, limit-down, or market price.
  2. The best buy-sell spread is higher than 3 percent, and the circumstance has continued for more than 10 minutes.
  3. When the TPEx encounters any circumstance under Article 35, paragraph 4, or Article 35-11 of the TPEx Rules Governing Securities Trading on the TPEx and has to postpone the matching for a period of time, such postponement may be excluded from the counting of the number of occurrences set forth above.
  4. In the case of the underlying index component securities of a foreign component securities ETF or bond component securities ETF, if the foreign securities market is closed on a given day, the disclosure of market trading prices of the beneficial certificates and additional-currency ETF beneficial certificates of such foreign component securities ETF or bond component securities ETF for that given day shall be excluded from the counting of the number of occurrences set forth above.
  5. In the case of the underlying index components of a futures ETF, if the foreign futures trading market is closed on a given day, the disclosure of market trading prices for that given day shall be excluded from the counting of the number of occurrences set forth above.
  6. In the case of the underlying index component securities of a leveraged or inverse securities ETF, if the foreign securities market is closed on a given day, the disclosure of market trading prices of the beneficial certificates of such leveraged or inverse securities ETF for that given day shall be excluded from the counting of the number of occurrences set forth above.
  7. When the beneficial certificates are placed under dispositive measures, the calculation of the number of occurrences set out above may be excluded.
7     The SITE or FTE may obtain written consent from the liquidity provider, authorizing the TPEx to furnish details of the liquidity provider's ETF account trading quotes and executed trades to the SITE or FTE that issued the ETF.
8     For all market-making trades of ETF beneficial certificates that are placed through the liquidity provider's ETF account and are matched by the TPEx automated trade matching system, block trading system, after-market fixed-price trading system, and odd-lot trading system, buy and sell trades may be settled by offsetting against each other if they fall within the same settlement period. Settlement of any net balance of sell positions after such offsetting may be handled by borrowing those beneficial certificates in accordance with securities borrowing and lending rules, or by borrowing securities in accordance with Article 86-1 of the Rules Governing Securities Trading on the TPEx no later than the second business day.
    A liquidity provider that opts to settle by borrowing securities under the preceding paragraph may be exempted from the imposition of relevant penalties on its general manager, managerial officers, and handling personnel.
9     The TPEx may adopt incentive measures to encourage liquidity providers to proactively provide liquidity for ETF beneficial certificates. The rules governing such incentives will be issued in a separate announcement by the TPEx.
10     The TPEx may, depending on the seriousness of the circumstances, cancel the liquidity provider's eligibility, or suspend part or all of its market-making activities, if the liquidity provider is found to have violated any relevant rules of the competent authority or the TPEx.
11     These Directions, and any amendments hereto, shall be publicly announced and implemented after approval by the competent authority.
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