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Basis
- These Directions are promulgated pursuant to the Taiwan Futures Exchange (the "Exchange") trading rules for various listed futures trading contracts ("trading rules").
- Unless otherwise provided by laws or regulations, an institutional investor that applies to open a hedge account for its futures trading shall proceed in accordance with these Directions. Matters for which these Directions do not provide shall be subject to other rules and regulations of the Exchange.
"Institutional investor" as used in the Directions is limited to securities firms, foreign institutional investors, securities investment trust funds operated by Securities Investment Trust Enterprises ("SITE"), the National Finance Stabilization Fund, the Civil Servant Pension Fund, the Labor Pension Fund, the Labor Insurance Fund, and the funds managed by the Directorate General of Postal Remittances and Savings Banks, and other financial and insurance institutions that engage in futures trading within the bounds mandated by the competent authority.
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Application for hedge accounts and exemptions from position limits by institutional investors
- If a securities firm approved by the competent authority to engage in futures trading in the domestic futures market wishes to apply for an exemption to position limits for hedging purposes, the firm shall complete and submit the "Application for a Securities Firm to open a Futures Trading Hedge Account" (Form 1) together with the required supporting documentation to the Exchange. The securities firm will be exempt from position limits required for each contract by their respective trading rules only after the Exchange has approved the application and issued certifying documentation that may be used to open a hedge account with a futures commission merchant or convert an existing trading account into a hedge account.
- A foreign institutional investor allowed under the rules of the competent authority to trade futures on the domestic futures market shall complete and submit the "Application for a Foreign Institutional Investor to open a Futures Trading Hedge Account" (Form 2) together with the required supporting documentation to the Exchange to apply for opening of a hedge account and exemption from position restrictions under trading rules. After the Exchange has approved the application and issued certifying documentation, the foreign institutional investor may use the documentation to apply to a futures commission merchant to open a hedge account, and the futures commission merchant shall report the opening of such account to the Exchange by letter.
- When an offshore foreign institutional investor applies to the Exchange to open a hedge account, the offshore foreign institutional investor shall file an application. The exemption from position limits shall apply to all sub-accounts of the offshore foreign institutional investor's master accounts. The aggregate amount of the initial margins required for futures contracts, initial margins required for put option contracts, and premiums required for call option contracts for the open positions for all delivery months held by the sub-account plus the investment by the account in money market instruments shall not be more than 30 percent of the balance of funds remitted into the sub-account.
- If a securities investment trust fund operated by a SITE approved by the competent authority to engage in domestic futures trading wishes to apply for an exemption to position limits, the trust fund shall complete and submit the "Application for a Securities Investment Trust Fund Operated by a Securities Investment Trust Enterprise to open a Futures Trading Hedge Account" (Form 3) together with the required supporting documentation to the Exchange. The securities investment trust fund will be exempt from position limits required for each contract by their respective trading rules only after the Exchange has approved the application and issued certifying documentation that may be used to open a hedge account with a futures commission merchant or to convert an existing trading account into a hedge account.
- If the National Finance Stabilization Fund, the Civil Servant Pension Fund, the Labor Pension Fund, the Labor Insurance Fund, the funds operated by the Directorate General of Postal Remittances and Savings Bank, and other financial and insurance institutions wish to apply for an exemption from position limits for hedging purposes, the fund or institution shall complete and submit the "Application for Juristic Person to Open Futures Trading Hedge Account" (Form 4) together with the required supporting documentation to the Exchange. The fund or institution will be exempt from position limits required for each contract by their respective trading rules only after the Exchange has approved the application and issued certifying documentation that may be used to open a hedge account with a futures commission merchant or convert an existing trading account into a hedge account.
- The Exchange may not approve an application from an institutional investor for a hedge account to exempt the position limits required in the trading rules of respective contracts under any of the following circumstances:
- The application is incomplete or the matters recorded therein are false or conceal the truth.
- Failure to provide explanations or corrections within a prescribed period.
- Violations of relevant provisions of regulations or the Exchange's rules..
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When an institutional investor applies for a hedge account for futures trading or while it engages in futures trading, the Exchange may order that institutional investor to provide a written explanation of relevant matters or supplementary documentation with a prescribed period. The institutional investor shall not evade such an order or refuse to comply.
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Reporting requirements for hedge accounts
- Offshore foreign institutional investors that hold open futures trading contract positions pursuant to the Directions for Futures Trading by Overseas Chinese and Foreign Investors promulgated by the competent authority shall, through the custodian institution, file a report electronically to the Exchange by 5:00 p.m. each business day, entering the details into each of the corresponding fields on the computer interface provided by the Exchange.
- A SITE that operates a securities investment trust fund engaging in futures trading or holding open futures trading contract positions pursuant to the "Directions for Use of Securities Investment Trust Funds for Trading in Securities Related Products by Securities Investment Trust Enterprises" promulgated by the competent authority shall file a report electronically to the Exchange by 5:00 PM each business day, entering the details into each of the corresponding fields on the computer interface provided by the Exchange.
- A securities investment trust fund operated by a SITE that has not been approved by the Exchange for a hedge account but has a regular trading account to engage in futures trading shall report to the Exchange pursuant to the preceding subparagraph.
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Should an institutional investor who has a hedge account be discovered to have filed a false application, concealed facts, failed to exercise due care according to these Directions, or violated laws and regulations related to futures trading or the relevant provisions of the Exchange's rules, the Exchange may take the following measures:
- Foreign institutional investors
- Restrict futures trading in part or in whole until corrections have been made.
- Revoke the opening of its hedge account. The futures commission merchant shall immediately cease accepting new orders from the institutional investor, except for purposes of disposing of existing positions, and shall cancel the account after its claims and liabilities have been settled.
- For a certain period of time, reject applications from the institutional investor for opening of a hedge account.
- Other institutional investors
- Revoke the opening of the hedge account, and notify the futures commission merchant to change the hedge account to a regular trading account, and impose position limits in accordance with regular trading rules.
- Change its [status] to an institutional investor [authorized only for] a regular trading account; if any position held by it exceeds position limit under trading rules, the Exchange will order it to adjust and correct the position, and will report to the competent authority.
- The Exchange may reject applications from the same institutional investor for a hedge account for a specified period.
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(Deleted)
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These Directions and any amendments shall take effect after having been approved by the competent authority.
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