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1     In the case of a securities firm that deposits cash collateral on securities borrowing transactions by means of wire transfer, and that has deposited in advance with the TSEC a written undertaking (as per attachment hereto) in triplicate together with a promissory note for which a bank is the paying agent, when the securities firm is subsequently required to deposit cash collateral for a securities borrowing transaction during any given clearing period, if the required cash collateral falls within the amount specified in the deposited promissory note, the securities firm shall by am on the second business day after the transaction date ("T+2 Day") transfer the money into the bank account designated by the TSEC through a virtual account established in accordance with TSEC requirements. If the required cash collateral exceeds the amount of the promissory note, the securities firm shall do as follows:
  1. Where for the same clearing period there is any settlement price receivable by the securities firm from the TSEC and the amount is greater than the shortfall resulting from the cash collateral requirement in excess of the amount of the promissory note, it need not provide an additional check for that collateral shortfall on the first business day after the transaction date ("T+1 Day"). Nevertheless, it shall by 10 am on the T+2 Day transfer the full amount of the cash collateral required for the securities borrowing transaction into the bank account designated by the TSEC.
  2. Where for the same clearing period there is any settlement price receivable by the securities firm from the TSEC and the amount is less than the shortfall resulting from the cash collateral requirement in excess of the amount of the promissory note, the securities firm shall do as follows:
    1. Where the amount [of the shortfall minus the settlement price receivable] is at or below NT$5 million, it need not provide an additional check on the T+1 Day for the shortfall resulting from the cash collateral requirement in excess of the amount of the promissory note, but need only transfer by 10 am on the T+2 Day the full amount of the cash collateral required for the securities borrowing transaction into the bank account designated by the TSEC.
    2. Where the amount [of the shortfall minus the settlement price receivable] exceeds NT$5 million, it shall on the T+1 Day cover the shortfall resulting from the cash collateral requirement in excess of the amount of the promissory note by providing an additional check payable on demand that is drawn on a bank designated by the TSEC or otherwise by transferring the money, and further by 10 am on the T+2 Day transfer the remainder of the cash collateral (i.e., funds equivalent to the amount of the promissory note) into the bank account designated by the TSEC. If by one hour prior to the end of banking hours on that day the funds have not been transferred into the account, the TSEC may present the promissory note for payment.
  3. Where for the same clearing period there is any settlement price payable by the securities firm to the TSEC, the securities firm shall do as follows:
    1. Where the shortfall resulting from the cash collateral requirement in excess of the amount of the promissory note is at or below NT$5 million, it need not provide an additional check for that shortfall on the T+1 Day, but need only transfer by 10 am on the T+2 Day the full amount of the cash collateral required for the securities borrowing transaction into the bank account designated by the TSEC.
    2. Where the shortfall resulting from the cash collateral requirement in excess of the amount of the promissory note exceeds NT$5 million, it shall on the T+1 Day cover that shortfall by providing an additional check payable on demand that is drawn on a bank designated by the TSEC or otherwise by transferring the money, and shall by 10 am on the T+2 Day transfer the remainder of the cash collateral (namely, funds equivalent to the amount of the promissory note) into the bank account designated by the TSEC. If by one hour prior to the end of banking hours on that day the funds have not been transferred into the account, the TSEC may present the promissory note for payment.
  4. A settlement default shall be deemed to occur if the procedures for the cash collateral payable on the day on which the application to borrow securities is made, as described above, have not been completed by 12 midnight on that day.
2     Where the cash collateral payable by a securities firm on a securities borrowing transaction for a given clearing period is at or under NT$5 million, notwithstanding the fact that the collateral has not been cashed or fully transferred, the TSEC will by 10 am on the T+2 Day notify a relevant entity to transfer to the securities firm the settlement money and securities receivable by it for that same clearing period. Nevertheless, a settlement default shall be deemed to occur under Article 109, paragraph 6 of the TSEC Operating Rules if the aforesaid cash collateral has not been cashed or transferred by the end of banking hours on that day.
3     The above requirements in relation to settlement procedures for cash collateral shall also apply where a securities firm provides cash collateral by a check payable on demand drawn on a bank designated by the TSEC or by cash in accordance with Article 109, paragraph 4 of the TSEC Operating Rules, except that in such cases the portion with respect to the promissory note is calculated as zero.
4     The securities borrowed shall be returned on a daily basis starting from the next business day following the lending date.
    After it has borrowed securities, a borrowing securities firm shall within the required or agreed time limit buy in or supplement securities for the purpose of returning the securities borrowed, and until it has fully bought in or supplemented the securities, shall reborrow securities on each successive business day to meet the requirement to return the securities under the preceding paragraph.
    A securities firm may, by 6 pm on the T+1 day, or by 10 am on the next business day following the reborrowing day, as the case may be, apply to satisfy a requirement for additional cash collateral for securities borrowing or for covering of a cash collateral shortfall arising from securities reborrowing, by a bank guarantee or by creating a pledge of book-entry central government bonds (hereinafter collectively referred to as "non-cash collateral"), and by 10 am on the next business day following the application date, submit to the TSEC Clearing Department the original bank letter of guarantee or the supporting documentation for the pledge of book-entry central government bonds.
    The securities the borrowing securities firm buys in or supplements within the required or agreed time limit shall be returned through the central securities depository; upon notification from the central securities depository advising that the returned securities have been successfully transferred by book-entry, the TSEC will pay the lender the securities lending fee out of the collateral to be returned, through the securities firm of the lender, and refund to the borrowing securities firm the balance of the collateral remaining after deduction of the securities lending fee, or notify it to withdraw the non-cash collateral.
    Where a borrowing securities firm provides non-cash collateral to satisfy the requirement for cash collateral or for covering a cash collateral shortfall arising from securities reborrowing, if the cash portion of the total collateral deposited is insufficient to cover the daily deduction of securities lending fee, it shall transfer on a daily basis the amount of the securities lending fee to a TSEC-designated account, which amount to be forwarded by the TSEC to the lender through the lender's securities firm.
    The securities firm of the lender shall advise the lender of the status of the securities lent and returned, and may charge the lender a service fee at a rate of not more than 10 percent of the securities lending fee.
    The bank guarantees provided may only be denominated in New Taiwan Dollars and only in thousands of dollars.
5     The TSEC reserves the right to reject an application by a securities firm to use a guarantee of a specified bank to cover the cash collateral required for a securities borrowing transaction or any collateral shortfall arising therefrom or as replacement of non-cash collateral. The TSEC shall also have the right to notify the securities firm to replace its posted non-cash collateral within two business days.
    A securities firm intending to apply to use a guarantee of a specified bank to cover the cash collateral required for a securities borrowing transaction or any collateral shortfall arising therefrom or as replacement of non-cash collateral, shall confirm with the TSEC Clearing Department whether such guarantee is acceptable before it submits the application on the T+1 day, reborrowing date, or the business day preceding the scheduled replacement date, as the case may be.
6     A securities firm providing pledged book-entry central government bonds as part of the cash collateral required shall first carry out restricted transfer registration with the clearing bank, and then transfer the bonds to the clearing bank book-entry central government bond account designated by the TSEC.
    The posted book-entry central government bonds shall be valued at 90 percent of their face value.
7     A securities firm may use multiple bank guarantee letters or multiple types of book-entry central government bonds together to serve as non-cash collateral for a single securities borrowing transaction, or use a single bank guarantee letter or a single book-entry central government bond to serve as non-cash collateral for multiple securities borrowing transactions.
    The maturity date of a bank letter of guarantee or book-entry central government bond, or in a case where multiple bank guarantee letters or multiple book-entry central government bonds with different maturity dates are used to serve as non-cash collateral for a single securities borrowing transaction, the earliest maturity date, shall extend beyond the date for return of the borrowed securities.
8     Application to reclaim cash collateral or non-cash collateral
    The cash collateral or non-cash collateral that a securities firm applies to reclaim upon return of the borrowed securities will be returned only when the TSEC has confirmed the receipt of any and all fees payable by the securities firm with respect to the securities borrowing transaction. The TSEC will, upon application by the securities firm, prepare all statements in relation to the return of cash collateral or non-cash collateral, and thereafter return the same as follows:
  1. In the case of cash collateral, the collateral will transferred on the next business day directly into the securities firm's bank account.
  2. In the case of a bank guarantee, the original guarantee documentation will be returned to the securities firm on the next business day.
  3. In the case of book-entry central government bonds, registration of cancellation of the pledge will be made on the current day or on the next business day, and the bonds will be transferred, after cancellation by the clearing bank of the restricted transfer registration, into the clearing bank book-entry central government bond account designated by the securities firm.
9     Disposition of non-cash collateral
    The prices needed for, and any and all expenses incurred in, the buy-in of securities in the market duly effected by the TSEC for the purpose of returning the borrowed securities shall first be paid out of the cash collateral, and in the event of any shortfall, and where the shortfall is not covered within the time limit specified by the TSEC, the TSEC will then dispose of the posted non-cash collateral or otherwise exercise rights to seek repayment or to cover necessary payments in accordance with following the procedures:
  1. In the case of a bank guarantee used as non-cash collateral, the TSEC will seek recovery directly from the guaranteeing bank.
  2. In the case of book-entry central government bonds pledged as collateral, the TSEC will dispose of the bonds through the Taiwan Stock Exchange Corporation Account for Events of Default it maintains with a securities firm.
  3. All expenses arising from or in connection with the disposition of the non-cash collateral shall be the sole responsibility of the borrowing securities firm.
  4. The proceeds from the disposition of the non-cash collateral, after deducting the outstanding amount, will be returned to the borrowing securities firm; if the proceeds of the disposition are insufficient to cover the outstanding amount, the TSEC will then seek recovery from the securities firm for the insufficient amount.