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1     These Guidelines are promulgated pursuant to the provisions of Article 11, Paragraph 3 of the Regulations Governing Securities Investment Trust Funds ("the Regulations").
2     The term "futures" or "options" as used in these Guidelines refers to futures contracts, options contracts, or futures options contracts that derive their value from marketable securities and which the Securities and Futures Commission ("SFC") of the Ministry of Finance has announced, in accordance with Article 5 of the Futures Trading Law, may be accepted by futures commission merchants for consigned trading.
    The term "available assets" refers to assets remaining after deduction of the total market value of investments in marketable securities from the net total assets of the securities investment trust fund.
3     As required to hedge against risk or to increase investment efficiency, a securities investment trust enterprise may utilize securities investment trust funds to engage in futures or options trading, in accordance with the following provisions:
  1. It may utilize securities investment trust funds of the types investing in domestic, foreign, or domestic and foreign stocks and balanced securities to trade, in the capacity of a trader, in futures or options derived from stock price indices, stocks, depository receipts, or exchanged-traded funds (ETFs). Securities investment trust funds that are balanced funds or bond funds may, in the capacity of a trader, trade in futures or options that are derived from interest rates.
  2. Whether an individual securities investment trust fund may engage in futures or options trading shall be as stipulated in the trust contract of each securities investment trust fund. Securities investment trust enterprises shall appoint an individual possessing relevant trading knowledge or experience to be specifically in charge of determining and executing trading policy. The fund manager shall in addition receive six hours or more of pre-service and on-the-job training courses in legal and practice issues as they related to futures and options.
  3. A securities investment trust enterprise that utilizes securities investment trust funds to engage in futures or options trading shall, in its internal control system, prescribe control measures and accounting procedures for employment of the funds in the aforementioned trading, and, after they have been approved by the board of directors, submit them by letter to the SFC for its records. The same procedure shall apply to any amendments thereto.
  4. The internal auditors of a securities investment trust enterprise shall at definite intervals determine the suitability of the internal controls on futures and options trading and conduct monthly audits of the trading department's procedural compliance in its use of securities investment trust funds to engage in related trading, and prepare audit reports to be placed on file for possible inspection.
  5. A securities investment trust enterprise utilizing securities investment trust funds for trading of futures or options shall consign the trading for execution by a futures commission merchant approved by the SFC, and shall instruct a custodial institution to carry out clearance, settlement, or exercise of the option.
  6. A securities investment trust enterprise may engage a qualified futures commission merchant with an interest in the enterprise or the custodial institution to undertake futures or options trading on its behalf, provided that the commission paid to the futures commission merchant may not be higher than those paid to the average futures commission merchant.

4     A securities investment trust enterprise utilizing domestically-invested securities investment trust funds may engage in trading of Taiwan Futures Exchange futures or options, and shall abide by the following rules:
  1. . The total market value of non-offset long position futures contracts held by a securities investment trust fund on any given business day plus the total value of the premium on the call options purchased and the total value of the strike price on the put options written, multiplied by the contract multiplier or the contract units, may not exceed 15 percent of the fund's net asset value, and may not exceed the net asset value of the fund after deduction of the minimum liquidity ratio prescribed under Article 15 of the Regulations.
  2. . The total amount invested by a securities investment trust fund each business day in securities issued by any one company plus the strike prices on the call options purchased on that company's stocks and the put options written on that company's stocks multiplied by the total amount of contract units may not exceed ten percent of the funds' net asset value.
  3. . The total market value of non-offset short positions in futures contracts held on any day by a securities investment trust fund plus the strike prices on put options purchased and call options written multiplied by the contract multiplier or the contract units may not exceed the total market value of the corresponding securities held by that fund. The term "corresponding securities" means securities having a high degree of relationship with the price of the underlying securities of the futures contracts or option contracts, or the underlying stock of a stock option.
  4. . The total premium amount in any business day for non-offset options contracts purchased on an individual securities investment trust fund may not exceed five percent of the net total asset value of the fund.
  5. . The liquidity ratio of a securities investment trust fund after deduction of the guaranty or premium on non-offset positions in futures contracts and options contracts paid in accordance with regulations may not be lower than the minimum ratio to be maintained pursuant to Article 15 of the Regulations.

5     A securities investment trust enterprise utilizing a securities investment trust fund invested in foreign securities may engage in hedge transactions in the futures or options of a foreign futures exchange, and shall observe the following regulations:
  1. The total market value of non-offset short-position futures contracts held on a given day by a securities investment trust fund, plus the strike price on put options purchased and call options written, multiplied by the contract multiplier or the total amount of contract units may not exceed 15 percent of the market value of the corresponding securities held by the fund.
  2. The total amount of the premium for a securities investment trust fund's non-offset call options may not exceed five percent of the net worth of the fund.
  3. The minimum liquidity ratio of a securities investment trust fund after deduction of the guaranty or premium paid in accordance with regulations for non-offset futures contracts and options contracts may not be lower than the minimum ratio to be maintained pursuant to Article 15 of the Regulations.
  4. A securities investment trust fund trading in the futures or options of a foreign futures exchange shall be restricted to foreign financial instrument derivatives, and may not engage in trading of futures or options in which the underlying securities are Taiwan securities, baskets of securities, or stock indexes.

6     A securities investment trust enterprise utilizing a securities investment trust fund invested in domestic and foreign securities may engage in trading of Taiwan Futures Exchange futures and options and hedging transactions in the futures and options of a foreign futures exchange, and shall observe the following regulations:
  1. Taiwan Futures Exchange futures and options trading:
    1. For a securities investment trust fund in which the securities investment trust agreement stipulates a ceiling on the ratio of investment in domestic securities, the total market value of non-offset long-position futures contracts held by the fund on any given day, plus the strike price on call options purchased and put options written multiplied by the contract multiplier or the total amount of contract units, may not exceed 15 percent of the highest ratio of investment in domestic securities allowed under the securities investment trust agreement, and also may not exceed the amount of available assets of the fund after deduction of the minimum liquidity ratio to be maintained in accordance with Article 15 of the Regulations; at the same time, the total value of domestic securities held, plus the total market value of non-offset long-position futures contracts held plus the strike prices on call options purchased and put options written multiplied by the contract multiplier or the amount of contract units, may not exceed the highest ratio of investment in domestic securities allowed under the securities investment trust agreement. Securities investment trust funds for which the securities investment trust agreement does not stipulate a ceiling on the ratio of investment in domestic securities may not hold non-offset long-position futures contracts, purchase call options, or write put options.
    2. The total market value of non-offset short-position futures contracts held on a given day by a securities investment trust fund (whether or not the securities investment trust agreement stipulates a ceiling on the ratio of investment in domestic securities) plus the strike price on put options purchased and call options written multiplied by the contract multiplier or the total amount of contract units, may not exceed the total market value of the corresponding securities held by the fund. The term "corresponding securities" means securities having a high degree of relationship to the price of the underlying security of the futures or options contracts, or the underlying stock of the stock options.
    3. The total amount of investment by a securities investment futures fund on any given day in the stock issued by any single company, plus the strike prices on the call options purchased and the put options written on the given company's stock multiplied by the total amount of contract units, may not exceed ten percent of the total net worth of the fund.
  2. Futures and options hedging transactions on a foreign futures exchange:
    1. The total market value of non-offset short positions in futures contracts held on any given day by a securities investment trust fund plus the total amount of strike prices on put options purchased and call options written multiplied by the contract multiplier or the contract units may not exceed 15 percent of the total market value of the corresponding securities held by that fund. The term "corresponding securities" refers to securities that are closely related to the price of the underlying securities of the futures contracts or options contracts, or to the underlying stock or depository receipt of a stock option.
    2. A securities investment trust fund engaging in trading of futures or options on a foreign futures exchange shall be restricted to trading in foreign financial instrument derivatives, and may not engage in trading of futures or options in which the underlyings are Taiwan securities, baskets of securities, or stock indexes.
  3. The total premium amount in any given business day for non-offset options contracts purchased by an individual securities investment trust fund may not exceed five percent of the net total asset value of the fund.
  4. The liquidity ratio of a securities investment trust fund after deduction of the guaranty or premium on non-offset positions in futures contracts and options contracts paid in accordance with regulations may not be lower than the minimum ratio to be maintained pursuant to Article 15 of the Regulations.
7     A securities investment trust enterprise shall observe the following procedures in utilizing securities investment trust funds to engage in trading of securities-related products:
  1. Four steps shall be taken in trading: analysis of trades, decision-making, execution of trades, and post-trade evaluation. The content of each step shall be formulated by each securities investment trust enterprise according to these Guidelines and implemented by resolution of the enterprise's board of directors.
  2. The documentation required with respect to the four steps of analysis, decision-making, execution of trades, and post-trade evaluation, and the responsibilities of securities investment trust enterprise employees in trading shall be as follows:
    1. Trade analysis: The report on trading of securities-related products shall specify the reason for the trade, the projected price of the trade, the long (or short) direction, the month, number, time of contracts, and the stop-loss points and sell targets, and shall describe in detail the analytical foundation, basis, and recommendations. This step shall be jointly undertaken by the author of the securities-related products trading report, the fund manager (or department head), and the general manager.
    2. Trade decisions: The fund manager prepares a written trade decision based on the contents of the securities-related products trading report and submits it for execution. The content of the trade decision shall specify particulars such as trade prices, long (or short) directions, the month, number, and time of contracts, and the stop-loss points and sell targets. The fund manager and general manager are responsible for this step.
    3. Trade execution: The trader executes trades based upon the contents of the trade decision and prepares a trade execution record. The content of the trade execution record shall specify particulars such as the actual transaction price, long (or short) direction, the month, number, and time of contracts and any discrepancies between the trade decision and the trade execution record and reasons for those discrepancies. The trader, fund manager and general manager are responsible for this step.
    4. Post-trade evaluation: The writer of the report, the fund manager (or department head) and the general manager are responsible for the securities-related products trading post-trade evaluation report.


8     Securities investment trust enterprises shall issue a monthly public notice detailing the use of funds under their management in futures trading and, in the monthly and annual reports prepared under the provisions of Article 24 of the Regulations, shall disclose the number, contract month, guaranty amount, contract values, the unrealized profit or loss for all non-offset long positions held by the fund, and the total market value of non-offset long position futures contracts, plus the total amount of the strike price of call options purchased and put options written multiplied by the contract multiplier or the contract units for options written, expressed as a ratio of the fund's net asset value; the total amount invested in the securities issued by any one company, plus the strike prices on call options purchased and put options written on that company's stock multiplied by the contract units, expressed as a ratio of the fund's net asset value; the total market value of non-offset short-position futures contracts plus the strike price of put options purchased and call options written multiplied by the contract multiplier or contract units, expressed as a ratio of the fund's net asset value; and the total value of the premium on non-offset options purchased as a ratio of the fund's net asset value. In addition to filing monthly and yearly reports with the SFC in accordance with regulations, copies shall be sent to the Taiwan Futures Exchange.
9     Securities investment trust enterprises shall each day report to the Taiwan Futures Exchange the ratio of funds engaged in trading of securities-related products on the given day for the portfolio of each individual securities investment trust fund the enterprise manages.
10     A securities investment trust enterprise may not, in any advertising or any other business promotion activities, characterize a given securities investment trust fund as being "low risk" because it engages in hedge trading in securities-related products.
11     The prospectus for a securities investment trust fund shall specify the risks involved in trading of securities-related products.