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Title: Taipei Exchange Securities Borrowing and Lending Rules
Date: 2017.04.06 ( Amended )

Article Content

 
Chapter I Securities Firms
Article 1     These Rules are adopted pursuant to Article 7 of the Regulations Governing Securities Finance Enterprises and Article 86-1 of the Taipei Exchange Rules Governing Securities Trading on the TPEx ("Securities Trading Rules").
Article 2     A sell-side securities firm participant of the automated trade matching system that does not have sufficient securities in its custodial book-entry account to meet its settlement obligations shall apply to borrow the securities by 10 a.m. on the second business day after the transaction date. If the securities firm fails to apply to borrow securities and also fails to complete delivery of the securities, the TPEx will borrow securities on behalf of the securities firm after 11 a.m. and will notify the securities firm on the same day. The securities lending fees incurred will be borne by the given securities firm, which shall have no recourse with respect to their payment.
Article 3     By 11 a.m. on the second business day after the transaction date, the borrowing securities firm shall remit into a TPEx-designated account an amount of cash collateral for the borrowed securities equaling 120 percent of the borrowing volume applied for multiplied by the previous day's closing price of the security. If there was no closing price on the previous business day, a price determined in accordance with Article 57-1 of the Securities Trading Rules shall be used for the calculation.
    The provision of the preceding paragraph for payment of the cash collateral applies mutatis mutandis to any sell-side securities firm on whose behalf the TPEx has borrowed securities or has issued a securities delivery voucher temporarily in lieu of settlement.
    If the borrowing securities firm fails to submit cash collateral or provide non-cash collateral for the securities borrowed by 11 a.m. on the borrowing date, the TPEx may temporarily retain any amounts payable during that settlement period or a portion of securities of equivalent value.
Article 4     The securities lent shall be restricted to TPEx-listed securities shown on deposit in central securities depository accounts. An owner who wishes to lend securities shall fill out a securities lending order to instruct its securities firm or custodian institution to enter the relevant information for a securities lending quote into the computerized securities borrowing and lending system. The securities owner may change or cancel the quote at any time before the lending transaction is executed.
    The securities lending order of the preceding paragraph shall specify the name and quantity of securities to be lent and the quoted lending rate, and shall be in the format prescribed by the TPEx.
    The quantity of securities under the preceding paragraph shall be quoted on a per trading unit basis, and the lending rate shall be no more than 7 percent of the last trade price of the securities in the automated trade matching system.
    In the event that an ex-rights or ex-dividend date occurs within the term of the securities loan, the borrowing securities firm shall compensate lenders in cash for rights or dividend value of the securities, as calculated by the TPEx.
Article 5     When securities are borrowed for settlement needs, borrowing will proceed in ascending order from the lowest lending rates quoted by the lenders through the computerized securities borrowing and lending system to the highest. If the volume of securities quoted at a certain rate exceeds the number needed for settlement, the computer will match those orders at random.
    The securities borrowing fees incurred on a given security shall be shared by all securities firms borrowing that security, prorated according to their respective borrowing quantities.
Article 6      A sell-side securities firm that has borrowed securities pursuant to Article 2 shall begin to return the securities on a daily transaction-by-transaction basis from the first business day following the borrowing transaction. Until it has returned the securities in full, it shall continue to reborrow securities for the return of the securities pursuant to the preceding paragraph.
     The borrowing securities firm shall complete the return of securities by 10 a.m. on a given business day. If the return of securities is not completed by that time, then the TPEx, after 11 a.m. on the same day, will execute reborrowing of securities for the account of the securities firm, unless the securities firm has purchased securities on the TPEx exchange market and has submitted an application by 10 a.m. and received verification for a same-day return of the securities.
    After notification from the central securities depository that the securities have been returned by account transfer, and after application by the borrowing securities firm, the TPEx will pay the securities lending fee to the securities lender by transfer through the lender's securities firm, after deducting it from the cash securities borrowing collateral that is to be returned. It will then refund to the borrowing securities firm the balance of the cash collateral remaining after deduction of the securities lending fee, or notify it to withdraw its non-cash collateral.
    The securities firm of the lender shall notify the lender of the status of the loan and return of the securities, and may charge the lender a service fee at a rate of not more than 10 percent of the securities lending fee.
Article 7     On the day on which the sell-side securities firm is required to reborrow securities, due to having borrowed securities to perform its settlement obligations and not yet returned them, if the remaining balance of the securities borrowing collateral less lending fees already incurred is lower than 107 percent of the outstanding balance of the borrowed securities multiplied by the preceding business day's closing price, then by 11 a.m. on the reborrowing date, the securities firm shall supplement the collateral to 114 percent of the outstanding balance of the borrowed securities multiplied by the closing price of the securities on the preceding business day. If no closing price is available for the preceding business day, a price determined in accordance with Article 57-1 of the Securities Trading Rules shall be used for the calculation.
     If the borrowing securities firm fails to deposit the securities borrowing collateral as required, or is unable to return the borrowed securities for a cause attributable to itself, the TPEx will make a purchase of the given securities in the market and return them to the lender. The purchase price and all expenses incurred will first be paid out of the remaining balance of the securities borrowing collateral, and if there is a shortfall, it will be recovered from the borrowing securities firm. Any remaining balance will then be refunded to the borrowing securities firm.
    Paragraphs 1 and 2 apply mutatis mutandis to any sell-side securities firm on whose behalf the TPEx has borrowed securities or has issued a securities delivery voucher temporarily in lieu of settlement.
    The TPEx will suspend a securities firm's participation in securities borrowing and lending activities if it is found to have defaulted on its settlement obligations.
Article 7-1     A Borrowing securities firm may use a bank guarantee or create a pledge on book-entry central government bonds (collectively, "non-cash collateral") to provide non-cash securities borrowing collateral or to cover a shortfall in securities borrowing collateral that occurs due to securities reborrowing.
     When the cash portion of the securities borrowing collateral provided by a borrowing securities firm that remains after deduction of lending fees incurred from its total securities borrowing collateral is insufficient to cover the daily deduction of securities lending fees, the securities firm shall make a daily remittance of securities lending fees into a TPEx-designated account, which the TPEx will then forward for payment to the lender through the lender's securities firm.
Article 7-2      If a borrowing securities firm provides a bank guarantee as non-cash collateral to cover a shortfall in securities borrowing collateral that occurs when securities are reborrowed or to replace non-cash collateral, it shall first complete the guarantee procedures with the bank, and submit the original letter of guarantee to the TPEx by 11 a.m. on the date of the securities borrowing or reborrowing.
    The TPEx may refuse to accept the bank guarantee from the securities firm, or demand that the guarantee be replaced within a specified period of time.
    The bank guarantee may be denominated only in New Taiwan Dollars (NTD), and shall be in units of thousands of NTD.
Article 7-3     If a borrowing securities firm creates a pledge on book-entry central government bonds to serve as non-cash collateral, to cover a shortfall in securities borrowing collateral that occurs when securities are reborrowed, or to replace non-cash collateral, it shall first establish a restrictive transfer registration on the bonds with the clearing bank and shall transfer the bonds to the TPEx book-entry central government bond account by 11 a.m. on the date of the securities borrowing or reborrowing.
    The value of book-entry central government bonds as non-cash collateral shall be 90 percent of their face value.
Article 7-4     A borrowing securities firm may use one or more book-entry central government bonds or bank guarantees as non-cash collateral for one or more securities borrowings.
    The maturity date of the bank guarantee or book-entry central government bond shall extend beyond the return date for the securities borrowing transaction. When multiple bank guarantees or book-entry central government bonds with different maturity dates are used concurrently as non-cash collateral for a single securities borrowing transaction, the earliest maturity date among them shall extend beyond the return date for the securities borrowing transaction.
Article 7-5     If the borrowing securities firm applies for a return of the securities borrowing cash collateral or non-cash collateral pursuant to Article 6, paragraph 3, the TPEx, after confirming its receipt of the lending fees payable by the borrowing firm, will return the collateral in the following manner:
  1. Cash collateral: By remittance into the securities firm's bank account.
  2. Bank guarantee: By return of the original letter of guarantee to the securities firm.
  3. Book-entry central government bonds: The TPEx will cancel the registration of pledge of the bonds, and the restricted transfer registration will be canceled by the clearing bank, after which they will be transferred into the securities firm's central government bond account at the securities firm's designated clearing bank.
Article 7-6     The purchase prices and all expenses required for the purchase of securities in the market by the TPEx for returning the borrowed securities pursuant to Article 7, paragraph 2 shall first be paid out of the cash portion of the securities firm's securities borrowing collateral, and if there is a shortfall, the TPEx will then dispose of the securities firm's non-cash collateral or will otherwise exercise its rights to obtain compensation or to make the necessary payments. Procedures for disposing of the non-cash collateral are as follows:
  1. When a bank guarantee is used as collateral, the TPEx will seek recovery directly from the guaranteeing bank.
  2. When book-entry central government bonds are pledged as collateral, the TPEx will dispose of the bonds through the Taipei Exchange Account for Events of Default it maintains with a securities firm.
  3. All expenses incurred in relation to the disposal of cash collateral shall be borne by the borrowing securities firm.
  4. The balance remaining after deducting the amount in arrears from the proceeds of disposition of the non-cash collateral shall be returned to the borrowing securities firm. If the proceeds of the disposition are insufficient to cover the amount in arrears, the TPEx shall seek recovery from the securities firm.
Chapter II Securities Finance Enterprises
Article 8      If a shortfall occurs in a security due to a securities finance enterprise's operation of margin purchase and short sale business or securities borrowing and lending business or refinancing business (hereinafter, "shortfall in securities in margin and short trading"), or, if the securities finance enterprise is engaged by a securities firm to handle on its behalf any open position that still remains after sell-first buy-later day trading (hereinafter, "shortfall in securities in day trading"), the securities finance enterprise shall initiate a competitive bid loan from the following lenders from 9 a.m. on the next business day, and if a shortfall still exists, shall arrange for a negotiated transaction with specified persons no later than 2 p.m. on the same day:
  1. owners of that type of securities.
  2. securities firms or securities finance enterprises operating securities borrowing and lending business or margin purchase and short sale business.
    With the exception of a shortfall in securities day trading, if the amount of securities acquired by the procedures of the preceding paragraph still falls short of the needed quantity, the securities finance enterprise shall engage a securities firm to purchase shares by reverse auction at the TPEx by 2:30 p.m. on the same business day.
    Any borrowing of securities through competitive bidding and negotiated lending and any purchasing of securities by reverse auction under the preceding two paragraphs shall be suspended for a given security on the second business day preceding the first day of a book closure, except when book closure occurs due to the convening of a special shareholders meeting by the issuer or for reasons that do not affect the exercise of shareholder rights.
     The calculation of the business day referred to in the preceding paragraph shall be in accordance with Article 76 of the Operating Rules for Securities Firms Handling Margin Purchases and Short Sales of Securities.
Article 9     When a securities finance enterprise borrows securities through competitive bidding, after submitting an application to the TPEx, a staff member of the securities finance enterprise shall separately enter, for shortfalls in securities in margin and short trading and for shortfalls in securities in day trading respectively, the type of securities to be borrowed, the quantity, time, and the highest acceptable rate for the borrowed security, into the TPEx competitive bid loan system by 9 a.m. on the date of application for the competitive bid loan. The TPEx will, according to the aggregate quantity of each type of securities to be borrowed through competitive bid, publicly announce the information through its information system from 9 a.m. onwards.
    The highest price for securities borrowing through competitive bids under the preceding paragraph may not be higher than 7 percent of the benchmark price of the security at market opening on the competitive bid application date. The securities will be borrowed in ascending order of price based on the competitive bids of the given day. If the total quantity of shares offered at a particular lending rate exceeds the quantity needed to complete the borrowing by competitive bid, the securities will be borrowed in order based on the time at which the bids at that rate were entered.
Article 10      A lender referred to in Article 8, paragraph 1, subparagraph 1 wishing to participate in competitive bidding for a securities loan shall fill out a bid order and submit it through a securities firm. If the order is submitted in person, the securities owner shall fill out and sign or seal the bid order; if it is submitted over the telephone, the securities broker shall record the telephone conversation in compliance with Article 62, paragraphs 5 to 7 of the TPEx Securities Trading Rules, and the bid order shall be completed by an associated person that handles brokerage business. For any other bid order that is placed in a transaction mode listed in Article 62, paragraph 2 or 8 of the TPEx Securities Trading Rules, the bid order shall be made in accordance with the relevant operating procedures.
     A lender referred to in Article 8, paragraph 1, subparagraph 2 wishing to participate in competitive bidding for a securities loan shall fill out a bid order and enter the bid order information in the TPEx competitive bid loan system.
     Bid orders referred to in the preceding two paragraphs shall specify the name, name of the dedicated account, brokerage account number, and securities borrowing and lending account number or margin purchase and short sale account number, of the lender in Article 8, paragraph 1, as well as the name of the security, lending quantity, and lending rate. The securities offered for participation in the competitive bid may only be securities on deposit in a custody account at the central securities depository. When a securities firm accepts a bid order request from a lender referred to in Article 8, paragraph 1, subparagraph 1, or when a lender referred to in Article 8, paragraph 1, subparagraph 2 participates in competitive bidding for its own account, the securities firm shall earmark the lendable securities (except those already lent on the previous business day), and shall record the time and serial number on the bid order, and enter the information on the bid order in sequence into the TPEx competitive bid loan system.
     The timeframe for entering the information under the preceding paragraph will begin at 9 a.m. and end at 12:10 p.m. on the competitive bid loan application date, and all bids will be opened automatically at 12:30 p.m. After opening of the bids, the TPEx will publish the lending rates and number of shares of the winning bids on the Market Information System.
    The order confirmation and winning bid confirmation of a lender in Article 8, paragraph 1, subparagraph 1 in relation to the competitive bid loan will be printed out through the printer at the securities firm handling the bid order. The confirmations and winning bid confirmations of lenders in Article 8, paragraph 1, subparagraph 2 in relation to the competitive bid loan will be printed out through the printers of the respective companies. The TPEx will provide an inquiry function for winning bids from 2 p.m.
Article 11     By 2 p.m. on the competitive bid loan application date, the securities finance enterprise must submit cash collateral to the TPEx totaling 120 percent of the number of shares of the winning bid multiplied by the closing price of the security on that day. If there is no closing price for that security, a reference price will be calculated based on the order of priority below:
  1. If the automated trade matching system shows no transaction records for the given day but there are records of buy or sell quotes for the security at the close of trading hours, then the reference price shall be the highest outstanding buy quote, if that buy quote is above the opening benchmark price, or the lowest outstanding sell quote, if that sell quote is below the opening benchmark price.
  2. The opening benchmark price in the automated trade matching system for the given day.
    Upon delivery of cash collateral by the securities finance enterprise, TPEx will notify the central securities depository to transfer the securities of the winning bids to the securities finance enterprise's dedicated account at the central securities depository on the business day following the competitive bid loan application date (the lending date).
    In lieu of the cash collateral of the preceding paragraph, certificates of deposit or pledged book-entry central government bonds may be submitted as non-cash collateral, and will be valued at 90 percent of their face value; bank guarantees may also be submitted for the same purpose.
     With respect to the bank guarantees of the preceding paragraph, the securities finance enterprise shall submit the original copy of the guarantee to the TPEx after completing guarantee procedures with a bank. The TPEx may refuse to accept the bank guarantee provided by the securities finance enterprise or demand that it replace the guarantee within a specified period of time. The bank guarantee may be denominated only in New Taiwan Dollars (NTD), and shall be in units of thousands of NTD.
    The lent securities shall be returned to the lender through the central securities depository on the first business day following the lending date. However, for securities borrowed by competitive bid loan on the first settlement date for the last trading day before the Lunar New Year holiday, the securities shall be returned on the second trading day after the Lunar New Year holiday.
    By 10 a.m. on the first business day following the lending date, the securities finance enterprise shall pay the securities lending fee (securities lending fee = lending rate x quantity) to a lender in Article 8, paragraph 1, subparagraph 1 through the lender's securities firm, or to a lender in Article 8, paragraph 1, subparagraph 2 directly, and the TPEx will return the cash collateral to the securities finance enterprise.
    The securities firm of the lender may charge the lender a service fee at a rate of not more than 10 percent of the lending fee.
Article 12     If a securities finance enterprise is unable to return the securities lent by a lender when due, the TPEx will purchase securities from the market using the cash collateral and return them to the lender. The prices of the securities bought and the processing fees incurred by the TPEx as a result, and all charges payable to the TPEx by the securities finance enterprise in connection with the competitive bid loan, will be paid from the cash collateral provided by the securities finance enterprise. Any remaining cash will be returned to the securities finance enterprise, provided that if the cash collateral is insufficient to purchase the full amount of the securities, the TPEx will instead deliver the cash collateral to the lender.
     If the securities finance enterprise of the preceding paragraph pledges book-entry central government bonds in lieu of cash collateral, it may neither refuse nor object to any disposition of the pledge that is made by the TPEx in accordance with the letter of consent (see Appendix) it provided. In the case of a bank guarantee provided as non-cash collateral, the TPEx may seek recovery directly from the guaranteeing bank.

    Letter of Consent

     Whereas the Company has undertaken to obtain securities through a competitive bid loan in accordance with the Taipei Exchange Securities Borrowing and Lending Rules, the Company agrees that any book-entry central government bonds it has pledged as non-cash collateral may be disposed by the TPEx in the event that the Company is unable to return the securities to the lender on the due date for return, and that the Company shall have no recourse with respect to either the method or the price under which they are disposed.

    Submitted to

    The Taipei Exchange

    The Company:

    Responsible Person:

    Date: ______________ (Year/Month/Day)
Article 13     When two or more securities finance enterprises apply for competitive bid loans for the same type of security, a single competitive bid will be held for the total number of securities to be borrowed. After calculation of an average lending fee based on the total quantity of the winning bids, the lending fee will be apportioned among the participating securities finance enterprises according to the quantities of the winning bids of each securities finance enterprise.
    If insufficient securities are obtained by competitive bidding under the preceding paragraph, then the amount borrowed through the auction will be prorated among the participants to the nearest trading unit based on the quantities of the shortfalls in securities in margin and short trading specified in each enterprise's application. Any remaining quantity will be further distributed to the securities finance enterprises in order by the size of the decimal numbers of their respective distributable quantities, and then by the drawing of lots if more than one securities finance enterprise has the same decimal quantity. If any quantity still remains thereafter, it will distributed pro rata according to the quantity of the shortfall in securities in day trading specified in each securities finance enterprise's application and in accordance with the above principles.
Article 14      When a securities finance enterprise borrows a security through a negotiated lending transaction, the transaction rate is limited to no more than 10 percent of the benchmark price for the security at market opening on the date of the negotiated transaction, and priority of distribution of the quantity obtained through the negotiated transaction shall be given to shortfalls in securities in margin and short trading.
    Negotiated lending shall be conducted in the following manner, unless there is a necessary reason to do otherwise:
  1. A lender in Article 8, paragraph 1, subparagraph 1 wishing to participate in a negotiated lending transaction may engage a securities firm to carry out the transaction. If transacting through the securities firm in person, the securities owner shall fill out and sign or seal a negotiated lending order. If the lending order is submitted over the telephone, the securities broker shall record the telephone conversation in compliance with Article 62, paragraphs 5 to 7 of the TPEx Securities Trading Rules, and the lending order shall be completed by an associated person handling brokerage trading business. For any other that is placed in a transaction mode listed in Article 62, paragraph 2 or 8 of the TPEx Securities Trading Rules, the negotiated lending order shall be made in accordance with the relevant operating procedures.
  2. A lender in Article 8, paragraph 1, subparagraph 2 shall fill out a negotiated lending order and conduct the negotiated lending transaction with a securities finance enterprise.
  3. The negotiated lending order in the preceding subparagraph shall specify the name, name of the dedicated account, brokerage account number, and securities borrowing and lending account number or margin purchase and short sale account number of the lender in Article 8, paragraph 1, as well as the name , quantity, and rate of the securities to be lent.
  4. The securities offered for participation in the negotiated transaction may only be securities the lender has deposited in a custody account at the central securities depository. When a securities broker receives the lending order from a lender in Article 8, paragraph 1, subparagraph 1, or when a lender in Article 8, paragraph 1, subparagraph 2 participates in a negotiated lending transaction, the lendable securities shall be earmarked (excluding securities lent out on the previous business day).
  5. Upon conclusion of the lending negotiation, the securities finance enterprise shall separately enter, for shortfalls in securities in margin and short trading and for shortfalls in securities in day trading respectively, the lender's name, name of the dedicated account, brokerage account number, securities borrowing and lending account number or margin purchase and short sale account number, as well as the name, the quantity, and the rate of the security lent into the TPEx's lending negotiation system by 2 p.m. on the same day, and fax the information to TPEx along with details of the earmarked securities. Following TPEx confirmation, the TPEx will notify the central securities depository to transfer lenders' securities to the securities finance enterprise's dedicated account on the following business day.
  6. The amount of cash collateral to be submitted will be negotiated between the securities finance enterprise and a lender in Article 8, paragraph 1, subparagraph 1 through the lender's securities firm, or between the securities finance enterprise and a lender in Article 8, paragraph 1, subparagraph 2 directly.
  7. The securities lent by the lender shall be returned through the central securities depository on the second business day following the date of the lending negotiation.
  8. The securities finance enterprise will pay the securities lending fee (securities lending fee = agreed lending rate x quantity) to, and reclaim the cash collateral from, a lender in Article 8, paragraph 1, subparagraph 1 through the lender's securities firm, or a lender in Article 8, paragraph 1, subparagraph 2 directly, by 10 a.m. on the second business day following the date of the negotiated transaction.
     The securities firm engaged by the lender may charge the lender a service fee at a rate of not more than 10 percent of the lending fee.
Article 15      If during the period a securities finance enterprise is borrowing securities needed to cover a shortfall with respect to a short sale, a securities firm also applies for refinancing of that security from the securities finance enterprise, the securities finance enterprise's allocation of the shares of that security it has obtained from borrowing through competitive bidding or negotiated lending transactions shall comply with the Operating Rules for Securities Finance Enterprises Offering Refinancing to Securities Firms.
     When a securities finance enterprise accepts to conduct on behalf of a securities firm a competitive bid loan or negotiated transaction with respect to a shortfall in securities in day trading, the securities finance enterprise shall allocate the securities it so obtains in accordance with the applicable regulations governing securities finance enterprises. The securities finance enterprise shall transfer the securities to the securities firm's special account for handling shortfalls in securities deliverable in day trading by 6 p.m. through the TPEx Platform for Reporting Shortfalls in Securities Deliverable in Day Trading. The subsequent return of the securities shall be made through the central securities depository.
Article 16     Securities will be prohibited from participation in a competitive bid loan or negotiated loan under any of the following circumstances:
  1. The securities are in a quantity of less than one trading unit.
  2. The securities are registered shares issued to and acquired by shareholders or capital contributors in connection with a capital increase out of earnings, or capital increase through capital contribution by company employees from their bonuses to the industry they serve, or a capital increase by a venture capital company out of undistributed earnings, as effected in accordance with Article 13 of the Act for Encouragement of Investment or Article 16 or 17 of the Act for Upgrading Industries, and the shares have not been transferred and reported for tax purposes or the tax deferral option has not been waived.
    A lender shall warrant that securities lent are free of all liens, claims, and encumbrances of any nature. If the securities are defective or the subject of legal dispute, the securities owner shall provide replacements of the same type and quantity upon notification by the securities finance enterprise, otherwise the owner will be required to return any lending fees received and will be responsible for compensating any losses caused as a result.
Article 17     These Rules, and any amendments hereto, shall be implemented following submission to and approval by the competent authority.