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Article 1     These Regulations are promulgated pursuant to Article 17-1, paragraph 2 of the Taipei Exchange (TPEx) Rules Governing Securities Trading on the TPEx(the "Rules").
Article 2     Before carrying out a trade through the TPEx electronic bond trading system (EBTS), a securities firm shall deposit a bond payment settlement reserve ("Reserve") with the TPEx. Such reserves shall be administered in accordance with these Regulations. Matters on which these Regulations are silent shall be administered in accordance with the TPEx Rules or other applicable regulations.
Article 3     The head office of a securities firm shall make a lump-sum cash payment to meet the minimum Reserve requirement before the securities firm participates in EBTS trading. The securities firm may post or supplement the portion of the Reserve above the minimum requirement with cash, book entry central government bonds, and/or bank certificates of deposit.
    The minimum Reserve requirement referred to in the preceding paragraph shall be computed as follows, based upon a securities firm's business volume for outright bond trading during the most recent half year:
  1. Where a securities firm has an average daily business volume of NT$1 billion or more for outright bond trading, the minimum Reserve requirement is NT$10 million.
  2. Where a securities firm has an average daily business volume from NT$100 million to less than NT$1 billion for outright bond trading, the minimum Reserve requirement is NT$5 million.
  3. Where a securities firm has an average daily business volume of less than NT$100 million for outright bond trading, the minimum Reserve requirement is NT$1 million.
    The TPEx shall compute the minimum Reserve requirement for a securities firm by the end of each January and July, based upon its average daily business volume for outright bond trading for the immediately preceding half-year period, and notify the securities firm to adjust the amount of the already posted Reserve accordingly.     The basis of calculation of the average daily business volume for outright bond trading as referred to above, for international bonds, shall be the conversion to New Taiwan Dollars of the monthly averages of the median daily closing foreign exchange rates at foreign exchange banks designated by the TPEx for all months in the given period.
Article 4     When depositing the Reserve with or applying to withdraw it from the TPEx, a securities firm shall do so in units of NT$100,000 or integer multiples thereof.
Article 5     A securities firm depositing Reserves in book-entry central government bonds and/ or bank certificates of deposit shall so do by creating a pledge on the underlying principal amounts. The amount that is counted toward the Reserve shall be 95% of its par value at maturity.
Article 6     Reserve collected by the TPEx shall be kept in a segregated account opened at a designated bank, or in proper custody of the TPEx.
    Where a securities firm deposits the Reserve in cash, the interest accrued shall be settled by the TPEx every six months, and, after deduction of taxes and necessary expenses, be returned to the securities firm by the end of January and July.
    Where a securities firm deposits Reserve in bank certificates of deposit, the interest accrued shall be withdrawn by the securities firm after it has applied to do so.
Article 7     Where a securities firm trading bonds through the EBTS fails to fulfill settlement payment obligations on time, the TPEx, after taking the measures set out in applicable regulations, may use or dispose of the Reserve posted by the defaulting securities firm and any accrued interest to offset the price difference, breach penalty, and all expenses incurred.
    Where the defaulting securities firm referred to in the preceding paragraph has posted the Reserve by creating a pledge on book-entry central government bonds and/or bank certificates of deposit, it shall not refuse or object to how and at what price the TPEx disposes of its book entry central government bonds and/or bank certificates of deposit in exercise of the pledge rights.
Article 8     Where, after deduction of value at risk and adjustment for profit and loss on outright transactions, the Reserve posted by a securities firm is below the required minimum level, the securities firm shall remedy the deficit before 9 a.m. of the next business day.
    "Value at risk," as referred to in the preceding paragraph, is calculated as follows:
  1. For outright transactions in book-entry central government bonds, calculation of value at risk is performed using a confidence interval whose value is obtained by reference to bond price volatility over a certain period, such that at least 97.5 percent of that period's single-day price volatility range for open positions of securities firms would be covered.
  2. For outright transactions in international bonds, local government bonds, corporate bonds, and, financial bonds, value at risk is calculated at 1/1000 of the net amount of each securities firm's purchases and sales.
  3. For foreign bonds traded through the EBTS, value at risk is calculated, according to the par value of securities firms' net positions in unsettled transactions, at the following ratios:
    1. One percent of the value of bonds obtained by the securities firm that have a long-term credit rating of twAA- or above from the Taiwan Ratings Corporation, or AA- or above from Standard & Poors Corp., or AA-(twn) from Fitch Ratings Limited, Taiwan Branch, or AA- from Fitch, Inc., or AA3.tw or above from Moody's Taiwan Corporation, or AA3 or above from Moody's Investor's Service.
    2. One-eightieth of the value of bonds obtained by the securities firm that have a long-term credit rating of twA- or above from the Taiwan Ratings Corporation, or A- or above from Standard & Poors Corp., or A-(twn) from Fitch Ratings Limited, Taiwan Branch, or A- from Fitch, Inc., or A3.tw or above from Moody's Taiwan Corporation, or A3 or above from Moody's Investor's Service.
    3. One-sixtieth of the value of bonds obtained by the securities firm that have a long-term credit rating of twBBB- or above from the Taiwan Ratings Corporation, or BBB- or above from Standard & Poors Corp., or BBB-(twn) from Fitch Ratings Limited, Taiwan Branch, or BBB- from Fitch, Inc., or BBB3.tw or above from Moody's Taiwan Corporation, or BBB3 or above from Moody's Investor's Service.
  4. For repo-style trades of designated bonds, value at risk shall be calculated at 1/1000 of the balance after offsetting of the securities firm's repurchase and resale transactions.
    Value at risk for foreign bonds traded through EBTS, outright international bond transactions, and repo-style transactions shall be based on conversion to New Taiwan Dollars of the preceding month's average of median daily closing foreign exchange rates at foreign exchange banks designated by the TPEx.     The profit and loss on outright transactions referred to in paragraph 1 is calculated through the EBTS based on the yield to maturity or units of 100 dollars by settling the profits/losses on all long/short positions not yet closed by the securities firm, together with those on the positions already closed by the securities firm.
Article 9     Where a securities firm fails to remedy a deficit under Article 8 hereof, the TPEx may suspend its participation in EBTS trading, and may impose a delinquency penalty of 1 percent of the deficit not remedied on time.
    Where the TPEx suspends a securities firm's participation in EBTS trading under the preceding paragraph, it may subsequently reinstate EBTS trading by the securities firm after remedy of the deficit.
Article 10     A securities firm shall fulfill any already due settlement payment obligations before filing an application with the TPEx for return of the Reserve, and the TPEx shall return the Reserve within the two business days immediately following confirmation that the securities firm has fulfilled such payment settlement obligations, provided that the securities firm shall not apply to withdraw the minimum Reserve that has been posted under Article 3 except in circumstances under Article 12 hereof.
Article 11     In the event that its Reserve is used or disposed of as a result of compulsory execution by a court, a breach disposition by the TPEx, or otherwise, a securities firm shall promptly supplement the Reserve to reach the minimum requirement, failing which, the TPEx may take measures under Article 9 hereof.
Article 12     A securities firm whose participation in EBTS trading is suspended may apply with the TPEx to withdraw the posted Reserve and accrued interest only after having fulfilled any unsatisfied settlement payment obligation incurred on the EBTS and settling in full all accounts. The same shall apply to a securities firm whose dissolution has been approved, or whose business permission has been voided.
Article 13     These Regulations, and any amendments hereto, shall take effect upon ratification by the competent authority after passage by the TPEx's board of directors.