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Title: Taiwan Futures Exchange Operational Rules Governing Market Makers
Date: 2004.07.28 ( Announced )
Date: 2009.12.21 ( Amended )

Article Content

 
Article 1     The Operational Rules herein are prescribed pursuant to Article 42-1 of the Operating Rules of the Taiwan Futures Exchange Corporation (TAIFEX).
Article 2     A futures dealer or a specified institutional investor may apply to become a TAIFEX market maker and engage in market making business after obtaining approval from the TAIFEX.
    Criteria for specified institutional investors referred to in the preceding paragraph shall be separately announced by the TAIFEX.
    Prior to applying for the status of a TAIFEX market maker, a futures dealer shall obtain the consent of its board of directors and add market making operations to its internal control system. For application, the applicant shall designate a futures contract as its market making contract and submit the following documents:
  1. Application form (Appendix 1).
  2. Meeting minutes of the board of directors.
  3. Internal control system for market making operations.
  4. If it responds to requests for price quotations automatically via computer system, a statement that its computer system is safe and secure (format as in Appendix 2).
  5. Other documents as required by the TAIFEX.When a specified institutional investor applies to become a TAIFEX market maker, it shall designate a futures contract as its market making contract and submit the following documentation:
  6. Application form (Appendix 3).
  7. For a domestic institutional investor, the company amendment registration chart; for a foreign institutional investor, photocopies of documents evidencing that it has completed identity registration pursuant to Article 44-4 of the TAIFEX Operating Rules.
  8. Minutes of the board of directors meeting at which the application was approved or a letter of consent from an equivalent-level organization.
  9. If setting up an internal control system is required by the competent authority of its subject industry, submit an internal control system for operating market maker business.
  10. Where a computerized automatic response system for price quote requests is adopted, its statement to the effect that there are no security concerns regarding its computer system (format as per attached Table 2).
  11. Other documents as required by the TAIFEX.
    If a market maker subsequently intends to change to a system of responding to request for price quotations automatically via computer, it shall submit the statement in paragraph 3, subparagraph 4 or subparagraph 5 of the preceding paragraph before making the change.     A market maker shall abide by the principle of honesty and good faith when conducting market maker business.
Article 2-1     Under any of the following circumstances, the TAIFEX may deny an application by a futures dealer or specified institutional investor to conduct market making business:
  1. Its trading has been duly suspended by the TAIFEX within the past year.
  2. Its market making business has been duly suspended by the TAIFEX more than twice within the past year.
  3. It has violated TAIFEX provisions regarding ratios of price quotations in response to price quotation requests, regarding market making volume, or regarding the cumulative duration of valid price quotations within the past half-year.
  4. Less than two months after its previous application to engage in market maker business, it voluntarily applied for the cancellation thereof, and the elapsed time from that cancellation date to the current date is less than six months.
  5. It has failed to comply with other provisions of the TAIFEX.
    The TAIFEX may restrict the numbers of market makers for individual futures contracts depending on market conditions.
Article 2-2     Once the TAIFEX has approved a futures dealer to be a market maker, the TAIFEX may appoint that dealer to serve as a market maker for another futures contract other than the market-making contract originally applied for.
Article 3     A market maker shall start to engage in market making within two months after obtaining the approval of the TAIFEX.
    Market makers who fail to engage in market making business within the aforesaid prescribed time period prescribed in the preceding paragraph will lose their qualification, unless they have requested for an extension prior the prescribed deadline with the provision of acceptable reasons. The aforesaid extension shall be no longer than two months and only one-time extension is allowed.
Article 4     A market maker shall, within five business days before engaging in market making business, submit a roster of associated persons (Appendix 4) to the TAIFEX and indicate the date such business will commence.
    A market maker shall submit an updated roster to the TAIFEX within three business days after any change in associated persons. The market maker remains responsible for the business conducts of its associated persons before the change is reported.
Article 5     A market maker shall open an account dedicated to the market making business and shall not use the said account for trades not relating to its market-making contract concerned.
    A specified institutional investor that serves as a market maker shall file with the TAIFEX for a market maker account (appendix 5) five business days before beginning to conduct market maker business. It shall report to the TAIFEX any change to that market maker account five days before that change occurs.
Article 6     Market makers shall execute two-way quotes in relation to their market making contract during daily trading hours according to the quotation method, quotation time limit, quotation size and spread limits prescribed by the TAIFEX.
    Market markers shall comply with the TAIFEX requirements with regard to the monthly ratio of responses to quotation requests, cumulative duration of valid price quotations, and monthly market making volume.
    Rules relating to quotations by market makers under the preceding two paragraphs shall be separately announced by the TAIFEX.
Article 7     If deemed necessary, the TAIFEX may ask a market maker to provide quotes with respect to its market- making contract. Upon the receipt of such request, the market marker shall execute two-way quotes within the time limit prescribed by the TAIFEX.
Article 8     In case of wild market fluctuation or contingency that disrupts normal trading, market makers may discontinue their business temporarily after the announcement of the TAIFEX to the effect.
Article 9     When a market maker's price quotation ratio in response to requests for price quotations, cumulative duration of valid price quotations, and market making volume for a given month meet the TAIFEX requirements, the TAIFEX may reduce or waive its payable exchange fees and clearing service fees for that month, or give a reward depending on market conditions.
    Standards for the reduction of exchange fees and clearing service fees and standards for rewards under the preceding paragraph, shall be separately publicly announced by the TAIFEX.
    The “arket making volume” in the paragraph 1 is calculated as the sum of the volume of trades executed on the basis of price quotations and the volume of trades executed not on the basis of price quotations. However, when the volume of trades executed not on the basis of price quotations is greater than the volume of trades executed on the basis of price quotations, the calculation of the market making volume shall be limited according to a certain percentage of the volume of trades executed on the basis of price quotations. That percentage shall be separately announced by the TAIFEX.
    The trading volume of a given market maker’s own trades for its market maker account and trades between that account and its other accounts, in addition to being subject to regulatory supervision in accordance with applicable provisions of the TAIFEX, also shall not be included in the calculation of the market making volume.
Article 10     A market maker applying to cancel its market maker status in relation to its market-making contract or applying for temporary suspension of its market maker business in relation to its market-making contract shall give the TAIFEX written notice one month prior to termination or suspension of the business under the market-making contract.
    Where a market maker fails to execute its business as required, the TAIFEX may suspend its market making business in whole or in part or revoke its market making approval qualification, depending on the severity of the offense.
    A market maker whose market maker status for a market-making contract is cancelled by the TAIFEX shall terminate its market-making business for that contract beginning from the next business day after the public announcement of such cancellation, and may not submit a new application to the TAIFEX for market-making business for that contract within three months beginning from the date of termination of such business.
Article 11     The Rules herein shall be implemented following the approval of the competent authority. The same provision applies to subsequent amendments.