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Title: Taiwan Futures Exchange Corporation Criteria for Clearing Membership
Date: 2004.08.02 ( Announced )
Date: 2014.05.29 ( Amended )

Article Content

 
Article 1     These Criteria are promulgated pursuant to Article 46, Paragraph 2 of the Futures Trading Law, Article 5, Paragraph 1 of the Rules Governing Futures Clearing Houses, and Article 74, Paragraph 2 of the Operating Rules of the Taiwan Futures Exchange Corporation.
Article 2     Clearing and settlement operations for futures trading with this Corporation shall be undertaken only by those that have obtained clearing membership from this Corporation.
Article 3     Clearing members of this Corporation shall be divided into the following categories according to the scope of their operations:
  1. Individual clearing member: A futures commission merchant that handles clearing and settlement for its brokerage and proprietary futures trading business.
  2. General clearing member: A futures commission merchant that, in addition to handling clearing and settlement for its brokerage and proprietary futures trading business, may also handle clearing and settlement on consignment for other futures commission merchants.
  3. Special clearing member: A financial institution that handles clearing and settlement only on consignment for futures commission merchants.
Article 4     Individual clearing members of this Corporation shall be confined to futures commission merchants established by approval of the Competent Authority, and shall meet the following criteria:
  1. Futures commission merchants shall have minimum paid-in capital of NT$200 million; other businesses operating concurrently as futures commission merchants shall allocate at least NT$80 million in designated operating funds.
  2. Financial Structure
    1. Another business operating concurrently as a futures commission merchant shall allocate at least NT$80 million in designated operating funds, and shall meet the following qualifications and conditions with respect to financial structure if such funds are less than NT$100 million:
      1. Total current liabilities may not exceed total current assets. When total current assets are lower than 1.2 times total current liabilities, however, this Corporation may collect an additional clearing margin.
      2. Capital structure: Total liabilities less futures traders' equity shall not exceed 80 percent of its owner's equity.
      3. Owner's equity shall not be less than 80 percent of paid-in capital.
      4. Adjusted net capital shall not be less than 30 percent of the total client margins required for outstanding positions.
      5. A credit rating report issued by a credit rating institution approved by the Competent Authority shall be obtained within two years after obtaining a clearing membership.
      6. An agreement establishing an irrevocable line of credit of at least NT$60 million dedicated for margin clearing purposes shall be entered into with a settlement bank.
    2. Another business operating concurrently as a futures commission merchant that has allocated designated operating funds of over NT$100 million but less than NT$200 million shall meet the following qualifications and conditions for financial structure.
      1. Total current liabilities may not exceed total current assets. When total current assets are lower than 1.2 times total current liabilities, however, this Corporation may collect an additional clearing margin.
      2. Capital structure: Total liabilities less futures traders' equity shall not exceed 80 percent of its owner's equity.
      3. Owner's equity shall not be less than 80 percent of paid-in capital.
      4. Adjusted net capital shall not be less than 25 percent of the total client margins required for outstanding positions.
      5. A credit rating report issued by a credit rating institution approved by the Competent Authority shall be obtained within two years after obtaining a clearing membership.
    3. Where the minimum paid-in capital of a futures commission merchant or the designated operating funds allocated by another business operating concurrently as a futures commission merchant are NT$200 million or more, the futures commission merchant or other business shall meet the following qualifications and conditions for financial structure:
      1. Total current liabilities may not exceed total current assets. When total current assets are lower than 1.2 times total current liabilities, however, this Corporation may collect an additional clearing margin.
      2. Capital structure: Total liabilities less futures traders' equity shall not exceed 80 percent of its owner's equity.
      3. Owner's equity shall not be less than 80 percent of paid-in capital.
      4. Adjusted net capital shall not be less than 20 percent of the total client margins required for outstanding positions.
      5. A credit rating report issued by a credit rating institution approved by the Competent Authority shall be obtained within two years after obtaining a clearing membership.
  3. Clearing and Settlement Fund
    1. Before carrying out clearing and settlement operations, the clearing member shall make a deposit to the clearing and settlement fund equal to 20 percent of its paid-in capital or designated operating funds, but the amount shall be limited to a maximum of NT$40 million.
    2. After the clearing member has carried out clearing and settlement operations for one full year, the upper limit on the amount deposited to the clearing and settlement fund shall be reduced to NT$20 million, and the clearing member shall make deposits to the clearing and settlement fund by the method and in the amount prescribed by this Corporation.
    3. Each time the clearing member consigns an introducing broker or each time such an introducing broker establishes an additional branch, the clearing member shall make an additional clearing and settlement fund deposit of NT$1 million with this Corporation.
  4. Disqualifying criteria: An applicant for clearing membership shall conform to the criteria in Article 43 of the Rules Governing the Establishment Criteria of Futures Commission Merchants.
  5. An applicant for clearing membership status shall have held futures commission merchant status for at least one year; provided, this restriction shall not apply if a single one of its shareholders holding 50 percent or more of its shares has clearing membership status.
Article 5     General clearing members of this Corporation shall be confined to futures commission merchants established by approval of the Competent Authority, and shall meet the following criteria:
  1. The minimum paid-in capital of a futures commission merchant or the designated operating funds allocated by another business operating concurrently as a futures commission merchant shall be at least NT$400 million.
  2. Financial structure:
    1. Total current liabilities shall not exceed total current assets.
    2. Total liabilities less futures traders' equity shall not exceed owner's equity.
    3. Owner's equity shall not be less than 80 percent of paid-in capital.
    4. Adjusted net capital shall not be less than 20 percent of the total client margins required for outstanding positions.
    The standards for the financial structure of another business concurrently operating futures business shall be calculated based on the financial statements of its futures department.
  3. Clearing and Settlement Fund
    1. Before carrying out clearing and settlement operations, the clearing member shall deposit NT$40 million with this Corporation.
    2. After the clearing member has carried out clearing and settlement operations for one full year, the amount deposited to the clearing and settlement fund shall be reduced to NT$30 million, and the clearing member shall make deposits to the clearing and settlement fund by the method and in the amount prescribed by this Corporation.
    3. For each additional futures commission merchant consigning the clearing member to handle clearing and settlement operations, the clearing member shall make a clearing and settlement fund deposit of NT$3 million with this Corporation before accepting consignment.
    4. For each additional branch established by a consigning futures commission merchant, or for each additional futures trading introducing broker consigned by the clearing member or for each additional branch established by such introducing broker, the clearing member shall make a clearing and settlement fund deposit of NT$1 million with this Corporation.
  4. Disqualifying criteria: An applicant for clearing membership status shall conform to the criteria in Article 43 of the Rules Governing the Establishment Criteria of Futures Commission Merchants.
  5. An applicant for clearing membership status shall have held futures commission merchant status for at least one year; provided, this restriction shall not apply if a single one of its shareholders holding 50 percent or more of its shares has clearing membership status.
Article 6     Special clearing members of this Corporation shall be confined to financial institutions approved by the competent authority of the industry of the financial institutions, and shall meet the following criteria:
  1. Minimum allocated designated operating funds shall be NT$400 million.
  2. Financial structure:
    1. Total current liabilities shall not exceed total current assets.
    2. Total liabilities less futures traders' equity shall not exceed owner's equity.
    3. Owner's equity shall not be less than paid-in capital.
    4. Adjusted net capital shall not be less than 20 percent of the total client margins required for outstanding positions.
    The standards for the financial structure of another business concurrently operating futures business shall be calculated based on the financial statements of its futures department.
  3. Clearing and Settlement Fund
    1. Before carrying out clearing and settlement operations, the clearing member shall deposit NT$40 million with this Corporation.
    2. After the clearing member has carried out clearing and settlement operations for one full year, the amount deposited to the clearing and settlement fund shall be reduced to NT$30 million, and the clearing member shall make deposits to the clearing and settlement fund by the method and in the amount prescribed by this Corporation.
    3. For each additional futures commission merchant consigning the clearing member to handle clearing and settlement operations, the clearing member shall make a clearing and settlement fund deposit of NT$3 million with this Corporation.
    4. For each additional branch established by a consigning futures commission merchant, the clearing member shall make a clearing and settlement fund deposit of NT$1 million with this Corporation.
  4. Disqualifying criteria: An applicant for clearing membership shall conform to the criteria in Article 43 of the Rules Governing Establishment Criteria of Futures Commission Merchants. None of the circumstances in Article 28 of the Futures Trading Law may exist with respect to any directors, supervisors, or managerial officers of the clearing member.
Article 7     Clearing member personnel handling futures clearing and settlement operations shall conform to the Rules Governing Responsible Persons and Associated Persons of Futures Commission Merchants. The minimum numbers of clearing and settlement personnel shall be as follows:
  1. Individual clearing members: Three persons.
  2. General clearing members: Five persons.
  3. Special clearing members: Five persons.
     Margin collection and payment personnel, cashiers, and accounting personnel of the clearing member may not concurrently fill one another's positions.
    If a clearing member is a securities firm that concurrently operates futures business, the positions of its personnel handling clearing and settlement operations may be filled on a concurrent basis by its securities department personnel who handle operations of the same nature and who are qualified as futures associated persons.
    The provisions of the preceding paragraph shall apply mutatis mutandis to a clearing member that is a financial institution that concurrently operates futures business, unless otherwise provided by other law or regulation.     Before carrying out clearing and settlement operations, the clearing member shall prepare a roster of the personnel responsible for clearing and settlement operations and their supervisors, and register them with this Corporation. The clearing member shall report any changes in such personnel to this Corporation within five days and shall continue to be liable for their actions until the change has been registered.
Article 8     Sites and facilities where clearing members operate clearing and settlement business shall conform to the Standards for Sites and Facilities prescribed by the National Futures Association, and shall meet the following conditions:
  1. Have installed a site exclusively for performing clearing and settlement operations.
  2. Have installed dedicated computer equipment for handling clearing and settlement.
  3. Have assigned personnel specifically responsible for communications with this Corporation and installed dedicated telephone lines for the same purpose.
Article 9     A clearing member shall establish internal control systems in accordance with the Regulations Governing the Establishment of Internal Control and Internal Audit Systems for Service Enterprises in the Securities and Futures Markets promulgated by the Competent Authority and the regulations providing standards for the internal control systems of futures commission merchants promulgated by this Corporation.
Article 10     If any of the following circumstances exists with respect to a clearing member, this Corporation may terminate its clearing membership, and handle the matter pursuant to Article 54 of the Futures Trading Law.
  1. A relevant authority has cancelled the clearing member's company registration or dissolved the clearing member.
  2. The Competent Authority has issued a disposition canceling the clearing member's operations permit.
  3. The clearing member has been pronounced bankrupt by a final court ruling.
  4. The clearing member fails to perform clearing and settlement obligations.
  5. The clearing member violates a law or regulation or continues to fail to comply following imposition of an administrative disposition by the Competent Authority based on a law or regulation.
  6. The clearing member violates the Articles of Incorporation or Operating Rules of this Corporation, the Guidelines for the Consignment Contract, or other rules or regulations, where the circumstances are serious.
  7. The clearing member's clearing or settlement practices violate good faith and integrity in a manner sufficient to harm others.
  8. The clearing member is unable to maintain compliance with this Corporation's clearing member criteria and, following an inquiry by this Corporation and the setting of a deadline for improvement, the clearing member fails to implement improvements or continues to fall short of criteria after implementing improvements.
Article 11     These Criteria and any amendments hereto shall take force upon promulgation following approval by the Competent Authority.