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1     Guidelines for the Exercise of Call (Put) Warrants by Holders and Their Mandated Securities Firms:
  1. A warrant holder may not request exercise of call (put) warrants until the second business day after the date on which they are purchased, and only if it has been confirmed that the warrants have been transferred into a central securities depository account.
  2. the Taipei Exchange (TPEx) has engaged Taiwan Depository & Clearing Corporation (TDCC) to handle all matters in connection with the exercise of TPEx listed call (put) warrants. TDCC accepts exercise requests from securities brokers until 2:30 p.m. each business day.
  3. A securities broker may perform matters in connection with the exercise of call (put) warrants on the holder's behalf only after the holder has filled out an Application Form for the Exercise of Call (Put) Warrants, and shall do so in accordance with the instructions therein.
  4. If a holder requests to exercise a warrant, and the performance method for the warrant is "delivery of securities provided that the holder may choose cash settlement", the holder shall specify the method for performance at the time the exercise request is made.
  5. There are three performance methods for the exercise of call (put) warrants for which a holder requests exercise:
    1. Delivery of securities.
    2. Cash settlement.
    3. Delivery of securities, provided that the issuer (or warrant holder) may choose cash settlement.
    If the method for performance upon exercise is cash settlement, the amount of the cash settlement shall be calculated based on the closing price/index value of the underlying security/index on the exercise date. For warrants that are exercised on the expiration date of the warrants, the amount of the cash settlement is calculated based on the simple arithmetic mean trade price of the underlying security during the 60 minutes prior to market close, or the simple arithmetic mean index value of the underlying index during the 30 minutes prior to market close. If there is no executed trade price for the underlying securities during the aforesaid timeframe, the calculation shall be based on the most recent trade price. In circumstances where trading hours are extended in accordance with Article 35, paragraph 4 of the Rules Governing Securities Trading on the TPEx (the Rules), trade prices or index values during the extended hours shall also be incorporated into the calculation. However, for call (put) warrants of which the underlying assets are foreign securities or foreign indices, the amount of the cash settlement shall be calculated based on the most recent closing price of the underlying securities prior to 6 p.m. on the warrant expiration date, converted into New Taiwan Dollars at the closing mid-price of the spot exchange rate quoted by the Bank of Taiwan on the given day, or calculated based on the most recent closing index value of the underlying index.
    In addition to the aforesaid cash settlement method of performance, if a warrant holder fails to apply for exercise in a timely manner when a warrant has exercise value at expiration, the issuer may adopt the "automatic cash settlement if in-the-money at expiration" method and automatically perform cash settlement based on the simple arithmetic mean trade price of the underlying securities during the 60 minutes prior to market close on the warrant's expiration date. If there is no trade price for the underlying securities during the aforesaid timeframe, then the calculation shall be based on the most recent trade price. In circumstances where trading hours are extended in accordance with Article 35, paragraph 4 of the Rules, trade prices during the extended hours shall also be incorporated into the calculation.
    If the call (put) warrant for which a holder requests exercise involves one of the following three performance methods, the securities firm must collect in advance from the holder any funds or securities required for exercise performance:
    1. Call (put) warrants involving "delivery of securities".
    2. Call warrants involving "delivery of securities, provided that the issuer may choose cash settlement ".
    3. Put warrants involving "delivery of securities, provided that the issuer may choose cash settlement ", and for which the holder has already designated "delivery of securities".
    However, for call warrants for which the method for performance upon exercise is "delivery of securities, provided that the issuer may choose cash settlement" (i.e. paragraph 2 above), if the issuer selects "cash settlement" or the holder's distribution involves "cash settlement", the securities firm shall, on the first business day after the date on which the holder requests exercise, refund the funds it collected in advance.
    For a capped call warrant or capped put warrant, the day on which the closing price of the underlying securities or the closing index value of the underlying index reaches the capped call (or put) price or index value is deemed the warrant's last trading day. Such warrants reach maturity on the second business day thereafter, and without exception the automatic cash settlement performance method is adopted based on the closing price of the underlying securities or the closing index value of the underlying index on the last trading day of the warrant.
    For a callable bull contract or callable bear contract, the day on which the closing price of the underlying securities or the closing value of the underlying index reaches the knock-out price or value is deemed the contract's last trading day, in which case the contract shall expire on the second business day after, and is settled automatically in cash based on the simple arithmetic mean price of the underlying securities traded or the simple arithmetic mean value of the underlying index published one business day after the last trading day. If there is no trade price for the underlying security, the auction base price for the opening of trading of the underlying security on the expiration date of the contract shall be used. If the trading of the underlying security is halted or suspended on the first business day following the last trading day of the contracts or on the expiration date, the closing price of the underlying security on the last trading day of the contracts shall be used.
  6. A securities broker shall carry out receipt/payment operations separately for different warrant holders and for funds in connection with the exercise of different warrants. The securities broker, after collecting funds paid in advance by a warrant holder, shall deposit them in the segregated account for receipt and payment of funds in connection with the exercise of warrants (not the settlement account) at its bank. The securities broker shall transfers funds payable to the holder only after it has completed receipt/payment operations with the TPEx on the second business day following the date on which the holder requests exercise.
    The amounts receivable/payable between a securities broker and the TPEx in connection with exercise by a warrant holder shall be received/paid in netted amounts. However, if the securities broker is the same securities firm that is mandated by the issuer, it shall carry out separately with the TPEx the receipt/payment of, and may not subject to netting, funds of which it conducts receipt/payment on behalf of the issuer with the TPEx, and funds in connection with exercise by the holder. Funds in connection with the exercise of TPEx listed warrants may not be offset, between a holder and a securities broker, or between a securities broker and the TPEx, against the settlement price of securities traded on the TPEx.
  7. The securities broker mandated by a holder of call (put) warrants shall, by 3:30 p.m. on the day the exercise is requested, retrieve, through a computer connected with the Taiwan Depository and Clearing Corporation (TDCC), and print out a summary statement of the total volume of call (put) warrants for which the holder has requested exercise that day, and settle accounts based on that statement.
  8. For call (put) warrants for which the performance method for exercise is "cash settlement", the TPEx calculates the exercise value at expiry using the standards described below:
    1. Call warrants
    2. In the case of non-index warrants, they possess exercise value if the result of the following calculation is greater than zero: (settlement price - exercise price) × number of underlying securities - (settlement price - exercise price) × number of underlying securities × securities transaction tax rate.
      In the case of index warrants, they possess exercise value if the result of the following calculation is greater than zero: (settlement index - strike index) × corresponding amount per index point × number of units of warrants × exercise ratio - (settlement index - strike index) × corresponding amount per index point × number of units of warrants × exercise ratio × securities transaction tax rate.
    3. Put warrants
    4. In the case of non-index warrants, they possess exercise value if the result of the following calculation is greater than zero: (exercise price - settlement price) × number of underlying securities - (exercise price - settlement price) × number of underlying securities × securities transaction tax rate.
      In the case of index warrants, they possess exercise value if the result of the following calculation is greater than zero: (strike index - settlement index) × corresponding amount per index point × number of units of warrants × exercise ratio - (strike index - settlement index) × corresponding amount per index point × number of units of warrants × exercise ratio × securities transaction tax rate.
    Calculation of the securities transaction tax rate shall be based on the tax rate set forth in the Securities Transaction Tax Act, and collected accordingly.
    Guidelines for calculation of the exercise value calculations above are as follows:
    1. The exercise processing fee collected by a securities firm is not deducted from the basis for exercise value calculation. Therefore, when the amount receivable by the holder as a result of exercise, after subtraction of the transaction tax, is less than the exercise processing fee calculated pursuant to Article 12 of the TPEx Rules Governing Trading of Call (Put) Warrants, the exercise processing fee collected by the securities firm may not be higher than the amount receivable by the holder as a result of exercise.
    2. The TDCC, after accepting a securities firm's application requesting to exercise a call (put) warrant for which the performance method is "cash settlement", will review and approve the application in accordance with the standards for calculating exercise value. When the call (put) warrant for which the securities firm requests exercise has no exercise value according to the calculation formulas above, the TDCC will reverse it.
  9. Any exercise of a TPEx listed call (put) warrant at a holder's request or the automatic exercise of a call (put) warrant on a holder's behalf by the TPEx must be done through a securities broker that has signed with the TPEx into a Contract for Trading of Securities on the TPEx. If an account balance of call (put) warrants of a warrant holder is recorded in a central securities depository account opened by a TDCC participant that has not signed with the TPEx a Contract for Trading of Securities on the TPEx, the holder may request exercise only after it transfers the call (put) warrants into a central securities depository account opened by a securities broker that has signed a Contract for Trading of Securities on the TPEx. For warrants subject to automatic exercise, however, the TPEx will still carry out exercise on the holder's behalf even if the abovementioned transfer has not been carried out.
  10. The quantity of any exercise of a call (put) warrant by the holder must be one trading unit or an integer multiple thereof.
2     Guidelines for the Exercise of Call (Put) Warrants by Issuers and Their Mandated Securities Firms:
  1. The securities firm mandated by the issuer of call (put) warrants shall, by 3:30 p.m., retrieve, through a computer connection with the TDCC, and print out a summary statement of the total volume of call (put) warrants for which the holder has requested exercise that day and the volume for which the issuer has applied for cancellation, and immediately notify the issuer.
  2. Upon notification by the issuer, the securities firm mandated by an issuer of warrants for which the method for performance upon exercise is "delivery of securities, provided that the issuer may choose cash settlement " must, by 4:30 p.m. on the day on which the holder requests exercise, input the volume for which the issuer desires cash settlement through the TDCC network connection. After the cut-off time, all performance will be done by "delivery of securities".
  3. Pursuant to Article 12 of the TPEx Rules Governing Trading of Call (Put) Warrants, liquidity providers of call (put) warrants shall apply to the TPEx for a central securities depository account before applying to list the warrants on the TPEx. Except for call (put) options in that account for which exercise may not be requested, the TPEx shall, at expiration of the call (put) warrants, use that account to carry out book-entry transfer matters in connection with cancellations.
  4. Pursuant to Article 14 of the TPEx Rules Governing Trading of Call (Put) Warrants, issuers of call (put) warrants and risk management institutions shall apply to the TPEx for a central securities depository account before applying to list the warrants on the TPEx. The TPEx may use that account to carry out securities transfer for performance upon exercise.
3     For domestic call (put) warrants of which the underlyings are foreign securities or foreign indices, the issuer of the warrants shall, by 6 p.m. on the warrant expiration date, report the following information on the internet information reporting system designated by the TPEx:
  1. The most recent closing price of the underlying securities or the most recent closing index value of the underlying index.
  2. The closing mid-price of the Bank of Taiwan spot exchange rate on the given day.
  3. The amounts of the most recent closing price and the newest strike price of the underlying securities, respectively converted into New Taiwan Dollars at the exchange rate provided in the preceding subparagraph.
4     Guidelines for the Exercise of Contract-Based Call (Put) Warrants by Investors:
  1. Only after the TPEx has approved the trading of contract-based call (put) warrants and the investor has signed a contract-based call (put) warrant contract with the selling securities firm, may the investor then request exercise according to the terms of the contract.
  2. To exercise a contract-based call (put) warrant, the investor must engage directly with the securities firm that original sold that warrant.
  3. The performance methods for the exercise of contract-based warrants for which the investor requests exercise can be divided into the following methods:
    1. Delivery of securities.
    2. Cash settlement.
    3. Delivery by securities with the option of cash settlement at the securities firm's or the investor's discretion, depending on the terms agreed upon in the trade contract.
    Whether contract-based call warrants are subject to "automatic cash settlement if in-the money at expiration " if the investor does not exercise before expiration shall depend on the terms agreed upon in the trade contract.
  4. Contract-based put warrants exercised at the investor's request must be settled in cash.
  5. Whether contract-based put warrants are subject to "automatic cash settlement if in-the-money at expiration" if the investor does not exercise before expiry shall depend on the terms agreed upon in the trade contract.
  6. Upon exercising a contract-based call (put) warrant, the method for collection and payment of funds and securities shall depend on the terms agreed upon in the trade contract.
  7. The provisions of these Guidelines regarding the standards for calculation of whether TPEx listed warrants have exercise value shall apply mutatis mutandis to the calculation of whether contract-based call (put) warrants have exercise value.
5     Guidelines for Securities Firms in Handling the Exercise of Contract-based Call (Put) Warrants:
  1. If the performance method for the exercise of contract-based call (put) warrants is the delivery of securities, the centralized securities depository enterprise shall be engaged to handle the delivery. In such case, the securities firm shall inform TDCC to carry out the operations for delivery of the securities by inputting the information regarding the exercised warrant into TDCC's online computer system no later than by the second business day after the investor requests exercise.
  2. Contract-based put warrants exercised by the securities firm at the investor's request must be settled in cash.
  3. Securities firms are required to report to the TPEx on any requests by investors for the exercise of contract-based call (put) warrants, and input information relevant to the exercise request into the Internet reporting system designated by the TPEx no later than 5 p.m. on the day the exercise request is made.