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Chapter I General Principles
Article 1     These Rules are adopted pursuant to Article 8 of the Regulations Governing Trading of Securities on the Taipei Exchange and Article 10, paragraph 1 of the Regulations Governing the Issuance of Call (Put) Warrants by Issuers ("Issuance Regulations").
Article 2     The term "Call (Put) Warrant" as used in these Rules means a security issued (or conferred) by a third party other than the issuing company of the underlying security(ies), and representing a right on the part of the holder of the call (put) warrant to purchase the underlying security(ies) from, or sell them to, that party at an agreed-upon strike price during an exercise period or on a specified expiry date, or to collect the price difference by cash settlement.
    A third party referred to in the preceding paragraph shall first obtain approval of qualification as a call (put) warrant issuer under Chapter II of these Rules.
    One issuing call (put) warrants who also carries out TPEx listing shall comply with the applicable provisions of Chapters III and V of these Rules.
    One engaging in TPEx contract-based call (put) warrant business shall comply with the applicable provisions of Chapters IV and V of these Rules.
Chapter II Approval of Qualification of as a Warrant Issuer
Article 3     An applicant seeking review of qualification recognition as a call (put) warrant issuer shall prepare an Application for Approval as a Qualified Call (Put) Warrant Issuer, filled out in full and with required documents annexed thereto, and file it with the Taipei Exchange (TPEx). Following its review and approval of the application in accordance with the Issuance Regulations, these Rules, and the Taipei Exchange Directions for Review of Call (Put) Warrants, the TPEx will refer the application, along with the review opinion, to the competent authority for review.
    One who has applied to and received approval from the Taiwan Stock Exchange Corporation (TWSE) of qualification as a call (put) warrant issuer is not required also to apply to the TPEx for qualification approval.
    The Directions for Review of Call (Put) Warrants referred to in paragraph 1 shall be promulgated by the TPEx and take force upon review and ratification by the competent authority.
Article 4      A domestic securities firm applying to the TPEx for a review of qualification recognition as a call (put) warrant issuer shall comply with Article 3, paragraph 1 and Article 5, paragraph 2 of the Issuance Regulations.
     A foreign securities firm applying to the TPEx for a review of qualification recognition as a call (put) warrant issuer shall comply with Article 3, and Article 5, paragraphs 3 and 4 of the Issuance Regulations.
     If the TPEx discovers any circumstances not complying with the preceding two paragraphs or any circumstances under the subparagraphs of Article 7 of the Issuance Regulations with respect to any applicant that applies with the TPEx for a review of qualification recognition as a call (put) warrant issuer, the TPEx may decline its application.
Article 5     (Deleted)
Article 6     Where a securities firm entrusts another institution with hedging operations, the risk management institution shall have net worth of at least NT$1 billion as stated in its financial report and shall have a credit rating of a certain grade as prescribed in Article 5, paragraph 3, subparagraph 2 of the Issuance Regulations.
Article 7     Where a securities firm or a risk management institution is a foreign institution or a subsidiary of an ROC-based financial holding company, it may adopt the credit rating of its group holding company, in which case the group holding company shall provide an unconditional and irrevocable guaranty. For one applying to issue call (put) warrants and also for TPEx listing and trading, the credit rating of the holding company shall comply with the provisions of Article 5, paragraph 3, subparagraph 2 of the Issuance Regulations.
Chapter III Issuance, TPEx Listing, and Cancellation of Call (Put) Warrants
Article 8     Where any of the following circumstances applies to a securities firm that has already obtained approval of its qualification as a call (put) warrant issuer, the securities firm shall suspend issuance or handling of call (put) warrants; the issuance operations of the warrants already approved but not yet issued shall be suspended, and the suspension shall be reported to the competent authority for recordation. However, the validity of call (put) warrants already issued or already traded shall not be affected.
  1. Failure to comply with the provisions of Article 3, paragraph 1, or the latter part of paragraph 2, of the Issuance Regulations.
  2. Failure to comply with the financial requirements under the subparagraphs in Article 5, paragraph 2, subparagraph 1 or 2, or paragraph 3, subparagraph 1, 2, or 5, of the Issuance Regulations. The same applies too in the event that its latest CPA-reviewed financial report does not comply with the above-mentioned provisions.
  3. In the operation of warrant business, failure to comply with any provision of Article 5, paragraph 2, subparagraphs 4 to 7 of the Issuance Regulations. The same applies too in the event that a branch unit as referred to in Article 5, paragraph 3, subparagraph 5 of the Issuance Regulations fails to comply with any of the aforementioned provisions.
  4. Any of the circumstances under Article 7, subparagraphs 3 to 10 of the Issuance Regulations.
     If any of the events listed in the subparagraphs below occurs after a securities firm has obtained qualification approval, the securities firm shall be restricted from applying to issue or handle call (put) warrants for 1 year. If the securities firm has already obtained approval for issuance or handling but has not yet issued or handled the warrants, it shall be suspended from the issuance or handling, and the suspension shall be reported to the competent authority for recordation. However, the validity of call (put) warrants already issued or handled shall not be affected:
  1. The securities firm is ranked in Level 5 for the most recent year, or in Level 4 for the most recent 2 years, in the assessment conducted pursuant to the Operation Directions for Assessment of Securities Firms Risk Management System.
  2. The securities firm has violated Article 23, paragraph 1 herein or provisions of the TPEx Operation Directions Governing Liquidity Providers of Call (Put) Warrants, and it has been sanctioned within the most recent year by the TPEx or the TWSE by imposition of penalties in a cumulative amount of NT$300,000 or more or by restriction of application for issuance of call (put) warrants two times.
  3. The securities firm has been restricted by the TPEx from applying for issuance of call (put) warrants because of an irregularity in the quotation system of its call (put) warrant liquidity provider in the current year, and it still has failed to take corrective action.
     Directions for handling irregularities in the quotation system of a call (put) warrant liquidity provider shall be separately prescribed by the TPEx.
     A securities firm that continuously fails to issue any call (put) warrants for 1 year or more shall be suspended from the issuance or handling of call (put) warrants. The TPEx may report a securities firm in writing to the competent authority for recordation if the aforesaid circumstance occurs or if, pursuant to paragraph 1, the securities firm has been suspended from issuing of or handling issuance matters regarding call (put) warrants for 1 year or more and still fails to take corrective action.
Article 8-1     If a securities firm is a foreign institution, upon receipt of approval of qualification as an issuer of call (put) warrants from the competent authority, it shall, every year within 3 days after receipt of a credit rating from a credit rating company, file a written report with the TPEx with relevant supporting documents annexed thereto. The same shall apply upon any changes in the credit within a period.
Article 9     A securities firm having received approval of qualification as an issuer of call (put) warrants from the competent authority and wishing to apply to the TPEx for TPEx listing of a planned call (put) warrants issue shall apply to the TPEx with an Application for TPEx Listing of Call (Put) Warrants (Attachment 1) filled out in full and with the required documents attached thereto. Following its review and approval of the issuance plan, the TPEx will immediately issue a letter of approval, with a copy to the competent authority, provided that depending on specific conditions such as the applicant's financial or business status, the status of the linked underlyings, the number of call (put) warrants already listed on the TPEx with identical or similar types of underlying securities, and the distribution of expiration dates, the TPEx may withhold approval, limit the number of warrants to be listed on the TPEx, or impose other conditions.
    For TPEx listed warrants, in the event that the outstanding issuance units reach 80 percent or more of the actual total number of issuance units, the securities firm may apply to the TPEx for a follow-on issue of call (put) warrants. The application shall be made within 2 business days from the next business day following the date of the event's occurrence but at least 10 business days before the last trading day for the warrants. The term "actual total number of issuance units," as used above, means the number arrived at by adding the total number of issuance units of the initial issue and the number of issuance units of each subsequent follow-on issue together and then deducting the accumulated number of issuance units cancelled and exercised.
    After receiving a TPEx approval letter, with a copy submitted to the competent authority, the securities firm may entrust an underwriter with underwriting of the issue or it may sell the warrants itself, and provide a prospectus to the subscribers. But this provision shall not apply to a follow-on issuance of call (put) warrants.
    The directions for information to be published in a public offering prospectus referred to in the preceding paragraph will be promulgated by the TPEx in accordance with Article 13 of the Regulations Governing Applications for Issuance of Call (Put) Warrants by Issuers and shall take force upon review and ratification by the competent authority.
Article 10     When the linked underlyings in an application for TPEx approval for TPEx listing of call (put) warrants are domestic stocks, they shall meet each of the following conditions:
  1. Market value: NT$4 billion or more.
  2. In the most recent 3 months the ratio of the number of shares traded to the total number of issued shares must reach 10 percent or more, or in the most recent 3 months the average number of shares traded monthly must reach 30 million shares or more.
  3. The financial report for the most recent period, audited or reviewed by a certified public accountant, must show no loss, or show no accumulated deficit if there is loss in the most recent period.
    When the linked underlyings in an application for TPEx approval for TPEx listing of call (put) warrants are Taiwan depositary receipts, they shall meet each of the following conditions:
  1. Units listed: 50 million units or more.
  2. In the most recent 3 months the ratio of the number units traded to the number of units listed on the TPEx must reach 10 percent or more.
    Conformance of the linked underlyings with the standards of the preceding two paragraphs shall be based on quarterly TPEx announcements, provided that after the announcement if the financial report required to be submitted by the securities issuer under Article 36 of the Securities and Exchange Act does not conform to subparagraph 3 of paragraph 1, or if the underlying securities have been listed on the TWSE, the TPEx will announce suspension of the given security(ies)'s qualification as the underlying of a call (put) warrants.
    In applications to the TPEx for approval for TPEx listing of call (put) warrants, when the linked underlying of the warrants is a domestic stock and the financial report of the most recent period audited or reviewed by a certified public accountant shows losses by the issuer of the stock, there shall also be a statement, in both the issuance plan and public offering prospectuses, of the reason for issuing based on the underlying security.
    In applications to the TPEx for approval for TPEx listing of call (put) warrants, when the linked underlying of the warrants is a domestic beneficial certificate or a domestic index, such linked underlying shall be limited to exchange-traded funds (ETFs) or indexes announced by the TPEx.

    In applications to the TPEx for approval for TPEx listing of call (put) warrants, if the linked underlying of the warrants is a foreign security or a foreign index, such linked underlying shall comply with the requirements prescribed in Article 8 subparagraph 3 of the Regulations Governing Applications for Issuance of Call (Put) Warrants by Issuers, and may not include any Taiwan stock index compiled by a domestic or foreign institution or related financial commodity, provided that this restriction shall not apply to an index compiled by the TPEx or the Taiwan Stock Exchange in cooperation with a foreign institution and not having Taiwan stock as the main component. If the linked underlying is a foreign stock, the market capitalization of the issuing company of the linked underlying security may not be equal to or less than US$500 million, and the volume of shares traded during the most recent 3 months shall reach 20 percent or more of the total issued shares, or the average monthly volume of shares traded in the most recent 3 months shall reach 100 million shares or more. If the linked underlying is a foreign depositary receipt, the volume of units traded during the most recent 3 months shall reach 20 percent or more of the listed units.
    In applications to the TPEx for approval for TPEx listing of call (put) warrants, when the linked underlying of the warrants is futures ("futures call (put) warrants"), such linked underlying shall be limited to futures, other than equity futures, listed and traded on the Taiwan Futures Exchange Corporation (“TAIFEX”).
Article 11     Call (put) warrants for which a securities firm applies to the TPEx for TPEx listing approval shall meet all of the following requirements:
  1. Issuance units, issue price, and exercise ratio:
    1. The issue shall comprise 5 to 20 million issuance units, but for call (put) warrants for which the underlying are foreign securities or foreign indexes, the issue shall comprise 5 to 50 million issuance units.
    2. The price of per unit issued shall be NT$0.6 or above. But this provision shall not apply to a follow-on issuance of call (put) warrants.
    3. The securities firm itself determines the number of shares, units, index points, futures points, or basket thereof represented by one issuance unit; one index point or futures point corresponds to NT$1. However, in the case of a follow-on issue of call (put) warrants, the number of shares, units, index points, futures points, or basket thereof represented per issuance unit shall be the newest exercise ratio.
  2. Duration:
    1. The duration of TPEx listed call (put) warrants shall be from not less than 6 months to not more than 2 years.
    2. The duration of futures call (put) warrants, callable bull contracts, or callable bear contracts shall be from not less than 3 months to not more than 2 years; in all cases, the duration shall be calculated from the date of TPEx listing for trading. If the period of validity is extended, the duration of the extension shall be, counting from the day following the last trading day, from not less than 3 months to not more than 1 year.
    3. In the case of a follow-on issue of call (put) warrants, the duration shall be calculated from the date of the TPEx listing of the follow-on issue to the expiration date of the warrants.

  3. Limits on the amount of the linked underlyings' total issuance represented by the warrants:
    1. If the linked underlying is a domestic stock, the combined total of the number of shares of the underlying security represented by the domestic warrants issuance units and the number of shares of the same underlying security represented by other existing call (put) warrants already listed on the TPEx, after deduction of the shares set forth below, may not exceed 22 percent of the total share issuance by the issuing company, or may not exceed 30 percent thereof in the case of a follow-on issue of call (put) warrants. In addition, when a securities firm or its overseas subsidiary (where warrant issuance business is guaranteed or secured by the parent company) issues offshore call (put) warrants for which the underlying security is a domestic stock, the combined total of the number of shares of the underlying security represented by the warrant issuance units and the number of shares of the same underlying security represented by other existing call (put) warrants already issued on overseas markets, after deduction of the shares set forth below, may not exceed 3 percent of the total share issuance by the issuing company:
      1. The total number of shares held by directors and supervisors under statutory shareholding ratio requirements.
      2. Already pledged shares.
      3. The number of centrally deposited shares mandatory for newly TPEx listed companies.
      4. Shares already repurchased under the Regulations Governing Share Repurchase by TWSE Listed and TPEx Companies and not yet cancelled.
      5. Shares with restrictions on listing on the TPEx imposed by the competent authority.
    2. If the linked underlying is a foreign stock, the combined total of the number of shares of the underlying security represented by domestic issuance units of the call (put) warrants and of the same underlying security represented by other existing call (put) warrants already listed on the TPEx may not exceed 15 percent of the total number of shares already issued by the issuer of the underlying securities.
    3. If the linked underlying is exchange-traded fund (ETF) beneficial certificates announced by the TPEx, the combined total of the number of the underlying beneficial units represented by the warrant issuance units and the shares of the same underlying securities represented by other existing call (or put) warrants already listed on the TPEx, plus the number of shares of the same underlying securities represented by call (or put) warrants issued on foreign markets by the issuer or its externally engaged institution, may not exceed the total number of beneficial units already issued by that fund.
    4. If the linked underlying is a foreign exchange-traded fund (ETF), the combined total of the number of beneficial units of the underlying security represented by the issuance units of the call (put) warrants and the number of beneficial units of the same underlying security represented by other existing call (put) warrants already listed on the TPEx, may not exceed 50 percent of the total number of the beneficial units already issued.
    5. If the linked underlying is a Taiwan depositary receipt, the combined total of the number of units of the underlying security represented by the issuance units of the call (put) warrants and the number of units of the same underlying security represented by other existing call (put) warrants already listed on the TPEx, may not exceed 22 percent of the total number of the depositary receipt units already listed on the TPEx, or may not exceed 30 percent thereof in the case of a follow-on issue of call (put) warrants.
    6. If the linked underlying is a foreign depositary receipt, the combined total of the number of units of the underlying security represented by the domestic issuance units of the call (put) warrants and the number of units of the same underlying security represented by other existing call (put) warrants already listed on the TPEx, may not exceed 15 percent of the total number of the depositary receipt units already listed on the TPEx.
    7. If the linked underlying is spot gold that is registered for trading on the TPEx, the combined total of the number of the underlying beneficial units represented by the warrant issuance units and the shares of the same underlyings represented by other existing call (or put) warrants already listed on the TPEx may not exceed the total balance on record in the custody of the spot gold custodian institution on the business day preceding the application day for such underlying.
  4. When the linked underlying is an index, futures, or an exchange-traded fund (ETF), if an authorization is required, the approval of the compiler or the exchange of that fund's underlying index shall be obtained in advance. But this provision shall not apply to a follow-on issuance of call (put) warrants.
  5. In the case of an issue of ETF warrants, futures call (put) warrants, callable bull contracts or callable bear contracts, or extendable callable bull contracts or extendable callable bear contracts, or domestic call (put) warrants with a foreign security or index as the underlying, investors may not apply for exercise until the expiration date of the warrants. A warrant with a foreign security or index as its underlying may not be of the capped/knock-out type, and its exercise and settlement shall be limited to cash settlement only.
  6. The underlying settlement index of the ETF warrants shall be calculated based on the following principles:
    1. If the validity period expires, it shall be calculated based on the simple arithmetic mean of the underlying index during the 30 minutes prior to market close. If the circumstance under Article 35, paragraph 4 of the TPEx Operating Rules exists, the index during the postponement shall be incorporated into the calculation. In the case of extendable callable bull contracts or extendable callable bear contracts, the settlement basis is adjusted based on the return rate of the underlying total return index on the warrant expiration date, through the calculation of "closing index of the underlying index on the business day preceding the date of warrant issuance × return rate." The aforementioned return rate shall be calculated as the "underlying total return index on the warrant expiration date ÷ underlying total return index on the business day preceding the date of warrant issuance." In the case of the expiration of an extension period, for the aforementioned business day preceding the date of warrant issuance, the business day preceding the extension period shall be substituted.
    2. If the closing index of the underlying index reaches the cap/knock-out point and the warrant expires before the expiration date:
      1. For capped call warrants or capped put warrants, it shall be calculated based on the closing index of the underlying index on the last trading day of the warrants.
      2. For callable bull contracts or callable bear contracts, it shall be calculated based on the simple arithmetic mean of the underlying index on the business day following the last trading day of the warrants.
      3. For extendable callable bull contracts or extendable callable bear contracts, the settlement basis is adjusted based on the return rate of the underlying total return index on the business day following the last trading day of such warrant, through the calculation of "closing index of the underlying index on the business day preceding the date of warrant issuance × return rate." The aforementioned return rate shall be calculated as the "underlying total return index on the business day following the last trading day of such warrant ÷ underlying total return index on the business day preceding the date of warrant issuance." In the event of early expiration before the expiration date of an extension period, for the aforementioned business day preceding the date of warrant issuance, the business day preceding the extension period shall be substituted.
  7. The underlying futures settlement price of futures call (put) warrants shall be calculated based on the following principles:
    1. If the validity period expires, it shall be calculated based on the simple arithmetic mean trade price of the underlying futures from 1 p.m. to 1:30 p.m.
    2. If the simple arithmetic mean trade price of the underlying futures reaches the capped call (or put) point during the last minute before 1:30 p.m., and therefore expires early:
      1. For capped call (put) warrants, the settlement price shall be calculated based on the simple arithmetic mean trade price of the underlying futures during the last minute before 1:30 p.m. on the last trading day of the warrant.
      2. For a callable bull contract or callable bear contract, the settlement price shall be calculated based on the simple arithmetic mean trade price of the underlying futures from 9 a.m. to 1:30 p.m. on the next business day after the last trading day of the warrant.
    3. With respect to the mean price referred to in the preceding two items, if during the given period there is no trade price, the settlement price shall be calculated based on the most recent trade price before the given period; if there is no trade price that day, the calculation shall be based on the opening reference price of that day.
  8. The issuance of call (put) warrants shall be handled as follows:
    1. The capped call price or point shall be set at no less than 150 percent of the strike price or point; the capped put price or point shall be set at no more than 50 percent of the strike price or point.
    2. Callable bull contracts or callable bear contracts, and extendable callable bull contracts or extendable callable bear contracts:
      1. The bull/bear contract knock-out price or point shall be set within a range between the closing price of the underlying securities, the average price at closing of the underlying spot gold on the preceding business day, the closing index of the underlying index, or the daily settlement price of the underlying futures on the preceding business day and the strike price or the strike point (inclusive thereof)
      2. The bull contract knock-out price or point shall be set at no more than 90 percent of the closing price of the underlying securities, the average price at closing of the underlying spot gold on the preceding business day, the closing index of the underlying index, or the daily settlement price of the underlying futures on the preceding business day; the bear contract knock-out price or point shall be set at no less than 110 percent of the closing price of the underlying securities, the average price at closing of the underlying spot gold on the preceding business day, the closing index of the underlying index, or the daily settlement price of the underlying futures on the preceding business day.
      3. For extendable callable bull/bear contracts, the bull contract or knock-out price or point shall be set at no more than 70 percent of the closing price of the underlying securities, the average price at closing of the underlying spot gold from the preceding business day, the closing index of the underlying index, or the bear contract knock-out price or point shall be set at no less than 130 percent of the closing price of the underlying securities, the average price at closing of the underlying spot gold from the preceding business day, or the closing index of the underlying index.
      4. The issuer shall also set reset conditions. Any adjustment from resetting of the strike price and knock-out price, or the strike point and knock-out point, shall take effect from the first day of TPEx listing, and the price or point thereof shall still be required to conform with the requirements set out above.
    3. In the case of a follow-on issue of call (put) warrants, the knock-out price or point is the newest knock-out price or point for the warrants, and the issuer shall not set reset conditions.
    4. On the last trading day for extendable contracts, when the knock-out price or point of an extendable callable bull contract reaches no more than 80 percent of the closing price of the underlying security, the average price at closing of the underlying spot gold on the preceding business day, or the closing index of the underlying index, or when the knock-out price or point of an extendable callable bear contract reaches no less than 120 percent of the closing price of the underlying security, the average price at closing of the underlying spot gold on the preceding business day, or the closing index of the underlying index, the issuer shall extend the period of validity of such contract.
    5. The issuance price of callable bull contracts or callable bear contracts shall be calculated as follows:
      1. The issuance price shall be calculated as: the difference between the price of the underlying securities, the average price at closing of the underlying spot gold on the preceding business day, the underlying index, or the daily settlement price of the underlying futures and the strike price or the strike point × exercise ratio + funding cost.
      2. The funding cost is calculated as: funding cost annual rate × strike price or point × (days to expiration ÷ 365) × exercise ratio
    6. The principles for handling early expiration:
      1. Capped call warrants or capped put warrants: When the closing price of the underlying securities, the average price at closing of the underlying spot gold, or the closing index of the underlying index reaches the cap price or point, or the simple arithmetic mean trade price of the underlying futures reaches the cap price or point during the last minute before 1:30 p.m., the current day will be deemed the last trading day for the warrants, and they will expire on the second following business day, requiring automatic settlement in cash based upon the closing price of the underlying securities, the average price at closing of the underlying spot gold, the closing index of the underlying index, or the simple arithmetic mean trade price of the underlying futures during the last minute before 1:30 p.m., on the last trading day for the warrants."
      2. Callable bull contracts or callable bear contracts, and extendable callable bull contracts or extendable callable bear contracts: When the closing price of the underlying securities, the average price at closing of the underlying spot gold, or the closing index of the underlying index reaches the bull/bear contract knock-out price or point, or the simple arithmetic mean trade price of underlying futures reaches the bull/bear contract knock-out price or point during the last minute before 1:30 p.m., the current day will be deemed the last trading day of the contracts, and they will expire on the second following business day, requiring automatic settlement in cash based upon the simple arithmetic mean trade price of the underlying securities, the average price at closing of the underlying spot gold, the underlying settlement index, or the settlement price of the underlying futures on the business day next following the last trading day. If there is no trade price for the underlying securities, then it will be calculated based upon the basis price for the underlying securities at the opening of trading on the expiration date of the contracts. If trading of the underlying securities, the underlying spot gold, or the underlying futures is halted or suspended on the business day next following the last trading day of the warrants and on the expiration date thereof, then it will be calculated based upon the closing price of the underlying securities, the average price at closing of the underlying spot gold, or the daily settlement price of the underlying futures on the last trading day of the contracts.
      3. The underlying settlement index and the underlying futures settlement price mentioned above shall be calculated in accordance with the provisions of subparagraphs 6 and 7.
    7. The daily settlement price of the underlying futures mentioned in this subparagraph means the settlement price set by the TAIFEX based on the trading rules for the respective futures contracts.
  9. The issuance plan shall contain the following terms and conditions:
    1. The issue date and the period of validity.
    2. Detailed information on the linked underlying. When the linked underlying is a domestic stock, if the financial report of the most recent period audited or reviewed by a certified public accountant shows losses by the issuer of the stock, there shall also be a statement of the reason for issuing warrants on the linked underlying. When the linked underlying is a foreign stock or a foreign depositary receipt, there shall be a statement of the status of liquidity of the foreign stock or foreign depositary receipt. When the linked underlying is futures, there shall be a statement of the name and the delivery month of the futures contract.
    3. The type of call (put) warrants, the volume of issuance units and total value of the issue. In the case of extendable callable bull contracts or extendable callable bear contracts, the type of warrant shall be annotated with the wording "extendable". In the case of a follow-on issue of call (put) warrants, the total number of units already issued shall additionally be specified.
    4. Terms of issuance, including issuance price, strike price or point, exercise period and number of shares or beneficial interest units or depositary receipt units or index points or spot gold units or futures points represented per issuance unit. In the case of a contract whose period of validity may be extended, the particulars in item D in the preceding subparagraph shall be specified. In the case of a follow-on issue of call (put) warrants, the strike price or point is the newest strike price or point for the warrants.
    5. Calculation of the issuance price, including the factors referred to in calculating the issuance price, including the price or point of the linked underlying, the strike price or point, period of validity, interest rate, volatility, and any other factors, and a table shall be presented comparing them with other warrants in the preceding year that had the same linked underlying. In the case of issuance of callable bull contracts or callable bear contracts, the issuing price shall be calculated pursuant to the provisions of item E of the preceding subparagraph. But in the case of a follow-on issuance of call (put) warrants, the price per issuance unit shall be the closing price on the date of the application for the follow-on issue.


    6. In the issuance of capped call or put warrants (or callable bear or bull contracts), a description shall be given of the cap or knock-out price or point, and a prominent typeface shall be used to specify matters prescribed in item F of the preceding subparagraph. In the case of extendable contracts, the issuing plan shall also state the matters required for extension under Article 8, subparagraph 3 of the TPEx Procedures for the Review of Call (Put) Warrants.

    7. Matters that shall be recorded as set forth in Point 8 the TPEx Rules Governing Liquidity Providers of Call (Put) Warrants.
    8. Procedures for exercising the warrant and the terms for cancellation of already-exercised call (put) warrants.
    9. Strategies for offsetting foreseeable risks.
    10. The policy regarding adjustment of the strike price of the call (put) warrants or other related items when the issuing company of the underlying securities distributes dividends or bonuses, or conducts a capital increase or decrease, stock split or consolidation, and other related matters, or when the securities investment trust enterprise (SITE) or futures trust enterprise (FTE) distributes dividends on the underlying exchange-trade fund (ETF) or conducts other related matters. If the issuer does not adopt adjustments in accordance with the TPEx reference formula, that fact shall be noted in a prominent typeface in the public offering prospectus. If the underlying is a foreign security, the issuer shall itself determine the formula for adjustment.
    11. Methods of handling when the issuing company of the underlying securities undergoes a merger, or its securities are placed in the altered-trading-method category, or the trading of its securities is halted, suspended, or terminated; or when the index provider announces suspension of the compilation of the underlying index; or when the underlying ETF is terminated due to the dissolution, bankruptcy, or voidance of the approval of the securities investment trust enterprise (SITE) or futures trust enterprise (FTE); or when the TAIFEX announces the halt of trading, suspension of trading, or delisting of the underlying futures; provided that if the stocks are de-listed from the TPEx when the issuing company of the underlying securities transfers its listing to the TWSE, the call (put) warrants may continue trading on the TPEx until the expiration date.
    12. Methods of handling TPEx listing of the call (put) warrants, or halt of trading, suspension of trading, or delisting imposed by the TPEx.
    13. The definition of exercise value upon expiration of the period of validity:
      1. For call warrants with domestic securities, a domestic index, or domestic futures as the underlying, there is exercise value if the simple arithmetic mean trade price of the underlying securities during the 60 minutes before market close on the given day, or the underlying settlement index, or the underlying futures settlement price, is higher than the strike price or point of the call warrant. For put warrants, there is exercise value if, on the given day, the strike price or point is higher than the simple arithmetic mean trade price of the underlying securities during the 60 minutes before market close or than the underlying index. If there is no trade price for the underlying securities during an aforesaid period, then the calculation shall be based on the most recent trade price. If a circumstance under Article 35, paragraph 4 of the TPEx Trading Rules exists, the calculation shall also include the trade price or index during the postponement period. The aforementioned underlying settlement index and underlying futures settlement price shall be calculated pursuant to subparagraphs 6 and 7.
      2. For call warrants with foreign securities or a foreign index as the underlying, there is exercise value if the most recent closing price of the underlying securities or the most recent closing value of the underlying index is higher than the strike price or point of the call warrant. For such put warrants, there is exercise value if the strike price or point is higher than the most recent closing price of the underlying securities or the most recent closing value of the underlying index.
      3. For call warrants with spot gold registered for trading on the TPEx as the underlying, there is exercise value if the average price at closing of the spot gold of the current day is higher than the strike price. For put warrants, there is exercise value if the strike price is higher than the average price at closing of the spot gold of the current day.
      4. Where the terms of exercise require cash settlement, the warrant holder shall be deemed to have expressed its intention to exercise the warrant and to be entitled to request settlement.
    14. Terms stipulating that the securities firm may not substitute another warrant with a period of validity longer than that of the original warrant, or any other security, for the originally issued warrant.
    15. Procedures for delivery/settlement when the warrant holder exercises the warrant.
    16. Terms stipulating that where settlement for exercise of the warrant under the preceding item shall be done in cash, the cash settlement amount shall be calculated based on the closing price of the underlying securities, or the average price at closing of the underlying spot gold on the exercise date. If the exercise date is the expiration date of the warrants, the cash settlement amount shall be calculated on the basis of the simple arithmetic mean trade price of the underlying securities during the 60 minutes prior to market close on the given day, the averaging closing price of the spot gold, or the underlying settlement index or underlying futures settlement price; if there is no trade price during that period, then the calculation shall be based on the most recent trade price. If a circumstance under Article 35, paragraph 4 of the TPEx Trading Rules exists, the calculation shall also include the trade price or index during the postponement period. The aforementioned underlying settlement index and underlying futures settlement price shall be calculated pursuant to subparagraph 6 and 7. However, when the underlying asset is a foreign security or foreign index, the provisions of the TPEx Guidelines for the Exercise of Call (Put) Warrants shall be followed.
    17. Terms stipulating the methods for handling distribution of securities centrally deposited in the Taiwan Depository & Clearing Corporation (TDCC) account where the securities firm fails to perform its obligation of delivery of the linked underlying or cash settlement of the price difference within a prescribed time limit.
    18. Clarification of whether or not there are plans for a reverse issue of call (put) warrants against the same linked underlying within the coming 3 months.
    19. Source and method of disclosure for information such as when the securities exchange on which the underlying foreign security is traded halts or suspends trading of, or delists, the security, or when the index provider announces suspension of compilation of the underlying foreign index.
  10. When a securities firm issues domestic call (put) warrants for which the underlying assets are foreign securities or foreign indexes, it shall disclose, from the applied-for issue date through the expiration date of the warrants, on its company website and the TPEx-designated information reporting website, the up-to-date trading information of the underlying securities or indexes, and enter the following information:.
    1. The annual and semi-annual consolidated financial reports of the company issuing the underlying foreign securities (if the company is not required to prepare consolidated financial reports, enter the individual financial reports), and the issuing company's first-quarter and third-quarter financial reports prepared in accordance with the laws and regulations of its home country or country of listing.
    2. Dividend distributions of the company issuing the underlying foreign securities for the current fiscal year, as proposed and passed by the board of directors and ratified by the shareholders meeting.
    3. Public announcement of acquisition or disposal of assets by the company issuing the underlying foreign securities.
    4. Public announcement of the record date for the distribution of dividends, bonuses, or other benefits by the company issuing the underlying foreign securities.
    5. Material information published by the company issuing the underlying foreign securities in accordance with the laws and regulations of its home country or country of listing.
    6. Other matters that are required to be reported under the rules of the TPEx.
    The average price at closing of spot gold mentioned in the preceding paragraph shall mean the average of the highest bid price and lowest ask price of market makers at the closing for the spot gold registered for trading on the TPEx.
    When the time of occurrence of public announcement of information under any item of paragraph 1, subparagraph 10 by the company issuing the underlying foreign securities occurs during the trading hours [of the TPEx], the securities firm shall immediately enter the information; when such public announcement occurs during non-trading hours [of the TPEx], the securities firm shall enter the information on the current day or before the beginning of trading hours on the next business day following the occurrence.
Article 12     Where any of the following conditions apply, the TPEx may withhold approval for an application by a securities firm for TPEx listing of a projected issue of call (put) warrants:
  1. It has made incomplete submission of required application documents, and it has failed to supplement those documents by the deadline prescribed by the TPEx.
  2. The particulars of its application do not conform to laws and regulations, or there is any falsehood or concealment in the application.
  3. The securities firm or its affiliated company has, during the month preceding application, released any forecast or information relating to the linked underlying of its projected call (put) warrants issue.
  4. When the linked underlying of the projected issue of warrants is a domestic stock, and the securities firm or its directors, supervisors, managerial officers, employees, or shareholders holding 10 percent or more of its shares, or any other company 10 percent or more of whose shares are held by any of the above, are at the same time a director, supervisor, or managerial officer of, or shareholder with a stake of 10 percent or more in the issuing company of the underlying security(ies) or any of the issuing companies of the basket of underlying TPEx securities. But this provision shall not apply to a follow-on issuance of call (put) warrants.
  5. The aggregate amount of the market value and trade prices of the securities firm's currently TWSE listed, TPEx listed, and TPEx contract-based call (put) warrants that have been issued in the ROC and whose period of validity has not yet expired, and call (put) warrants that have been issued in any overseas market and whose period of validity has not yet expired, and the projected issue of call (put) warrants, together with the total amount of the guarantee and the assets provided as security for the offshore call (put) warrants issuing business of its offshore subsidiary, falls under any of the following conditions:
    1. If the issuer is a domestic institution:
      1. For an issuer assessed under the Operational Directions for Securities Firm Risk Management and Assessment Systems and given a level 1 rating, if the aggregate amount exceeds 70 percent of its eligible net regulatory capital.
      2. For an issuer assessed under the Operational Directions for Securities Firm Risk Management and Assessment Systems and given a level 2 rating, if the aggregate amount exceeds 60 percent of its eligible net regulatory capital.
      3. For an issuer assessed under the Operational Directions for Securities Firm Risk Management and Assessment Systems and given a level 3 rating, if the aggregate amount exceeds 40 percent of its eligible net regulatory capital.
      4. For an issuer assessed under the Operational Directions for Securities Firm Risk Management and Assessment Systems and given a level 4 rating, if the aggregate amount exceeds 30 percent of its eligible net regulatory capital.
      5. For an issuer that has not been assessed under the Operational Directions for Securities Firm Risk Management and Assessment Systems, and the aggregate amount exceeds 40 percent of its eligible net regulatory capital.
    2. If the issuer is a foreign institution and the aggregate amount exceeds 60 percent of such issuer's eligible net regulatory capital.
    3. The above-mentioned eligible net regulatory capital shall be calculated based on the method for calculating eligible net regulatory capital set forth in the Regulations Governing Securities Firms.
      The foregoing eligible net regulatory capital applies to ROC securities firms. In the case of a foreign institution, it is calculated by (the net worth on the most recent financial reports of its branch(es) within the Republic of China or branch(es) established within the Republic of China by its wholly owned subsidiaries) x (net available funds exercise ratio).
  6. The securities firm is a foreign institution, and at the time of application to issue call (put) warrants, the dollar amount of funds remitted to Taiwan for hedging purposes (namely the dollar amount of funds remitted to Taiwan minus the funds not required for the current hedging purposes) or the dollar amount of collateral supplied in a form such as certificates of deposit or government bonds pledged to the TPEx or a performance guaranty agreement issued by a financial institution, is less than 20 percent of the market value of the linked underlyings represented by the unexpired TWSE listed and TPEx listed call (put) warrants (including the current issue) and any TPEx contract-based call (put) warrants traded. Or, it has failed to issue a letter of undertaking stating that the premiums collected for the given issue of warrants will not be remitted out of the ROC until after the expiration of the period of validity of the warrants.
  7. There are irregular fluctuations in the price of the underlying security(ies) within the 3 months prior to the date of application, and the TPEx has taken corresponding measures under the Regulations Governing Implementation of the TPEx Monitoring System, or when, on 2 out of the 6 preceding business days, the TPEx has announced a notice of attention to trading information for the underlying security(ies).
  8. There is any other factor arising out the nature of the enterprise or exceptional circumstances that may be deemed to have an adverse effect on the applicant's ability to perform on the warrant or the price of the linked underlying.
  9. On the date of application, the financial and operational indicators for the securities issuer under the Key Financials Section of the Market Observation Post System contains a warning indication. This does not apply, however, in the case of a follow-on issue of call (put) warrants.
Article 12-1      After an issuer has obtained competent authority approval as a qualified call (put) warrants issuer, the TPEx may assess, give ratings to, and supervise the issuer, Rules governing issuer ratings will be separately adopted by the TPEx.
Article 12-2      A securities firm may apply to cancel non-outstanding issuance units when 1 month has elapsed after the initial TPEx listing of its call (put) warrants, but the issuance units remaining after cancellation may not be less than 10 percent of the total number of issuance units of the initial issue.
     With respect to call (put) warrants for which the linked underlying is domestic stocks or Taiwan depositary receipts (TDRs), under the circumstances that the total number of shares of the underlying security represented by the issuance units of the call (put) warrants reaches 20 percent or more of the total number of issued shares of the issuing company after deduction of all types of shares or TPEx-listed TDR units as specified in the items under subparagraph 3, paragraph 1, Article 11, if, within 2 months before the expiration date of the warrants, the outstanding issuance units constitute less than 10 percent or less than 5 percent of the actual total number of issuance units, the securities firm shall, within 2 business days counting inclusively from the next business day following the date of the event's occurrence, apply for cancellation of TPEx listed issuance units pursuant to the following provisions, with the exception of warrants and extendable callable bull contracts and extendable callable bear contracts issued pursuant to the rules governing ratings for issuers of call (put) warrants:
  1. If the outstanding issuance units constitute less than 10 percent of the actual total number of issuance units, 70 percent of the actual total number of issuance units shall be cancelled.
  2. If the outstanding issuance units constitute less than 5 percent of the actual total number of issuance units, 80 percent of the actual total number of issuance units shall be cancelled.
     The "actual total number of issuance units" referred to in the preceding paragraph shall be calculated pursuant to Article 9, paragraph 2.
Article 12-3      When an issuer applies to issue extendable callable bull contracts and extendable callable bear contracts, it shall, after obtaining approval from the TPEx, conduct the issuance pursuant to Point 8 of the TPEx Procedures for the Review of Call (Put) Warrants.
     The issuer shall adjust the strike price or point on the day preceding the extension period, to collect the relevant funding cost for the extension period, and deduct the funding cost already collected for the period from the business day following the original last trading day to the original expiration date, for the purpose of ensuring that the strike value before the extension plus the aforementioned deducted funding cost equals the strike value after the extension plus the funding cost for the extension period. If the underlying is an index, the settlement basis shall be adjusted based on the return rate of the underlying total return index on the day preceding the extension period, through the calculation of "closing index of the underlying index on the business day preceding the date of warrant issuance × return rate." The aforementioned return rate shall be calculated as "underlying total return index on the day preceding the extension period ÷ underlying total return index on the business day preceding the date of warrant issuance." In the event of multiple extensions of periods of validity, for the aforementioned business day preceding the date of warrant issuance, the day preceding the previous extension period shall be substituted.
    If the underlying is a security, spot gold, or index, the strike price or point shall be adjusted based on the following methods; the knock-out price or point shall be adjusted according to the fluctuations of the strike price or point before and after the extension:
  1. Strike price of callable bull contracts after extension = strike price before extension × (1 - funding cost annual rate before extension × number of days from original last trading day until original expiration date ÷ 365) ÷ (1 - funding cost annual rate after extension × number of days in the extension period ÷ 365 ).
  2. Strike price of callable bear contracts after extension = strike price before extension × (1 + funding cost annual rate before extension × number of days from original last trading day until original expiration date ÷ 365) ÷ (1 + funding cost annual rate after extension × number of days in the extension period ÷ 365 ).
  3. Strike point of callable bull contracts after extension = [strike point before extension × (1 - funding cost annual rate before extension × number of days from original last trading day until original expiration date ÷ 365) + closing index of underlying index on the day preceding the extension period - index after adjustment of settlement basis] ÷ (1 - funding cost annual rate after extension × number of days in the extension period ÷ 365 ).
  4. Strike point of callable bear contracts after extension = [strike point before extension × (1 + funding cost annual rate before extension × number of days from original last trading day until original expiration date ÷ 365) + closing index of underlying index on the day preceding the extension period - index after adjustment of settlement basis] ÷ (1 + funding cost annual rate after extension × number of days in the extension period ÷ 365 ).
Article 13     In the case of TPEx listing of a call (put) warrant where the securities firm has obtained approval documents from the TPEx, the securities firm shall sign a TPEx listing contract for call (put) warrants with the TPEx, and the TPEx will announce TPEx listing of the warrants after the TPEx listing contract takes effect.
    After the TPEx listing contract referred to in the preceding paragraph takes effect, the TPEx may rescind the contract under any of the following circumstances, and report to the competent authority for recordation:
  1. Where, prior to TPEx trading, there is a discovery by the TPEx of any circumstance that does not comply with any subparagraph of Article 8, paragraph 1.
  2. The securities firm applies to rescind the contract.
    For the already-issued call (put) warrants in the preceding paragraph, the securities firm shall return the price with statutory interest included within 10 days from receipt of TPEx notice of approval for rescission of the TPEx listing contract.
Article 13-1     When any of the following circumstances applies to the linked underlying assets of domestic call (put) warrants issued by a securities firm, the securities firm shall immediately report to the TPEx:
  1. The securities exchange on which the underlying foreign securities are traded halts, suspends, or terminates the trading of the securities.
  2. The provider of the underlying foreign index suspends the compilation of the underlying foreign index.
Chapter IV TPEx Contract-Based Call (Put) Warrant Business Conducted by Securities Firms
Article 14     Where the conditions of a call (put) warrant, including its underlying security(ies), expiration date, strike price, exercise method, and exercise ratio are agreed upon, contractually signed, and traded between the securities firm and investor at the place of business of the securities firm, and the warrant is not listed for trading on the TWSE or TPEx, it is a TPEx contract-based call (put) warrant.
    Where a securities firm referred to in the preceding paragraph is a foreign institution, an enterprise operated by its branch office within the territory of the ROC or by a branch office established within the territory of the ROC by its directly or indirectly wholly owned subsidiary shall also comply with the preceding paragraph, and that enterprise shall be responsible for matters relating to trading, execution, and information disclosure for TPEx contract-based call (put) warrants.
Article 15     When applying to the TPEx for approval of TPEx contract-based call (put) warrants that it intends to trade with customers, a securities firm shall submit to the TPEx an application for trading of TPEx contract-based call (put) warrants (Attachment 2), a contract for trading of TPEx contract-based call (put) warrants, specifying related stipulations, along with any required documents, and shall enter information including basic information on the call (put) warrants into the internet information reporting system designated by the TPEx. Trading may not begin until after the TPEx has reviewed and approved the application and issued an approval letter. The TPEx shall on a monthly basis compile the securities firms' application case materials and forward them to the competent authority for recordation.
    Before a securities firm trades in TPEx contract-based call (put) warrants with an investor, where the warrants are exercised by delivery of the underlying securities, the investor shall first open a central securities depository account.
    TPEx contract-based call (put) warrant business advertising and business promotion activities shall be subject to the mutatis mutandis application of the Taipei Exchange Code of Conduct for Advertising, Solicitation, and Business Promotion Activities for Derivatives Business Engaged in by Securities Firms Trading on the TPEx.
Article 16     A securities firm applying to the TPEx for approval of TPEx contract-based call (put) warrants it intends to trade shall comply with all of the following subparagraphs:
  1. Investors therein shall be limited to offerees of private placements as specified in Article 43-6, paragraph 1, subparagraphs 1 and 2 of the Securities and Exchange Act.
  2. Directors, supervisors, managerial officers, and major shareholders with shareholding of 10 percent or more, of the issuer of the underlying securities may not hold the TPEx contract-based call (put) warrants.
  3. The securities firm and its directors, supervisors, managerial officers, major shareholders with a 10 percent or greater shareholding, and employees may not hold the TPEx contract-based call (put) warrants.
  4. Duration: counting from the trade date, the duration must be not less than 28 days and not more than 5 years.
  5. Each trading unit shall represent one share (or a basket of single shares), or 10 issuance units shall represent one share (or a basket of single shares), or the number represented may be freely stipulated in the trading contract.
  6. The total of the number of shares of the underlying securities purchasable (sellable) under the trading units thereof, plus the number of shares of the underlying securities purchasable (sellable) under all TPEx contract-based call (put) warrants that have currently been traded by all securities firms and have not yet expired, plus the number of shares of the underlying securities purchasable (sellable) under TPEx contract-based call (put) warrants traded overseas by all securities firms and/or their externally engaged institutions, may not exceed 3 percent of the total number of shares issued by the issuer of the underlying securities less the shares in all of the following items:
    1. The statutory shareholding percentages required of all directors and supervisors.
    2. Shares under pledge.
    3. The number of shares of newly TWSE listed or TPEx listed companies placed in compulsory central custody.
    4. Shares that have been bought back but not yet cancelled in accordance with the Regulations Governing Share Repurchase by TWSE Listed and TPEx Listed Companies.
    5. Shares that the competent authority has restricted for TWSE listing or TPEx listing.
  7. It shall submit explanatory information on the strategy for offsetting foreseeable risk.
  8. Where the securities firm handling TPEx contract-based call (put) warrants is a foreign institution, and at the time of the application to trade call (put) warrants, the inward remittance of capital required for a hedge on the issue (the amount remitted into Taiwan, minus the amount not required for hedge on the issue) shall be greater than or equal to the market value of the underlying securities represented by the unexpired TWSE listed and TPEx listed call (put) warrants (including the current issue) and any TPEx contract-based call (put) warrants issued or traded; additionally, it shall issue a letter of undertaking stating that the premiums collected for the given issue of warrants will not be remitted out of the ROC until after the expiration of the period of validity of the warrants.
  9. The trading contract signed between a securities firm and an investor engaging in trading of TPEx contract-based call (put) warrants shall include at least the following provisions:
    1. Name, ID number (or uniform serial number of a profit-seeking enterprise or tax withholding entity; or, if an overseas Chinese, foreign national, or mainland Chinese investor, the ID number obtained from the TWSE), and address of the prospective investor.
    2. Trade date, expiration date, and duration.
    3. Detailed information on the underlying securities or basket of securities.
    4. Stipulations such as the type of call (put) warrants, total volume of trading units, exercise ratio, strike price, and value.
    5. The method for performance when the investor exercises the right to requests exercise of the warrants.
    6. If the exercise method under the preceding paragraph is cash settlement, the method for determining the closing price of the underlying securities used for the cash settlement amount.
    7. Methods and time limits for collection/delivery of funds in connection with trades, exercise, cancellation, or expiration.
    8. Provisions relating to the procedures for requesting exercise or rescission.
    9. Stipulations regarding adjustment of the strike price and exercise ratio of the call (put) warrants and related matters in tandem with events on the part of the issuer of the underlying securities such as distribution of dividends and bonuses, increases or reductions in capital, stock splits, mergers or consolidations, and other related matters.
    10. Methods of handling merger by the company issuing the underlying securities, or alteration of the trading method, suspension of trading, or de-listing from the TWSE or the TPEx of the securities.
    11. Measures to be taken in the event there is a transfer of business or suspension of trading business by the securities firm.
    12. Clause prohibiting transfer of the trading contract.
    13. Method for refund of any price already paid by the investor in the event the trading contract is not approved by the TPEx, and related stipulations.
    14. Channel for the investor to file a complaint in the event of any dispute regarding the transaction, and applicable law and court of jurisdiction in the event of a legal dispute.
    15. Breach handling and compensation provisions.
Article 17     The underlying securities of TPEx contract-based call (put) warrants for which a securities firm applies to the TPEx for approval to trade shall be limited to stocks that the TWSE or the TPEx has announced may be underlying securities of an issue of call (put) warrants.
Article 18     When a securities firm applies to the TPEx for approval of a TPEx contract-based call (put) warrant that it intends to trade, the TPEx may deny approval if any circumstance in the following subparagraphs is present:
  1. The application documents are incomplete, and it fails to supplement the required documents by the deadline prescribed by the TPEx.
  2. Particulars of the application do not comply with acts or regulations, or there is any falsehood or concealment.
  3. The securities firm or any affiliate company thereof has, during the month preceding application, released forecasts or information relating to the price of the underlying securities of the TPEx contract-based call (put) warrants.
  4. The securities firm or its directors, supervisors, managerial officers, employees, or shareholders holding 10 percent or more of its shares, or any other company of which 10 percent or more of the shares are held by any of the above, are at the same time a director, supervisor, or managerial officer of, or shareholder with a stake of 10 percent or more in the issuing company of the underlying securities or any of the issuing companies of the basket of underlying TWSE listed or TPEx listed securities.
  5. The circumstance under Article 12, subparagraph 5 of these Rules exists.
  6. There has been any irregular fluctuation in the price of the underlying securities within the 3 months prior to the date of application, and a disposition has been imposed by the TWSE or TPEx under market monitoring system regulations; or the TWSE or the TPEx has made an announcement for attention with respect to the underlying securities on two of the six business days prior to the date of application.
  7. There is any other factor arising out of the nature of the enterprise or exceptional circumstances that may be deemed to adversely affect the applicant's ability to perform on the warrant or the price of the underlying securities.
  8. Any financial or business indicator of the issuer of the underlying securities is marked with a warning in the Key Financials Section of the Market Observation Post System (MOPS) on the day of application.
Chapter V Call (Put) Warrant Hedging and Liquidity Provision
Article 19     A securities firm issuing for the first time domestic or overseas call (put) warrants for which the underlying securities are domestic securities or spot gold shall apply to the TPEx to open a segregated account. Where the securities firm is self-hedging or partially self-hedging, the account shall be used both for establishing a hedge position after issuance of the warrants and as a settlement account when investors afterwards exercise the warrants. Where the securities firm entrusts another institution with hedging, the segregated account shall be used as a settlement account when investors exercise the warrants, and the risk management institution is also required to open an account with the securities firm for the purpose of establishing hedge positions after issuance of the warrants.
    The relevant provisions of the preceding paragraph shall apply mutatis mutandis to a securities firm conducting TPEx contract-based call (put) warrant business.
    The segregated account of a securities firm, as referred to in paragraph 1, shall be established under its dealer account number. A domestic issuer's account number shall be 888888-8, except a foreign securities firm submitting an application through a branch unit established within the territory of the Republic of China by a directly or indirectly wholly owned subsidiary, in which case the foreign securities firm shall establish a hedge account at the securities brokerage department of that branch unit; the hedge account opened by a risk management institution with the securities firm shall be established at the securities brokerage department. The account numbers for the above-mentioned hedge accounts shall be first reported to the TPEx, and may only be used for trading in financial hedging instruments for hedging purposes. In addition, the securities in the segregated hedge account shall under no circumstances be pledged.
Article 20     Where a risk management institution is a foreign institution and is concurrently performing risk management for more than one securities firm with respect to call (put) warrants issue, that institution shall, at the time of application by the securities firm for review of the call (put) warrants, provide documentation supporting that it has registered to invest on the ROC securities market.
Article 21     The financial instruments that a securities firm may employ in warrant hedging shall be linked underlyings, related securities, or financial derivatives.
    A securities firm's hedge positions in TPEx call (put) warrants, contract-based call (put) warrants, structured instruments, equity derivatives, and overseas call (put) warrants of the same linked underlyings may be mutually offset.
Article 22      A securities firm or its appointed risk management institution may, because of warrant hedging needs, borrow and sell the underlying securities in accordance with Article 82-2 of the TWSE Operating Rules or by borrowing them from a securities firm or securities finance enterprise that operates securities borrowing and lending business. When a domestic issuer or a foreign issuer's branch within the ROC is self-hedging, it furthermore may employ short sales of the underlying securities as a hedging instrument.
    Where a securities firm employs short sales of the underlying securities as a hedging instrument in accordance with the preceding paragraph, it shall open a margin account with another securities firm or with a non-affiliate securities finance enterprise, and report to the TPEx by letter the information relating to such account.
    The provisions of this article shall apply mutatis mutandis to securities firms engaging in TPEx contract-based call (put) warrant hedging operations.
Article 23     The dealing department of a securities firm, when trading for its own account or when trading to hedge against call (put) warrants it has issued or traded, may not affect fair market prices or otherwise prejudice the rights or interest of investors, and shall have established and implemented an effective system of internal controls over such operations.
    A securities firm shall report by letter to the TPEx by the 5th day of each month the relevant information (including the trade dates and names and quantities of the linked underlyings) for the linked underlyings of any of its own issued warrants purchased and sold by its dealing department for its own account during the preceding month.
    The provisions of the preceding two paragraphs shall apply mutatis mutandis to an external risk management institution employed by a securities firm that outsources hedging, or, where a securities firm is a foreign institution, to the dealing department of its branch office within the territory of the ROC or of a branch office established within the territory of the ROC by its directly or indirectly wholly owned subsidiary.
    Unless in circumstances otherwise prescribed, during the period of validity of call (put) warrants, positions in the same linked underlyings may not be transferred between the securities firm's dealing department and hedge account.
    The dealing department under the preceding four paragraphs includes any business unit or trading account equivalent to a dealing department.
    The provisions of all paragraphs of this article shall apply mutatis mutandis to a securities firm engaging in TPEx contract-based call (put) warrant hedging operations.
Article 24     (Deleted)
Article 25     A securities firm may serve as the liquidity provider itself or otherwise appoint another liquidity provider to provide liquidity for the issued warrants; the regulatory requirements governing liquidity providers shall be separately prescribed by the TPEx.
Chapter VI Handling of Violations
Article 26     When a securities firm applying for issuance of call (put) warrant applies for trading of contract-based call (put) warrants, the TPEx may deny approval for the application if any of the following circumstances is present:
  1. There has been any disclosure of information relating to the underlying securities of those warrants has been made in the media in the week prior to the securities firm's application.
  2. There has been any release or citation of information relating to the underlying securities for purposes of promoting the items under application.
Article 27     When any of the following circumstances applies to a securities firm, the TPEx may notify it to exercise care and make corrections:
  1. The securities firm or its appointed risk management institution violates Article 23, paragraph 1.
  2. Prior to the application for issuance of call (put) warrants, it releases or divulges on its own initiative information about the application for the issue, unless under the circumstances set forth in Article 11, paragraph 1, subparagraph 9, item R exist
  3. It violates any provision of Article 15, paragraph 3, in its conducting of contract-based call (put) warrant business.
  4. The securities firm or its appointed risk management institution is deficient in its reporting, public announcement, or disclosure of required matters with respect to the application to be a qualified call (put) warrants issuer, the application for issuance of warrants, or relevant matters during and after the period of validity of the warrants.
  5. Any other violation of TPEx rules relating to call (put) warrants.
Article 28     When a securities firm, within 1 year after having been notified by the TPEx to exercise care and make corrections under the preceding article, again commits the same violation, the TPEx may impose a penalty of NT$30,000 to NT$100,000; if the circumstances of the violation are serious in nature, the TPEx may at its sole discretion handle the matter pursuant to Article 29.
Article 29     When any of the following circumstances applies to a securities firm, the TPEx may suspend acceptance for 1 month of applications from the securities firm in connection with call (put) warrants:
  1. Any circumstance under Article 13, paragraph 2.
  2. Any circumstance under Article 26, subparagraph 2, where serious in nature.
  3. Commission again of the same violation, where the circumstances are serious, within 1 year after having been notified by the TPEx to exercise care and make corrections under Article 27.
Article 30     Where any of the following circumstances applies to a securities firm, the TPEx may suspend acceptance for 3 months of applications from the securities firm in connection with call (put) warrants:
  1. (Deleted)
  2. A securities firm conducting TPEx contract-based call (put) warrant business fails to faithfully exercise due diligence and care with respect to an investor or a party authorized by the investor, resulting in a circumstance listed below, and such circumstance has been investigated and confirmed by the TPEx or the competent authority:
    1. The investor or a party authorized by it is a dummy account, or conducts a transaction under a false name or a shell entity or corporation.
    2. The investor is an insider of the target company, or a director, supervisor, managerial officer, major shareholder with a 10 percent or greater shareholding, or employee of the securities firm.
Article 31     When a securities firm violates Article 13-1, the TPEx may impose a penalty of NT$100,000.
    When a securities firm, within 1 year after having a penalty imposed by the TPEx under the preceding paragraph, again commits the same violation, the TPEx may impose a penalty of NT$500,000. If the circumstances of the violation are serious, the TPEx may additionally suspend acceptance for 1 month to 3 months of applications from the securities firm for issuance or trading of warrants.
Chapter VII Supplementary Provisions
Article 32      Where the TPEx issues a letter to an issuer requiring it to exercise care and make corrections, imposes a breach penalty on an issuer, restricts an issuer from applying for issuance of warrants for a prescribed period of time, or suspends issuance of warrants, the TPEx shall submit a copy to the competent authority.
     Where the TPEx has suspended the issuance of warrants by an issuer due to a circumstance in Article 8, paragraph 1, in addition to the requirement that the period of any disposition of suspension of business must have expired, if the circumstance has been specifically corrected, issuance may be resumed only once the TPEx has notified the issuer in writing of its approval, with a copy to the competent authority. In the case of a disposition imposed by the competent authority, the status of the correction is subject to approval by the competent authority.
    Where a penalty is imposed under Article 27 or 31, the securities firm shall remit the payment to the TPEx within 5 days from the date on which it receives the notice thereof from the TPEx.
Article 33     These Rules, and any amendments hereto, shall take effect upon approval by the competent authority.