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1     Scope of application
    When a borrower applies to borrow securities, the provision, substitution, and withdrawal of collateral and the reimbursement of rights and dividends by the borrower, and the marking to market, calls for collateral, and disposition of collateral by the Taiwan Stock Exchange Corporation (TWSE), shall be carried out in accordance with these Directions.
2     Provision of collateral in applications for securities borrowing
  1. When applying to borrow securities, a borrower shall have its securities borrowing account number, the name and amount of securities borrowed, the redelivery date, and the transaction fees entered into the TWSE securities lending system by its securities firm. At the same time an itemized list of collateral in the form of cash, TWSE listed and GTSM listed securities exclusive of book-entry central government bonds ("TWSE and GTSM listed securities"), book-entry central government bonds, and bank guarantees shall be entered.
  2. When a borrower provides cash as collateral, the borrower shall remit the cash into the TWSE-designated virtual bank account and request the securities firm to carry out collateral reporting through the TWSE securities lending system. Cash collateral remitted into a single securities borrowing account may be provided, in amounts designated by the borrower, as collateral for different securities borrowing applications.
    A borrower that applies to open an account shall designate a bank account, and a corresponding virtual account will be assigned by the TWSE. All submissions of collateral in the form of cash shall be made through the given virtual account.
    The currencies for cash collateral are the New Taiwan Dollar (NTD), United States Dollar (USD), Euro (EUR), Japanese Yen (JPY), British Pound (GBP), Australian Dollar (AUD), and Hong Kong Dollar (HKD), in units no smaller than 1 Dollar, Euro, Yen, or Pound, as the case may be.
  3. When a borrower provides TWSE and GTSM listed securities as collateral, then after the name and amount of the TWSE and GTSM listed securities have been entered by the securities firm, the TWSE will notify the central securities depository to transfer the securities into the TWSE securities collateral account.
    The TWSE and GTSM listed securities shall be provided in amounts that are integral multiples of trading units. The collateral value of the securities is obtained by multiplying the current day auction reference price at market opening on the TWSE or the current day base price for opening of trading on the GTSM by the valuation percentage.
  4. A borrower that provides a bank guarantee as collateral shall first complete the guarantee procedures with the bank. After applying to the TWSE through the securities firm, the borrower shall deliver the original of the guarantee document to the TWSE, which will enter the name of the bank, the amount of the guarantee, and the maturity date. Only after these procedures are completed can the bank guarantee be used in applications for securities borrowing.
    When multiple bank guarantees are provided as collateral through a single securities borrowing account, the guarantees may be provided, in amounts designated by the borrower, for use in different applications for securities borrowing.
    From the second business day before its maturity date, a bank guarantee document may no longer be used as collateral. When multiple bank guarantee documents have differing maturity dates, the earliest of the maturity dates will apply.
    The currency of bank guarantee documents is the New Taiwan Dollar.
  5. A borrower that provides a book-entry central government bond as collateral shall create a registration of pledge of the bond. After a registration of restricted transfer has been made by the clearing bank, the bond shall be transferred into a book-entry government bond account with the clearing bank designated by the TWSE. .
    A bond under the preceding paragraph may not be used in an application for borrowing until the TWSE has entered the government bond code, par value, and maturity, and provided the book-entry central government bond serial number to the securities firm. .
    A borrower may combine multiple types of book-entry central government bonds in one collateral deposit, to which the TWSE will assign one book-entry central government bond serial number, or may divide one book-entry central government bond into multiple collateral deposits, to which the TWSE will assign multiple book-entry central government bond serial numbers. .
    The maturity date of book-entry central government bonds shall cover the redelivery date. When multiple types of book-entry central government bonds are combined into one collateral deposit, if the bonds have different maturity dates, the nearest maturity date shall control. .
    The collateral value of book-entry central government bonds shall be calculated as 90 percent of the par value.
3     Applications for collateral substitution
  1. A securities borrower may apply to increase, decrease, or substitute a different type of collateral during the borrowing period.
  2. A securities borrower that makes a collateral substitution through a securities firm by means of the TWSE securities lending system shall first submit extra collateral, then apply to withdraw an amount of the originally provided collateral within the value of the extra collateral.
  3. Submission and withdrawal of collateral when making substitutions of cash, bank guarantees, and book-entry central government bonds are performed in the manner set out under Points 2.2, 2.4, 2.5 and Point 4.3 of these Directions.
  4. Submissions and withdrawals of collateral in substitutions of TWSE and GTSM listed securities are effected by TWSE notification of the central securities depository to immediately transfer the securities between the TWSE securities collateral account and the borrower's central depository settlement account.
  5. If the TWSE or GTSM listed securities, bank guarantees, or book-entry central government bonds provided by a borrower are found by TWSE review to be ineligible, the TWSE will on the same day notify the borrower to make a substitution. The borrower shall make a substitution of eligible collateral by the following business day.
    If collateral is reviewed and found to be ineligible, the value of that collateral on the given day will be taken as zero for purposes of calculating the collateral maintenance ratio.
4     Applications for withdrawal of collateral
  1. When collateral provided by a securities borrower exceeds the required ratio, the borrower may apply for a withdrawal of collateral within the stipulated period through a securities firm by means of the TWSE securities lending system.
  2. When a securities borrower returns securities and applies to withdraw collateral, the TWSE must first confirm its receipt of the securities borrowing fees payable by the borrower before the collateral will be returned.
  3. Upon receipt of a securities borrower's application for a withdrawal, the TWSE will on the same day produce the relevant statements for return of the collateral, which will be carried out as follows:
    1. Cash: Cash will be transferred directly into the securities borrower's bank account on the following business day.
    2. TWSE and GTSM listed securities: The TWSE will notify the central securities depository on the same day or the following business day to transfer the securities into the securities borrower's central securities depository account.
    3. Bank guarantees: The original of the bank guarantee document will be returned to the securities borrower on the following business day.
    4. Book-entry central government bonds: Cancellation of the pledge registration will be carried out the same day or the following business day. After the clearing bank cancels the restricted transfer registration, the bonds will be transferred into the securities borrower's designated clearing bank book-entry government bond account.
5     Reimbursement of rights and dividends
  1. Interest on cash collateral will be paid to the securities borrower by the TWSE at the demand deposit interest rate of the TWSE-designated bank.
  2. For TWSE and GTSM listed securities provided as collateral, the TWSE will produce a share title transfer list and electronic data file for delivery to the central securities depository on the business day preceding the issuer's book closure date, and carry out transfer of title on behalf of the borrower with the issuer or its shareholder services agent.
  3. Interest on book-entry central government bonds provided as collateral will be stipulated as belonging to the securities borrower at the time pledge is created on the bonds.
6     Marking to market and collateral calls
  1. The TWSE marks securities to market each day after 3 p.m. to calculate the collateral maintenance ratio required for each securities borrowing transaction. Marking to market for TWSE and GTSM listed securities uses the current day closing price, except on the three business days preceding the ex-rights or ex-dividend date, when it uses the current day's closing price minus the value of the dividend, or minus the value of the right determined based on the current day's closing price.
  2. When the collateral maintenance ratio drops below the minimum collateral ratio, the TWSE shall immediately issue a collateral call through the borrower's securities firm, and the borrower shall supplement the collateral before 3 p.m. on the following business day to restore the collateral maintenance ratio to the required collateral level.
  3. The TWSE calculates the collateral maintenance ratio for each securities borrowing transaction after 3 p.m. each business day, which the securities borrower can obtain by inquiry through the borrower's securities firm. The TWSE will additionally produce a collateral call notice for any transaction with an insufficient maintenance ratio and notify the borrower's securities firm by transmission of electronic files after 3:30 p.m. the same day. Upon receipt of the collateral call notice, the securities firm shall immediately notify the borrower to allow the borrower to make a timely supplementation on the business day following TWSE notification.
  4. A borrower supplementing collateral in the form of cash, bank guarantees, or book-entry central government bonds shall submit the collateral in accordance with Points 2.2, 2.4, and 2.5 of these Directions. A submission of TWSE and GTSM listed securities for collateral supplementation will be effected by TWSE notification of the central securities depository to make an immediate transfer.
7     Disposition of collateral
  1. When any of the circumstances under the subparagraphs of Article 39, paragraph 1 or under Article 43, paragraph 2, subparagraph 2 of the Taiwan Stock Exchange Corporation Securities Borrowing and Lending Rules occur with respect to a securities borrower in a fixed-price or competitive auction transaction, the TWSE, on the date of the occurrence (D), will produce the relevant statements and electronic files and will begin disposition of the collateral on the following business day (D+1), engaging a securities firm to submit a quote to repurchase the subject securities from the TWSE or GTSM market for return of securities and satisfaction of the loan. If the TWSE is unable to repurchase the securities within two consecutive business days after the occurrence of the circumstance, it will use the closing price on the second business day (D+2) as the basis of calculation and reimburse the equivalent value in cash. The repurchase price or the cash reimbursement will be deducted from the collateral or advanced by the TWSE.
  2. Disposition of TWSE and GTSM listed securities collateral will be handled through a Taiwan Stock Exchange Corporation Securities Borrowing and Lending Transaction Account opened at a securities firm by the TWSE. Beginning from the business day designated for disposition of the securities, the TWSE may engage a securities firm to place a sell order on the TWSE or the GTSM; if no trade is executed after the sell order is placed, the sell order shall be placed again on the following business day and continue to be placed until the trade is executed.
  3. Dispositions of cash collateral will be made to obtain the repurchase price of securities or to defray related fees; the disposition of bank guarantee collateral will be by direct redemption at the issuing bank by the TWSE.
  4. Disposition of book-entry central government bond collateral will be effected by TWSE exercise of pledge rights through the clearing bank and subsequent sale of the bonds on the market.
  5. Any fees incurred by the TWSE as the result of a default shall be borne by the securities borrower.
  6. After disposition of collateral, the TWSE will return to the securities borrower any excess after clearing of related debts, and will collect from the borrower any funds necessary to clear related debts if proceeds from the disposition are insufficient.