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1     These Directions are prescribed pursuant to Articles 50 and 67 of the Futures Trading Act, Article 47 of the Regulations Governing Futures Commission Merchants, Articles 53, 54, 79, 84 and 93 of the TAIFEX Operating Regulations, Article 2 of the TAIFEX Methods and Standards for Receipt of Clearing Margins, and Article 10, paragraph 6 of the TAIFEX Regulations for Trading of Stock Option Contracts.
2     Futures commission merchants and clearing members shall carry out operations in relation to deposits by stock call option writers of underlying securities as margin in accordance with these directions as well as the Futures Trading Act and other relevant acts and regulations; matters not provided for herein shall be governed by relevant TAIFEX rules, regulations, public announcements and notices.
3     For the purpose of carrying out operations in relation to deposit by a stock call option writer of underlying securities as margin, the TAIFEX may authorize a centralized securities depository enterprise or other institution to establish a "margin account for deposit of underlying securities for call option writing" for receipt/delivery and custody of such underlying securities.
    Dividends, bonuses, or other interests distributed by the issuer for the underlying securities deposited by the futures trader in the segregated account under the preceding paragraph shall belong to such futures trader.
    The clearing member shall not credit the value of the underlying securities deposited by the futures trader into the TAIFEX "margin account for deposit of underlying securities for call option writing" to the margin account equity of such futures trader and its authorized futures commission merchant.
    The TAIFEX shall not credit the value of the underlying securities deposited by the futures trader into the TAIFEX "margin account for deposit of underlying securities for call option writing" to the margin account equity of the clearing member.
4     Futures commission merchants and clearing members shall carry out operations in relation to deposits by stock call option writers of underlying securities as margin in compliance with Article 53 of the TAIFEX Operating Regulations; upon the deposit of underlying securities by a stock call option writer into the TAIFEX "margin account for deposit of underlying securities for call option writing," such operations shall be carried out in the following order on the next business day; provided, the procedures for deposit of underlying securities as margin do not apply to basket trading orders and combination of assigned positions:
  1. release the margin required for the open positions from such call option writing.
  2. use the released margin as the margin required for such call option writing.
    The futures commission merchant and the clearing member shall credit to the futures trader's margin account equity the margin released by such futures trader in the form of underlying securities to satisfy the margin requirement for the open positions from the call option writing.
    The provisions of Article 10, paragraph 2, of the TAIFEX Regulations for Trading of Stock Option Contracts in relation to daily mark-to-market adjustment of the margin required for short positions held by principals do not apply to a clearing member dealing with the open positions in relation to deposit by the futures trader and the engaged futures commission merchant of the underlying securities as trading margin for stock call option writing.
    As regards the open positions in relation to deposit by the clearing member of the underlying securities as margin required for the stock call option writing, the TAIFEX is exempted from carrying out daily equity mark-to-market settlement that is based on the difference between the transaction price and the settlement price for a given transaction date or on the difference between the daily settlement price and the settlement price for the previous business day.
5     When carrying out operations in relation to deposits by stock call option writers of underlying securities as margin, futures commission merchants and clearing members shall ensure that a call writer deposits the underlying securities for an option contract in the number of shares required for settlement and delivery at the maturity of the option contract.
    As regards the operations by the futures commission merchant and clearing member under the preceding paragraph, in the event that the TAIFEX makes a contract adjustment as a result of a cash dividend distribution, conversion from capital reserve or earnings to capital, or cash capital increase on the part of the issuer of the underlying securities, the call option writer shall deposit a required number of shares of the underlying securities for each contract as if such contract adjustment has not occurred.
    In the event that the TAIFEX makes adjustment to a stock option contract as a result of a capital reduction or statutory consolidation on the part of the issuer of the underlying securities, the futures commission merchant and clearing member shall, in relation to the open positions for which underlying securities have been deposited as margin required for the call option writing, notify the call option writer to deposit the margin in cash and withdraw the deposited underlying securities beginning from the fifth business day before (counting inclusively of) the book closure day for such capital reduction or statutory consolidation, and shall not accept any new orders placed thereafter having the deposit of such underlying securities as the margin required for call option writing.
    When making adjustment to the stock option contract as a result of a capital reduction or statutory consolidation by the issuer of the underlying securities, the TAIFEX shall, through the clearing member and the futures commission merchant, notify the futures trader to withdraw the number of shares of the underlying securities that have not been deposited as margin for call option writing, as shown on the Summary of Deposits of Underlying Securities as Margin for Short Positions in Call Options.
6     At 8: 30 a.m. of each business day, the TAIFEX will prepare a "Summary of Deposits of Underlying Securities as Margin for Short Positions in Call Options: Before Market," broken down by clearing member and stating the number of shares of underlying securities deposited in each futures trader's account and the number of open positions for which underlying securities have been deposited as margin required for call option writing, as a basis upon which for futures commission merchants and clearing members to process new orders placed on the current day or to release the margin required for open positions from call option writing.
    At market close each business day, the TAIFEX will prepare a "Summary of Deposits of Underlying Securities as Margin for Short Positions in Call Options: After Market," broken down by clearing member and stating the number of underlying securities deposited in each futures trader's account and the number of open positions for which underlying securities have been deposited as margin required for call option writing.
    After the TAFIEX has generated the "Summary of Deposits of Underlying Securities as Margin for Short Positions in Call Options" under the preceding two paragraphs, futures commission merchants and clearing members shall query it by computer, print it out, and verify and file it, and create an itemized account record.
7     After market close each business day, the TAIFEX will give priority, per clearing member and based upon the number of shares of underlying securities deposited in each futures trader's account and upon the number of open positions in short calls, to short call positions with higher margin requirements in selectively carrying out operations for the deposit of underlying securities as margin
8     A futures commission merchant and clearing member shall carry out the following operations in relation to the deposit of underlying securities by a futures trader of stock option contract as margin required for call option writing:
  1. The futures commission merchant and clearing member shall instruct the futures trader depositing the underlying securities as margin for stock call option writing to transfer the underlying securities to the TAIFEX "Account for Deposit of Underlying Securities As Margin for Call Option Writing" during the securities firm's service hours for transfer of securities.
  2. The futures commission merchant and clearing member shall, beginning from 8:30 a.m. each business day, query the details of the underlying securities deposited by the futures trader, print them out, and file them.
9     A futures commission merchant and clearing member shall carry out the following operations in relation to applications by stock call option writers for withdrawal of deposited underlying securities:
  1. The futures commission merchant and clearing member shall be satisfied that the total equity value of a call option writer's margin account exceeds the margin requirement before entertaining the writer's application for withdrawal of the underlying securities.
  2. The futures commission merchant and clearing member shall file applications with the TAIFEX by computer before 2:15 p.m. each business day to transfer underlying securities to the central securities depository accounts reported by the call option writers.
    When handling an application by a futures commission merchant or clearing member for withdrawal of underlying securities deposited by a call option writer, the TAIFEX shall first be satisfied that clearing margin equity of the clearing member exceeds the margin requirement and then, at 9 a.m. on the next business day, transfer the underlying securities into the central securities depository account reported by such call option writer.
10     At maturity of a stock option contract, the TAIFEX shall settle open short call positions in each futures trader's account with the corresponding number of shares of the deposited underlying securities.
    The TAIFEX may settle a futures trader's long put positions, based on application by the trader for exercise thereof, with the balance of shares of the securities in the given futures trader's account under the preceding paragraph not yet assigned for settlement.
    When long put positions are exercised and settled with underlying securities under paragraph 2, priority will be given to those with higher strike prices.
11     After a futures commission merchant or clearing member closes out all futures trading contracts of a futures trader in accordance with the trading authorization agreement, if the total equity value of the margin account of the futures trader is a negative figure and the futures trader fails to supplement the difference by cash within three business days of notification by the future commission merchant to do so, the futures commission merchant or clearing member may file an application with the TAIFEX for withdrawal of the underlying securities deposited by the futures trader in the TAIFEX "margin account for deposit of underlying securities for call option writing".
    A futures commission merchant or clearing member applying for withdrawal of underlying securities under the preceding paragraph shall do so by completing an application form and annexing relevant supporting documents in compliance with the requirements of the TAIFEX. The futures commission merchant shall file the application after it has been reviewed by the engaged clearing member. A futures commission merchant or clearing member applying to withdraw underlying securities shall do so in units of thousands of shares, and the securities value represented by the number of shares under application shall be confined to the degree to which the negative figure of the futures trader's margin account equity value can be supplemented.
    Within three business days beginning from the day on which the TAIFEX transfers underlying securities into the central securities depository account of a futures commission merchant or clearing member that is earmarked for disposal of the underlying securities, the futures commission merchant or clearing member shall engage a securities broker on the centralized securities exchange market to dispose of the securities. The money received from such disposal shall be credited to the futures trader's margin account equity; where the total equity value of the futures trader's margin account remains negative, a default report shall be filed immediately in compliance with Point 2 of the TAIFEX Directions for Futures Commission Merchants in Reporting Default by Principals.
    For the purpose of disposing of futures traders' securities under the preceding paragraph, a futures commission merchant or clearing member shall open an "Account for Disposal of Securities Deposited by Futures Traders" with a securities broker.
12     These Directions, and any amendments hereto, shall enter into force following ratification by the competent authority.