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Title: Operating Rules for Securities Business Money Lending by Securities Firms
Date: 2007.03.13 ( Announced )
Date: 2017.03.28 ( Amended )

Article Content

 
Chapter I General Principles
Article 1     These Operating Rules are adopted pursuant to Article 18, paragraph 2 of the Regulations Governing Borrowing or Lending Money in Connection with Securities Business by Securities Firms.
Article 2     A securities firm conducting securities business money lending shall do so in accordance with securities trading laws and regulations, these Operating Rules, and the relevant bylaws, regulations, public announcements, and circular letters of the Taiwan Stock Exchange Corporation (TWSE), the Taipei Exchange (TPEx), and the Taiwan Depository & Clearing Corporation (TDCC).
    Lending of money in connection with securities business ("securities business money lending") in these Operating Rules refers to any monetary financing business undertaken, pursuant to an agreement between a securities firm and a customer, to facilitate the settlement of customer purchases of securities and other commodities. The scope of such financing includes the following:
  1. TWSE or TPEx listed stocks (including stock warrant certificates, certificates of entitlement to new shares, and certificates of payment for shares), call (put) warrants, beneficial certificates, depositary receipts, central book-entry bonds, municipal bonds, ordinary corporate bonds, financial bonds, convertible bonds, bond conversion entitlement certificates, beneficial interest securities, and asset-backed securities, excluding EFT beneficial certificates traded in foreign currency.
  2. TPEx traded beneficial certificates of open-end funds and physical gold.
  3. Subscription for beneficial certificates of open-end securities investment trust funds and of future trust funds.
  4. Public subscription or competitive auction of new shares before their TWSE or TPEx listing (including cash capital increase).
  5. Others as approved by the competent authority.
    For purposes of the preceding paragraph, TPEx traded beneficial certificates refer to the beneficial certificates of securities investment trust funds registered for trading on the Taipei Exchange under the Taipei Exchange Rules Governing the Review of Beneficial Certificates of Open-end Funds for Trading on the TPEx; securities investment trust funds refer to the trust funds in Article 23 of the Regulations Governing Securities Investment Trust Funds; and futures trust funds refer to the trust funds in Articles 8, 9, 10 and 10-1 of the Regulations Governing Futures Trust Funds.
    The aforementioned beneficial certificates of securities investment trust funds and those of futures trust funds are limited to domestic investments if denominated in New Taiwan dollars.
    The scope of financing under the preceding paragraph does not include margin purchase or short sale transactions, block trades, odd-lot trades, auctions, tender offers, or trades in shares subject to an altered trading method or in GTSM managed stocks.
    The amount of money lent by a securities firm in connection with securities business is limited to the amount payable by each customer after netting its securities purchases and sales, applicable processing fees, and tax liabilities on the transaction date.
Article 3     In conducting securities business money lending, a securities firm shall determine its financing customers at its own discretion and in accordance with its internal control system. Among the particulars stipulated between the parties, the conditions applicable to the financing shall be specified by the securities firm at its own discretion and in accordance with its internal control system, and shall be specified in the loan contract.
Article 4     A securities firm conducting securities business money lending shall adopt an effective internal control system.
    The internal control system of the preceding paragraph shall adopt "know your customer" assessment and credit investigation procedures, securities business money lending operating procedures, segregation of authority and duties, financing limit controls, and account management matters, and adopt relevant risk management mechanisms.
Article 5     To apply to conduct securities business money lending, a securities firm shall fill out an application form and submit it together with the relevant documentation to the TWSE. After the TWSE has reviewed an application and found the applicant qualified and in compliance with the applicable provisions of these Operating Rules, it shall forward the application to the competent authority for approval.
    After a securities firm under the preceding paragraph has been approved by the competent authority to conduct securities business money lending, it may do so only after it has registered the amendment to its securities business items with the TWSE. The business personnel of the securities firm conducting securities business money lending shall possess the qualifications prescribed by the competent authority in the relevant provisions of the Regulations Governing Responsible Persons and Associated Persons of Securities Firms.
    After a securities firm has been approved by the competent authority to conduct securities business money lending, if its regulatory capital adequacy ratio is below 150 percent for 2 consecutive months, it shall suspend such business, and may resume it only after the securities firm achieves compliance with regulations for 3 consecutive months and receives approval from the competent authority; The same rule shall be applied if the securities firm has already been approved to conduct such lending but has not begun doing so.
Article 6     A securities firm conducting securities business money lending may collect interest and processing fees from its customers for money it lends, and set such interest and processing fees at its own discretion. In addition, the interest rate shall be calculated on a per annum basis, and posted at the place of business.
    When the interest and fee rates of the preceding paragraph are adjusted, beginning from the date of adjustment the securities firm may calculate and collect interest and fees at the post-adjustment rates on that portion of funds already financed but not yet repaid.
    The interest of paragraph 2 shall be calculated based on the number of days from the financing date until the day before the date of settlement.
Article 7     A securities firm conducting securities business money lending may not accept the securities or other commodities listed below as collateral:
  1. Pledged securities or other commodities
  2. A company's own shares or other equity securities acquired through a buyback of its own shares, donation, merger, transfer of operations, or other reason.
    A customer shall warrant that the collateral it provides is free and clear of all liens, claims, and encumbrances of any nature whatsoever; in the event of any defect or legal dispute in this respect, the securities firm may not provide financing.
Article 8     Collateral that a securities firm obtains in conducting securities business money lending, and for which the customer has issued a written statement of consent for rehypothecation, may not be used for any purpose other than those listed below and shall be deposited in central custody:
  1. As collateral for securities borrowing through the TWSE securities lending system.
  2. As collateral for securities borrowing or refinancing through a securities finance enterprise.
Chapter II Signing of a Financing Contract and Account Management
Article 9     A securities firm conducting securities business money lending, when processing a customer's application, may commence such lending only after reviewing that customer's credit and agreeing to sign a loan contract with that customer.
    The securities firm's signing of a loan contract with a customer under the preceding paragraph shall be conducted in accordance with the following provisions:
  1. A customer that is a domestic natural person shall present, in person, the original of their national ID card and submit relevant documents to verify their income and assets.
  2. A customer that is a domestic juristic person shall have its authorized person submit a power of attorney, the original national ID cards of customer's authorized person and representative, the customer's original corporate registration (or registration amendment) card, and its original certification of incorporation.
  3. An onshore overseas Chinese or foreign national intending to sign a loan contract shall obtain an ID number and submit an application to the securities firm accompanied by relevant documents verifying their income and assets as well as the documents listed below:
    1. A natural person that is an overseas Chinese or foreign national: passport, and Overseas Compatriot Identity Certificate (or Alien Resident Certificate).
    2. Foreign institutional investor (FINI): Ministry of Economic Affairs Recognition Certificate, documentation evidencing company registration, and the responsible person's national ID card (or Alien Resident Certificate, or passport).
  4. An offshore overseas Chinese or foreign national intending to sign a loan contract shall have their designated domestic agent or representative obtain an ID number and submit an application to the securities firm accompanied by photocopies of their national ID card or Alien Resident Certificate, or up-to-date documentation of corporate registration (or amendment registration).
    The photocopies of the identity verification documents and corporate registration (or amendment registration) cards and the original power of attorney referred to in the preceding paragraph shall be retained, and those that are photocopied shall be stamped with an official seal bearing the words, "The application is confirmed to have been made in person by the applicant or by the applicant's authorized person; this is a true and faithful copy of the original."
    Where the conditions for application in the second paragraph are met, a securities firm may accept an application of a client for signing a loan contract, by correspondence or electronic means that is sufficient to identify the client as the applicant itself or its indication of intent, if a transaction account has been opened.
    The Taiwan Securities Association shall draft a template loan contract referred to in paragraph 1.
Article 9-1     The securities firm shall approve the financing limit that may be extended to a customer based on the results of the credit investigation under Article 4. If any customer, prior to entering into a loan contract, has had an application for a line of credit approved under any other credit extension business conducted by the securities firm, the financing limit and the already approved line of credit shall be calculated in the aggregate, and the proof of assets provided by the customer shall be at least 30 percent of the amount of the total aggregate credit line. Any line of credit that the customer applies for under any other credit extension business at the securities firm after entering into the loan contract shall be calculated as part of the aggregate.
    The proof of assets that shall be provided for the customer's total aggregate line of credit under the preceding paragraph shall mean documentary proof of income and all types of assets within the preceding year provided by the customer.
    The proof of income and assets under paragraph 1 shall be limited to the following paper or document of the customer or his or her spouse, parent or adult child:
  1. Photocopy of a certificate of ownership, registration records, or a tax return for real property. The securities firm shall also perform a check of whether there are other encumbrances on the real property and calculate its value.
  2. Documentation of deposits with a financial institution (e.g. certificate of deposit balance, passbook, certificate of deposit). The basis of calculation shall be the average balance within the past month.
  3. Proof of holdings in securities.
  4. Documentation of deposit balance in a gold account issued by a financial institution (e.g. a gold passbook or the certificate of balance for the gold passbook or gold account).
  5. Documentary proof of trust property for money trust, securities trust, or real property trust issued by a trust enterprise (e.g., a reconciliation statement, list of trust assets, or certificate of trust property). Both the trustor and the beneficiary of the trust must be the customer, and the trust property may consist only of real property, deposits at financial institutions, securities, and the balance of a gold account at a financial institution.
    When the customer is not the owner of assets shown on the provided proof of assets, the owner of the assets shall be a joint and several guarantor.
Article 10     A securities firm conducting securities business money lending shall set up a separate account for each customer, and make itemized entries for all relevant transaction matters:
  1. Details of loans.
  2. Financing collateral.
  3. Collateral calls and disposal of collateral.
    The securities firm shall prepare a reconciliation statement each month based on the account entry records of the preceding paragraph and deliver it to the customer, provided that this requirement shall not apply when there is no recorded transaction for the given month, and the customer has not requested such statement in writing.
Article 11     The customer shall notify the securities firm in writing whenever there is a change in the name, national ID number, ID number of the Overseas Compatriot Identity Certificate or Alien Resident Certificate, uniform ID number of the juristic person, address, or mailing address of the customer, agent, or representative recorded in the loan contract.
Article 12     Notice of matters by a securities firm to its customer as required under these Operating Rules shall be effected by mail or signed for in person by the customer.
    Where the securities firm's notice sent by mail is not delivered on time due to the customer's failure to give notice under the preceding article, or some other reason attributable to the customer, the notice shall be deemed effective from the day of the first delivery attempt by the post office.
    Where the customer signs in person to acknowledge receipt of a securities firm's notice, the customer's signature or seal shall match the signature on the original loan contract or the original seal/signature-of-record, and shall be accompanied by the date.
Chapter III Loan Application and Repayment
Article 13     In securities business money lending conducted by a securities firm, if the customer applies for a financing period between the second to the fifth business day after the trade date and intends to post collateral in the form of securities that it is purchasing, the customer shall file an application by 11 a.m. on the second business day after the transaction date, and have the securities firm or custodian institution transfer the customer's purchased securities or other commodities into the loan collateral account opened by the securities firm at the TDCC or central government securities settlement bank; the financing period shall be from the second business day after the transaction date to the fifth business day after the transaction date.
    When the customer of the preceding paragraph submits the loan application by a method other than in person, it shall submit a written statement of consent for exemption from the use of a signature or seal on the loan application. If the securities firm has verified and kept that consent statement on file, it is not necessary for the customer to sign/seal the application.
    When the customer applies to borrow money from a securities firm by personal telephone call, the securities firm shall make a synchronous recording of the call, which shall be kept at its place of business and retained for at least one year. In the event of any dispute, the recording shall be retained until the dispute has been eliminated.
    The value of the collateral in paragraph 1 shall be confined to 100 percent to 130 percent of the monetary amount of the financing provided to the customer by the securities firm and calculated as below:
  1. The value of TWSE and TPEx traded securities, except central book-entry bonds, municipal bonds, common corporate bonds and financial bonds, is the closing price of the business day immediately prior to financing.
  2. The value of beneficial certificates of open-end funds traded on the TPEx is the net asset value ("NAV") of each unit of beneficial rights of the business day immediately prior to financing.
  3. The value of physical gold traded on the TPEx is the average of the highest bid price and lowest offer price of market makers at the closing of the business day immediately prior to financing ("Closing Average").
  4. The value of central book-entry bonds is 80 per cent of the face value.
  5. The value of municipal bonds, common corporate bonds and financial bonds is 60 per cent of the face value.
    The closing price referred to in the preceding paragraph and in Articles 18, 24, and 25 shall be determined pursuant to Article 58-3, paragraph 3 of the TWSE Operating Rules and Article 35, paragraph 3 of the GreTai Securities Market Rules Governing Securities Trading on the GTSM.
    When the customer files an application pursuant to paragraph 1 herein and is notified by the securities firm to post the collateral that it holds pursuant to Article 16, paragraph 9, the application-related provisions of paragraph 1 shall apply mutatis mutandis.
    When the customer makes partial repayment prior to the expiration of the financing period, the securities firm shall return to the customer on a proportional basis the securities it originally posted as collateral, provided that increments of less than one trading unit may not be returned.
    When the customer has purchased securities for which halting of margin purchases and short sale transactions has been announced, due to a resolution of the Surveillance Operations Oversight Committee of the TWSE or GTSM or due to other circumstances under which those transactions are inappropriate, then during the effective period of the disposition, that security may not be accepted as the additional financing collateral referred to in paragraph 1 above and in Article 16, paragraph 1. However, this rule shall not apply to a customer that posts collateral in the form of the securities that it purchases, if the halting of margin purchases and short sale transactions for those securities has not been announced on the trade date.
Article 14     In securities business money lending conducted by a securities firm, if a customer posts collateral in the form of securities that it is purchasing and then sells the originally purchased securities prior to the expiration of the financing period, the proceeds from the sale shall first be applied to repay the money lent.
    The securities firm shall stipulate with the customer that prior to the expiration of the financing period as referred to in the preceding paragraph, the customer's securities trading balance will be used to repay the money lent. The scope of the securities trading balance shall be stipulated between the parties.
Article 15     In securities business money lending conducted by a securities firm, if a customer that has applied for a financing period from the second to fifth day after the trade date and posted collateral in the form of securities that it is purchasing applies, prior to the expiration of the financing period, to convert to the financing method specified in Article 16, paragraph 1, the originally purchased securities or otherwise-held securities or other commodities that it posts as collateral shall comply with Article 16, paragraph 9, and the collateral financing shall be calculated according to the standards provided in Article 18.
Article 16     In securities business money lending conducted by a securities firm, a customer applying for a financing period not exceeding 6 months and posting collateral in the form of securities or other commodities that it purchases or holds shall file an application prior to 12 noon on the first business day after the transaction date of its securities purchase, and have the securities firm or custodian institution transfer the customer's collateral to the loan collateral account opened by the securities firm at the TDCC or central government securities settlement bank, and the collateral financing shall be calculated according to the standards provided in Article 18.
    No collateral is required from the above new applicant posting, for money lending purposes, collateral in the form of securities or other commodities that it purchases, if the maintenance ratio of the financing collateral combined with the collateral for the purposes of calculation of said ratio pursuant to Article 23 is 166 per cent or above.
    Subject to the customer posting securities or other commodities that it holds as collateral, a securities firm conducting securities business money lending may accept the customer's application for financing in the form of public subscription or competitive auction of new shares (including cash capital increase). The financing scope includes the bond for competitive auction and the award price after award less the bond, and the subscription price deducted by the bank on the day immediately preceding the lot drawing for subscription, provided the customer shall maintain sufficient collateral in the securities firm's collateral account at the time of the customer's application and on the date of disbursement by the securities firm, with a collateral maintenance ratio not lower than the minimum prescribed by Article 23, paragraph 3; transfer to the collateral account in paragraph 1 of new shares allotted is not required, provided the securities firm must strengthen its credit check and KYC in respect of applying customers and its internal control and regulation, to control risks.
    Subject to the customer posting securities that it holds as collateral, a securities firm conducting securities business money lending may accept the customer's financing application for subscription for beneficial certificates of open-end securities investment trust funds and those of futures trust funds and directly deliver such beneficial certificates to the customer.
    In securities business money lending conducted by a securities firm, if a customer posts as collateral the beneficial certificates of open-end securities investment trust funds and those of futures trust funds that are purchased on the customer's order in the securities firm's name, the authorized securities firm shall keep a registration log for management purposes and inform relevant information to the TDCC, and the requirement in paragraph 1 that the securities firm transfer the collateral provided by the customer to the securities firm's loan collateral account at the TDCC does not apply.
    When a securities firm lends money to a customer to pay for the settlement price, and the customer has yet to obtain the securities that it has purchased, other securities or instruments that the customer holds shall be used as collateral.
    When the customer of the preceding paragraph submits the application to borrow money by a method other than in person, the provisions of Article 13, paragraphs 2 and 3 shall apply mutatis mutandis.
    Before the expiration of the financing period in paragraph 1, the customer may file an application to extend the period, and the securities firm may grant a 6-month extension depending on the customer's creditworthiness. After the expiration of one-year period, the securities firm may review the customer's creditworthiness and then grant the customer's application for a 6-month extension.
    Collateral referred to in paragraph 1 shall be limited to the following:
  1. TWSE and TPEx listed securities, excluding EFT beneficial certificates traded in foreign currency and shares subject to an altered trading method or TPEx managed stocks.
  2. TPEx traded beneficial certificates of open-end funds or physical gold.
  3. Beneficial certificates of open-end securities investment trust funds and those of futures trust funds that are offered and invest domestically.
  4. Other collateral approved by the competent authority.
    Collateral posted by a customer under the preceding paragraph may be replaced during the financing period. The method for applying for replacement shall be stipulated between the parties.
    When a customer makes partial repayment prior to the expiration of the financing period, the securities firm shall return to the customer the securities it originally posted as collateral on a proportional basis, provided that increments of less than one trading unit may not be returned. Notwithstanding, the customer may agree with the securities firm that subject to repayment by the customer of the loaned funds, the securities firm is exempt from returning the collateral in whole or in part, and the customer may apply to the securities firm for a loan pursuant to paragraph 1 in respect of the collateral that is not returned.
    For each loan of money using the financing method set out in paragraph 1 herein, the securities firm shall notify the customer in writing 10 business days before the expiration of the financing period.
Article 17     In securities business money lending conducted by a securities firm, if the customer applies for a financing period not exceeding 6 months and posts collateral in the form of securities or other commodities that it purchases or holds, funds derived from any sale of those collateral securities prior to the expiration of the financing period shall first be used to repay the money lent, provided that this condition shall not apply if the customer has already replaced the collateral securities before repayment is made.
    The securities firm may stipulate with the customer that prior to the expiration of the financing period as referred to in the preceding paragraph, the customer's securities trading balance will be used to repay the money lent. The scope of the securities trading balance shall be stipulated between the parties.
Article 18     In securities business money lending conducted by a securities firm, if the customer applies for a financing period not exceeding 6 months and posts collateral in the form of securities or other commodities that it purchases or holds, the financing calculation standards for the collateral shall be as listed below, save in the event of fractions of one trading unit or of one unit of beneficial rights:
  1. The value of TWSE and TPEx traded securities except central book-entry bonds, municipal bonds, common corporate bonds and financial bonds is 60 percent, and that of securities not eligible for margin purchase and short sale is 40 percent, of the closing price on the business day immediately prior to financing.
  2. The value of beneficial certificates of open-end funds traded on the TPEx is 60 percent of their NAV of the business day immediately prior to financing. The value of physical gold is 60 percent of the Closing Average of the business day immediately prior to financing.
  3. The value of beneficial certificates of open-end securities investment trust funds and those of futures trust funds is 60 per cent of the NAV of the business day immediately prior to financing.
  4. The value of central book-entry bonds is 80 percent of their face value.
  5. The value of municipal bonds, common corporate bonds and financial bonds is 60 per cent of their face value.
    A securities firm may adjust the calculation standard in the preceding paragraph as a stricter standard subject to the market condition of the collateral and the customer's credit risk.
    With respect to subparagraph 1 of the preceding paragraph and Article 13, paragraph 4, if there is no closing price of the business day preceding the financing date, it shall be replaced by the price determined by the principles set out in Article 58-3, paragraph 2, subparagraph 2 of the TWSE Operating Rules or Article 57, paragraph 1 of the GreTai Securities Market Rules Governing Securities Trading on the GTSM.
    The financing calculation standards for collateral set out in paragraph 1 may be adjusted by the TWSE in consultation with the TPEx based on the circumstances regarding that collateral.
Article 19     When the competent authority approves and announces suspension of trading or termination of the TWSE listing or TPEx trading of a security that a customer has posted as collateral; when the principal of central book-entry bonds, municipal bonds, common corporate bonds or financial bonds is repaid partially; when the beneficial certificates of open-end securities investment trust funds and those of futures trust funds are combined; or when the deed of trust terminate or its existence expires, then the aforementioned suspension date, termination date, repayment date, combination date, or termination or expiration date of the deed of trust shall be deemed the expiration date of the financing period. After being notified by the securities firm, the customer shall repay the money lent and the interest by the tenth business day before the aforementioned suspension date, termination date, repayment date, combination date, or expiration date of the deed of trust, provided that this requirement shall not apply if the customer has replaced the collateral, or in cases where the issuing company of a TPEx listed security is applying to convert the security to a TWSE listed security, or where the securities of both the surviving and non-surviving listed (or TPEx) companies in a merger or the beneficial certificates of open-end securities investment trust funds and of futures trust funds being the surviving beneficial certificates of open-end securities investment trust funds and of futures trust funds after merger qualify as the collateral in Article 16, paragraph 9.
    When during the collateral period, the customer replaces collateral it provided with the collateral in Article 16, paragraph 9, the securities firm may accept that collateral until the expiration date of the financing period.
Article 20     When the customer repays money lent, it shall fill out a Loan Repayment Application Form, and shall deposit (remit) the repayment money into the financial institution account designated by the securities firm by 12 noon of the application date. After the securities firm verifies that the financed amount and interest have been properly credited to its account, it shall transfer the collateral and additional collateral securities or other commodities to the depository account or central government securities account opened by the customer by the first business day after the repayment application date.
    If the customer is not itself the owner of the additional collateral securities or other commodities referred to in the preceding paragraph, the securities firm shall transfer the collateral to the depository account or central government securities account opened by the owner.
    When a customer referred to in the first paragraph submits the application to repay money by a method other than in-person, Article 13, paragraphs 2 and 3 shall apply mutatis mutandis.
Article 21     A securities firm shall keep detailed and accurate records and receipt/payment vouchers for securities business money lending, and shall compile on a daily basis the following statements:
  1. Daily operations report for loan transactions.
  2. A summary statement and itemized statement of additions to, repayments of, and balances of, loan accounts.
  3. Itemized statement of receipt/payment, disposition, and utilization of collateral for loan accounts.
  4. Summary statement of collateral shortfalls and covering thereof.
  5. Itemized statement of additional collateral securities or other commodities.
Article 22     Each business day, a securities firm shall compile statements and computer data based on the balance of the collateral and additional collateral securities or other commodities deposited by a customer that has applied to borrow money, and transmit them to the TWSE.
Chapter IV Calculation of the Collateral Maintenance Ratio and Covering of Shortfalls
Article 23     In securities business money lending conducted by a securities firm, if a customer applies for a financing period not exceeding 6 months and posts collateral in the form of securities or other commodities that it purchase or holds, the customer's overall-account and individual-transaction collateral maintenance ratio for money lent to the customer shall be calculated as follows:

    Collateral maintenance ratio = (market value of the collateral + market value of additional collateral securities or other commodities) divided by the financing amount, and multiplied by 100 percent.

    In regard to the collateral referred to in the preceding paragraph, the market value of TWSE and TPEx listed securities is the closing price of the current day; that of central book-entry bonds is 80 per cent of their face value; that of municipal bonds, common corporate bonds and financial bonds is 60 percent of their face value; that of physical gold is the Closing Average of the current day, and that of TPEx traded beneficial certificates of open-end funds, open-end securities investment trust funds and futures trust funds is the NAV of the preceding business day. If there is no current day's closing price for a given TWSE or TPEx security, the market value shall be determined by the following principles:
  1. If the current day's highest buy order price at the close of market is higher than the current day's auction reference price at market opening for a TWSE listed security, or than the current day's benchmark price at trade opening for a TPEx listed security, use the highest buy order price.
  2. If the current day's lowest sell order price at the close of market is lower than the current day's auction reference price at market opening for a TWSE listed security, or than the current day's benchmark price at trade opening of trading for a TPEx listed security, use the lowest sell order price.
  3. When neither of the above circumstances applies, use the current day's auction reference price at market opening for a TWSE listed security, or the current day's benchmark price at trade opening for a TPEx listed security.
    If the customer has applied for a financing period not exceeding 6 months and posted collateral in the form of securities or other commodities that it purchases or holds, the securities firm shall mark-to-market the customer's collateral maintenance ratio each business day. If the customer's collateral maintenance ratio is lower than 130 percent due to a change in the value of the collateral or additional collateral securities or other commodities, the securities firm shall notify the customer to cover the collateral shortfall and bring the collateral maintenance ratio above 166 percent within 2 business days from receipt of the notice, and the following provisions shall be complied with, unless the parties agree otherwise:
  1. If the customer fails to cover the collateral shortfall within 2 business days from the date upon which the notice is served and the collateral maintenance ratio is still lower than 130 percent, beginning from the third business day, the securities firm shall dispose of the customer's collateral beginning from the third business day under the mutatis mutandis application of Article 27, paragraph 1.
  2. If the customer fails to cover the collateral shortfall within 2 business days from the date on which the notice is served and the collateral maintenance ratio has risen to 130 percent or higher, the securities firm may temporarily refrain from disposing of the collateral on the third business day. However, on any subsequent business day in which its collateral maintenance ratio is again lower than 130 percent and where the customer does not deposit additional collateral on its own initiative on the afternoon of that day, its collateral shall be disposed of beginning on the next business day under the mutatis mutandis application of Article 27, paragraph 1.
  3. If the collateral maintenance ratio returns to 166 percent or higher even though the customer has not covered, or has covered only a portion of, the collateral shortfall, or if the customer makes successive collateral deposits sufficient in total to cover the shortfall as stated in the notice prior before its collateral has been disposed of under the preceding subparagraphs, the record of the collateral call shall be expunged.
    Any and all individual loans of funds in the financing account for which the collateral maintenance ratio is below 130 percent are shortfalls that are required to be covered pursuant to the preceding paragraph, and shall be subject to a collateral call.
    If, as a result of any change in share price, there is an increase in the net value of the collateral in a customer's financing account less the customer's obligations, the securities firm is prohibited from delivering to the customer any cash or securities equivalent to the amount of the increase.
    The disposal of collateral under paragraph 2, subparagraphs 1 and 2 shall be carried out in accordance with Article 27 of the Operating Rules. If such disposal is insufficient to make repayment, the customer shall be notified to make repayment within a certain time period, with interest accruing at the financing interest rate from the date on which the claim occurred until the date of repayment.
Article 24     A securities firm conducting securities business money lending may, except in the case of a cash capital increase, beginning from 6 business days before the ex-dividend date of the collateral and additional collateral securities or other commodities provided by a customer, calculate the collateral maintenance ratio for each day based on that day's closing price or NAV of each security on each given day minus the value of the share rights or dividends, and the provisions of the preceding Article shall apply mutatis mutandis.
Article 25     In securities business money lending conducted by a securities firm, if a customer applies for a financing period not exceeding 6 months and posts collateral in the form of securities or other commodities that it purchases or holds, the additional collateral securities or other commodities that the customer shall provide to cover a collateral shortfall under Article 23 shall be limited to the collateral in Article 16, paragraph 9.
    The valuation percentage for calculating the collateral value of additional collateral securities or other commodities under the preceding paragraph shall be subject, mutatis mutandis, to Article 18, paragraph 1.
    The collateral in paragraph 1 to which either of the circumstances listed below applies may not be used as additional collateral:
  1. Securities comprising less than one trading unit.
  2. Where the securities are registered shares of the issuing company acquired by its shareholders or capital contributors as a result of that company's conduct of a capital increase from earnings, capital increase through contributions by that company's employees out of their bonuses to the industry in which they serve, or capital increase by a venture capital company out of undistributed earnings pursuant to Article 13 of the Statute for Encouragement of Investment or Articles 16 and 17 of the Act for Upgrading Industries, and such shares have not been transferred or reported for taxes.
    When calculating a customer's overall account collateral maintenance ratio, a securities firm is not required to apply a haircut to the value of the additional collateral securities or other commodities.
    If the rate of bonus shares or stock dividend shares distributed on collateral or additional collateral securities or other commodities provided by a customer is 20 percent or higher, except where the Competent Authority has imposed restrictions on trading of the securities, all such new shares shall serve as collateral, and the right to defer income tax shall be waived. The TDCC shall transfer the shares by book-entry transfer into the segregated loan collateral account opened by each securities firm, and the provisions of Article 33 of the Regulations Governing the Handling of Stock Registration and Transfer Services by Public Companies shall not apply.
    Bonus shares or stock dividends referred to in the preceding paragraph may not be used as collateral for borrowing securities from the TWSE securities lending system or for obtaining refinancing from a securities finance enterprise.
    The provisions of Article 24 shall not apply to bonus shares or stock dividend shares used as collateral. After ex-rights trading has commenced, the market value of such shares shall be calculated at 60 percent of the closing price of the TWSE or TPEx listed securities. After the shares have been transferred to the securities firm's segregated loan collateral account, the haircut need not be applied to the calculation of their value.
    The provisions of Article 18, paragraph 2 shall apply mutatis mutandis to paragraph 1 and the preceding paragraph.
Article 26     A customer shall warrant that additional collateral securities or other commodities it provides are free and clear of all liens, claims, and encumbrances of any nature whatsoever. If there is any defect in rights or legal dispute regarding the securities, within 3 business days after receiving notice thereof from the securities firm, the customer shall replace such securities or commodities with securities or other commodities eligible for use as additional collateral, or pay their equivalent value in cash.
    Where the customer is not the owner of additional collateral securities or other commodities it provides, it shall be responsible for obtaining the household registration information, verification of source, and consent letter of the owner of such securities.
Chapter V Handling of Violations
Article 27     When any of the circumstances listed below applies to a customer, at market opening on the business day on which disposal is required, the securities firm shall, through the Money Lending Default Handling Account opened with another securities broker, dispose of the respective collateral and additional collateral securities or other commodities on the TWSE centralized exchange market or through the TPEx Securities market trading system, with the exception of central book-entry bonds, municipal bonds, common corporate bonds and financial bonds, which may be subject to price negotiation and trading with the bond dealers at the place of business. If an order to dispose of the collateral is not executed, it shall continue to be quoted on the next business day, and the related processing fees and tax shall be borne by the customer, unless the parties agree otherwise.
  1. Repayment has not been made at the expiration of the financing period.
  2. The money lent has not been repaid pursuant to Article 19.
  3. A collateral shortfall has not been covered pursuant to Article 23.
  4. Replacement of additional collateral securities or other commodities has not been made pursuant to Article 26.
    Where a securities firm disposes of securities pursuant to the preceding paragraph and such disposal is insufficient to offset the debt, it shall notify the customer to cover the shortfall on the next business day. If the customer fails to do so, the securities firm may dispose of the collateral and additional collateral securities or other commodities provided by that customer up to the amount required to repay the debt. If any surplus remains, it shall be returned to the customer; if any shortfall remains, the customer shall be notified to repay it within a prescribed time period.
    Where any of the following circumstances applies to a customer during the financing period, the securities firm shall notify the customer to settle the obligation the next business day, and shall terminate the loan contract that it has entered into with the customer. In case the customer fails to settle the obligation, the securities firm shall close out the lending transactions the next business day through mutatis mutandis application of the provisions of paragraph 1:
  1. Failure to perform settlement obligations on time as specified in Article 91 of the Operating Rules of the TWSE, Articles 87 and 89 of the GTSM Rules Governing Securities Trading on the GTSM, or Article 58 of the Operating Rules of the Taiwan Futures Exchange Corporation.
  2. Any default or violation specified in Article 81 of the Operating Rules for Securities Firms Handling Margin Purchases and Short Sales of Securities, Article 33 of the Operating Rules for Securities Lending by Securities Firms, or Article 26 of the Rules Governing the Lending of Book-Entry Central Government Bonds by Securities Firms.
    During the financing period, if a customer's participation in securities lending transactions is halted or terminated by the TWSE pursuant to Article 42, 45, or 49 of the TWSE Securities Borrowing and Lending Rules, or if any of the following circumstances applies to the customer at another securities firm, futures commission merchant, or securities finance enterprise, the securities firm shall halt the provision of any new securities business money lending to the customer:
  1. Any default specified in Article 76, paragraph 3, subparagraph 1 or 3 of the Operating Rules of the TWSE or Article 47, paragraph 2, subparagraph 1 or 3 of the GTSM Rules Governing Securities Trading on the GTSM.
  2. Any default or in violation specified in Article 81 of the Operating Rules for Securities Firms Handling Margin Purchases and Short Sales of Securities, Article 33 of the Operating Rules for Securities Lending by Securities Firms, Article 26 of the Rules Governing the Lending of Book-Entry Central Government Bonds by Securities Firms, or Article 28 of these Operating Rules.
  3. Any default specified in a securities finance enterprise's operating rules for handling margin purchases and short sales, securities settlement financing rules, or rules of operation for securities lending, or violation of a type comparable to that referred to in the preceding subparagraph.
    Before a case of a default or violation under the preceding paragraph is closed, the customer may have the collateral and additional collateral securities or other commodities it provided sold by the securities firm through the Money Lending Default Handling Account opened with another securities broker to repay the money lent.
    Where the registration of an overseas Chinese or a foreign national has been cancelled by the TWSE or the TAIFEX, the securities firm, after receiving notice of such cancellation, may not accept such customer's request for new loan transactions, and shall notify such customer to close out any loan transactions, and terminate the loan contract after the closeout.
Article 28     Where a shortfall still exists after the securities firm disposes of collateral pursuant to paragraph 2 of the preceding article, the securities firm shall notify the customer to make repayment within a time limit. Customer's failure to make repayment constitutes a violation, and the securities firm shall terminate the contract with the customer for securities business money lending and file a report with the TWSE or TPEx. The TWSE or TPEx shall promptly forward notice to all securities finance enterprises and securities firms.
    When any of the circumstances in Article 27, paragraph 1 applies to a customer, in addition to taking the measures set out in that paragraph, the securities firm may collect a default penalty equal to 10 percent of the stipulated financing interest rate from the day repayment is overdue until the date of repayment.
    If a customer's contract for securities business money lending is terminated by the securities firm because of a violation specified in paragraph 1, the securities firm may not enter into any new financing contract with that customer until after the obligation has been satisfied in full.
Chapter VI Title Transfer for Collateral Securities and Additional Collateral Securities Used for Financing
Article 29     Where a customer posts TWSE or TPEx securities or TPEx traded beneficial certificates of open-end funds as collateral and additional collateral securities, on the business day preceding book closure of or suspension of interest payment on the issuer's securities, a securities firm shall prepare a customer-by-customer list of the collateral and additional collateral securities or other commodities provided by each customer and send it to the TDCC according to TDCC requirements.
    Where a customer posts central book-entry bonds as collateral and additional collateral securities, the securities firm may collect any interest payment on behalf of the customer through the central government securities settlement bank and shall, before the next business day of the interest payment date, transfer the interest to the customer after deducting the tax withheld on the customer's behalf, according to the agreement between the parties.
Chapter VII Risk Control
Article 30     A securities firm conducting securities business money lending may not engage in transactions with any party having any of the following relationships with it:
  1. A director, supervisor, representative of a juristic-person director or juristic-person supervisor, employee, or shareholder holding more than 10 percent of the total shares, of the securities firm.
  2. A spouse of a director or supervisor, or of a representative of a juristic-person director or juristic-person supervisor, of the securities firm.
  3. A minor child of a person of a status specified in subparagraph 1 herein.
    A securities firm shall incorporate the provisions of the preceding paragraph into its internal control system.
Article 31     In securities business money lending conducted by a securities firm, the securities firm shall adopt an internal control system regarding circumstances such as over-concentration of the outstanding balance of financing to customers in a single party, a single group of related parties, or a single security, and shall adopt risk control mechanisms.
Article 32     (Deleted)
Article 33     In securities business money lending conducted by a securities firm, the sum of the total amount of financing to customers plus the total financing amount in margin purchases and short sales of securities may not exceed 400 percent of the securities firm's NAV.
    When a securities firm conducts securities business money lending, the combined total of money lending financing limits that it extends to each customer shall be regulated by the securities firm. The securities firm shall adopt its own internal procedures for credit extension operations and risk management, in order to appropriately assess customer credit limits and manage credit extension risks. Such procedures shall at least incorporate the following:
  1. Means of assessment of the maximum lending amount to individual customers. The assessment shall take the loan amounts extended to approved customers in other loan businesses into consideration. The percentage by which the total value of funds or securities loaned to individual customers in the overall loan business may not exceed the net worth shall be prescribed. Approval of the board of directors is required if the financing amount to individual persons reaches the higher of NT$300 million and 1% of the securities firm's NAV.
  2. Means of assessment of the maximum lending amount of a single security to individual customers. The assessment shall take the loan amounts extended to approved customers in other loan businesses into consideration.
  3. Means of identification of securities or customers with a high risk. Special monitoring and approval procedures shall be established in regard to the amount of high-risk securities or the lending limit to high-risk customers.
  4. The lending limit to customers shall be determined according to principles that are both fair and reasonable. Lending of such whole amount to a single customer shall be avoided.
  5. If the assessment of the maximum financing amount to individual customers indicates certain individual customers are known or can be determined to be related accounts, which means the credit risks of such customers are related (for example, the risk of providing trading service to such customers), the lines of credit of all such related customers are subject to combined regulations in consideration of the credit risks and apply to renewals and adjustments of credit lines by customers which have opened an account and to new accounts, provided in the event of a change in respect of a related account of a customer, such as credit line adjustment or addition of related accounts, the financing amounts of the customer and its related accounts are still subject to combined regulation.
    A securities firm conducting securities business money lending shall report the information under the preceding paragraph to the TWSE on a daily basis.
Article 34     In securities business money lending conducted by a securities firm, with respect to customers posting collateral in the form of securities being purchased by the customers, if the amount of financing made available to customers on any single business day exceeds 50 percent of the securities firm's NAV or reaches NT$1 billion, or if the outstanding balance of financing to customers exceeds 100 percent of the securities firm's NAVh, the securities firm shall file the relevant financing data with the TWSE on the same day.
Chapter VIII Supplementary Provisions
Article 35     A violation of these Operating Rules by a securities firm, its responsible person, or employee may be dealt with by the TWSE or TPEx in accordance with its applicable rules and regulations.
Article 36     These Operating Rules shall be jointly drafted by the TWSE and TPEx and take effect after having been submitted to and approved by the competent authority. Subsequent amendments thereto shall be effected in the same manner.