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Title: Taipei Exchange Rules Governing Trading of Exchange-Traded Fund Beneficial Certificates
Date: 2010.11.29 ( Announced )
Date: 2017.06.19 ( Amended )

Article Content

 
Article 1     These Rules are adopted pursuant to Article 39-7 of the Taipei Exchange Rules Governing Securities Trading on the TPEx (hereinafter, the "Trading Rules").
Article 2     All trading of exchange-traded fund (ETF) beneficial certificates shall be governed by these Rules. Details not covered in these Rules shall be governed by the relevant provisions of other TPEx rules and bylaws.
     For the purposes of these Rules, "ETF beneficial certificates" shall mean the following beneficial certificates issued by a securities investment trust enterprise offering an ETF pursuant to the Regulations Governing Securities Investment Trust Funds:
  1. "ETF with domestic component securities": means an ETF in which the component securities of its underlying index are all domestic securities.
  2. "ETF with foreign component securities": means an ETF in which the component securities of its underlying index include one or more foreign securities.
  3. "Leveraged or inverse ETF": means an ETF that tracks, simulates, or replicates a multiple of the performance of an index ("leveraged ETF") or an inverse multiple of the performance of an index ("inverse ETF").
Article 3     All ETF beneficial certificates traded on the TPEx shall be settled by book-entry transfer handled by the centralized securities depository enterprise. Principals may not request withdrawal of physical ETF beneficial certificates.
     For trading in beneficial certificates of leveraged or inverse ETFs or high-yield bond ETFs, a securities firm may accept an order from a principal only after the principal has signed a risk disclosure statement. However, the following may be exempted from signing risk disclosure statements: professional institutional investors; privately placed securities investment trust funds managed by securities investment trust enterprises; futures trust funds offered by futures trust enterprises to persons with prescribed qualifications; discretionary investment accounts managed by securities investment trust enterprises, by securities investment consulting enterprises, or by securities brokers concurrently operating securities investment consulting enterprises; and discretionary investment accounts managed by managed futures enterprises.
    "Professional institutional investors" in the preceding paragraph means professional institutional investors as defined in the Regulations Governing Offshore Structured Products.
     The matters that must be set out in the risk disclosure statement referred to in paragraph 2 will be separately prescribed by the TPEx.
Article 3-1      When trading in leveraged or inverse ETF beneficial certificates for the first time, a principal is required to meet at least one of the following conditions:
  1. The principal has opened a margin account.
  2. The principal has had at least 10 trading orders for call (put) warrants executed within the most recent one year.
  3. The principal has had at least 10 trading orders for futures trading contracts listed on the Taiwan Futures Exchange executed within the most recent one year.
     The principal may apply to a securities firm by correspondence or electronic means that is sufficient to identify the applicant as the principal himself/herself/itself and confirm his/her/its expression of intent.
     Paragraph 1 does not apply to the following: professional institutional investors that conform to Article 3 of the Regulations Governing Offshore Structured Products; privately placed securities investment trust funds managed by securities investment trust enterprises; futures trust funds offered by futures trust enterprises to persons with prescribed qualifications; discretionary investment accounts managed by securities investment trust enterprises, by securities investment consulting enterprises, or by securities brokers concurrently operating securities investment consulting enterprises; and discretionary investment accounts managed by managed futures enterprises.
Article 4      ETF beneficial certificates are traded by the following methods:
  1. Through the automated trade matching system, the block trading system, the reverse auction system, the after-market fixed-price trading system, and the odd-lot trading system, in proprietary trading or brokerage trading.
  2. In negotiated trades at the securities firm's place of business, which, in the case of ETFs with domestic or foreign bond components, includes outright transactions and repurchase and reverse repurchase (RP/RS) transactions.
    The provisions of the TPEx Trading Rules regarding TPEx listed stocks shall apply mutatis mutandis to the trading hours, trade matching methods, and the limits on the total monetary amounts that may be quoted in proprietary trading and brokerage trading orders, of ETF beneficial certificates.
     With respect to RP/RS transactions of beneficial certificates of ETFs with domestic or foreign bond components, the provisions regarding RP/RS bond transactions in the TPEx Trading Rules and in the TPEx Rules Governing Bond Repurchase and Reverse Repurchase Transactions on Over-the-Counter Markets shall apply mutatis mutandis to the entering of contracts, trading times, calculation of interest, trading periods, delivery and settlement, buy and sell quotes, balance restrictions on RP/RS transactions, remittance of funds, related party transactions, and netting to offset outright purchases/sales against RP/RS transactions.
Article 4-1     For the component securities of the underlying index of ETFs with foreign component securities, the beneficial certificates may continue to be traded on the TPEx when the market on which the foreign securities circulate is closed.
     For a leveraged or inverse ETF of which the component securities of the underlying index include one or more foreign securities, the beneficial certificates may continue to be traded on the TPEx when the market on which the foreign securities circulate or the exchange market of the object of the investment is closed.
Article 5     The quantity of ETF beneficial certificates that may be quoted for trading shall be one trading unit or an integer multiple thereof, where one trading unit equals 1,000 beneficial units. Transactions that amount to less than one trade unit are subject mutatis mutandis to the TPEx Rules Governing Odd Lot Trading.
Article 6     The trading price asked or offered shall be calculated per beneficial unit.
    The tick size for ETF beneficial certificate trade prices is NT$0.01 if the market price per beneficial unit is below NT$50, and NT$0.05 if the market price per beneficial unit is NT$50 or above.
Article 7     The daily gain and loss limits on ETF beneficial certificates after they are listed on the TPEx shall be subject mutatis mutandis to the relevant regulations that apply to TPEx listed stocks. However, no gain or loss limits are imposed on ETF beneficial certificates if the component securities of the benchmark index they track, simulate, or replicate include foreign securities.
     For a leveraged or inverse ETF of which the component securities of the underlying index are all domestic securities, the daily price fluctuation limit for the beneficial certificates shall be 10 percent multiplied by the multiple of the fund. No price fluctuation limit is imposed on the beneficial certificates if the component securities of the underlying index include one or more foreign securities.
Article 8     For ETF beneficial certificates that are initially listed on the TPEx, the reference standard for the reference price on the date of commencement of TPEx trading is the net asset value per beneficial unit as of the most recent business day obtainable by calculation by the securities investment trust enterprise on the business day prior to the date of TPEx listing in accordance with Article 72 of the Regulations Governing Securities Investment Trust Funds.
Article 9     The method for calculation of the reference price for every subsequent day the ETF beneficial certificates are traded on the TPEx shall be governed mutandis mutatis by the relevant provisions of the TPEx Trading Rules regarding TPEx listed stock.
Article 10     For any trade of beneficial certificates of ETFs for which the securities investment trust enterprise distributes income according to Article 77 of the Regulations Governing Securities Investment Trust Funds, if the settlement is performed on or after the book closure date, the trade shall be an ex-dividend trade. The method for calculation of the reference price on the ex-dividend date shall be governed mutatis mutandis by the relevant provisions of the TPEx Trading Rules regarding TPEx listed stock.
Article 11     The handling of settlement, out-trades, and default on settlement of ETF beneficial certificates shall subject mutatis mutandis to the provisions of the TPEx Trading Rules regarding TPEx listed stock.
Article 12     A securities firm shall sign a participant agreement with the securities investment trust enterprise before it may conduct procedures for creation or redemption of ETF beneficial certificates, for its own account or on behalf of its customers.
     A securities firm shall report to the TPEx any creation or redemption operations of ETF beneficial certificates for its own account or on behalf of its customers. The directions for such reporting will be separately prescribed by the TPEx.
Article 12-1      A securities firm that signs a relevant agreement under paragraph 1 of the preceding article with a securities investment trust enterprise is referred to as a participating securities firm. A participating securities firm shall meet the following conditions and shall be issued written permission after passing review by the TPEx:
  1. The regulatory capital adequacy ratio of the securities firm has remained over 150% for the last 6 months, except in the case of a securities firm concurrently operated by a financial institution, in which case the capital adequacy ratio is governed by the relevant provision of Article 44 of the Banking Act; provided, the above does not apply to a Taiwan branch of a foreign securities firm whose head office in the home country has calculated its own capital adequacy ratio according to the local laws and regulations, with the operating risk of the Taiwan branch included in the calculation, and the criteria are met, and the Financial Supervisory Commission has granted exemption from the capital adequacy ratio requirements that are applicable to Taiwan securities firms.
  2. A long-term credit rating of a specific level or higher from a credit rating agency shall be obtained: Taiwan Ratings Corporation twBB- or above, Moody's Service Ba3 or above, Standard & Poor's Corp. BB- or above, or Fitch Inc. BB- or above. In the case of a securities firm concurrently operated by a financial institution, the credit rating of the financial institution may apply. In the case of a Taiwan branch of a foreign securities firm, the credit rating of the group's holding company may apply.
     Within 3 months after a securities firm has obtained the written permission from the TPEx to become a participating securities firm, it shall enter into a participation agreement with the securities investment trust enterprise issuing the ETF beneficial certificates.
     A securities firm that already acts as a participating securities firm with the TPEx's permission, or that has obtained the permission but has not yet signed the agreement, shall cease acting as a participating securities firm if its regulatory capital adequacy ratio has fallen below 150% for 2 consecutive months, and may not be reinstated until it has fulfilled the requirement governing the capital adequacy ratio for 3 consecutive months and obtained the approval of the TPEx.
Article 13      If on a same day the amount of the component stock portfolio of the underlying index of an ETF with domestic component securities purchased by a securities firm for its own account or on behalf of a single account, or the total amount of the aforementioned purchased stock plus that securities firm's original holdings and borrowings thereof and the amount of portfolio stock it purchased or acquired through in-kind redemption on the preceding day, meets the requirements for in-kind creation of that ETF beneficial certificate, and on that same day it sells the same quantity of that beneficial certificate; or if on a same day the amount of beneficial certificates of an ETF with domestic component securities that a securities firm purchases for its own account or on behalf of a single account, or the total amount of the aforementioned purchased certificates plus that securities firm's original holdings and borrowings thereof and beneficial certificates it purchased or acquired through in-kind creation on the preceding day, meets the requirements for in-kind redemption of the component stock portfolio of the underlying index of that ETF, and on that same day it sells the same quantity of the component stock portfolio of the underlying index of that ETF; then that securities firm's settlement, and subsequent related matters, shall be conducted according to the following provisions:
  1. Transactions must be reported to the TPEx on the transaction date via a computer connection. If there are any requirements for postponed settlement, the application shall be submitted concurrently.
  2. If the securities firm reports the sale of ETF beneficial certificates or of the component stock portfolio of the underlying index of that ETF and reports and applies to postpone settlement pursuant to the preceding subparagraph, after the TPEx has reviewed and approved the application it shall prepare a statement and an electronic file and transmit them to the centralized securities depository enterprise to conduct the relevant operations accordingly. Article 86-1 of the TPEx Trading Rules does not apply to the above operations.
  3. After the securities firm has completed, on the second business day after the transaction date, the settlement of the price payable for the component stock portfolio of the underlying index, or beneficial certificates, of the ETF with domestic component securities that it has purchased, and for any price payable for other purchases, the component stock portfolio or beneficial certificates receivable by it shall be transferred to serve as collateral for the postponed settlement, and the TPEx will notify the centralized securities depository enterprise to thereupon apply to the securities investment trust enterprise for the in-kind creation of that beneficial certificate, or in-kind redemption of the component stock portfolio of the underlying index of that ETF, to unwind the position.
  4. If the component securities portfolio of the underlying index of a securities investment trust ETF with domestic component securities listed for trading on the Taiwan Stock Exchange (TWSE) includes any TPEx listed stocks, upon receiving notification from the TWSE of any sales thereof involving the TPEx listed stocks, the TPEx will prepare the statements and electronic files described in subparagraph 2 and transmit them to the centralized securities depository enterprise.
     Except in the circumstances described in paragraph 1 and any other circumstance specified by the TPEx, when a securities firm, for its own account or on behalf of its customers, conducts creation of ETF beneficial certificates of an ETF with domestic or foreign component securities, of which the component securities of the underlying index are all stocks, after confirmation by the securities investment trust enterprise, the beneficial certificates may be sold on the business day preceding the day of their book-entry delivery by the centralized securities depository enterprise.
    When a securities firm, for its own account or on behalf of its customers, conducts creation of ETF beneficial certificates of an ETF with domestic or foreign bond components, after confirmation by the securities investment trust enterprise, the beneficial certificates may be sold from the business day next following the date of creation. However, a securities firm that conducts in-kind creation for its own account or on behalf of its customers of beneficial certificates of ETFs with domestic or foreign bond components and on the creation date delivers the component bond portfolio of the underlying index to the securities investment trust enterprise, may sell an equivalent number of beneficial certificates on the creation date once the delivery has been confirmed by the securities investment trust enterprise.
     When a securities firm, for its own account or on behalf of its customers, conducts creation of beneficial certificates of a leveraged or inverse ETF of which the component securities of the underlying index are all domestic securities, after confirmation by the securities investment trust enterprise, the beneficial certificates may be sold from the date of creation. If the component securities of the underlying index include one or more foreign securities, after confirmation by the securities investment trust enterprise, the beneficial certificates may be sold from the business day preceding the date of book-entry delivery by the centralized securities depository enterprise.
    Article 70-1 of the TPEx Trading Rules does not apply to securities dealers engaging in trading activities listed in paragraphs 1 and 3.
Article 14     A securities investment trust enterprise that issues ETFs shall appoint a liquidity provider to provide liquidity when the beneficial certificates are traded through the automated trade matching system. The relevant operational directions shall be separately adopted by the TPEx.
Article 15     Commissions or transaction charges that are collectible by securities brokers from their customers and by the TPEx from the respective securities firms after the execution of an ETF beneficial certificate trade shall be governed mutatis mutatis by the fee schedule provided for TPEx listed stocks.
Article 16     These Rules, and any amendments hereto, shall enter into force after submission to and approval by the Competent Authority.