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Article 1     These Rules are adopted pursuant to Article 19-1, Paragraph 2 of the Regulations Governing Securities Firms.
Article 2      Except as otherwise provided by the competent authority, securities firms are bound to comply with these Rules when engaging in the proprietary trading of foreign bonds or any derivative-based hedging trades that the securities firm engages in due to such proprietary trading of foreign bonds. For any matters not covered by these Rules, the Taipei Exchange Rules Governing Securities Trading on the TPEx and related rules and bylaws shall apply.
    The scope of products and the trading limits permitted for the abovementioned activities are governed by the Regulations Governing Securities Firms.
Article 3     The term "competent authority" in these Rules means the Financial Supervisory Commission.
Article 4     The term "foreign bonds" in these Rules means any foreign currency denominated bonds issued outside the Republic of China by a local or a foreign issuer.
    The term "derivative-based hedging" in these Rules means any transactions involving financial derivatives that are engaged in by securities firms for hedging purposes, as needed in connection with proprietary trading of foreign bonds.
Article 5     A securities firm shall submit formal documentation to the Taipei Exchange (TPEx) and apply for approval before conducting proprietary trading of foreign bonds. In addition, an applicant shall meet the following requirements:
  1. The applicant must be a qualified securities-dealer.
  2. Its regulatory capital adequacy ratio may not have fallen below 200 percent in the last 6 months; or its adjusted net capital ratio was not below 40 percent in any of the last 6 months.
  3. The applicant must be free of any of the following:
    1. Penalty imposed under Article 66, subparagraph 1 of the Securities and Exchange Act or Article 100, paragraph 1, subparagraph 1 of the Futures Trading Act in the last 3 months.
    2. Penalty imposed under Article 66, subaragraph 2 of the Securities and Exchange Act or Article 100, paragraph 1, subparagraph 2 of the Futures Trading Act in the last 6 months.
    3. Penalty involving suspension of business activities imposed by the competent authority in the last year.
    4. Penalty involving partial revocation of business permission imposed by the competent authority in the last 2 years.
    5. Penalty imposed under the operating rules or bylaws of the Taipei Exchange, Taiwan Stock Exchange Corporation, or Taiwan Futures Exchange Corporation, involving the suspension or restriction of trading activities.
    Failure to meet subparagraph 3 of the previous paragraph may be disregarded if the securities firm has made specific corrections to the satisfaction of the competent authority.
    A securities firm may proceed to conduct proprietary trading of foreign bonds if the TPEx does not express any objection to its applications within 5 days from the day following the date the application documents are delivered to the TPEx.
     The term "adjusted net capital ratio" in paragraph 1, subparagraph 2 herein means the monthly simple arithmetic mean of the adjusted net capital of the futures commission merchant as a percent of the total margins required for uncovered positions of futures traders.
Article 6      Proprietary trading of foreign bonds may be traded at the securities firm's business premises or through the TPEx's trading system.
     Securities firms shall first apply to the TPEx for registration of a foreign bond and receive approval from the TPEx before trading the foreign bond with qualified institutional investors at its business premises. However the preceding restriction does not apply to foreign bonds that have already been registered by other securities firms.
     Where there is a change to the registration data of a foreign bond mentioned in the preceding paragraph, the originally registering securities firm shall complete the updating of the registration data within 5 days after the change has occurred.
     The term "qualified institution investors" paragraph 2 hereof means the qualified institutional investors referred to in Article 4, paragraph 1 of the Financial Consumer Protection Act.
     The foreign bonds mentioned in paragraph 2 hereof may not be structured notes or RMB-denominated bonds. The information to be registered for a foreign bond shall include its issuer, place of issue, International Securities Identification Number (ISIN), long-term credit rating, denominated currency, date of issue, maturity date, coupon dates, coupon rate, terms for interest and principal repayment, and other early call (put) provisions.
     Before the 10th of each month, the TPEx shall compile relevant information on foreign bonds it has approved for registration in the previous month and submit a report to the competent authority for recordation.
Article 7     Securities firms may conduct proprietary trading of foreign bonds outright or under repurchase or reverse repurchase agreements.
Article 8     Securities firms shall comply with the competent authority's restrictions on the total foreign securities holdings of securities firms when holding positions in foreign bonds.
    The total foreign bond position under the preceding paragraph is calculated as the net amount traded outright plus the balance traded under reverse repurchase agreements, less the balance traded under repurchase agreements.
Article 9     All balances of foreign bond trades under repurchase agreements must be included as part of the securities firm's overall bond repurchase/reverse repurchase balance. The balances respectively bond repurchase and reverse repurchase trades (converted into NTD equivalents at the spot exchange rate) may not exceed six times the securities firm's net worth; of each of these, those with underlyings that are bonds other than government-issued bonds shall not exceed four times the securities firm's net worth.
Article 10     For any position held by a securities firm when conducting proprietary trading of foreign bonds or engaging in derivative-based hedging, any deterioration in the credit rating associated with such a position, which includes the country's sovereign rating, the long-term debt rating, and, in a hedging transaction, the counterparty's credit rating, below the minimum standard set by the competent authority will suspend further purchase, sale, or trading activities by the securities firm except for the sale or closing out of positions that are held by the securities firm.
Article 11     A securities firm that will conduct proprietary trading of foreign bonds and engage in derivative-based hedging shall establish a dedicated department and adopt a set of handling procedures in accordance with Article 31-2 of the Regulations Governing Securities Firms.
Article 12     Securities firms shall comply with the Regulations Governing the Preparation of Financial Reports by Securities Firms when accounting for proprietary foreign bond trades and derivative-based hedging transactions.
Article 13     The site and facilities of the business premises occupied for a securities firm's foreign bond trading and derivative-based hedging shall comply with the following requirements, and shall be clearly marked:
  1. Shall be furnished with business telephones and fax machines.
  2. Shall be furnished with necessary data transmission equipment that enables the firm to obtain in real time market investment information of overseas exchanges.
Article 14     A securities firm that will conduct proprietary trading of foreign bonds and engage in derivative-based hedging shall enter into contracts with the counterparties, which contracts shall outline the rights and obligations of the two parties. The securities firm must confirm the terms and conditions of each individual transaction with the counterparty.
Article 15     A securities firm conducting proprietary trading of foreign bonds and engaging in derivative-based hedging shall perform its settlement obligations in accordance with the local laws or market practices.
Article 16     A securities firm conducting proprietary trading of foreign bonds shall, immediately after the execution of a trade has been confirmed, enter the trade information into the TPEx information system within the deadline and using the format prescribed by the TPEx.
Article 17     If a securities firm is found to be in violation of these Rules, the TPEx may notify the securities firm to make supplementations or corrections within a given timeframe or report the violation by letter to the competent authority. If the circumstances are serious, the TPEx may suspend the securities firm may be suspended from use of the TPEx trading system.
Article 18     If any employee of the securities firm is found to be in violation of these Rules, the TPEx may directly notify the securities firm to give a warning to the employee, or suspend the employee's execution of business for from 1 month to 6 months, depending on the seriousness of the circumstances.
Article 19     These Rules, and any amendments hereto, shall be publicly announced and enter into force after passage by the TPEx's board of directors and approval by the competent authority.