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Article 1     These Rules are specially adopted to maintain orderly trading of TAIFEX USD/CNT FX Options Contracts ("the Contracts") on the Taiwan Futures Exchange (TAIFEX), to ensure security and fairness in trading of the Contracts.
Article 2     In carrying out trading of the Contracts, futures commission merchants shall observe these Rules in addition to the Futures Trading Law and relevant regulations, the Operating Rules, public announcements, and circulars of TAIFEX.
Article 3     The English name of the Contracts is abbreviated as "USD/CNT FX Options," and their trading code is "RTO."
Article 4     The underlying of the Contracts is the US Dollar/Renminbi exchange rate which is quoted in Renminbi and in units of 1 US Dollar. The size of each contract is 20,000 US Dollars.
Article 5     The Contracts come in call options and put options.
    A call option is a contract giving the buyer the right to purchase a specified quantity of the underlying or clear and settle the right by cash on the expiration date at the strike price under specified trading terms.
    A put option is a contract giving the buyer the right to sell a specified quantity of the underlying or clear and settle the right by cash on the expiration date at the strike price under specified trading terms.
Article 6     The settlement value of the Contracts on the expiration date shall be equal to the difference between the final settlement price and the strike price, multiplied by the strike price multiplier.
    The strike price multiplier under the preceding paragraph shall be 20,000.
Article 7     The premium prices for the Contracts shall be quoted in points. The premium multiplier shall be 20,000 RMB. The minimum price fluctuations (tick size) for quoting shall be 0.0001 point.
Article 8     The daily price limit of the premium for the Contracts shall be 7 percent of the previous business day's settlement price of the corresponding USD/CNT FX Futures with the same expiration month. On the first trading day of new expiration month, the daily price limit of the premium for the Contracts shall be 7 percent of the opening reference price of the corresponding USD/CNT FX Futures with the same expiration month. TAIFEX may adjust the daily price limit of the Contracts as it deems necessary based on market conditions.
Article 9     Expiration months for the Contracts are the spot month and the following calendar month, and the four immediately succeeding quarterly months from among the quarterly months of March, June, September, and December, for a total of six contract months, listed and traded concurrently. The last trading day for contracts of a particular expiration month is the third Wednesday of the expiry month of the contract. Trading of contracts at expiry will halt at market close on the last trading day, and the last trading day is the final settlement day for a contract at expiry.
    If any of the following circumstances occurs on the last trading day, then the next business day shall be the last trading day, provided that TAIFEX may adjust that date in view of circumstances:
  1. The last trading day falls on a TAIFEX holiday, or trading cannot proceed due to a force majeure event.
  2. There are other factors that affect the trading or settlement of the Contracts.
    The business day following the last trading day of a contract at expiry is the first trading day for contracts of the new expiration month.
    TAIFEX may change the expiration months, first trading days, last trading days, and final settlement days of the preceding three paragraphs as it deems necessary after reporting to and receiving approval from the competent authority.
Article 10     For listing contract series of new expiration months or contracts with new strike prices for existing expiration dates, TAIFEX shall, based on the previous business day's settlement price of the corresponding USD/CNT FX Futures with the same expiration month (hereinafter, the "base price", nevertheless on the first trading day of new expiration month, the base price shall be the opening reference price of the corresponding USD/CNT FX Futures), consecutively introduce contracts with in-the-money and out-of-the money strike prices at intervals of the strike price interval, until the following conditions are satisfied:
  1. Two consecutive near months beginning with the spot month, with the highest and lowest strike prices covering 2 percent above and below the base price.
  2. The next 4 quarter months, with the highest and lowest strike prices covering 4 percent above and below the base price.
    The "strike price interval" referred to in the preceding paragraph is 0.02 RMB for near-month contracts and 0.04 RMB for quarter-month contracts.
    When a quarter-month contract becomes a near-month contract, the contracts with strike prices set based on the strike price interval of the near-month contract shall be made up.
    In addition to listing contracts of different strike prices as described in paragraph 1, TAIFEX may, according to market status, offer contracts with other strike prices.
Article 11     Trading days for the Contracts are the same as bank business days. Trading hours are 8:45 a.m. to 4:15 p.m. The trading hours for a contract of a given expiration month on the relevant last trading day shall be from 8:45 am to 11:00 a.m. If banking enterprises for any reason suspend operations, however, or other factors hinder trading of the Contracts, then TAIFEX, on the basis of circumstances at the time, may declare a temporary halt to trading and report the matter to the competent authority for recordation on the following business day.
    TAIFEX may change the trading days and trading hours of the preceding paragraph after reporting to and receiving approval from the competent authority.
Article 12     Buy and sell orders for the Contracts, unless otherwise provided, will be matched automatically by computer. Matching is done by call auction at market opening, followed by continuous trading during market hours.
Article 13     When accepting customer order to buy the Contracts, a futures commission merchant shall first collect from the buyer the premium required for the total transacting volume.
    When accepting customer order to sell the Contracts, a futures commission merchant shall first collect from the seller the initial margins required for the total transacting volume. The futures commission merchant shall credit the proceeds of premium received from selling the Contracts to the Client Margin Account of said customer after transaction, and mark to market the margins required for the short position of the customer on a daily basis. Short position that is to offset an earlier long position does not require margin.
    When the margin account balance of a customer falls below the required maintenance margin, a futures commission merchant shall immediately notify the customer to pay in cash the difference between his margin account balance and the initial margin required for his open position within a prescribed time period. Where the customer fails to comply accordingly, the futures commission merchant may proceed to liquidate the customer's open position.
    The initial margin and maintenance margin specified in the preceding two paragraphs shall not be lower than the initial margin and maintenance margin requirements announced by TAIFEX.
    The initial margin and maintenance margin announced by TAIFEX shall be based on the clearing margin calculated according to the "Taiwan Futures Exchange Standards and Methods for Receipt of Clearing Margins" plus a percentage prescribed by TAIFEX.
    Payment/receipt of the principal's margins referred to in paragraph 3 may be in New Taiwan Dollars or in a foreign currency publicly announced by TAIFEX, as stipulated between the principal and the futures commission merchant, with the futures commission merchant acting as foreign exchange settlement agent. The futures commission merchant shall conduct the required exchange settlements in accordance with the Regulations Governing the Declaration of Foreign Exchange Receipts and Disbursements or Transactions prescribed by the Central Bank of China.
Article 14     Before expiration, a holder of the Contract may liquidate the contractual rights and obligations by selling or buying back part or all of his positions in the exchange.
Article 15     The daily settlement price of the Contract shall be determined based on the following:
  1. The last transaction price on the given day; or
  2. To be determined by TAIFEX if there is no transaction price in the last 15 minutes before the close of market on the given day or the settlement price referred to in the preceding subparagraph is deemed unreasonable.
Article 16     The final settlement price of the Contracts is set at the spot USD/CNY (Taiwan) fixing published by the Taipei Foreign Exchange Market Development Foundation at 11:15 a.m. on the same calendar day as the last trading day.
    If for any reason the fixing rate of the preceding paragraph is not announced at 11:15 a.m., or the final settlement price so determined is obviously unreasonable, then the settlement price will be determined by TAIFEX with reference to the market USD/CNY exchange rates published through major financial information systems.
Article 17     The contract may be exercised on the expiration date only. Open position that is in-the-money on the expiration day shall be settled in cash by the net difference between the final settlement price and the strike price.
    The in-the-money position referred to in the preceding paragraph means a call option position when the final settlement price is greater than the strike price, or a put option position when the final settlement price is less than the strike price. Writers with in-the-money positions shall pay the aforesaid difference in cash, while buyer will receive the difference.
Article 18     Buyers who intend to exercise the Contracts shall make a declaration on the expiration date. An in-the-money option, however, shall be automatically exercised if the difference between the final settlement price and the strike price falls in the range announced by TAIFEX, unless the buyer declares waiver of right to exercise in advance.
    Futures commission merchants shall submit notice within the prescribed time set out by TAIFEX indicating exercise or waiver of right.
Article 19     All exercised options are assigned to the holders of short positions by TAIFEX through an automatic random procedure.
Article 20     The total open positions in the Contracts held on either the long or short side of the market by a trader at any time may not exceed the limits announced by TAIFEX.
    The "total open positions on either the long or short side of the market" under the preceding paragraph means the total positions of call options bought and put options sold or the total positions of call options sold and put options bought.
    Every three months, or as occasioned by market conditions, TAIFEX will announce the applicable position limits referred to in paragraph 1 according to the levels given below, based on the higher of the daily average trading volume or open interest in the Contracts for that period, with the benchmark set at 5 percent thereof for individuals and 10 percent thereof for institutional investors. However, the lowest position limit shall be 2,000 contracts for individuals, and 6,000 contracts for institutional investors:
  1. When the benchmark is 2,000 or more contracts, the position limit shall be the benchmark rounded down to the nearest integral multiple of 500 contracts.
  2. When the benchmark is 5,000 or more contracts, the position limit shall be the benchmark rounded down to the nearest integral multiple of 1,000 contracts.
  3. When the benchmark is 10,000 or more contracts, the position limit shall be the benchmark rounded down to the nearest integral multiple of 2,000 contracts.
  4. When the benchmark is 20,000 or more contracts, the position limit shall be the benchmark rounded down to the nearest integral multiple of 5,000 contracts.
    The aggregate total of a futures proprietary merchant's open positions in the Contracts shall be limited to three times the institutional investors limit as given in paragraph 3. TAIFEX, however, may adjust this limit for market makers of the Contracts as it deems necessary in view of market conditions.
    When TAIFEX examines the applicable position limit levels, if the daily average trading volume or open interest for a given period, as compared to that at the time of the previous adjustment, does not increase or decrease by more than 2.5 percent, no adjustment shall be made even if the level for adjustment has been reached.
    Any raising of the position limit will take effect from the TAIFEX announcement date; any lowering of the position limit will take effect from the expiration of the second nearby month contract already listed as of the announcement date. TAFIEX, however, may adjust this according to circumstances.
    When the position limit is lowered under the preceding paragraph, a position held by a trader prior to the effective date that surpasses the lowered limits may be held until the expiration date with respect to that position, provided that no new position may be added until the lowered limits have been complied with.
    The combined aggregate of open positions in the Contract held in omnibus accounts are not subject to the limits in paragraph 3, with the exception of undisclosed omnibus accounts, which accounts are subject to the limits for institutional investors.
    As required for their hedging needs, institutional investors may apply to TAIFEX for a relaxation of the position limit.
    In addition to the provisions of this Article, the limits on open positions in the Contracts held by traders shall also conform to the Taiwan Futures Exchange Corporation Rules Governing Surveillance Of Market Positions.
Article 21     Unless otherwise provided, a futures commission merchant engaging in proprietary or brokerage trading of the Contracts shall be subject to a limit of 200 contracts per order.
    TAIFEX may make appropriate adjustments to the limit on the quantity of trading quotes in the preceding paragraph in view of market trading conditions.
Article 22     Where any circumstance exists requiring suspension of trading or delisting of the Contracts as stipulated in Article 31 of the Operating Rules of the Taiwan Futures Exchange Corporation, TAIFEX shall make a public announcement to the effect 30 days prior to implementation.
    All open positions shall be liquidated by the announced implementation date of suspension of trading or de-listing. Any positions still open on the implementation date shall be settled at the settlement price for the implementation date.
Article 23     These Rules shall be implemented following the approval of the competent authority. The same provision applies to subsequent amendments.