Laws and Regulations Database of the Central Bank of the Republic of China(Taiwan)

Section 4　　Foreign Exchange Derivatives Business

Article 28    
A securities enterprise may apply for approval to engage in  foreign exchange currency
derivatives business between foreign currencies in connection with securities business 
(hereinafter referred to as “currency derivatives business between foreign currencies”) 
only if they have been approved by the Bank to engage in spot transaction business 
between foreign currencies. 
The scope of currency derivatives business between foreign currencies that a 
securities enterprise may undertake with its clients includes the following:
1.Foreign exchange forward transactions, foreign exchange swaps (SWAP), foreign exchange 
　options and cross currency swap (CCS), that do not include structured products; and
2.Products provided in the preceding subparagraph may not involve NTD exchange rate, or 
　denomination/settlement in NTD.
The currency derivatives business between foreign currencies undertaken by a 
securities enterprise shall be based on the foreign currency securities transaction it 
undertakes with the same client.
The provisions in Articles 25 ~ 27 shall apply mutatis mutandis to the currency 
derivatives business between foreign currencies of securities enterprises.

Article 29  
The scope of foreign exchange derivatives business other than currency derivatives 
that may be undertaken by securities enterprises includes the following: 
1.Equity foreign exchange derivatives comprising equity options, equity swaps and equity 
　forward contracts with the underlying limited to the following:
(1)Stock prices, stock indices or exchange-traded funds in foreign markets ;
(2)Domestic stock prices, stock indices or exchange-traded funds with notional amounts in 
　 foreign currency; and 
(3)Underlying equity products that do not involve Taiwan stock indices listed on a 
　 foreign stock exchange.
2.Foreign currency bond derivatives comprising bond forwards, bond options and further 
　combinations thereof, with the underlying limited to foreign currency denominated bonds
　or bond indices.  
3.Foreign currency interest rate derivatives comprising forward rate agreements, interest
　rate swaps, interest rate options, interest rate swaptions and further combinations 
　thereof, with the underlying limited to foreign currency interest rates or interest 
　rate indices.
4.Foreign currency commodity derivatives comprising commodity forwards, commodity price 
　swaps, commodity options and further combinations thereof, with  the underlying limited
　to foreign currency denominated commodities, denominated and settled in foreign 
　currency. And the counterparties shall be limited to professional juridical persons.
5.Foreign currency credit derivatives, in which all transactions exclude structured 
　products, comprising credit default options and credit default swaps, with the 
　underlying credits referring to the default risk, credit spread risk or credit rating 
　downgrade risk associated with governments or corporations, or their debt. The credit 
　derivatives shall be denominated and settled in foreign currency and done with 
　professional institutional investors as counterparties.
The term “professional juridical persons and professional institutional investors”
referred to in the preceding paragraph shall meet the criteria or scope set out by the 
FSC according to Paragraph 2, Article 4 of the Financial Consumer Protection Act.
Where the underlying assets of the derivatives mentioned in the preceding paragraph 
are foreign currency denominated bonds or interest rate indices, the following rules 
shall be observed:
1.Information on the bonds or interest rate indices is available on a publicly accessible
　website or extensively used trading system. 
2.The constituents of the bonds or interest rate indices do not contain any products that
　are convertible or can be swapped for shares (e.g. convertible bonds or exchangeable 
　bonds).
3.The constituents of the bonds or indices do not contain any securitization products. 
4. Client’s return may be expressed by formulas.
The underlying foreign securities shall be complied with the scope of securities 
firms’ proprietary trading of foreign securities prescribed by the FSC, or other 
securities as approved by the FSC.

Article 30 
A securities enterprise that intends to engage in foreign exchange derivatives 
business shall apply to the Bank for approval by submitting documents provided in 
Article 6 herein, and in addition, documents specified below:
1.Document evidencing that its financial derivatives business has not been suspended or 
　terminated by GTSM pursuant to the GreTai Securities Market Regulations Governing 
　Over-the-Counter Trading of Financial Derivatives by Securities firms (hereinafter 
　referred to as “Derivatives Trading Regulations”) during the preceding six months;
　and
2.Business plan (including product profiles, operational guidelines, risk management, 
　risk disclosure statements, curriculum vitae of the operations and auditing personnel, 
　and risk disclosure statement). Business plan is not required for securities 
　enterprises applying for foreign exchange forward transactions and/or foreign exchange 
　swaps (SWAP).
Application for approval is not required if a securities enterprise invests in foreign 
exchange derivatives with its own funds or carries out foreign exchange derivative 
transactions for hedging purposes as a client with an authorized bank approved by the 
Bank to engage in foreign exchange derivatives business or with an overseas financial 
institution. 

Article 31 
When a securities enterprise conducts foreign exchange derivatives business, the 
procedure for verifying that the counterparty meets the criteria for professional 
clients, trading rules, implementation of risk management, information disclosure, and 
the related internal control and audit systems shall be complied with relevant 
regulations set out by the FSC. And in addition, the following rules shall apply:
1.Receipt/payment between the enterprise and its client related to settlement and fees, 
　and payment due to early termination of contract or expiration of contract shall be 
　made in the denominated currency. Except for payments that are transferred from the 
　client’s deposit account, the client shall carry out foreign exchange settlement 
　against NTD through an authorized bank in accordance with the Declaration Regulations. 
　The securities enterprise shall not be entrusted to handle the transaction for the 
　client.
2.Securities enterprises shall not, for themselves or for clients, utilize foreign 
　exchange derivatives to defer or hide losses, misrepresent or recognize income earlier,
　or use other illicit means to do window dressing or manipulate financial statements.

Article 32  
Securities enterprises shall forthwith inform the Bank when their financial 
derivatives business is suspended or terminated by the GTSM in accordance with the 
Derivatives Trading Regulations and when their business qualification is reinstated.