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[Law Basis]
[Print]
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Section 3 Foreign Exchange Derivatives Business
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〈Scope of exchange rate derivatives business〉
Article 60 A securities enterprise that applies for approval to engage in foreign exchange
derivatives business involving exchange rates must be a DSF.
A DSF that engages in foreign exchange derivatives business involving exchange
rates shall observe the following provisions:
1.The DSF shall only offer an individual derivative contract without structuring
it into a synthetic contract or combining it with other derivatives products,
NTD or foreign currency principal, other products or businesses;
2.The DSF shall conduct the business based on the customer’s actual needs and
the related transaction documents for any Bank-approved business under
Subparagraphs 1 and 4, Paragraph 1 of Article 4 herein with the same customer;
and
3.Transaction documents for repo trade of foreign currency securities with
customers can only be used to undertake foreign currency swap between foreign
currencies.
In addition to the provisions in the preceding paragraph, the scope of business
and other rules for a DSF conducting the foreign exchange derivatives business
involving NTD exchange rate are as follows:
1. NTD foreign currency swap business (FX SWAP):
(1) FX swap is a simultaneous purchase and sale of identical amounts of one
currency for another with two different value dates.
(2) Counterparties are limited to domestic legal entities, foreign natural
persons and foreign legal entities.
(3) In the settlement of a FX swap, the DSF shall examine whether the customer
has filled out a Declaration Statement in accordance with the Regulations
for Declaration and whether the customer has entered information under the
"Nature of Foreign Exchange Receipts and Disbursements or Transactions" of
the Declaration Statement according to the nature of the actual transaction,
and also note it as a "foreign exchange swap". In addition, the "foreign
exchange receipts (disbursements) classification and code number" provided
by the Bank’s Department of Foreign Exchange shall be indicated on the
foreign exchange memo, and included in the Daily Foreign Exchange Receipts
(Disbursements) Transaction Report along with the Declaration Statement; the
preceding provision applies when the contract is rolled over.
(4) When conducting the business under this subparagraph, the DSF shall also
fill out a “Daily Report on FX Swap and Standard CCS Forward Positions.”
(5) The SWAP Transaction amount need not be included in the aggregate settlement
amount of the current year as specified in Subparagraph 3, Paragraph 1,
Article 4 of the Regulations for Declaration.
(6) When the contract is rolled over, the price shall be set based on the
current market exchange rates rather than the rates of the original
contract.
2. NTD cross currency swap business (CCS):
(1) Counterparties are limited to domestic and foreign legal entities.
(2) NTD CCS shall be limited to exchange of principal both at inception and
maturity. Both the principal and interest need not be included in the
aggregate settlement amount of the current year as specified in
Subparagraph 3, Paragraph 1, Article 4 of the Regulations for Declaration
at the time of settlement.
(3) In the settlement of NTD cross currency swaps, the DSF shall examine whether
the customer has filled out a Declaration Statement in accordance with the
Regulations for Declaration and whether the customer has entered information
under the "Nature of Foreign Exchange Receipts and Disbursements or
Transactions" of the Declaration Statement according to the nature of the
actual transaction, and also note it as a "cross currency swap transaction".
In addition, the "foreign exchange receipts (disbursements) classification
and code number" provided by the Bank’s Department of Foreign Exchange
shall be indicated on the foreign exchange memo, and included in the Daily
Foreign Exchange Receipts (Disbursements) Transaction Report along with the
Declaration Statement.
(4) When conducting the business under this subparagraph, the DSF shall also
fill out a “Daily Report on FX Swap and Standard CCS Forward Positions.”
3.NTD exchange rate option business:
(1) Counterparties are limited to domestic and foreign legal entities.
(2) An option may be settled by net settlement or gross settlement, but the
settlement method shall be specified in the contract.
(3) The currency used for option premium and settlement when the option is
exercised may be either in the denominated foreign currency or NTD, but
shall be specified in the contract.
(4) Only "plain vanilla" options may be transacted.
(5) When conducting the business under this subparagraph, the DSF shall also
fill out a “Daily Report on NTD Exchange Rate Option Transactions.”
When conducting foreign exchange derivatives business involving exchange rates
between foreign currencies, a DSF shall observe the following provisions in
addition to the provisions in Paragraph 2 hereof:
1.When a foreign exchange forward or swap contract is rolled over, the price
shall be reset based on the current market exchange rate rather than the
original contract rate.
2.In carrying out FX swap or CCS transactions between foreign currencies, the
appropriate "foreign exchange receipts (disbursements) classification and code
number" should be indicated on other transaction certificates and included in
the Daily Foreign Exchange Receipts (Disbursements) Transaction Report at the
time of settlement.
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〈Scope of foreign exchange derivatives business not involving exchange rates〉
Article 61 A securities enterprise that engages in foreign exchange derivatives business
not involving exchange rates shall observe the following provisions:
1. Credit default swap and credit default option business:
(1) Counterparties are limited to legal entities who are also professional
customers.
(2) Where the counterparty is a domestic customer, unless the competent
authority agrees it could be a protection seller, the domestic customer
should be the protection buyer in a credit derivatives transaction.
(3) Where a domestic customer is the protection seller in a credit derivatives
transaction, the reference entity shall meet the requirements set out by
its competent authority and shall not be a government or company in Mainland
China Area or any company directly or indirectly owned by which with at
least 30% shares.
(4) Where the securities enterprise itself is the protection seller and the
reference entity is an interested party, the terms of the transaction shall
not be more favorable than those offered to other counterparties in the same
category, and shall comply with relevant laws and regulations.
(5) Where the contracts under this subparagraph are combined into a structured
product, the counterparties are limited to professional institutional
investors and foreign legal entities who are also professional customers.
2.Where the foreign exchange derivative contracts are combined into a synthetic
contract or a structured product, restrictions and rules applicable to
individual products and underlyings shall be followed.
3.Unless it is otherwise provided by the Bank, the business shall not be linked
to any of the following:
(1) Asset securitization related securities or products.
(2) Unlisted individual stocks, stock indices or exchange-traded funds in
Mainland China Area.
(3) Securities privately placed domestically or abroad.
(4) Certificates of beneficial interest that are issued overseas by domestic
securities investment trust enterprises and are not listed for trading on
a securities market.
(5) Any Taiwan stock index compiled by a domestic or foreign institution and
related financial products, but this restriction does not apply to an
index compiled by TPEx or TWSE, or those two institutions in collaboration
with another institution.
The underlying foreign securities and counterparties shall comply with the scope
and relevant rules and guidelines of securities firms accepting orders to trade
foreign securities as prescribed by the FSC, or other securities as approved by
the FSC.
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〈Application procedure for foreign exchange derivatives business〉
Article 62 A securities enterprise may engage in the following foreign exchange derivatives
businesses without making an application:
1.Combinations of foreign exchange derivatives not involving exchange rate and
already approved by the Bank or reported to the Bank for record that are linked
to the same underlying asset with the same risk and combined through the same
transaction contract, but excluding complex high-risk foreign exchange
derivatives transactions entered with customers other than professional
institutional investors and high net worth corporate investors.
2.Foreign exchange derivatives transactions undertaken as a customer for
investing with its own funds or carrying out for hedging purposes with
authorized banks that have been approved by the Bank to engage in foreign
exchange derivatives business or foreign financial institutions.
3.Domestic and foreign futures contracts not involving NTD exchange rate traded
as a futures trader.
To engage in any foreign exchange derivatives business other than those provided
in the preceding paragraph, a securities enterprise shall apply to the Bank for
approval or report to the Bank for record based on the following criteria:
1.Application for approval before commencing:
(1)First-time application for foreign exchange derivatives business.
(2)Foreign exchange derivatives business not yet approved by the Bank or has
been approved for less than six months, and foreign exchange derivatives
linked thereof.
(3)Foreign exchange derivatives business involving exchange rates.
(4)The business of sales of foreign exchange derivatives products already
approved by the Bank or reported to the Bank for record by the branch under
the authorization of its head office.
2.Reporting for record after commencing: Only for securities enterprises that
have been approved to engage in any of the foreign exchange derivatives
businesses.
(1)Foreign exchange derivatives business approved by the Bank for over six
months and not involving exchange rates.
(2)Foreign exchange derivatives business provided to professional institutional
investors and high net worth corporate investors not involving exchange rates
and not yet approved by the Bank or approved by the Bank for less than six
months, which should comply with the relevant rules of the competent authority.
When a securities enterprise engages in business under this article with a
professional institutional investor, if the professional institutional investor
accepts trading orders, signing a trust agreement or discretionary investment
services agreement, or offering privately placed funds, and carries out
transactions provided in Item 2, Subparagraph 2 of the preceding paragraph as a
professional institutional investor, the customer/trustor/mandatory or
subscriber shall also be a professional institutional investor or high net
worth corporate investor.
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〈Application documents for foreign exchange derivatives business〉
Article 63 A securities enterprise that applies for approval to engage in businesses under
Items 1 and 2, Subparagraph 1, Paragraph 2 of the preceding article shall submit
documents provided in Article 7 herein, and in addition, documents specified
below:
1.Document evidencing that its financial derivatives business has not been
suspended or terminated by TPEx pursuant to the “Taipei Exchange Regulations
Governing Over-the-Counter Trading of Financial Derivatives by Securities
Firms” (hereinafter referred to as “Derivatives Trading Regulations”)
during the preceding six months;
2.Curriculum vitae of operations and relevant managing personnel;
3.Risk disclosure statement;
4.Product profiles;
5.Operational guidelines; and
6.Risk management related documents.
A DSF that applies for approval to engage in business provided in Item 3,
Subparagraph 1, Paragraph 2 of the preceding article shall submit documents
provided in the preceding paragraph, and in addition, documents evidencing
compliance with Subparagraphs 2 and 5, Paragraph 2 of Article 47 herein, and
the provisions of Articles 54, 55 and 59 applies mutatis mutandis to the
application.
A securities enterprise that applies for approval to engage in business
provided in Item 4, Subparagraph 1, Paragraph 2 of the preceding article
shall submit documents provided in Article 7 herein, and in addition,
documents specified below:
1.Authorization guidelines approved by the board of directors;
2.List of products to be sold; and
3.List of branches authorized to sell the product and the list of personnel
at each branch meeting the sales qualifications.
Within one week of carrying out the first transaction under Subparagraph 2,
Paragraph 2 of the preceding article, a securities enterprise shall report to
the Bank for record with the following documents and may carrying out the next
transaction only after receiving a letter of acknowledgement from the Bank:
1.Documents provided in Article 7 herein;
2.Product description of the first transaction (must be a product actually
transacted with the date of transaction, date of settlement, expiration date,
notional principal amount, exercise price or other relevant indexes and
parameters); and
3.Documents provided in Subparagraphs 1 ~ 4 of Paragraph 1 hereof.
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〈Qualifications of personnel handling foreign exchange derivatives business〉
Article 64 Article 14 of the Regulations Governing Foreign Exchange Business of Banking
Enterprises shall apply mutatis mutandis to the qualification and training
requirements for personnel of securities enterprises handling foreign exchange
derivatives business, wherein the provisions in the same article governing
personnel handling the recommendation of foreign exchange derivatives apply to
the personnel of securities enterprises handling the sales of foreign exchange
derivatives.
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〈Receipt/payment associated with the foreign exchange derivatives business and other matters for compliance〉
Article 65 When a securities enterprise conducts foreign exchange derivatives business,
the procedure for verifying that the counterparty meets the criteria for
professional customers, 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. 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 the early termination of a contract or
expiration of a contract shall be made in the denominated currency. Except
for payments that are transferred from the customer’s deposit account, the
customer shall carry out foreign exchange settlement against NTD through an
authorized bank or the securities enterprise if it is a DSF in accordance with
the “Regulations for Declaration”. The securities enterprise shall not be
entrusted with handling the foreign exchange settlement against NTD for the
customer.
2.Securities enterprises shall not, either for themselves or for customers,
utilize foreign exchange derivatives to defer or hide losses, misrepresent or
recognize income earlier, or use other illicit means to engage in window
dressing or manipulate financial statements.
3.A head office authorizing its branch to carry out the sale of foreign exchange
derivatives products that have been approved by the Bank or reported to the
Bank for record shall comply with the provisions of the “Taipei Exchange
Directions Governing Sales of Financial Derivatives Products by Associated
Persons of Securities Firms Accepting Orders to Trade Securities”.
When the foreign exchange business under Subparagraph 3, Paragraph 1 of Article
4 herein conducted by a DSF involves exchange settlement against NTD or
conversion between foreign currencies, the DSF shall handle the matter in
accordance with the “Regulations for Declaration” and “Directions for
Domestic Securities Firm Approved To Conduct Foreign Exchange Business while
Assisting Customers to Declare Foreign Exchange Receipts and Disbursements
or Transactions.”
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〈Obligation to report sanctions〉
Article 66 Securities enterprises shall forthwith inform the Bank when their financial
derivatives business is suspended or terminated by the TPEx in accordance with
the “Derivatives Trading Regulations” and when their business qualification
is reinstated.
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