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

These Regulations are prescribed pursuant to Article 30 of the Central Bank Act and Paragraph 2, Article 73 of the Banking Law.

Administration by the Central Bank of China (hereafter referred to as "the Bank") of financing extended by banks to securities finance companies or securities firms shall be handled pursuant to the provisions of these Regulations. Matters not addressed herein shall be handled pursuant to provisions under other relevant regulations.

The term "net worth" as used in these Regulations with respect to securities finance companies and securities firms, refers to net worth at the end of the previous fiscal year after closing of the books. A capital increase through cash infusion during the fiscal year may be included in calculations of net worth for that year. For securities finance companies, the date on which the Bank issues a certificate verifying the capital increase shall be deemed the date of record for the capital increase. For securities firms, the date on which the competent authority with jurisdiction over the securities industry issues a post-capital increase license shall be deemed the date of record for the capital increase. Where a securities firmis operated by a financial institution, the term "net worth" refers to the working capital allocated to the firm by the financial institution.

The term "securities" as used in these Regulations,except where otherwise provided in Article 6 and Article 7, refers to firms that have been publicly announced by the competent authority according to Article 61 of the Securities and Exchange Law for the securities industry as being authorized to engage in margin purchases and short-sale transactions.

The term "outstanding balance of financing" as used in these Regulations refers to funds borrowed from banks by securities finance companies and securities firms for the purpose of providing margin trading services to clients.

Where a bank's involvement with a particular securities finance company matches either of the following descriptions, the bank shall not extend financing to that company:

1.The outstanding balance of financing extended by the entire bank to the firm is more than six times higher than the firm's net worth.

2.The firm's external debt is more than 11.5 times higher than its net worth.

When a securities finance company applies to a financial institution for a loan, the bank shall not accept the application unless the firm completes an affidavit certifying that it has not exceeded the limit and ratio set forth in the preceding Paragraph.

When the aggregate outstanding balance of financing from all banks in support of a securities firm's margin trading services exceeds the securities firm's net worth by a factor of 1.5, the bank shall not extend financing to that securities firm.

A bank shall only accept a loan application from a securities firm when the firmcompletes an affidavit certifying that it has not exceeded the limit set forth in the preceding Paragraph.

When a bank extends financing to a securities firm, in the event the firm uses its own securities as collateral and uses the funds to invest in securities for its own account, the portion of such investments financed by the bank shall not exceed the maximum financing ratio adopted by the competent authority for the securities industry, with the consent of the Bank, pursuant to Article 61 of the Securities and Exchange Law.

When a securities underwriting firm has underwritten stocks on a firm commitment basis, banks may extend financing to the underwriter to enable it to bear costs incurred during the underwriting period and perform its underwriting duties. The financing shall not exceed 60 percent of the total price of the stock underwritten.

A bank shall only accept a loan application from a securities underwriting firm when the firm completes an affidavit certifying that it has notexceeded the limit set forth in the preceding Paragraph.

When a bank extends financing to a securities firm, in the event the firm uses its own securities as collateral but does not use the funds to invest in securities for its own account, the bank is not subject to the maximum financing ratio of Article 6, provided that the bank shall require the borrower to submit an affidavit certifying that the borrower will not use the loan to invest in negotiable securities for its own account.

Banks shall submit a monthly itemized report to the Bank's Department of Banking and the Ministry of Finance's Bureau of Monetary Affairs concerning financing extended to securities finance companies and securities firms. If it is found that a securities finance company or a securities firm has violated Article 4, Article 5, or Paragraph 2, Article 6, the competent authority for the securities industry shall review the matter and render a disposition, and the bank shall immediately recall the portion of its financing that exceeds the allowed limit.

These Regulations shall take force from the date of promulgation.