Title: Regulations Governing Foreign Exchange Business of Securities Enterprises
Date:December 26, 2013
Chapter 1 General Principles
These Regulations are prescribed pursuant to Paragraph 2, Article 35 of The Central Bank of the Republic of China (Taiwan) Act.
The provisions of these Regulations shall govern the foreign exchange business of securities enterprises. Matters not provided herein shall be subject to provisions under other relevant laws and regulations.
The term "securities enterprises" as used in these Regulations shall mean securities firms and financial institutions concurrently engaging in securities business established in accordance with the Securities & Exchange Act and the Standards Governing the Establishment of Securities firms and issued a license by the Financial Supervisory Commission (the "FSC").
The term "foreign exchange business" as used in these Regulations comprises the following categories:
1.Proprietary trading and underwriting of foreign currency denominated international bonds;
2.Proprietary trading of foreign securities;
3.Spot foreign exchange transaction between foreign currencies in connection with securities business;
4.Foreign exchange derivatives business;
5.Business involving structured products linked to foreign currency denominated financial products;
6.Business involving call (put) warrants issued overseas or issued in foreign currency;
7.Accepting orders to trade foreign securities;
8.Trading in foreign bonds as an agent;
9.Acting as the master agent of an offshore fund institution in the offering and sale of its funds in Taiwan;
10.Acting as a local mandated agent of an offshore fund institution to privately place offshore funds in Taiwan;
11.Acting as a participating dealer of an offshore exchange traded fund(ETF) to process (on a brokerage basis) or engage in (on a proprietary basis) the purchase or redemption of offshore ETFs in Taiwan;
12.Wealth management business by means of non-discretionary individually managed money trust with the underlying products denominated in foreign currencies; and
13.Other securities-related foreign exchange businesses approved by the Central Bank of the Republic of China (Taiwan) (hereinafter referred to as the “Bank”).
When any of the businesses mentioned in the preceding paragraph involves foreign securities or offshore funds, such foreign securities or offshore funds shall not be denominated in New Taiwan dollar (NTD) and shall not be linked to NTD exchange rate or NTD money market interest rates indices in Taiwan.
Chapter 2 General Provisions – Operation and Management of Foreign Exchange Business
Section 1 Proprietary Trading and Underwriting of Foreign Currency Denominated International Bonds
Unless otherwise provided in these Regulations, a securities enterprise may engage in foreign exchange business only after its head office, or a branch within the territory of the Republic of China of a foreign securities enterprise, has submitted an application to the Bank and has been issued a letter of approval.
A securities enterprise shall report the date of business commencement to the Bank for record within seven (7) days after commencing its foreign exchange business.
A securities enterprise may apply to engage in all or some of the business categories mentioned in the subparagraphs of Paragraph 1 in the preceding article, and the Bank willgrant approval to those business categories individually. The Bank may also prescribe other rules for business categories approved under Subparagraph 13 of the same paragraph and article.
Securities enterprises shall not conduct any foreign exchange business without the approval of the Bank.
A securities enterprise shall submit a written application with the following documents when applying for approval to engage in foreign exchange business:
1.A photocopy of the certificate of security business license;
2.A photocopy of the document evidencing the approval of the FSC or the consent of the Gretai Securities Market (GTSM) for the securities enterprise to engage in the business;
3.A resolution of board of directors resolving to apply for the business or a letter of authorization from the head office or regional command center of a foreign securities enterprise; and
4.A statement of regulatory compliance.
When a securities enterprise applies to engage in foreign exchange businesses provided in Subparagraphs 2 ~ 5, Paragraph 1 of Article 4 herein, it shall simultaneously apply for a foreign currency risk upper limit and exclusion of overseas long-term equity investment, real estate and equipment from such limit. This does not apply to authorized foreign exchange banks (hereinafter referred to as "authorized banks") concurrently engaging in securities business.
When there is change to the approved foreign currency risk upper limit and exempt items mentioned in the preceding paragraph, a securities enterprise shall submit a FSC approval document or other relevant documents to the Bank for consent.
A securities enterprise applying for foreign exchange business will be granted a designated period for providing supplementary information or making corrections if the documentation or information submitted were found to be incomplete or insufficient. The Bank may reject the application if supplementary information or corrections are not submitted within the designated period.
The Bank may reject a securities enterprise’s application for foreign exchange business in the event of any of the following:
1.Qualifications of the applicant do not comply with the requirements;
2.A high number of errors found in the declarations, reports or forms prepared by the applicant;
3.The applicant had an incident in the past year where the applicant had seriously violated the provisions of these Regulations or other relevant provisions of the Bank, or was asked by the Bank to act, but failed to rectify the situation within the period specified by the Bank; or
4.There is other evidence indicating that the applicant has a situation that hinders sound operations of the business, or that the applicant is unable to meet financial policy requirements.
Section 2 Proprietary Trading of Foreign Securities
Securities enterprises engaging in foreign exchange business shall first verify the identity or primary registration data of the client, and ensure that supporting documents comply with regulations. Securities enterprises shall also properly retain client data and transaction records for at least five (5) years after the completion of the transaction or the closing of client's account.
When engaging in foreign exchange business, securities enterprises shall disclose fully to the clients foreign exchange related risks, and shall not offer prediction on the future movements of the NTD exchange rates.
The letter of approval issued by the Bank is merely an approval for the securities enterprise to engage in relevant foreign exchange businesses, which shall not be publicized as the Bank's endorsement for the safety or performance of related business or used in other inappropriate ways.
A securities enterprise’s coverage of currency risk exposure arising from its foreign exchange business shall be carried out by its head office through an authorized bank, an offshore banking unit or an overseas financial institution.
A securities enterprise shall heed its foreign exchange risk and draft its own foreign exchange risk management rules based on the foreign exchange business conducted. After the rules have been passed by its board of directors, all its offices shall abide by these rules and conduct audits regularly.
When a securities enterprise has needs for a certain foreign currency arising out of its securities-related foreign exchange business, the securities enterprise may raise the foreign currency through the following means:
1.The securities enterprise may engage in foreign exchange swap or cross currency swap between NTD and the foreign currency with authorized banks;
2.For hedge trading to cover equity risk associated with offshore exchange-traded fund positions held, the securities enterprise may obtain a foreign currency loan from an authorized bank with the transaction document or the Bank’s approval document, or borrow money from an overseas financial institution;
3.When carrying out a proprietary trade in foreign securities, the securities enterprise may obtain a foreign currency loan from an authorized bank or an overseas financial institution with the transaction confirmation or document from the counterparty. For such a loan, the securities enterprise shall sign an affidavit undertaking that“proceeds from the sale of originally purchased foreign security will be remitted into the securities enterprise’s designated repayment account opened at the lending bank”to ensure that the loan will not be used as working capital.
4.When a securities enterprise underwrites an international bond on a firm commitment basis or a standby commitment basis, the enterprise may use the underwritten bond as collateral to obtain a foreign currency loan from an authorized bank in compliance with the following rules:
(1)Required documentation: The Bank’s letter of approval or underwriting related contractual document and relevant documents evidencing the amount of settlement payable by the enterprise;
(2)Loan amount: Up to 60% of payment (to the bond issuer); and
(3)Tenor of loan: Loan shall be repaid no later than the maturity date of the underwritten bond or when the bond is sold.
5.A securities enterprise may obtain a foreign currency call loan from an authorized bank or an overseas financial institution.
When acquiring a foreign currency loan or a call loan, securities enterprises shall also comply with the following rules:
1.The total balance of foreign currency loans plus foreign currency call loans from other financial institutions shall not exceed 100% of its networth as shown in its CPA audited or certified financial statements plus the balance of unsold committed foreign currency bonds;
2.The total balance of foreign currency loans plus foreign currency call loans mentioned in the preceding subparagraph shall include those foreign currency loans and call loans obtained by its offshore securities unit (OSU) from authorized banks, offshore banking units and overseas financial institutions, but excluding transactions between the OSU and the head office;
3.The tenor of foreign currency call loans handled by securities enterprises shall not be longer than one year; and
4.Proceeds from foreign currency loans and call loans may not be converted into NTD, and unless with the Bank’s approval, the sources of funds for loan repayment may not come from foreign exchange purchase with NTD.
Securities enterprises that have been approved by the Bank to engage in securities- related foreign exchange business may, within the scope of its permitted businesses, handle the offshore securities business and related tax matters on behalf of an OSU of the same securities firm. Such business handled by the securities firm shall be booked on the account books of the OSU.
When handling the services on behalf of an OSU mentioned in the preceding paragraph, the securities enterprise shall observe the Offshore Banking Act, Enforcement Rules of the Offshore Banking Act, Regulations Governing Offshore Securities Units, as well as other applicable regulations.
When the foreign exchange business carried out by a securities enterprise involves outward and inward remittance of fund or foreign exchange settlement against NTD, the securities enterprise shall deal with an authorized bank in accordance with the Regulations Governing the Declaration of Foreign Exchange Receipts and Disbursements or Transactions (hereinafter referred to as “Declaration Regulations”), Directions Governing Banking Enterprises for Operating Foreign Exchange Business (hereinafter referred to as “Operating Directions”), and Directions for Banking Enterprises on Assisting Clients to Declare Foreign Exchange Receipts and Disbursements or Transactions.
Unless special provisions apply to the foreign exchange settlement, securities enterprises shall observe the following rules when handling receipts and payments associated with their foreign exchange business:
1.Where the receipt/payment of the foreign exchange business is in foreign currency, the client shall carry out foreign exchange settlement at an authorized bank in accordance with the Declaration Regulations, or the payment may be transferred from the client’s foreign exchange deposit account;
2.When accepting orders to trade foreign securities, conducting wealth management business by means of non-discretionary individually managed money trust, or purchasing and redeeming of offshore funds by a master agent or its mandated sub-distributors of an offshore fund institution in NTD, the securities enterprise shall carry out foreign exchange settlement at an authorized bank in accordance with the Declaration Regulations; and
3.Foreign exchange settlement shall be carried out at an authorized bank based on the exact amount of the transaction. Unless with the Bank’s approval, settlement on a net basis after offset of receipts and payments is not allowed.
Securities enterprises shall submit requested reports in five (5) business days after the end of each month, and ensure the completeness and accuracy of the reports. The format of the reports and related matters shall be prescribed separately by the Bank.
With regard to the review of reports submitted by securities enterprises, the Bank may dispatch personnel to inspect the relevant account books and documents, or request securities enterprises to provide truthful relevant documents or information within a prescribed period of time if deemed necessary.
The Bank may suspend, revoke or cancel its approval in part or in whole the foreign exchange business engaged by a securities enterprise, or put a moratorium on its application either for new foreign exchange business or for adding branches to carry out foreign exchange business in the event of any of the following:
1.The securities enterprise fails to commence operation within six months after being issued a letter of approval. A securities enterprise may request for an extension with reasons. If approved, the securities enterprise may have an extension of no more than three months. An institution may apply for extension only once ;
2.The securities enterprise has seriously violated the provisions of these Regulations, or was asked by the Bank to act, but has failed to rectify the situation within the period specified by the Bank;
3.After being issued a letter of approval to engage in foreign exchange business, the securities enterprise was found to have provided false information in its application which is deemed a serious violation;
4.The securities enterprise suspends operations, is dissolved, or declares bankruptcy; or
5.There is other evidence indicating that the applicant has a situation that hinders the sound operation of the business, or that the applicant is unable to meet financial policy requirements.
A securities enterprise, which has its business approval revoked or cancelled according to the preceding paragraph, shall surrender the letter of approval to the Bank within seven (7) days after the receipt of the sanction. If the letter of approval is not surrendered within seven days, the Bank shall cancel the business approval by public announcement.
Chapter 3 Detailed Provisions – Operation and Management of Foreign Exchange Business
Section 1 Proprietary Trading and Underwriting of Foreign Currency Denominated International Bonds
Securities enterprises that have obtained the qualification to engage in proprietary trading of domestic bonds may also engage in proprietary trading of foreign currency denominated international bonds.
Securities enterprises that have been approved by the Bank to underwrite foreign currency denominated international bonds may also offer financial planning, evaluation and consulting services relating to foreign currency denominated international bonds (hereinafter collectively referred to as the “consulting service”).
Securities enterprises that have been approved by the Bank to underwrite foreign currency denominated international bonds but offers only consulting service mentioned in the preceding paragraph may not engage in underwriting on a firm commitment basis or a standby commitment basis.
A securities enterprise that intends to engage in underwriting of foreign currency denominated international bonds shall apply to the Bank for approval by submitting documents provided in Article 6 herein, and in addition, documents evidencing its qualifications as specified below:
1.Having the qualification to underwrite domestic securities.
2.Meeting one of the criteria below:
(1)Having a long-term credit rating of BBB (or equivalent) or higher for the latest year from acredit rating agency approved or recognized by the FSC or an internationally known credit rating agency; or
(2)The parent company of a foreign securities enterprise has practical experience in underwriting foreign securities.
3.The regulatory capital adequacy ratio shall meet one of the following requirements:
(1)For domestic securities enterprises, the regulatory capital adequacy ratio in the six months before the date of application shall be at least 200%; for banks and bills finance companies engaging concurrently in securities business, the regulatory capital adequacy ratio shall reach the statutory ratio;
(2)For branches of foreign securities enterprises in Taiwan, their head office shall meet the criteria provided in the preceding item or Paragraph 3, Article 59 of the Regulations Governing Securities firms.
4.Free of any of the following sanctions:
(1)Any sanction imposed by the FSC during the preceding one year acting pursuant to any of Subparagraphs 2 ~ 4, Article 66 of the Securities and Exchange Act; and
(2)Any sanction during the preceding one year whereby the GTSM, acting pursuant to its operating rules or bylaws, has suspended or restricted the firm's trading privileges.
5.No accumulated loss as shown in its latest CPA audited or certified financial statements.
When a securities enterprise engages in the underwriting of a foreign currency denominated international bond, receipts and payments between the enterprise and the investors and between the enterprise and issuer shall always be made in the denominated currency of the international bond.
Section 2 Proprietary Trading of Foreign Securities
A securities enterprise that intends to engage in proprietary trading of foreign securities shall apply to the Bank for approval by submitting documents provided in Article 6 herein, and in addition, photocopies of the latest CPA audited or certified financial statements, procedure for handling receipt/payment, process description and other documents required by the Bank, provided such trading is neither an investment of proprietary funds nor done to meet hedging purpose.
When a securities enterprise engages in business mentioned in the preceding article, related receipt/payment shall always be made in the denominated currency of the security.
Securities enterprises may not sell the foreign currency fund they receive from repo trade for NTD, and the sources of funds for settlement payment upon expiration may not come from foreign exchange purchase made with NTD.
Section 3 Spot Transaction Business Between Foreign Currencies
Spot foreign exchange transactions between foreign currencies in connection with securities business (hereinafter referred to as“spot transaction business between foreign currencies”) mean spot transactions business between foreign currencies taking place between an integrated securities enterprise that concurrently engages in underwriting, dealership and brokerage business provided in Article 16 of the Securities and Exchange Act and its clients that meet the essential conditions for securities trading purpose.
The“essential conditions for securities trading purpose”referred to in the preceding paragraph shall meet the following criteria:
1.The amount of spot transaction between foreign currencies does not exceed the amount of foreign currency securities transaction and related fees;
2.The spot transaction between foreign currencies and the transaction of foreign currency securities are carried out contemporaneously with the same client, and the former is settled by the relevant securities settlement deadline; and
3.The transaction is not on a leveraged, margined or financed basis.
For a securities enterprise that intends to engage in spot transaction business between foreign currencies, its head office shall apply to the Bank for approval by submitting documents provided in Article 6 herein, and in addition, documents evidencing its qualifications specified below:
1.Having been approved by the Bank to engage in any of the businesses provided in the subparagraphs of Paragraph 1, Article 4 herein and having a record of conducting such business.
2.Its networth shown in the latest CPA audited or certified financial statement meets the criteria prescribed by the FSC for a securities enterprise that applies for the setup of an OSU in Taiwan to engage in all of the businesses provided in the subparagraphs of Paragraph 1, Article 22-4 of the Offshore Banking Act.
3.Compliance and sound operation: Free of sanction due to serious violation of rules during the preceding three years before application, or the securities enterprise with sanctioned violation has effected specific improvement and has satisfied the competent authority or the Bank.
4.Its operations and auditing personnel shall meet the following qualifications:
(1)An operations personnel must have at least three-month working experience in relevant foreign exchange business or have completed at least 12 hours of foreign exchange regulations related courses given by domestic financial training institutions and have at least 20 business days of practical training in relevant foreign exchange business at an authorized bank.
(2) An auditing personnel must have at least six-month working experience in relevant foreign exchange business, or have completed at least 12 hours of foreign exchange regulations related courses given by domestic financial training institutions and have at least 40 business days of practical training in relevant foreign exchange business at an authorized bank.
5.Its computer equipment and related operating environment are adequate to properly handle matters provided in Article 26 herein.
Branches of securities enterprises may not apply for approval to engage in spot transaction business between foreign currencies until their head office has been approved by the Bank to do so and has operated the business smoothly.
Securities enterprises shall prepare other transaction certificates for their spot transaction business between foreign currencies, and deliver such certificates to clients or process them in the method as agreed with the client.
The“other transaction certificates” mentioned in the preceding paragraph may be made via electronic form.
Securities enterprises shall submit relevant data to the Bank on transactions mentioned in Paragraph 1 hereof on the previous business day by means of electronic medium before 12:00 noon on the following business day. The format and content of reporting shall be regulated by the Bank separately.
If relocation or a name change is made by a securities enterprise that has been approved to engage in spot transaction business between foreign currencies, the enterprise shall report the change to the Bank for record within seven (7) days after the receipt of a new business license or permit from the competent authority. In the case of relocation, the securities enterprise shall also submit the qualification documents of its operations and auditing personnel.
Section 4 Foreign Exchange Derivatives Business
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.
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.
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.
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.
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.
Section 5 Structured Products Business
The structured products business linked to foreign currency denominated financial products undertaken by securities enterprises (hereinafter referred to as “structured products business”) may be linked to the following underlying:
1.Foreign securities;
2.Foreign stock indices and futures indices;
3.Foreign currency interest rate indices;
4.A combination of underlying products provided in the preceding three subparagraphs;
5.Foreign currency denominated international bonds issued in Taiwan and listed on GTSM; and
6.Other underlying products as approved by the Bank.
The underlying products mentioned in the preceding paragraph exclude credit risk and exchange rate indices. Where the target buyers of the underlying assets are restricted according to the applicable regulations of the FSC, the target buyers of the structured products concerned shall also be restricted by the same regulations.
The provisions in Paragraphs 3 & 4 of Article 29, and Articles 30 ~ 32 shall apply mutatis mutandis when securities enterprises conduct the structured products business.
Section 6 Offshore or Foreign Currency Warrant Business
The scope of business involving call (put) warrant issued overseas or denominated in foreign currency (hereinafter referred to as “offshore or foreign currency warrant business”) that may be undertaken by securities enterprises includes the following:
1.For domestic call (put) warrants issued with a link to foreign securities or indices of foreign securities markets, the scope of the underlying shall conform to relevant regulations stipulated by the FSC.
2.For offshore call (put) warrants issued with a link to domestic securities or indices, the scope of the underlying shall be limited to domestic stocks or baskets of stocks, domestic exchange traded securities investment trust funds, offshore ETFs, and Taiwan depositary receipts.
A securities enterprise that intends to engage in offshore or foreign currency warrant business shall apply to the Bank for approval by submitting documents provided in Article 6 herein, and in addition, documents specified below:
1.Qualification certificates issued by the FSC and the competent authority in the place where the offshore warrants will trade; and
2.Business plan (including product profiles, operational guidelines and risk management).
Section 7 Accepting Orders to Trade Foreign Securities
A securities enterprise that intends to accept orders to trade foreign securities for the first time shall apply to the Bank for approval by submitting documents provided in Article 6 herein, and in addition, a business plan (including operational principles and business practice, procedures of handling of receipt/payment and operation).
when a securities enterprise already approved by the Bank to accept orders to trade foreign securities with receipt/payment of settlement and fees in foreign currency intends to engage in receipt/payment in NTD, the securities enterprise only needs to submit the following additional documents to the Bank to apply for approval:
1.A photocopy of the Bank’s letter of approval for the securities enterprise to accept orders to trade foreign securities with receipt/payment of settlement and fees in foreign currency;
2.A photocopy of letter of approval from the FSC;
3.A statement supporting that the applicant’s computer system is able to meet the requirements set out in Article 38 herein regarding receipts and payments in different currencies; and
4.A description of the controls for receipts and payments of settlement and fees in different currencies.
When a securities enterprise accepts orders to trade foreign securities, the securities enterprise shall comply with the following rules with regard to receipt/payment of settlement and fees with clients:
1.When a client designates the settlement to be made in a foreign currency, the related receipt/payment shall be made in the foreign currency; and
2.When a client designates the settlement to be made in NTD, the related receipt/payment shall be made in NTD.
Section 8 Trading Foreign Bonds as an Agent
A securities enterprise that intends to trade foreign bonds as an agent shall apply to the Bank for approval by submitting documents provided in Article 6 herein, and in addition, a business plan (including business introduction, operating procedure and risk management).
When a securities enterprise trades foreign bonds as an agent, payment shall be remitted by the buyer directly into an account designated by the foreign financial institution. The receipt/payment for investment, redemption, and settlement, fees charged by the foreign financial institution and other fees shall be made in foreign currency.
Section 9 Offshore Fund Master Agency Business
A securities enterprise that intends to act as the master agent of an offshore fund institution in the offering and sale of its funds in Taiwan (hereinafter referred to as the“offshore fund master agency business” shall apply to the Bank for approval by submitting documents provided in Article 6 herein, and in addition, the following documents:
1.A photocopy of document evidencing the approval or effective registration with the FSC for offering and sale of offshore funds in Taiwan;
2.Business plan (including business introduction, operating and receipt/payment procedure); and
3.List of sub-distributors and a statement supporting the qualifications of those sub-distributors.
If the offshore ETF is listed in NTD, the application shall be filed on a case-by-case basis.
When a securities enterprise acting as a master agent for an offshore fund institution sells the funds or mandates its sub-distributors to handle the offering and sale of the offshore funds, the related receipt/payment shall be handled according to the following rules:
1.When the investor pays and receives funds directly to and from an offshore account designated by the offshore fund institution, the related receipt/payment for purchase and redemption between the investor and the offshore fund institution shall be made in foreign currency.
2.When the investor purchases the offshore fund through the account opened by the master agent at a domestic bank in the name of the offshore fund institution, or a bank account designated by the centralized securities depository enterprise, or a non-discretionary money trust managed by a trust enterprise, or a foreign securities brokerage agreement by a securities enterprise, the following applies:
(1)When the purchase is paid in NTD, relevant receipt/payment shall be made in NTD.
(2)When the purchase is paid in foreign currency, relevant receipt/payment shall be made in foreign currency.
(3)Upon receiving purchase payments and redemption proceeds that involve exchange settlement against NTD, the securities enterprise shall carry out exchange settlement promptly and remit the payments out to the offshore fund institution or remit the proceeds into the account designated by the investor.
3.When an investor purchases an offshore fund with foreign currency, and then switches into another offshore fund with a different currency, the investor may be paid with the denominated currency of the fund at the time of redemption.
When a master agent files a report with the FSC in events referred to in Article 12 of the Regulations Governing Offshore Funds, it shall send the Bank a copy of the report.
Section 10 Private Placement of Offshore Funds
When a securities enterprise intends to act as the local mandated agent of an offshore fund institution and conduct private placement to specified counterparties (hereinafter referred to as “offshore fund private placement business”), the securities enterprise shall apply to the Bank for approval by submitting documents provided in Article 6 herein, and in addition, the following documents:
1.A statement to comply with the provisions in Article 52 of the Regulations Governing Offshore Funds. Such statement is not required if the counterparties are entities provided in Subparagraph 1, Paragraph 1, Article 52 of the Regulations.
2.Business plan (including business introduction, primary data of the offshore fund, operating and receipt/payment procedure).
All receipt/payment for settlement and fees between the local mandated agent of a privately placed offshore fund and the counterparties shall be made in the denominated currency of the fund.
When the local mandated agent of a privately placed offshore fund purchases fund shares from the offshore fund institution, it shall do so in the name of the counterparty.
When the offshore fund institution reports to the institution designated by the FSC within five days from the date that the price of the privately placed offshore funds has been paid in full, it shall send a copy of the report to the Bank.
Section 11 Purchase and Redemption of Offshore ETFs Business
When a securities enterprise intends to act as a participating dealer for an offshore ETF to process (on a brokerage basis) or engage in (on a proprietary basis) purchase or redemption of offshore ETFs in Taiwan (hereinafter referred to as “purchase and redemption of offshore ETFs business”), the securities enterprise shall, after obtaining approval from or completing effective registration with the FSC, apply to the Bank for approval by submitting documents provided in Article 6 herein and a business plan (including business introduction, operating process, receipt/payment procedure, and hedging transactions).
Receipts and payments between the participating dealers and investors for the purchase and redemption of an offshore ETF shall be made in NTD only.
Section 12 Wealth Management Business Involving Non-discretionary Money Trust
When a securities enterprise intends to engage in wealth management business by means of non-discretionary individually managed money trust with the underlying products denominated in foreign currencies (hereinafter referred to as “wealth management business involving non-discretionary money trust”), the securities enterprise shall apply to the Bank for approval by submitting documents provided in Article 6 herein and a business plan (including business description, business counterparties, framework of trust account, receipt/payment principles and filing of foreign exchange settlement).
Securities enterprises that have been approved by the Bank to engage in wealth management business involving non-discretionary money trust that subsequently increase or decrease the number of branches to handle the business shall, within seven days after obtaining approval from the competent authority, report to the Bank for record.
When a securities enterprise engages in wealth management business involving non-discretionary money trust, related receipt/ payment shall be handled according to the following rules:
1.Foreign currency non-discretionary money trust: Receipt/payment of trust money and repayment of trust principal and income between a securities enterprise and the principal shall be made in foreign currency. The trust assets may only be invested in foreign products or products denominated in foreign currency, and the foreign currency funds may not be converted to NTD through exchange settlement.
2.NTD non-discretionary money trust with investment in foreign products or products denominated in foreign currency:
(1)Receipt/payment of trust money and repayment of trust principal and income between a securities enterprise and the principal shall be made in NTD. Proceeds from the sale of foreign product or products denominated in foreign currency shall be exchanged into NTD and deposited into the NTD trust asset deposit account – principal sub-account. Foreign currency deposits shall be used exclusively for settlement purpose.
(2)When the purchase or sale of foreign product or product involving foreign exchange through the same trust account involve exchange settlement against NTD, the securities enterprise shall carry out gross settlement through an authorized bank without offsetting or settling on a net basis. However, for accounts receivable or payable arising from the purchase or sale of underlying assets or sale first and then buyback before the settlement of the sale through the same trust account on the same date, the securities enterprise may, according to the principal's instruction, combine and net off all the received (paid) money in the same currency and then exchange the net received (paid) amount into NTD.
When a securities enterprise conducts wealth management business involving non-discretionary money trust, the qualifications of the principal shall meet the criteria set out in Subparagraph 2 of Point 9 and Subparagraph 4 of Point 10 of the Operating Directions.
When the trust assets are invested in foreign products or products denominated foreign currency, such products must be denominated in foreign currency and not linked directly or indirectly domestic products.
There shall be no transfer of funds between the NTD and foreign currency non-discretionary money trust accounts of the same principal. And there shall be no transfer of funds between the discretionary money trust accounts of different principals.
Chapter 4 Operation and Management of Renminbi Business
When the foreign exchange business of a securities enterprise involves Renminbi (RMB) denominated products or products issued in Mainland Area, the securities enterprise shall observe the provisions of Article 52 herein and the following rules, and relevant provisions in these Regulations shall also apply mutatis mutandis:
1.Unless otherwise provided by the Bank, securities enterprises may not conduct RMB exchange settlement or conversion on behalf of clients when engaging in RMB-denominated investment products .
2.The provisions of Article 50-3 of the Regulations Governing Foreign Exchange Business of Banking Enterprises regarding limits on RMB purchase or sale through accounts of natural persons per person per day shall apply mutatis mutandis.
3.If the foreign exchange derivatives business or structured product business of a securities enterprise involves RMB-denominated products or is linked to products issued in Mainland Area, the enterprise shall observe the following rules:
(1)The underlying of equity linked foreign exchange derivatives and structured products may be a listed stock, stock indices or ETFs in Mainland Area; and
(2)The underlying credit of foreign currency credit derivatives may not be the default risk, credit spread risk and credit rating downgrade risk of a government or a corporation in Mainland Area, or their debt.
4.Other rules set out by the Bank for appropriate management of Renminbi business.
With the exceptions of foreign exchange derivatives business and structured product business, securities enterprises may conduct foreign exchange business involving RMB denominated products or products issued in Mainland Area, provided the enterprise has been approved by the Bank to engage in such business.
When a securities enterprise, that has been approved by the Bank to engage in foreign currency interest rate derivatives, foreign currency bond derivatives and structured products businesses, intends to add to those businesses RMB-denominated products or products linked to underlying issued in Mainland Area, the enterprise only needs to report to the Bank for record by submitting a resolution of its board of directors resolving the board's approval of the proposed business.
Chapter 5 Supplemental Provisions
These Regulations shall become effective on the date of promulgation.