Joint Responsibility System Clearing and Settlement Fund

A.Importance of Clearing and Settlement Fund

B.TPEx’s Current Clearing and Settlement Fund

C.Priority Usage and Replenishment

A.Importance of Clearing and Settlement Fund

TPEx’s clearing and settlement fund is similar to the clearing and settlement fund of TWSE Its is mainly to guarantee securities firms’ settlement obligations. In other words, the clearing and settlement fund will be used when securities firms fail to perform their settlement obligations to TPEx.

 

B.TPEx’s Current Clearing and Settlement Fund

I.Regulations:

The Joint Responsibility System Clearing and Settlement Fund is set up in accordance with Article 1 of the Taipei Exchange Rules for Administration of the Joint Responsibility System Clearing and Settlement Fund and Paragraph 3, Article 17 of the Taipei Exchange Rules Governing Securities Trading on the TPEx. The clearing and settlement fund paid by the securities firms shall have common liabilities, and a fund management committee shall be set up; the rules for its management shall be prescribed by the TPEx after consulting with the securities dealers association and sent to the competent authority for approval; the same procedures shall apply with amendments. TPEx is the manager behind fund operations.

II.Fund size and deposit requirements:

(I)Fund size:

The deposit requirements of the Clearing and Settlement Fund are clearly stipulated in the regulations. The fund size is set up NT$2 billion, for which TPEx appropriates and all securities firms appropriate NT$1.6 billion.

(II)Deposit Requirements:

  1. TPEx shall appropriate NT$400 million as the Special Clearing and Settlement Fund, including of the first allocation amount of NT$100 million and the continuous allocation amount of NT$300 million.
  2. All securities firms shall contribute NT$1.6 billion. The calculating method includes fixed part and variable part.
    • (1)Fixed Part :
      Please refer to Article 3 of Taipei Exchange Rules for Administration of the Joint Responsibility System Clearing and Settlement Fund for the calculating method of the fixed part. Before commencing business activities, each brokerage firm shall contribute NT$6 million, with an extra NT$ 1.5 million for each additional branch. Each securities dealer shall contribute NT$ 2 million. Each securities dealer shall contribute NT$ 2 million. From the year after business commences, the contribution of each brokerage firm will be reduced to NT$1.5 million, with an extra NT$ 0.25 million for each additional branch.
    • (2)Variable Part :
      This is the balance after the fixed part is subtracted from NT$1.6 billion. The balance then is distributed among all the securities firms pro rata on the basis of the size of their net long or net short amount of the previous year. Please refer to Article 3 of Taipei Exchange Rules for Administration of the Joint Responsibility System Clearing and Settlement Fund for the calculating method of the variable part.
  3. For a securities firm that engages only in TPEx trading of bonds and is required to contribute to the Fund, the amount of contributions and the percentages at which contributions are calculated shall be one-tenth of the above amounts.

III.Supplementary appropriation mechanism:

Supplementary appropriation mechanism is set up in accordance with Article 5 of Taipei Exchange Rules for Administration of Additional Deposits by Securities Firms to the Joint Responsibility System Clearing and Settlement Fund. The value at risk (“VaR”) of securities firms, which is produced by TPEx, is the foundation for the monthly review of the amount to be appropriated to the Clearing and Settlement Fund by the individual securities firm. A securities firm has to make a supplementary appropriation to the Clearing and Settlement Fund if the basic amount of its appropriation to the Clearing and Settlement Fund is lower than 80% of its average daily VaR of the previous month. On the other hand, a securities firm may get a refund from the Clearing Fund if its appropriation to the Clearing and Settlement Fund is higher than 80% of its average daily VaR of the previous month or the basic amount, of which the refunding amount is the difference.

 

C.Priority Usage and Replenishment

I.Priority Usage:

In accordance with Article 13 of Taipei Exchange Rules for Administration of the Joint Responsibility System Clearing and Settlement Fund, when a securities firm defaults on its settlement obligations to the TPEx (excluding transactions through the Electronic Bond Trading System), the TPEx shall first handle the default according to the relevant procedures. Any shortfall in the price and all related expenses arising from the settlement default will first be deducted from the defaulting firm’s contributions to the Fund and accrued interest thereupon; reimbursement for any remaining shortfall shall be sought from the following sources in the priority listed:

(I)NT$300 million of the Special Clearing and Settlement Fund allocated by the TPEx under Paragraph 2, Article 4 Taipei Exchange Rules for Administration of the Joint Responsibility System Clearing and Settlement Fund.

(II)Contributions made by securities firms other than the defaulting firm to the Fund, plus the NT$100 million of TPEx’s initial allocations to the Special Settlement Fund made by TPEx under Paragraph 1, Article 4 of Taipei Exchange Rules for Administration of the Joint Responsibility System Clearing and Settlement Fund, prorated according to contributions already made as of the date of utilization.

II.Replenishment:

After the default amount is appropriated to pay for a security firm’s Settlement Fund, it shall be repaid before the deadline. If the Fund is subject to compulsory execution by a court or is utilized for any reason, the TPEx and every participating securities firm shall make immediate supplementary contributions to top up the Fund; if the securities firm fails to make repayment as required, TPEx shall thereupon halt its market trading.

 

Note:The above documents have been translated by the Linguitronics Co., Ltd. The English translation is for reference only. In case of any discrepancy between the English version and the Chinese version, the Chinese version shall prevail.