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4.3. Trading and clearing system

1. What are the ETF trading mechanisms?

Investors can buy and sell ETF in both primary and secondary markets. In the primary market, investors can buy ETF at the issue price from distributors (banks or securities firms) or directly from the ETF issuer (sponsor) at the time of ETF issuance. After the ETF is listed, the investor can also buy or sell the ETF in large amounts from or to the ETF issuer (sponsor) through the participating dealers. Investors can also buy or sell ETF in the secondary market. ETF trading in the secondary market is similar to the stock trading system that many investors are familiar with, except that daily price fluctuation limit and tick size of ETF and stocks are slightly different.

To increase liquidity in the secondary market, ETF is designed with a liquidity provider system. For each ETF, there must be liquidity providers that give quotes during trading hours. Liquidity providers are required to maintain the quality and efficiency of quotation that will facilitate fast and effective execution of orders placed by investors.

ETF trading mechanisms:

Trading method	Through the stock brokerage account, the same as stock.
Trading hours	9:00 AM - 1:30 PM, the same as stock.
Trading unit	Board lot is 1,000 beneficial units, but odd lot trading is also allowed, the same as stock.
Margin trading and day trade	Margin trading and day trade are allowed after the ETF is listed, the same as stock.
Fees (commission)	Set by the securities broker but capped at 0.1425%, the same as stock.
Daily price fluctuation limit	ETF comprising only domestic securities - 10%; ETF comprising foreign securities - no upside/downside limit.
Tick size	NT$0.01 if the market price is below NT$50, and NT$0.05 if the market price is NT$50 or above, smaller than stocks.
Securities transactions tax	Less than stocks, and bond ETFs are currently not subject to transaction tax.
RP/RS trade	RP/RS trade of bond ETF is allowed at the business place of securities firms.
Liquidity provider	A liquidity provider mechanism is in place to provide market liquidity.
Creation/redemption system	Investors may apply for ETF creation and redemption through participating dealers.

2. What is the payment and settlement system for ETF?

Pursuant to Article 11 of the Taipei Exchange Rules Governing Trading of Exchange-Traded Fund Beneficial Certificates: “The handling of settlement, out-trades, and default on settlement of ETF beneficial certificates shall subject mutatis mutandis to the provisions of the TPEx Trading Rules regarding TPEx listed stock.”

3. What are ETN trading mechanisms?

Trading Method	Primary Market: Investors can purchase from the securities firm that issues ETN at the time of ETN issuance, and directly purchase the ETN at the issue price. After the ETN is listed, the investor can also purchase or sell the ETN in large amounts to the issuing securities firm through the securities brokers. Secondary Market: Through securities trading accounts, the same as stock trading. Trading System Over The Counter
Trading Hours	9:00 – 13:30, the same as stock.
Commission Rate	The securities broker may at its sole discretion adopt a rate schedule but the cap is 0.1425%, the same as stock.
Daily Price Fluctuation Limit	For an ETN with domestic index components, the daily price limit shall be 10%. For a leveraged or inverse ETN of which the components of the underlying index are all domestic underlyings, the daily price limit shall be 10 percent above or below the reference price of the given day multiplied by the multiple of the ETN. For an ETN with Foreign Component Securities, there is no limit.
Trading Units	Board lot 1,000 units
Tick size	The price quote for each ETN trade shall be based on 1 ETN unit. The tick size for the price referred to in the preceding paragraph shall be 1 cent if the market price is below NT$50, and 5 cents if the market price is NT$50 or above.
Securities Transaction Tax	0.1%, the same as ETF.
RP/RS transactions	Not allowed
Liquidity Provider	There is a liquidity provider mechanism, and a securities firm issuing an ETN shall itself serve or appoint another securities firm to serve as the liquidity provider. The liquidity provider should provide liquidity quotes for the ETN during the trading hours of the TPEx"s automated trade matching system.
Other Restrictions	ETNs are not eligible for margin purchases and short sales, day trades, money lending in connection with securities business, money lending for unrestricted purposes, securities settlement financing, securities-based lending business, and securities borrowing and lending transactions, nor may they be used as collateral. A securities firm may not accept customer orders to trade ETNs through omnibus trading accounts, nor may it use ETNs as a subject matter of systematic (fixed-term, fixed-amount) investment business.

4. What is the settlement system for ETN?

Pursuant to Article 26 of the Taipei Exchange Rules Governing the Trading of Exchange-Traded Notes: “Unless otherwise provided, the handling of settlement, out-trades, and default with respect to ETN trades shall be governed mutatis mutandis by the provisions of the TPEx Trading Rules and other applicable rules regarding TPEx listed stocks.”

Note: 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.