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3.3. Trading and clearing system

1. How are over-the-counter derivatives traded?

Over-the-counter derivatives or OTC derivatives are not traded at centralized market. To trade an OTC derivative, investors need to enter a contract with a securities firm or leverage transaction merchant which specifies the rights and obligations of parties to the transaction, and the parties should agree on the terms and conditions of the transaction.

2. How are the trades of over-the-counter derivatives settled?

OTC derivative transactions are settled in a manner agreed by the parties or according to the way the underlying asset is settled.

3. How do investors request for warrants exercise? When can investors obtain the underlying stocks after that?

Request method: The holder shall first fill out an "Application Form for the Exercise of Call (Put) Warrants” and affix the personal chop thereto, and commission the securities firm to file an exercise application to the TWSE, as well as make an advance payment required for exercise to the securities firm. If the issuer chooses cash settlement, the commissioned securities broker shall refund the advance payment on the first business day subsequent to the request for exercise.
Request quantity: Shall be warrants in 1,000 units or an integer multiple thereof.
A warrant holder may not request to exercise the call (put) warrants until the second business day after the date on which they are purchased, and after it has been confirmed that such call (put) warrants have been transferred into a central securities depository account.
Exercise fee: A warrant holder requesting for exercise is subject to the following fees
1. Fees:
  - Delivery of securities：Fees are calculated based on “Exercise price x Quantity of underlying securities.”
  - Cash settlement：Fees are calculated based on the “Difference between the exercise price and the underlying security’s price x Quantity of underlying securities.”
2. Transaction tax:
  When the issuer chooses cash settlement, the call (put) warrants holder must calculate transaction taxes based on the “Difference between the exercise price and the underlying security’s price x Quantity of underlying securities” with a 0.1% transaction tax rate.
In general, investors are able to obtain the underlying stocks on T+2 after that, if investors chose cash settlements.

4. By what means can exercise of warrants be paid?

The means by which main board options are exercised depends mainly upon the contract, and may involve the following forms:

Delivery of securities.
Cash settlement.
Delivery of securities, but the issuer has the right to choose cash settlement.
Delivery of securities, but the investor has the right to choose cash settlement.
Delivery of securities, but the issuer may choose cash settlement：If the warrant holder fails to apply for exercise when a warrant has exercise value upon maturity, the issuer may automatically exercise cash settlement based on the simple arithmetic mean trade price of the underlying securities during the 60 minutes prior to market close on the warrant"s maturity date.
Delivery of securities: If the warrant holder fails to apply for exercise when a warrant has exercise value upon maturity, the issuer may automatically exercise cash settlement based on the simple arithmetic mean trade price of the underlying securities during the 60 minutes prior to market close on the warrant"s maturity date.
Delivery of securities, but the investor may choose cash settlement: If the warrant holder fails to apply for exercise when a warrant has exercise value upon maturity, the issuer may automatically exercise cash settlement based on the simple arithmetic mean trade prices of the underlying securities during the 60 minutes prior to market close on the warrant’ s maturity date.

5. Under what conditions a warrant liquidity provider is not required to give quotes?

According to the rule, a liquidity provider shall perform its quoting obligations by providing bid/ask quotes for the warrants issued. However a liquidity provider is not required to provide quotes in the following circumstances:

During the initial 5 minutes after opening of the TPEx trading market.
During any halt of trading of the underlyings of the warrants.
When the quantity of warrants in the liquidity provider"s segregated account cannot satisfy the minimum units required for a single ask quote, the liquidity provider may provide merely a bid quote.
Within the 15 days before the expiration date of the warrant, the liquidity provider may provide merely a bid quote.
Other conditions as set by the issuer at its own initiative:
- When the underlying security reaches its limit-up, only bid (ask) quotes on call (put) warrants will be provided; when the underlying security reaches its limit-down, only ask (bid) quotes on call (put) warrants will be provided.
- When the price of warrant reaches its limit up (down), only bid (ask) quote will be provided.
- When a warrant is 30% or more in-the-money, only bid quotes will be provided.
- When the theoretical value of a warrant is less than $0.01.
- When the liquidity provider is faced with technical problem during normal operation.
- When the warrant issuer is unable to hedge risks.

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.

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