Securities eligible for margin trading: The evaluated rates are 70% of the opening reference price of the relevant day in the trading market for TWSE-listed securities and 60% for OTC-listed securities. The waiver does not apply under certain conditions, as illustrated per the following case: If the subject borrowed security’s closing price of the previous day reaches the limit down price, or if the subject security’s price is the lowest recorded sell order at market close of the previous trading day (and no trade is executed), then the uptick rule applies for the following trading day and the subject borrowed security may not be entered at a price lower than the previous day’s closing price.
At the time of returning loaned securities, the borrower should pay an SBL fee for the lender, an SBL service fee for TWSE and an SBL brokerage commission for the securities firm.
For fixed-rate and competitive auction transactions: The securities firm charges both parties the amount of 20% on 2% of the SBL fee. For negotiated transactions: The securities firm negotiates SBL brokerage commissions with his clients.
Manufactured dividends are treated as lenders’ dividend income or capital gains depending on whether borrowers hold borrowed securities as of the record date.
By giving a 1-day, 3-day or 10-day prior notice period, lenders can early recall loaned securities in fixed-rate or competitive auction transactions. In fixed-rate and competitive auction transactions, when a borrower fails to fulfill his or her obligations in a timely manner, such as returning loaned securities or manufactured dividends, providing additional collateral, or paying related fees, TWSE shall dispose of the provided collateral to buy the loaned securities back.
However, since September 23, 2013, borrowed stocks eligible for margin trading are exempted from the uptick rule. The waiver is reinstated only after such an aforementioned trading day and only if the subject security’s price does not remain at the limit down price at market close. The broker then notifies the investor that the trade has been made, and funds and securities are exchanged on the specified trade date (See Chart 20.1).
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