A securities enterprise that applies for approval to engage in foreign exchange derivatives business involving exchange rates must be a DSF.
A DSF that engages in foreign exchange derivatives business involving exchange rates shall observe the following provisions:
1.The DSF shall only offer an individual derivative contract without structuring it into a synthetic contract or combining it with other derivatives products, NTD or foreign currency principal, other products or businesses;
2.The DSF shall conduct the business based on the customer’s actual needs and the related transaction documents for any Bank-approved business under Subparagraphs 1 and 4, Paragraph 1 of Article 4 herein with the same customer; and
3.Transaction documents for repo trade of foreign currency securities with customers can only be used to undertake foreign currency swap between foreign currencies.
In addition to the provisions in the preceding paragraph, the scope of business and other rules for a DSF conducting the foreign exchange derivatives business involving NTD exchange rate are as follows:
1. NTD foreign currency swap business (FX SWAP):
(1) FX swap is a simultaneous purchase and sale of identical amounts of one currency for another with two different value dates.
(2) Counterparties are limited to domestic legal entities, foreign natural persons and foreign legal entities.
(3) In the settlement of a FX swap, the DSF shall examine whether the customer has filled out a Declaration Statement in accordance with the Regulations for Declaration and whether the customer has entered information under the "Nature of Foreign Exchange Receipts and Disbursements or Transactions" of the Declaration Statement according to the nature of the actual transaction, and also note it as a "foreign exchange swap". In addition, the "foreign exchange receipts (disbursements) classification and code number" provided by the Bank’s Department of Foreign Exchange shall be indicated on the foreign exchange memo, and included in the Daily Foreign Exchange Receipts (Disbursements) Transaction Report along with the Declaration Statement; the preceding provision applies when the contract is rolled over.
(4) When conducting the business under this subparagraph, the DSF shall also fill out a “Daily Report on FX Swap and Standard CCS Forward Positions.”
(5) The SWAP Transaction amount need not be included in the aggregate settlement amount of the current year as specified in Subparagraph 3, Paragraph 1, Article 4 of the Regulations for Declaration.
(6) When the contract is rolled over, the price shall be set based on the current market exchange rates rather than the rates of the original contract.
2. NTD cross currency swap business (CCS):
(1) Counterparties are limited to domestic and foreign legal entities.
(2) NTD CCS shall be limited to exchange of principal both at inception and maturity. Both the principal and interest need not be included in the aggregate settlement amount of the current year as specified in Subparagraph 3, Paragraph 1, Article 4 of the Regulations for Declaration at the time of settlement.
(3) In the settlement of NTD cross currency swaps, the DSF shall examine whether the customer has filled out a Declaration Statement in accordance with the Regulations for Declaration and whether the customer has entered information under the "Nature of Foreign Exchange Receipts and Disbursements or Transactions" of the Declaration Statement according to the nature of the actual transaction, and also note it as a "cross currency swap transaction". In addition, the "foreign exchange receipts (disbursements) classification and code number" provided by the Bank’s Department of Foreign Exchange shall be indicated on the foreign exchange memo, and included in the Daily Foreign Exchange Receipts (Disbursements) Transaction Report along with the Declaration Statement.
(4) When conducting the business under this subparagraph, the DSF shall also fill out a “Daily Report on FX Swap and Standard CCS Forward Positions.”
3.NTD exchange rate option business:
(1) Counterparties are limited to domestic and foreign legal entities.
(2) An option may be settled by net settlement or gross settlement, but the settlement method shall be specified in the contract.
(3) The currency used for option premium and settlement when the option is exercised may be either in the denominated foreign currency or NTD, but shall be specified in the contract.
(4) Only "plain vanilla" options may be transacted.
(5) When conducting the business under this subparagraph, the DSF shall also fill out a “Daily Report on NTD Exchange Rate Option Transactions.”
When conducting foreign exchange derivatives business involving exchange rates between foreign currencies, a DSF shall observe the following provisions in addition to the provisions in Paragraph 2 hereof:
1.When a foreign exchange forward or swap contract is rolled over, the price shall be reset based on the current market exchange rate rather than the original contract rate.
2.In carrying out FX swap or CCS transactions between foreign currencies, the appropriate "foreign exchange receipts (disbursements) classification and code number" should be indicated on other transaction certificates and included in the Daily Foreign Exchange Receipts (Disbursements) Transaction Report at the time of settlement.

A securities enterprise that engages in foreign exchange derivatives business not involving exchange rates shall observe the following provisions:
1. Credit default swap and credit default option business:
(1) Counterparties are limited to legal entities who are also professional customers.
(2) Where the counterparty is a domestic customer, unless the competent authority agrees it could be a protection seller, the domestic customer should be the protection buyer in a credit derivatives transaction.
(3) Where a domestic customer is the protection seller in a credit derivatives transaction, the reference entity shall meet the requirements set out by its competent authority and shall not be a government or company in Mainland China Area or any company directly or indirectly owned by which with at least 30% shares.
(4) Where the securities enterprise itself is the protection seller and the reference entity is an interested party, the terms of the transaction shall not be more favorable than those offered to other counterparties in the same category, and shall comply with relevant laws and regulations.
(5) Where the contracts under this subparagraph are combined into a structured product, the counterparties are limited to professional institutional investors and foreign legal entities who are also professional customers.
2.Where the foreign exchange derivative contracts are combined into a synthetic contract or a structured product, restrictions and rules applicable to individual products and underlyings shall be followed.
3.Unless it is otherwise provided by the Bank, the business shall not be linked to any of the following:
(1) Asset securitization related securities or products.
(2) Unlisted individual stocks, stock indices or exchange-traded funds in Mainland China Area.
(3) Securities privately placed domestically or abroad.
(4) Certificates of beneficial interest that are issued overseas by domestic securities investment trust enterprises and are not listed for trading on a securities market.
(5) Any Taiwan stock index compiled by a domestic or foreign institution and related financial products, but this restriction does not apply to an index compiled by TPEx or TWSE, or those two institutions in collaboration with another institution.
The underlying foreign securities and counterparties shall comply with the scope and relevant rules and guidelines of securities firms accepting orders to trade foreign securities as prescribed by the FSC, or other securities as approved by the FSC.

A securities enterprise may engage in the following foreign exchange derivatives businesses without making an application:
1.Combinations of foreign exchange derivatives not involving exchange rate and already approved by the Bank or reported to the Bank for record that are linked to the same underlying asset with the same risk and combined through the same transaction contract, but excluding complex high-risk foreign exchange derivatives transactions entered with customers other than professional institutional investors and high net worth corporate investors.
2.Foreign exchange derivatives transactions undertaken as a customer for investing with its own funds or carrying out for hedging purposes with authorized banks that have been approved by the Bank to engage in foreign exchange derivatives business or foreign financial institutions.
3.Domestic and foreign futures contracts not involving NTD exchange rate traded as a futures trader.
To engage in any foreign exchange derivatives business other than those provided in the preceding paragraph, a securities enterprise shall apply to the Bank for approval or report to the Bank for record based on the following criteria:
1.Application for approval before commencing:
(1)First-time application for foreign exchange derivatives business.
(2)Foreign exchange derivatives business not yet approved by the Bank or has been approved for less than six months, and foreign exchange derivatives linked thereof.
(3)Foreign exchange derivatives business involving exchange rates.
(4)The business of sales of foreign exchange derivatives products already approved by the Bank or reported to the Bank for record by the branch under the authorization of its head office.
2.Reporting for record after commencing: Only for securities enterprises that have been approved to engage in any of the foreign exchange derivatives businesses.
(1)Foreign exchange derivatives business approved by the Bank for over six months and not involving exchange rates.
(2)Foreign exchange derivatives business provided to professional institutional investors and high net worth corporate investors not involving exchange rates and not yet approved by the Bank or approved by the Bank for less than six months, which should comply with the relevant rules of the competent authority.
When a securities enterprise engages in business under this article with a professional institutional investor, if the professional institutional investor accepts trading orders, signing a trust agreement or discretionary investment services agreement, or offering privately placed funds, and carries out transactions provided in Item 2, Subparagraph 2 of the preceding paragraph as a professional institutional investor, the customer/trustor/mandatory or subscriber shall also be a professional institutional investor or high net worth corporate investor.

A securities enterprise that applies for approval to engage in businesses under Items 1 and 2, Subparagraph 1, Paragraph 2 of the preceding article shall submit documents provided in Article 7 herein, and in addition, documents specified below:
1.Document evidencing that its financial derivatives business has not been suspended or terminated by TPEx pursuant to the “Taipei Exchange Regulations Governing Over-the-Counter Trading of Financial Derivatives by Securities Firms” (hereinafter referred to as “Derivatives Trading Regulations”) during the preceding six months;
2.Curriculum vitae of operations and relevant managing personnel;
3.Risk disclosure statement;
4.Product profiles;
5.Operational guidelines; and
6.Risk management related documents.
A DSF that applies for approval to engage in business provided in Item 3, Subparagraph 1, Paragraph 2 of the preceding article shall submit documents provided in the preceding paragraph, and in addition, documents evidencing compliance with Subparagraphs 2 and 5, Paragraph 2 of Article 47 herein, and the provisions of Articles 54, 55 and 59 applies mutatis mutandis to the application.
A securities enterprise that applies for approval to engage in business provided in Item 4, Subparagraph 1, Paragraph 2 of the preceding article shall submit documents provided in Article 7 herein, and in addition, documents specified below:
1.Authorization guidelines approved by the board of directors;
2.List of products to be sold; and
3.List of branches authorized to sell the product and the list of personnel at each branch meeting the sales qualifications.
Within one week of carrying out the first transaction under Subparagraph 2, Paragraph 2 of the preceding article, a securities enterprise shall report to the Bank for record with the following documents and may carrying out the next transaction only after receiving a letter of acknowledgement from the Bank:
1.Documents provided in Article 7 herein;
2.Product description of the first transaction (must be a product actually transacted with the date of transaction, date of settlement, expiration date, notional principal amount, exercise price or other relevant indexes and parameters); and
3.Documents provided in Subparagraphs 1 ~ 4 of Paragraph 1 hereof.

Article 14 of the Regulations Governing Foreign Exchange Business of Banking Enterprises shall apply mutatis mutandis to the qualification and training requirements for personnel of securities enterprises handling foreign exchange derivatives business, wherein the provisions in the same article governing personnel handling the recommendation of foreign exchange derivatives apply to the personnel of securities enterprises handling the sales of foreign exchange derivatives.

When a securities enterprise conducts the foreign exchange derivatives business, the procedure for verifying that the counterparty meets the criteria for professional customers, trading rules, implementation of risk management, information disclosure, and related internal control and audit systems shall comply with relevant regulations set out by the FSC. In addition, the following rules shall apply：
1. Receipt/payment between the securities enterprise and its customer related to settlement and fees, and payments due to the early termination of a contract or expiration of a contract shall be made in the denominated currency. Except for payments that are transferred from the customer’s bank deposit account or the customer’s foreign currency account, the customer shall carry out the foreign exchange settlement against NTD through an authorized bank or the securities enterprise if it is a DSF in accordance with“Regulations for Declaration”. The securities enterprise shall not be entrusted with handling the foreign exchange settlement against NTD for the customer.
2. Securities enterprises shall not, either for themselves or for customers, utilize foreign exchange derivatives to defer or hide losses, misrepresent or recognize income earlier, or use other illicit means to engage in window dressing or manipulate financial statements.
3. A head office authorizing its branch to carry out the sale of foreign exchange derivatives products that have been approved by the Bank or reported to the Bank for record shall comply with the provisions of“Taipei Exchange Directions Governing Sales of Financial Derivatives Products by Associated Persons of Securities Firms Accepting Orders to Trade Securities”.
When a DSF engages in the foreign exchange business under Subparagraph 3 Paragraph 1 of Article 4 herein involving the foreign exchange settlement against NTD or the conversion between foreign currencies, the DSF shall handle the matter in accordance with“Regulations for Declaration”and“Directions for Domestic Securities Firm Approved To Conduct Foreign Exchange Business while Assisting Customers to Declare Foreign Exchange Receipts and Disbursements or Transactions”.

Securities enterprises shall forthwith inform the Bank when their financial derivatives business is suspended or terminated by the TPEx in accordance with the “Derivatives Trading Regulations” and when their business qualification is reinstated.