Policies and Regulations
of
Non-Hedge Trading
and
USD/TWD Denominated Products
1
Contents
 Brief on TAIFEX
 Foreign Futures Enterprises Application Procedure
 Status quo and proposed Changes
 ID system
 Omnibus account
 Trading and settlement of omnibus account
 Position limits for overseas Chinese and foreign
investors
 Account Structure and Forex Regulation
2
Brief on TAIFEX
 The development of Taiwan Futures Market
 Market structure
 Clearing procedure
 TAIFEX products
 Market updates
3
The development of Taiwan Futures
Market













1997.03
1997.9.9
1998.7.21
2001.12.24
2002.11
2003.12
2004.1.2
Futures Trading Law was promulgated
The Taiwan Futures Exchange (TAIFEX) was established
1st equity futures contract (TAIEX Futures) was launched
1st options contract (TAIEX Options) was launched
Futures Advisory business was opened
Managed Futures business was opened
1st bond futures contract Gov. Bond Futures was
launched
2004.5.31 30-day CP Interest Rate Futures was launched
2004.10.14 Award the " Derivatives Exchange of the Year 2004" by
Asia Risk
2005.3.28 Electronic Sector & Finance Sector Index Options were
launched
4
Market Structure
Financial Supervisory Commission
/ Securities & Futures Bureau
TAIFEX
Individual Clearing Member
General Clearing Member
FCM
Settlement Banks
FCM
FCM
Fund transfer
CTA
CPO
IB
IB
Customers
CPO
CPO
Fund transfer
CNFA (Chinese National Futures
Association)
Settlement Banks
5
Clearing procedures
FSC/SFB
TAIFEX
Position
Management
Settlement/Clearing
Trading report
Discretionary
operation
Submit
tickets to
CTA
CPO
IB
Deal-done report
FCMs
Margin deposit
/ orders
Clearing Member
Settlement
request
Deal-done report
Customers
6
TAIFEX Products
Futures
 TAIEX Futures
 TE Futures
 TF Futures
 Mini-TAIEX Futures
 TSEC Taiwan 50 Futures
Equity
Index
Futures
 Government Bond Futures
 Commercial Paper Interest Rate Futures
Interest
Rate
Futures
Options
 TAIEX Options
 Finance Sector Index Options
 Electronic Sector Index Options
 Equity Options
7
Market Growth
70,000
356.15 400
64,760.88
Total trading volume
60,000
59,146.38
Average daily trading
volume
300
50,000
unit：thousand
237.14
40,000
200
31,874.93
30,000
20,000
10,000
128.07
7,944.25
4,351.39 32.03
1,926.79
277.911,077.67 7.11 19.25
4.52
2.22
100
/0
9
20
05
20
04
20
03
20
02
20
01
20
00
0
19
99
19
98
0
8
The number of trading accounts
Total trading accounts is up to 1,100,257, including 1,094,344 of individual and
5,913 of institutional investors.
120
106.66
102.17
100
82.00
unit:
10,000
80
56.90
60
40
30.50
37.09
22.60
20
0
Year
1999
2000
2001
2002
2003
2004
2005/09
9
Trading behavior
Institutional investors
100%
94.41%
92.44%
Individuals
90.49%
80.74%
80%
68.57%
65.02%
57.61%
60%
42.39%
40%
31.43%
34.98%
19.26%
20%
5.59%
7.56%
9.51%
0%
1999
2000
2001
2002
2003
2004
2005/09
10
Worldwide Ranking
Year
Market
Turnover
World
Ranking
Growth
Rate
Ave. Daily
Trading Vol.
1998
277,909
57
-
2,223
1999
1,077,672
47
287.8%
4,522
2000
1,926,789
44
78.79%
7,110
2001
4,351,390
38
125.84%
19,252
2002
7,944,254
35
82.60%
32,033
2003
31,874,934
26
301.23%
128,067
2004
59,146,376
85.56%
237,144
2005
48,005,840
162.33%
346,220
Jan.~Jul.
20
18
Data Resource: Futures Industry Association
11
TAIEX Options (TXO)
The world' s top 10 index options-TXO ranked No. 5 in the
category.
Rank
Contract
Exchange
Trading Volume
of 2004
1
KOSPI 200 Index Options
Kofex
2,512,125,963
2
Dow Jones Euro STOXX 50 Index Options
Eurex
70,938,301
3
CAC 40 Index Options
Euronext
63,152,339
4
SPX S&P 500 Index Options
CBOE
49,472,117
5
TAIEX Index Options
TAIFEX
43,824,511
6
DAX Index Options
Eurex
42,081,067
7
TA 25 Index Options
Tel-Aviv Stock Exchange
36,792,551
8
FTSE 100 Index Options
Euronext
17,866,310
9
AEX Index Options
Euronext
17,093,573
10
Nikkei 225 Index Options
Osaka
16,560,874
Data: Trade Data Global Service.
12
Derivatives Exchange of the Year 2004
TAIFEX awarded by Asia Risk on Oct 14, 2004
The best practices and innovation
in
derivatives and risk management
in
Asia-Pacific.
Innovative and well-infrastructure in
derivatives market, commodity as
well
as information of the year.
13
Foreign Futures Enterprises Application
Procedure
 Overview of Establishment Criteria for Futures
Enterprises (p.14-1)



FCM
Concurrent futures business operator
IB
 Flowchart of Application for Establishment of
FCMs (p.14-2)
14
Status Quo
 Legal basis
 Regulations Governing Investment in Securities by Overseas Chinese
and Foreign Nationals (Article 4-2)
 Guidelines for Futures Trading by Overseas Chinese and Foreign
Nationals
 Trading purpose
 Only for the purpose of hedging a position on domestic securities.
 Only hedge account is allowed to be opened.
 Investment limits and restrictions
 Long hedge: The aggregate market value of long positions on futures
and options shall not be more than the combined holding of NTD cash
and cash equivalent.
 Short hedge: The aggregate market value of short positions on futures
and options shall not be more than the total market value of securities
holdings.
 Investment limit: The aggregate amount of the initial margins required
for futures contract, premiums required for buying of options,
combined with the investment in money market instruments shall not
be more than 30% of inwardly remitted funds.
15
Proposed Changes
 Legal basis
 Futures Trading Law.
 Trading purpose
 Trading purpose is not restricted.
 Investment limits and restrictions
 Position limit: According to rules governing position limits
for various products.
 Foreign institutional investors (the same as local institutional
investors) may apply for exemption of position limit.
 Fund regulation: Margin deposit/withdrawal in US Dollar
only.
 Offshore Funds shall be separated into two different
accounts for securities and futures markets, respectively.
16
Proposed Change-cont.
 Side-effect after change:


Foreign investors may trade futures products for
non-hedge purpose through an direct account or an
omnibus account.
The benefiaries: overseas Chinese and foreign
investors (including corporations and individuals).
17
Proposed methodology for nonhedging trading by foreign investors
The omnibus account agreement
should indicate the，
party who
is obliged to file details
of positions held by
individual clients
FCM3
TAIFEX
FCM2
Foreign FCM 2
（
(Omnibus acct 2)
Foreign FCM 1
(Omnibus acct 1)
Foreign investor
Foreign investor
(individual acct)
(individual acct)
FCM1
Foreign investor
Foreign investor
(Direct acct B)
(Direct acct A)
Foreign FCM、
and foreign
Investors shall obtain
an ID before opening an account
through the custodian banks.
18
Proposed targets of futures market relief
Omnibus
account
Direct account
Offshore institutional
investor
Offshore overseas
Chinese and
foreigners
Obtain ID thru
custodian bank
Foreign FCM
Onshore institutional
investor
Onshore overseas
Chinese and
foreigners
Obtain ID thru
local securities firm
or FCM
Individual client
May apply for
exemption of position
limit
1. First obtain ID.
2. Comply with position limits for the
commodity (corporation or individual)
1. First obtain ID.
2. Omnibus account is not subject to
position limit, but
individual clients under the omnibus
account will be assigned an ID and
subject to position limits for regular
accounts.
19
ID System
 Single ID:
Single ID system will apply to foreign investors who trade in the
futures market. A foreign investor that has already had an ID
issued by Taiwan Stock Exchange Corporation (TSEC) for
investment in domestic securities can use the same ID for futures
trading and vice versa.
 Every foreign investor must obtain an ID before trading futures.
 The ID may be applied through a local FCM or securities firm for
onshore foreign investors, and through a custodian bank for
offshore foreign investors. 。
20
Qualifications of a foreign investor to
open a futures trading account
 Direct account
The requirements are the same as the prevailing regulations.
 Omnibus account— eligible offshore foreign FCM
 A clearing member of a foreign futures exchange sanctioned
by Taiwan’s regulatory authority.
 Its home office or branch in Taiwan is free of disciplinary
action imposed by securities or futures authorities or selfregulatory organization to suspend its securities or futures
brokerage practice in the past year.
 Free of incident of violating futures or securities trading
agreement signed with the futures exchanges in home country
or Taiwan in the past three years.

21
Restrictions on account opening
 Direct account
Foreign investors may open more than one futures
account with a local FCM, or with several local
FCMs.
 Omnibus account
 An offshore foreign FCM may open more than one
omnibus account with a local FCM; an offshore
foreign FCM may also open an omnibus account
with different local FCMs on account of its trading
strategy or clientele attributes.
 Only TAIFEX clearing member may accept the
opening of omnibus account by foreign FCMs.

22
Procedure for opening direct account
Step1:obtain an ID
Fig1 overseas Chinese and foreign investors obtain an ID
overseas
Chinese
and foreign
investors
ID application
request
Provide ID &
certification
onshore:FCM or
local securities firm
Apply ID
download
abtain ID
offshore:costodian
bank
TAIFEX
ID registration system
Step2:overseas Chinese and foreign investors account
opening procedure
Fig2 overseas Chinese and foreign investors account opening procedure
overseas Chinese
and foreign
investors
1.apply to
open an
account
2.qualificati
on review
3.Sign
service
agreement
6.open a
foreign
exchange
account
4.upload account opening data
Local FCM
TAIFEX
5.ask for supplemental
information or cancel the
account
Bank
23
Procedure for opening omnibus
account
Fig. 2 Omnibus Account Opening
Procedure
A. Offshore foreign
FCM (Omnibus
account holder)
Enlist or assign
B.A local agent or
representative
8. A foreign FCM and its
local agent representative can
apply for authentication for
the electronic filing system at
the same time
1.Apply to
open an
omnibus
account
2.
Qualification
review
3. Agree to party
responsible for
filing position
report
5. Upload account opening
data
Local
FCM
6. Send written information
TAIFEX
6a. Ask for supplemental
information or cancel the
account
4. Sign service
agreement
7. Open a
foreign
exchange
account
Bank
24
Trading and settlement of omnibus
account
Place order
Place order
Client
Transaction confirmation
Collect margin
Foreign
FCM
Place order
(through omnibus account)
Trade confirmation
Local FCM
Trade confirmation
TAIFEX
Collect margin
The trading and settlement
between foreign FCM and
its clients shall be
undertaken pursuant to the
regulations of the home
country of foreign FCM
 Foreign FCMs are not required to disclose trading information and
identities of individual clients behind the omnibus account to local FCMs.
The omnibus account can be treated and processed as a single account
for trading and settlement purpose.
 Trading: Local FCM will treat each omnibus account as a trader and
place orders by each the omnibus account.
 Individual clients under an omnibus account may apply for position
offset, designated options combination for strategic purpose, and
designated position offset to reduce margin payment.
25
Position limit of direct account
 Position limit is regulated according to the prevailing ID
system.
 Position limits are the same as those for local individuals
and corporations.
 Exemption of position limit
 Institutional investors may apply for exemption of
position limit.
 The extent of relaxation will be regulated by rules to be
prescribed.
 Actions in case of over-limit: Same as those for local
investors where the FCM will be notified to stop accepting
new orders from the account.
26
Position limit of omnibus account
 Position limit


Omnibus account is not subject to position limit.
Individual clients under the omnibus account will
be assigned an ID and subject to position limits for
regular accounts.
27
Account Structure and Forex Regulation
 Margin account

TAIFEX, clearing members, FCM and local traders open both a NTD margin
account and a USD margin account, while offshore foreign investors only
need to open a foreign currency account.
 Margin payment
【Overseas Chinese and foreign investors】

Deposit and withdraw margin in USD only.
 Forex regulation

Pursuant to Regulations Governing Foreign Exchange and Rules for
Declaring Receipt, Payment and Transaction of Foreign Exchange.
28
Margin System
Commodity
NTD-denominated
(TAIEX futures,
options)
USD-denominated
(gold futures, index
futures and options)
Margin
USD
USD
Settlement
NTD (authorize FCM to settle
exchange in USD when
depositing and withdrawing
margin)
USD
Margin
NTD
USD
Settlement
NTD
USD
Trader
Overseas
Chinese and
foreign
investors
Locals
29
【FIG.1】 Margin and Trading Flow Process for Overseas Chinese and foreign investors
Futures margin
( USD )
Daily Trading position
Settlement position
Client’s position
Client
FCM places
order
(buy/sell)
VISIO CORPORATION
$
Deposit margin
Check immediately
whether margin
deposit is sufficient
FCM’s
margin account
Clearing member’s
margin account
No
Reject order
足
TAIFEX matches trade
Automatic offset of long/short
positions in the same account (netting)
TAIFEX
Margin account
Member
FCM
VISIO CORPORATION
$
Margin short
Mark-to-market
USD margin call
Member
FCM
VISIO CORPORATION
$
Margin
equity short
足
Daily account settlement
Deposit margin
Member
FCM
Settlement upon expiry
VISIO CORPORATION
$
Payment upon expiry
Loss : Remit in funds
Gain : Remit out funds
Settlement upon expiry
Gain/loss of open
positions
(Settlement netting)
【 Description】
Overseas Chinese and foreign investors pay margin in USD for trading of US-denominated products.
30
【Fig. 3 】 Futures Margin Payment Scheme
NTD and USD
Denominated commodities
USD futures margin account
TAIFEX
NTD
USD
NTD
USD futures margin account
Clearing member
NTD futures margin account
USD
NTD
USD futures margin account
FCM
USD
futures margin account
NTD
USD
futures margin account
NTD
Investor
Offshore
foreign
investor
Local and onshore
Foreign investors
Local and onshore
Foreign investors
【Description 】
A. Principles
1. Offshore foreign investors will deposit and withdraw margins for USD and NTD denominated
commodities in USD.
2. Local and onshore investors will deposit margins for USD-denominated commodities in USD, or in NTD
through a FCM who will exchange it into USD ; local and onshore foreign investors will pay margin in
NTD for NTD denominated commodities.
B. Advantages
To engage in futures trading, offshore foreign investors will remit the funds in and out in USD, which
helps lower the risk of NTD exchange rate fluctuation and does not impact the foreign exchange market.
31
Contact Us
Visit Our web site at : WWW.TAIFEX.COM.TW
Trading：
Wen-Lin Chou
Annie Hsu
Maggie M.Y. Chien
E-mail: wlchou@taifex.com.tw
TEL：886-2-23695678 ext.126
E-mail: annie@taifex.com.tw
TEL：886-2-23695678 ext.118
E-mail: maggie@taifex.com.tw
TEL：886-2-23695678 ext.116
Clearing：
Jean Yang
Simon Chen
TEL：886-2-23695678 ext.170
E-mail: simonc@taifex.com.tw
TEL：886-2-23695678 ext.171
Business Development：
Ben Yen
E-mail: yjp@taifex.com.tw
TEL：886-2-23695678 ext.240
Rita Tsai
E-mail: ritatsai@taifex.com.tw
TEL：886-2-23695678 ext.249
32