Taiwan Futures Exchange

Principles for Financial Market Infrastructure

Disclosure Report

(CCP)

Responding institution: Taiwan Futures Exchange Corporation

Jurisdiction(s) in which the FMI operates: Taiwan

Authority(ies) regulating, supervising or overseeing the FMI: the Securities 

and Futures Bureau of the Financial Supervisory Committee

The date of this disclosure is 2023.6.1

This disclosure can also be found at http://www.taifex.com.tw/

For further information, please contact service@taifex.com.tw
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TABLE OF CONTENTS

I. EXECUTIVE SUMMARY .................................................................................2

II. SUMMARY OF MAJOR CHANGES SINCE THE LAST UPDATE OF 

THE DISCLOSURE....................................................................................................4

III. GENERAL BACKGROUND OF TAIFEX CLEARING ................................5

IV. PRINCIPLE-BY-PRINCIPLE SUMMARY NARRATIVE DISCLOSURE

18

PRINCIPLE 1:LEGAL BASIS ...................................................................................18

PRINCIPLE 2:GOVERNANCE .................................................................................22

PRINCIPLE 3:FRAMEWORK FOR THE COMPREHENSIVE MANAGEMENT OF RISKS

..................................................................................................................................31

PRINCIPLE 4:CREDIT RISK ...................................................................................54

PRINCIPLE 5:COLLATERAL ..................................................................................91

PRINCIPLE 6:MARGIN ........................................................................................101

PRINCIPLE 7:LIQUIDITY RISK ............................................................................117

PRINCIPLE 8:SETTLEMENT FINALITY ................................................................138

PRINCIPLE 9:MONEY SETTLEMENTS .................................................................141

PRINCIPLE 10:PHYSICAL DELIVERIES................................................................146

PRINCIPLE 11:CENTRAL SECURITIES DEPOSITORIES ........................................148

PRINCIPLE 12:EXCHANGE-OF-VALUE SECURITIES SYSTEMS ............................150

PRINCIPLE 13:PARTICIPANT-DEFAULT RULES AND PROCEDURES ....................151

PRINCIPLE 14:SEGREGATION AND PORTABILITY ..............................................174

PRINCIPLE 15:GENERAL BUSINESS RISK............................................................188

PRINCIPLE 16:CUSTODY AND INVESTMENT RISKS.............................................195

PRINCIPLE 17:OPERATIONAL RISK ....................................................................199

PRINCIPLE 18:ACCESS AND PARTICIPATION REQUIREMENTS...........................213

PRINCIPLE 19:TIERED PARTICIPATION ARRANGEMENTS..................................225

PRINCIPLE 20:FMI LINKS ..................................................................................234

PRINCIPLE 21:EFFICIENCY AND EFFECTIVENESS ..............................................237

PRINCIPLE 22:COMMUNICATION PROCEDURES AND STANDARDS.....................240

PRINCIPLE 23:DISCLOSURE OF RULES, KEY PROCEDURES, AND MARKET DATA

................................................................................................................................241

PRINCIPLE 24:DISCLOSURE OF MARKET DATA BY TRADE REPOSITORIES ........245

V. LIST OF PUBLICLY AVAILABLE RESOURCES....................................246
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I. Executive Summary

This report has been prepared by the Taiwan Futures Exchange 

Corporation (“TAIFEX”) based on its role as a central counterparty 

(CCP) that Clearing Department (‘TAIFEX Clearing”) performs 

clearing and settlement services for exchange-traded derivative and 

over-the-counter (OTC) derivative in Taiwan. 

Upon its establishment in 1997, the TAIFEX had been granted 2 

separated licenses for concurrently serving as a futures exchange and 

clearing house. TAIFEX Clearing provides central clearing and 

settlement services for clearing trades matched on TAIFEX and 

accepted over-the-counter (“OTC”) eligible transactions executed by 

counterparties outside of TAIFEX. TAIFEX has a well-founded, clear, 

transparent, and enforceable legal basis for each material aspect of its 

services. From legal basis point of view, TAIFEX's clearing services 

are based on the Futures Trading Act (“the Act”), Standards Governing 

the Establishment of Futures Clearing Houses (“the Standards”), 

Regulations Governing Futures Clearing Houses (“the Regulations”), 

Operating Rules of the Taiwan Futures Exchange Corporation (“the 

Rules”), Taiwan Futures Exchange OTC Derivative Clearing Rules 

(“the OTC Rules”), and Taiwan Futures Exchange Corporation OTC 

Derivative Clearing Enforcement Rules (“the Enforcement Rules”). In 

addition, TAIFEX was designated as the OTC derivatives clearing 

house by Financial Supervisory Commission (“FSC”) pursuant to 

Article 3(2) of the Act on June 24, 2019. TAIFEX has committed to 

the development of Taiwan's derivatives market. It is our corporate 

mandate that we commit to invigorate derivatives market while 

serving the real economy in Taiwan. TAIFEX keeps abreast with the 

trendy development of global markets.

TAIFEX Clearing fully supports the work of the Committee on 

Payments and Market Infrastructures (“CPMI”) and International 

Organization of Securities Commissions (“IOSCO”) to promote 

market transparency and comprehensive disclosures set out in the 

Principles for Financial Market Infrastructures (“PFMI”): Disclosure 

framework and Assessment methodology.

TAIFEX Clearing provides central clearing and settlement services for 

clearing trades matched on TAIFEX and accepted OTC eligible 
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transactions executed by counterparties outside of TAIFEX. Pursuant 

to the Act, Standards Governing the Establishment of Futures Clearing 

Houses, and Regulations Governing Futures Clearing Houses as the 

legal basis, TAIFEX is thus licensed and established to be the 

derivatives exchange and clearing house concurrently in Taiwan. 

Pursuant to the Rules and the OTC Rules, TAIFEX Clearing conducts 

its clearing business to become legal counterparty to every buyer and 

every seller of a transaction that TAIFEX Clearing accepts for 

clearing. 

From regulatory perspective, TAIFEX Clearing is directly regulated 

by the Securities and Futures Bureau (“SFB”) of FSC.

In this report, TAIFEX Clearing assesses its compliance with each of 

the 24 principles published by CPMI-IOSCO in April 2012 and 

supplemented in October 2014, and to the Disclosure Framework and 

Assessment Methodology implemented in December 2012. This report 

provides details in accordance with the “PFMI: Disclosure Framework 

and Assessment Methodology,” to demonstrate its compliance. Unless 

otherwise specified, this report is current as of the end of May 2023.

The framework of TAIFEX Clearing is founded on a strong legal basis 

and a robust corporate governance framework. It is capable of 

managing legal, credit, liquidity and operational risks, and its services 

incorporate measures that can adequately assess and monitor clearing 

members' credit risks and the market's liquidity risks. TAIFEX 

Clearing adopts the marked-to-market approach to calculate gains, 

losses and required margins on members' open positions. It has 

standardized margin calling procedures in order to lower members 

default risks.

To protect traders' interests, clearing members are required to account 

for their own capital separately from clients' collaterals. In the event 

that a clearing member undergoes bankruptcy, liquidation or business 

suspension, clients' collaterals and outstanding positions can still be 

ported to another clearing member. In terms of operational risks, 

TAIFEX Clearing has comprehensive risk management policies in 

place to ensure total control. It maintains its assets and those of clearing 

members with the utmost prudence. TAIFEX Clearing has established 

open and fair criteria for its clearing membership. It engages clearing 
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members in active communication to deliver service efficiency and 

transparent information. 

As a systemically important financial market infrastructure (“FMI”), 

TAIFEX Clearing establishes a sound and robust and comprehensive 

system for risk management to perform its responsibility to stably 

provide its clearing services. To conduct the credit, liquidity, 

operational, and other risks to which it is exposed, TAIFEX Clearing 

has equipped with an effective risk management framework 

incorporated into its organization including: 

● Real-time risk monitoring;

● Credit and liquidity risk management;

● Initial margin and variation margin collection;

● Profound safeguard system. 

Details of risk management practices are elaborated in more detail in 

each related principle. 

II. Summary of major changes since the last update of the 

disclosure

This is an update to TAIFEX Clearing’s disclosure made in accordance 

with Principle 23 "Disclosure of rules, key procedures, and market 

data" for FMIs after the Disclosure Framework and Assessment 

Methodology was announced by CPMI-IOSCO in December 2012. In 

relation to the previous edition updated in September 2022, TAIFEX 

Clearing updated its disclosure in June 2023. Major changes in this 

update to TAIFEX Clearing from last disclosure are as follows:

● On September 15, 2022, the Commodity Futures Trading 

Commission (CFTC) issued No-Action Relief to TAIFEX for 

its swaps central clearing services.

● On December 16, 2022, TAIFEX has been recognized as a Tier 

1 third-country central counterparty (TC-CCP) by the European 

Securities and Markets Authority (ESMA), and the recognition 

decision will be applied from December 31, 2022.
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In addition to the above changes, this document contains some 

additions and revisions to the previous document in association with 

the minor revisions to TAIFEX Clearing’s new practices.

III. General background of TAIFEX Clearing

General description of TAIFEX and the markets it serves

In December 1995, the Futures Market Promotion Panel was 

assembled with the support of the Competent Authority and the public 

for the purpose of developing a local futures market. TAIFEX's 

preparatory office was established one year later in December 1996. In 

March 1997, the Act passed legislative procedures and gave TAIFEX 

a legal basis on which to operate. On July 21, 1998, TAIFEX was 

officially opened for business and launched its first instrument -

TAIEX Futures. Over the next few years, TAIFEX introduced a 

number of index futures including Electronic Sector Index Futures, 

Finance Sector Index Futures and Mini-TAIEX Futures.

In December 2001, TAIFEX made its first entrance into options with 

the introduction of TAIEX Options, which provided market 

participants with a broader range of hedging instruments. In January 

2003, Taiwan's first non-index instrument - the Equity Option was 

launched.

In the area of commodity-based products, TAIFEX introduced US 

dollar-denominated Gold Futures on March 27, 2006. In consideration 

of market needs and the preferences and trading habits of domestic 

investors, TAIFEX launched New Taiwan Dollar (NTD)-denominated 

Gold Futures on January 28, 2008. To provide investors in the spot 

market for gold with more diverse trading and hedging instruments, 

TAIFEX launched NTD-denominated Gold Options on January 19, 

2009. TAIFEX went on to launch Single Stock Futures on January 25, 

2010, providing investors in the stock market with still better hedging 

instruments and reduced tracking error. In response to Taiwan's 

flourishing offshore RMB market, TAIFEX launched two USD/RMB 

FX Futures contracts on July 20, 2015, making standardized FX 

derivatives available to the market. These products allow investors to 
6

formulate more diverse trading strategies and give them greater 

flexibility in their utilization of funds.

On December 21, 2015, TAIFEX introduced TOPIX futures based on 

the leading stock index of JPX to Taiwan investors, which is the first 

time for TAIFEX to list a foreign equity index futures. The launch of 

TOPIX futures provides investors with more diversified trading 

strategies and marks an important step in the internationalization of 

Taiwan futures market. In 2016, following the launch of USD/RMB 

FX Options on June 27 2016, TAIFEX launched EUR/USD FX Futures 

and USD/JPY FX Futures on November 7, 2016, to meet investors’ 

diverse trading needs and invigorate the market development. 

On May 15 2017, TAIFEX launched after-hours trading session, which 

enables investors to manage their risks outside of the regular trading 

hours of Taiwan, giving investors access to the underlying market right 

in Europe and the US trading hours. TAIFEX after-hour session, 

extending trading hours to 19 hours, successfully boosts the 

competitiveness of the Taiwan futures market. The launch of afterhours trading session coincides with DJIA Futures and S&P 500 

Futures, which have further enhanced our sustainable development and 

competitiveness. 

TAIFEX further diversified our FX hedging channels by introducing 

GBP/USD FX Futures and AUD/USD FX Futures on 22 January 2018. 

To diversify product offerings, TAIFEX tapped into the energy market 

by launching the NTD-denominated Brent Crude Oil Futures on 2 July 

2018. To offer investors a more diverse range of trading and hedging 

choices, TAIFEX launched two new products, Nasdaq-100 Futures and 

TPEx 200 Index Futures, on 1 October, 2019.

To boost the growth of the Taiwan futures market, TAIFEX launched 

F4G TIP TW ESG Index Futures and TIP Taiwan Bio Futures on 8 

June, 2020. On 23 November 2020, TAIFEX launched FTSE® 100 

Index Futures, which enables TAIFEX to further expand its product 

line into the European market. 

On 28 June, 2021 TAIFEX launched Mini Electronics Futures to cater 

for rising demand from retail investors. On 6 Dec, 2021, TAIFEX 

introduces Mini Finance Futures in an effort to strengthen small-sized 

product line-up. To heighten market demand for industry-specific risk 
7

management tools, TAIFEX launched two new products, 

Semiconductor 30 Futures & Shipping and Transportation Sector 

Futures on 27 June 2022.

On November 9, 2022, TAIFEX launched bi-weekly contracts for 

TAIEX Options (TXO) and Mini-TAIEX Futures (MTX). The TXO 

and MTX bi-weekly contracts are listed every Wednesday and expire 

on the second Wednesday from the listing date.

Following G20 Leaders’ commitments to reform OTC derivatives 

markets in response to the financial crisis in 2008, central clearing of 

standardized OTC derivatives is the consensus among Leaders in order 

to enhance market transparency and lower systemic risks of OTC 

derivatives market. 

To comply with the decision of clearing standardized OTC derivatives 

agreed by the G20 Leaders, as aforementioned, the President of Taiwan 

promulgated the amendment of the Act on January 16, 2019 to include 

swap contract and other types of contracts into futures trading scope in 

Article 3 of the Act.

To align with the amendment of Article 3 and Article 49 of the Act, the 

FSC announced partial amendment to the Regulations Governing 

Futures Clearing Houses as stated on June 24, 2019. The key points of 

these amendments are as follows:

● In accordance with the amendment of Article 3 of the Act, the 

businesses of a futures clearing house shall include the 

clearance for OTC derivatives trading, and a futures clearing 

house shall submit the following documents to the FSC and 

obtain the approval before commencing its business.

● In accordance with the amendment of Article 49 of the Act, the 

futures clearing houses shall determine and implement the 

order of financial safeguards mechanism in which the various 

sources of reserve funds being drawn upon to compensate for 

an event of default in the futures market, and a futures clearing 

house shall containing the above particulars and enter into a 

futures clearing and settlement contract with its clearing 

members.

● In accordance with the amendment of Article 49 of the Act, the 
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futures clearing house shall deposit NTD 500 million 

compensation reserve fund for the first time and the 

requirement shall not apply when the compensation reserve 

fund deposit amount equals to 1.5 times the authorized capital 

amount or allocated operating capital amount. It is also 

stipulated that the compensation reserve fund shall be deposited 

separately in different accounts based on the futures trading in 

the exchange-traded derivatives market and OTC derivatives 

market. 

● Besides, in accordance with the amendment of Article 3 of the 

Act, futures trading conducted outside futures exchanges 

within the scope of futures trading for which central clearing is 

required by the provisions of the Competent Authority, central 

clearing shall be performed in accordance with the Act at a 

futures clearing house designated thereby. In consistence with 

the amendment to Regulations Governing Futures Clearing 

Houses, TAIFEX Clearing was designated by FSC as a futures 

clearing house of OTC derivatives’ mandatory clearing, and 

TAIFEX Clearing should promote schedule of performing 

central clearing.

The amendments of the central clearing mechanism to the OTC 

derivatives trading would provide the legal basis and advance the 

market for OTC derivatives transactions, harmonize Taiwan’s financial 

safeguards mechanism with international norms, and furthermore 

strengthen risk management mechanism of Taiwan futures market.

Pursuant to the rule amendments as the legal basis, TAIFEX Clearing 

obtained the license to be as the designated CCP to conduct OTC 

central clearing services for, but not limited to, Interest Rate Swaps 

(IRS) and Non-Deliverable Forwards (NDF) in Taiwan.

General Background of the FMI – Cleared Products

TAIFEX Cleared Products

Markets Category Products

ETD Derivatives 

Market

Equity Index Futures TAIEX Futures

Mini-TAIEX Futures

Electronics Sector Index Futures
9

TAIFEX Cleared Products

Mini Electronics Sector Futures

Finance Sector Index Futures

Mini Finance Sector Futures

Non-Finance Non-Electronics SubIndex Futures

Taipei Exchange Stock Index Futures

TPEx 200 Futures

F4G TIP TW ESG Futures

TIP Taiwan BIO Futures

TOPIX Futures

DJIA Futures

S&P 500 Futures

Nasdaq-100 Futures

FTSE® 100 Futures

Shipping and Transportation Sector 

Futures

Taiwan Semiconductor 30 Futures

Equity Index Options TAIEX Options

Electronics Sector Index Options

Finance Sector Index Options

Equity Futures Single Stock Futures

ETF Futures

Equity Options Single Stock Options

ETF Options

FX Futures USD/CNT FX Futures

USD/CNH FX Futures

EUR/USD FX Futures

USD/JPY FX Futures

GBP/USD FX Futures

AUD/USD FX Futures

Commodity Futures TAIFEX Gold Futures

TAIFEX NT Dollar Gold Futures

Brent Crude Oil Futures

Commodity Options Gold Options

OTC Derivatives 

Market

Interest Rate Swap New Taiwan Dollar Interest Rate 

Swap

Non-Delivery 

Forward

New Taiwan Dollar Non-Deliverable 

Forward (to be launched in H2 2023)
10

General Background of the FMI – Statistics

Category Details

Listed 

Derivatives

Equity Index 

Futures

https://www.taifex.com.tw/enl/eng7/tradingVolume 

Equity Index 

Options

Equity Futures

Equity 

Options

FX Futures

FX Options

Commodity 

Futures

Commodity 

Options

TAIFEX Clearing was incorporated in accordance with the Act 

primarily to provide a centralized marketplace for futures trading, 

while in the meantime making sure that the market operates fairly and 

in-line with the public interest. As a result, building a more efficient, 

cost-effective and competitive trading environment that conforms to 

public interests has become TAIFEX Clearing's ongoing target.

In the future, TAIFEX Clearing will strive to perfect its current 

practices and keep up with world trends by devoting greater efforts to 

product development, system reform, and market education. 

Furthermore, TAIFEX Clearing will engage in global interaction on a 

larger scale with the objective of becoming a world-class futures 

exchange, bringing a more prosperous future to Taiwan's financial 

market.

General organization of TAIFEX

Being an FMI, TAIFEX was established as a futures exchange 

organized as a company pursuant to the Act. TAIFEX's shareholders 

consist of futures, securities, banking, and securities/futures-related 

institutions, with each type of institution holding a twenty-five percent 

stake. Each shareholder must be approved by the Competent Authority, 

and no individual shareholder's holdings are permitted to exceed five 

percent of TAIFEX's total outstanding shares.
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TAIFEX's Articles of Incorporation were created in accordance with 

the Company Act in Taiwan. The company has one Chairperson and 

one President. The Chairperson represents the company to the outside 

world, whereas the President manages the company's affairs according 

to the Chairperson's instructions and the Board' (“Board”) resolutions. 

The company has appointed two Vice Presidents to assist the President, 

and two Assistant Vice President to support certain requirements. 

TAIFEX also has various departments established, each run by one 

manager and one to two deputy managers. The management is assigned 

clear, segregated responsibilities and authorities to carry out its tasks, 

and details regarding corporate governance have been disclosed on the 

company's website and in annual reports. The Board is the executive 

decision-making unit within TAIFEX; it comprises fifteen directors 

and five supervisors. Board meetings are convened and chaired by the 

Chairperson. At least one-quarter of director and supervisor positions 

are held by non-shareholders with relevant expertise; half of them are 

appointed by the Competent Authority while the rest are chosen by the 

Board, subject to the Competent Authority's approval. The nonshareholder experts that the Competent Authority appoints as directors 

satisfy the requirements of independence and professionalism. 

TAIFEX's Internal Audit Office reports directly and regularly to the 

Board and provides effective internal supervision. In this way and in 

combination with external supervision from the Competent Authority, 

TAIFEX is deemed to have exercised adequate corporate governance 

to support the stability of its financial system and protect the interests 

of the public and stakeholders.

TAIFEX is composed of eight departments along with Internal Audit 

Office. 

● Trading Department is in charge of formulating and amending 

trading related rules and regulations, matching orders, posting 

prices, compiling trading statistics, supervising TAIFEX’s 

participating firms, and maintaining market order.

● Clearing Department is in charge of formulating and amending 

clearing-related rules and regulations, supervising clearing 

members and settlement banks, handling clearing and risk 
12

management operations, and administrating the default funds 

and clearing margins.

● Surveillance Department is in charge of market surveillance 

operations, as well as analysis and verification of related cases.

● Intermediaries Compliance and Service Department is in 

charge of maintaining rules and regulations related to FCM and 

clearing-member compliance issues, monitoring their internal 

audit operations, examining the financial and business practices 

of these firms, and providing training to their compliance staff. 

● System Development Department is in charge of planning, 

developing and maintaining application systems, FCM 

management systems, company website and related systems, 

and controlling the system-development process.

● Computer Operation Department is in charge of operating and 

managing computer facilities, and disseminating futures 

trading information.

● Business Development Department is in charge of product 

development, international cooperation, business planning, and 

legal affairs.

● Administration Department is in charge of planning, recruiting 

and administration of human resources, handling general 

affairs, managing corporate assets, formulating and 

implementing office documentation rules, overseeing fund 

utilization and management, planning and executing budgets, 

and preparing and reporting financial statements.

● Internal Audit Office is in charge of planning and executing 

internal audit operations, reviewing the operations of respective 

departments, and evaluating the achievement of annual 

performance targets.
13

TAIFEX Organizational Structure

The Board of Directors

Name Current Position

Mr. Tzu-Hsin Wu Chairman, Taiwan Futures Exchange Corporation

Mr. Chien-Lung Chou CEO, Taiwan Futures Exchange Corporation

Dr. Her-Jiun Sheu Invited Professor, Department of Finance, Ming Chuan

University

Dr. Shih-Chuan Tsai Professor , Graduate Institute of Management, National 

Taiwan Normal University

Mr. Sherman H. M. Lin Representative , Taiwan Stock Exchange Corporation

Mr. Han-Chiang Chu Representative , Taiwan Depository & Clearing 

Corporation

Mr. Philip Chen Representative , Taipei Exchange

Jan-Lin Wei Representative , Taiwan Financial Holdings Co., Ltd.
14

Name Current Position

Ms. Hsiao-Ling Chou Representative , Yuanta Futures Co., Ltd.

Dr. June Hong Yang Representative , Fubon Securities Co., Ltd.

Dr. Paul C. D. Lei Representative , Taiwan Cooperative Bank

Mr. I-Yung Mai Representative , KGI Futures Co., Ltd.

Ms. Pei-Chun Chen Representative , Mega Securities Co.,Ltd.

Mr. Chung-Tao Chia Representative , Capital Futures Corporation

Mr. Kuan-Chen Lin Representative , President Securities Corporation

As of May, 2023

Supervisors

Name Current Position

Mr. Wei-yuan Chiang Representative , SinoPac Securities Corp.

Mr. Michael Yuan-Jen 

Hsu

Representative , Hua Nan Futures Co., Ltd.

Mr. Wei-Wen Hsu Representative , Union Bank of Taiwan

Dr. San-Lin Chung Distinguished Professor, Department of Finance, National 

Taiwan University

Dr. Shang-Jyh Liu Honorary Chair/Adjunct Professor , School of Law , 

National Yang Ming Chiao Tung University; Chairman, 

TAIWAN Technology Law Institute

As of May, 2023

Legal and regulatory framework

TAIFEX plays the role of both an exchange and clearing house in 

Taiwan. From a CCP perspective, TAIFEX Clearing serves both the 

exchange-traded market and the OTC derivative market pursuant to the 
15

Act and its Rules and the OTC Rules. The SFB of the FSC serves as 

the direct authority of TAIFEX. The SFB is responsible for supervising 

both securities and futures markets. The FSC is the ultimate financial 

authority in Taiwan. The FSC granted TAIFEX Clearing as a 

qualifying CCP (QCCP) in November 2020 and the SFB, as delegated 

by the FSC, maintains supervision to oversee TAIFEX Clearing 

compliance with supervisory regulations based on the PFMI on an 

ongoing basis.

General Background of the FMI – Regulatory Framework

Product Competent Authority

Listed 

Derivatives

Equity Index 

Futures

SFB https://www.taifex.com.tw/enl/eng7/tradingVolume

Equity Index 

Options

Equity Futures

Equity 

Options

FX Futures

FX Options

Commodity 

Futures

Commodity 

Options

IRS SFB

NDF SFB

System design and operations

TAIFEX Clearing serves as a futures clearing institution, and plays the 

role of a CCP to settle transactions between futures buyers and sellers. 

Participants in TAIFEX Clearing's clearing and settlement services are 

required to sign settlement agreements separately with TAIFEX 

Clearing and attain membership status. Depending on the markets 

involved, TAIFEX Clearing offers three different membership statuses 

for exchange-traded derivative market: individual clearing member, 

general clearing member, and special clearing member and two 

different membership statuses for OTC derivative market: individual 
16

clearing member and general clearing member. Stringent financial 

requirements have been imposed on these membership statuses to 

ensure that only the financially strong may undertake these roles. A 

clearing member's role includes clearing transactions for futures 

commission merchants and its clients and helping them manage risk. 

Their existence produces a multi-layered risk framework that enables 

risk sharing. All clearing members are bound to comply with TAIFEX 

Clearing's policies and announcements.

It has been clearly outlined in the Rules, the OTC Rules, Operational 

Key Points of Clearing and Settlement for Futures Commission 

Merchants and Clearing Members, and other policies that futures 

commission merchants and clearing members must deposit and 

withdraw clearing margins within the timeframes specified by 

TAIFEX Clearing, and must follow TAIFEX Clearing's instructions on 

margin calls, position adjustments, settlement etc. Timing and rules of 

the settlement process have been outlined for all listed instruments, and 

are published on TAIFEX's website for public access.

All futures trading in Taiwan is subject to advanced margin collection 

(pre-margin). In exchange-traded derivative market, futures brokers are 

required to collect margins or premiums from traders in the amounts 

specified by TAIFEX Clearing before accepting trade orders. As well, 

required initial margin must be collected from clearing members prior 

to submitting transaction for clearing. To manage futures trading risks, 

open positions are marked to market at the current market price or the 

settlement price to calculate real-time gains/losses, and therefore 

determine the adequacy of current margins. After marking to market, 

clearing members with insufficient margin will be margin called and 

are required to place additional margin within the given time. After 

marking to market, traders with insufficient margin will be margin 

called by the futures commission merchant and will be required to 

increase margin account balances to the required level within the given 

time. Failure to do so will force the futures commission merchant to 

reject further orders from the trader, and close out the trader's 

outstanding positions.

As per OTC derivative transaction, the clearing margin deposited by 

the clearing member must not be lower than the amount required by 

TAIFEX Clearing before submitting a proprietary transaction or client 
17

transaction to TAIFEX Clearing for clearing. Trade is affirmed by 

direct transaction between the counterparties or via brokerage by IDBs 

(inter-dealer brokers). Executed trade details are affirmed via an 

approved trade affirmation platform then the details are sent to 

TAIFEX Clearing to make assumption of liabilities.

The clearing of OTC transactions are conducted on each business day 

during the intraday hours of 09:00 to 17:00. Particularly, upon receipt 

of an eligible new transaction from a clearing member, TAIFEX 

Clearing calculates the amount of initial margin and variation margin 

required to cover the entire portfolio of the that clearing member, 

including both the new transaction and all existing cleared transactions. 

TAIFEX Clearing will clear the new trade as deposited collateral by 

the Clearing member is at least equal to the required amount.

TAIFEX Clearing is responsible for clearing, settling and guaranteeing 

delivery of confirmed transactions, therefore ensuring the reliability of 

futures instruments. In addition to providing clearing members with 

better services, TAIFEX Clearing is also dedicated to the maintenance 

of market stability and security.
18

IV. Principle-by-principle summary narrative disclosure

Principle 1:Legal basis

An FMI should have a well-founded, clear, transparent, and

enforceable legal basis for each material aspect of its activities in all 

relevant jurisdictions.

Summary Narrative

Key consideration 1: The legal basis should provide a high degree of 

certainty for each material aspect of an FMI’s activities in all relevant 

jurisdictions.

Material aspects and relevant jurisdictions 

TAIFEX concurrently serves as a futures clearing institution, and 

plays the role of a Central Counterparty (CCP) for exchange-traded 

derivatives and OTC derivatives markets in Taiwan. Its duties as a 

futures clearing house include clearing, settlement and guaranteeing 

for performance of exchange-traded derivatives and OTC derivatives 

transactions, market supervision, clearing margin management, and 

resolving of settlement defaults; all of which have been clearly stated 

in the Act, the Regulations Governing Futures Clearing Houses and 

TAIFEX's clearing policies.

TAIFEX Clearing is governed by the Act, the Regulation Governing 

Futures Clearing Houses and relevant rules and regulations of 

TAIFEX Clearing. 

The Act is promulgated by the President of Taiwan and relevant rules 

and regulations are either set out or approved by FSC, which is the 

Competent Authority of financial markets as a whole in Taiwan. The 

Rules and the OTC Rules of TAIFEX are approved by the FSC and 

legally binding as they are compiled by TAIFEX Clearing and its 

clearing members.

TAIFEX Clearing serves as a clearing institution, and plays the role of 

a CCP for futures, which by definition in the Act include both the 

exchange-traded derivatives (ETD) and OTC derivatives in Taiwan. 

Its duties as a CCP include: 
19

1. Clearing and settling of executed futures trades;

2. Guaranteeing delivery of futures contracts; 

3. Market supervision;

4. Collection and management of collateral;

5. Default management.

The clearing and settlement services provided by TAIFEX Clearing do 

not extend beyond domestic borders.

Legal basis for each material aspect

TAIFEX's domestic futures clearing services are founded on a clear 

legal basis, for example: TAIFEX is a limited liability company 

incorporated in accordance with the Company Act; it has been 

licensed by the competent authority under the Act to perform futures 

clearing services. As a futures clearing institution, TAIFEX is bound 

to comply with the Act, Standards Governing the Establishment of 

Futures Clearing Houses, and Regulations Governing Futures 

Clearing Houses when conducting futures clearing business.

Participants in TAIFEX's futures clearing and settlement services and 

clearing operations of OTC derivatives are required to sign settlement 

agreements separately with TAIFEX, attain membership status and 

comply with TAIFEX's policies, rules, announcements and agreement 

terms before partaking in said services.

Key consideration 2: An FMI should have rules, procedures, and 

contracts that are clear, understandable, and consistent with relevant 

laws and regulations.

Open and defined legal basis

Prior to any addition (amendment) of the Rules, Market Regulations, 

the OTC Rules, and the Enforcement Rules, TAIFEX Clearing would 

arrange public hearings and market surveys to gather opinions from 

businesses and market participants. In addition, a Trading Committee 

and a Clearing Committee consisting of industry and academic 

representatives have been assembled to conduct discussions with the 
20

Board to make sure the additions (amendments) are clear, unambiguous 

and compliant with laws. TAIFEX Clearing has an obligation to report 

to the Competent Authority any changes made to its Articles of 

Incorporation or other policies. Currently, TAIFEX Clearing does not 

have any rules, procedures or contractual terms that are not consistent 

with any laws and regulations.

The laws and regulations governing TAIFEX Clearing’s business 

operations as a QCCP are clear and understandable to market 

participants. The Act and other related regulations are available on 

FSC’s website and other public sources. In accordance with the laws 

and regulations that recognize TAIFEX Clearing as a QCCP, TAIFEX 

Clearing must comply all legal arrangements on an ongoing basis to be 

qualified as a QCCP. All TAIFEX Clearing rules fully satisfy and are 

consistent with all laws and regulations governing TAIFEX Clearing. 

Currently, TAIFEX Clearing does not have any rules, procedures or 

contractual terms that are not consistent with any laws and regulations

Key consideration 3: An FMI should be able to articulate the legal 

basis for its activities to relevant authorities, participants, and, where 

relevant, participants’ customers, in a clear and understandable way.

Legal basis for each material aspect

Prior to implementing any laws or policies that are relevant to the 

clearing of exchange-traded derivatives and OTC derivatives, TAIFEX 

Clearing would notify the market through correspondences and 

announcements, and publish detailed terms on the Law Source 

Retrieving System of Stock Exchange and Futures Trading 

(http://www.selaw.com.tw/) for public access.

In addition to communicating on its own, TAIFEX Clearing also 

engages the Chinese National Futures Association to disseminate 

relevant information and produce informative documents for the 

market. Additionally, information on clearing services is published on 

TAIFEX's website.

Key consideration 4: An FMI should have rules, procedures, and 

contracts that are enforceable in all relevant jurisdictions. There 

should be a high degree of certainty that actions taken by the FMI under 
21

such rules and procedures will not be voided, reversed, or subject to 

stays.

Enforceability of rules, procedures and contracts

All rules, procedures and contracts enforced by TAIFEX Clearing are 

subject to review by TAIFEX's Trading, Clearing Committee for 

exchange-traded derivatives market and Clearing and Risk Committee 

for OTC derivatives market (whose members comprise experts from 

academia and industry participants) and the Board, and are subject to 

approval by the Competent Authority. Participants in TAIFEX's futures 

clearing and settlement services and clearing operations of OTC 

derivatives are required to sign settlement agreements separately with 

TAIFEX, attain membership status and comply with TAIFEX 

Clearing's policies, rules, announcements and terms of the agreement 

before services commence. For this reason, TAIFEX Clearing's rules, 

procedures and contracts are highly enforceable within the local 

jurisdiction.

Degree of certainty of rules and procedures

The Act provides the legal basis for TAIFEX Clearing's activities as a 

CCP, and for any rules, procedures and contracts established to govern 

its activities. This legal basis ensures certainty that actions taken are 

not voided, reversed or subject to stays.

Key consideration 5: An FMI conducting business in multiple 

jurisdictions should identify and mitigate the risks arising from any 

potential conflict of laws across jurisdictions.

Cross-border supervision

Currently, TAIFEX Clearing's clearing and settlement services are 

confined only to its own instruments listed for trading and OTC 

derivatives for clearing, which do not extend beyond domestic 

borders. As a result, no legal conflicts may arise from cross-border 

settlements.
22

Principle 2:Governance

An FMI should have governance arrangements that are clear and 

transparent, promote the safety and efficiency of the FMI, and support 

the stability of the broader financial system, other relevant public 

interest considerations, and the objectives of relevant stakeholders.

Summary Narrative

Key consideration 1: An FMI should have objectives that place a high 

priority on the safety and efficiency of the FMI and explicitly support 

financial stability and other relevant public interest considerations.

According to Article 2 of the Regulations Governing Futures Clearing 

Houses, a futures clearing house has the responsibility to clear, settle 

and guarantee delivery of futures.

Robust financial regulation framework

TAIFEX Clearing places high value on the security of the futures 

market. In addition to the measures stated in the Act and Regulations 

Governing Futures Clearing Houses, TAIFEX Clearing adopts the 

practice of trial-calculation of gains and losses during trading hours, and 

simulation of participants' margin accounts in real time. Participants 

whose margin balances falling below the required level will be notified 

by margin call during trading hours.

Furthermore, TAIFEX Clearing has ISO-compliant procedures in place 

to govern daily risk management, clearing and financial practices. 

These procedures have been designed to ensure both the security and 

efficiency of its services.

TAIFEX Clearing's financial stability is founded on a robust clearing 

membership system, where clearing members are required to join 

TAIFEX Clearing in bearing settlement obligations. In order to bear this 

burden, strong financial support is essential, and TAIFEX Clearing 

draws its support from clearing margins, the default fund contributed by 

clearing members, its own reserves, and the defauld funds from nondefaulting clearing members which is subject to the cap amount. In case 

the cap amount is insufficient, TAIFEX Clearing shall fulfill the 

remaining clearing and settlement obligation.
23

All internal governance documents of TAIFEX Clearing are reviewed 

and audited periodically on an ongoing basis to ensure all documents 

are accurate and fully compliant with relevant laws and regulations. 

FSC and TAIFEX Internal Audit whereupon conduct exams to satisfy 

such purpose.

Key consideration 2: An FMI should have documented governance 

arrangements that provide clear and direct lines of responsibility and 

accountability. These arrangements should be disclosed to owners, 

relevant authorities, participants, and, at a more general level, the 

public.

Corporate governance planning

According to Article 22 of TAIFEX's Articles of Incorporation, 

TAIFEX is governed by its Board, which consists of fifteen directors 

and five supervisors, each serving a renewable term of three years. 

Pursuant to the Act, at least a quarter of TAIFEX's directors and 

supervisors must be non-shareholders with relevant expertise. TAIFEX 

complies with legal requirements by having four non-shareholder 

directors and two supervisors on its Board. Their main responsibilities 

are to supervise corporate governance practices and conduct regular 

evaluation on the design and effectiveness of internal control system. 

Through monthly Board meetings, the Board is regularly informed of 

the TAIFEX's financial status, thus enabling them to offer guidance and 

recommendations where appropriate. In addition, TAIFEX has an 

Internal Audit Office created directly under the Board to supervise 

financial and business audits on various departments.

Currently, futures clearing in Taiwan is performed by TAIFEX Clearing 

as a concurrent service, for which TAIFEX Clearing has assembled 

financial management, clearing, risk management, OTC derivatives 

clearing and OTC derivatives risk management teams to perform 

member services, clearing and settlement, and risk management 

operations, respectively.

TAIFEX also set up Clearing Committee and OTC Derivatives Clearing 

and Risk Management Committee to review members' financial status, 

business activities, uses of clearing margins, and contributions and uses 
24

of the clearing and settlement fund.

Disclosure of corporate governance

Information regarding TAIFEX's organizational structure and 

responsibilities of its Board of Directors, committees and departments 

have been disclosed on the TAIFEX website. All legal bases for the 

abovementioned structure and responsibilities can be found on the 

"Law Source Retrieving System of Stock Exchange and Futures 

Trading."

Key consideration 3: The roles and responsibilities of an FMI’s board 

of directors (or equivalent) should be clearly specified, and there should 

be documented procedures for its functioning, including procedures to 

identify, address, and manage member conflicts of interest. The board 

should review both its overall performance and the performance of its 

individual board members regularly.

Roles and duties of the Board of Directors

The Board of Directors is the ultimate decision-making authority within 

TAIFEX, and Article 27 of TAIFEX's Articles of Incorporation gives 

the Board of Directors the decision-making authority over the 

company's business activities. With the exception of items that require 

shareholders meeting resolutions pursuant to the Company Act, all 

other decisions can be made by the Board of Directors.

According to Article 28 of TAIFEX's Articles of Incorporation, Board 

meetings are convened by the Chairperson except for the first meeting 

of a new Board, which shall be convened by the director who receives 

the highest number of votes within candidates. All directors must be 

notified of the convention of Board meetings with a detailed agenda at 

least three days in advance. However, meetings can be held at a shorter 

notice in the event of an emergency.

According to Article 29 of TAIFEX's Articles of Incorporation, a Board 
25

resolution is passed only with the presence of more than half of the 

directors, and with more than half of those present voting in favor, 

unless otherwise specified in the Company Act.

Directors who are unable to attend meetings personally may appoint 

another director in writing to attend on their behalf. However, one 

director may only represent one other director.

Pursuant to Article 178 of the Company Act, shareholders cannot vote, 

or appoint proxies to vote, on any agendas that present conflicting 

interests, if doing so may compromise the Company's interests. 

Paragraph 2, Article 180 of the Company Act also specifies that the 

number of voting rights held by parties who are prohibited to vote under 

Article 178 do not count towards total voting rights represented in the 

meeting, for the purpose of the resolution made.

According to Article 40 of Regulations Governing Futures Clearing 

Houses, directors, supervisors, committee members and persons of 

equivalent status in a futures clearing institution are required to recuse 

themselves from making decisions that involve a conflict of interests.

Performance evaluation

According to Article 15 of TAIFEX's Articles of Incorporation, 

shareholders meetings are held once a year within six months after the 

end of a financial year. Shareholders meetings are convened by the 

Board in compliance with the Company Act.

At the end of each accounting period, the Board of Directors is bound 

by Article 228 of the Company Act to prepare the following reports and 

forward them for review by the supervisor thirty days before an annual 

general meeting:

1. Business report;

2. Financial statements;

3. Earnings appropriation or loss reimbursement proposal.

Furthermore, Paragraph 1, Article 230 of the Company Act requires 

the Board of Directors to present the abovementioned reports for 

acknowledgment during an annual general meeting.

Key consideration 4: The board should contain suitable members with 
26

the appropriate skills and incentives to fulfil its multiple roles. This 

typically requires the inclusion of non-executive board member(s).

Directors' and supervisors' eligibility

According to Paragraphs 1 and 2, Article 33 of Regulations Governing 

Futures Clearing Houses, directors and supervisors of a clearing house 

must not exhibit any one of the conditions mentioned in Paragraph 1, 

Article 28 of the Regulations; furthermore, they must possess one of the 

qualifications listed below:

1. At least 2 years of experience working in a futures institution, in an 

equivalent position of manager or higher.

2. A total of 5 years of experience or above working in a futures, 

securities or financial institution, in an equivalent position of 

manager or higher.

3. A total of 5 years of experience or above in an administrative or 

managerial role that involves futures, securities or finance, and 

having been assigned an equivalent position of mid-level officer or 

above.

4. Having graduated from a local or foreign college or holds an 

equivalent degree, with adequate proof that the party possesses 

futures-related knowledge and is capable of managing a futures 

business.

Where the director or supervisor is a corporate entity, the above rules 

shall apply to the representative or authorized person of the corporate 

entity.

TAIFEX's directors and supervisors are elected according to Article 36 

of the Act and TAIFEX's director and supervisor election policies. Each 

director and supervisor serves a term of three years and may be reelected or reappointed at the end of the term. 

TAIFEX has a total of fifteen directors. In order to encourage diversity 

of opinion within the organization, the Act requires at least onequarter of the Board to comprise non-shareholders with relevant 

expertise. Half of these non-shareholder experts are appointed by the 

Competent Authority while the other half are chosen by Board 
27

members, subject to the Competent Authority's approval.

Key consideration 5: The roles and responsibilities of management 

should be clearly specified. An FMI’s management should have the 

appropriate experience, a mix of skills, and the integrity necessary to 

discharge their responsibilities for the operation and risk management 

of the FMI.

Roles and responsibilities of the management

According to Article 34 of TAIFEX's Articles of Incorporation, 

TAIFEX managers may refer to the President, Senior Vice Presidents, 

Assistant Vice Presidents, committee members, heads of department 

and any person acting in a representative capacity.

The President's responsibilities are to execute the Chairperson's 

instructions and the Board of Directors' resolutions, and oversee the 

company's business activities in accordance with TAIFEX's Articles of 

Incorporation and relevant laws.

Responsibilities of Senior Vice Presidents:

1. Assist the President in managing the company's business activities.

2. Perform duties as delegated by the President.

3. Co-ordinate work efforts and demarcate areas of responsibility with 

other departments.

4. Assume the responsibilities of the President during his/her absence.

Responsibilities of Assistant Vice Presidents are the same as items 1, 2 

and 3 of Senior Vice Presidents.

Responsibilities of department heads:

1. Develop business plans and work schedules, and implement 

accordingly once they are approved.

2. Propose and implement improvements within delegated authorities.

3. Assign tasks among employees and offer supervision and guidance.

4. Conduct performance appraisal, issue rewards and administer 

disciplinary actions to employees.

5. Develop policies and interpret legal requirements that according to 
28

delegated authorities.

6. Circulation and approval of internal documents.

7. Approval of regular department activities.

8. Any other tasks assigned.

Responsibilities of deputy managers:

1. Assist the department head in managing department affairs.

2. Assume the responsibilities of the department head during his/her 

absence.

3. Act within the authority delegated by the department head.

Experience, skills and integrity

TAIFEX's President is nominated by the Chairperson to the Board, and 

is appointed with the support of more than half of the total Board 

members. The same applies to any subsequent dismissal. TAIFEX's 

Senior Vice Presidents, Assistant Vice Presidents, chief auditor, and 

department heads are nominated by the President to the Chairperson, 

and are appointed with the support of more than half of the total Board 

members. The same applies to any subsequent dismissal.

To ensure that senior management positions are assumed by employees 

with the required skills, the Company has complied with Paragraph 1, 

Article 34 of Regulations Governing Futures Clearing Houses, where 

no person who meets the conditions described in Paragraph 1, Article 

28 of the Act shall serve as a manager of a futures clearing house. In 

addition, the manager candidate must satisfy one of the following 

qualifications:

1. At least two years of experience working in a futures institution, in 

an equivalent position of manager or higher.

2. A total of three years of experience or above working in a futures, 

securities or financial institution, in an equivalent position of 

manager or higher.

3. A total of five years of experience or above in an administrative or 

managerial role that involves futures, securities or finance, and 

having been assigned an equivalent position of mid-level officer or 
29

above.

4. A total of five years of experience or above working in a futures, 

securities or financial institution, in an equivalent position of deputy 

manager or higher.

5. Having graduated from a local or foreign college or holds an 

equivalent degree, with adequate proof that the party possesses 

futures-related knowledge and is capable of managing a futures 

business.

In addition, performance appraisals of personnel graded deputy 

manager and above are conducted by the President and are approved by 

the Chairperson. Performance appraisals of the President, the chief 

auditor and the Internal Audit Office are completed by the Chairperson.

To dismiss the TAIFEX President, a proposal must be raised by the 

Chairperson and be approved by the Board of Directors with more 

than half of Board members voting in favor of the decision. To dismiss 

a Senior Vice President, an Assistant Vice President, the chief auditor, 

a department head or a deputy manager, the proposal must be raised 

by the President to the Chairperson and be approved by the Board of 

Directors with more than half of Board members voting in favor of the 

decision.

Key consideration 6: The board should establish a clear, documented 

risk-management framework that includes the FMI’s risk-tolerance 

policy, assigns responsibilities and accountability for risk decisions, 

and addresses decision making in crises and emergencies. Governance 

arrangements should ensure that the risk-management and internal 

control functions have sufficient authority, independence, resources, 

and access to the board.

Risk management framework

The risk management framework adopted by TAIFEX Clearing has 

been developed based on Regulations Governing Futures Clearing 

Houses. TAIFEX Clearing's responsibilities include clearing, 

settlement, and guaranteeing for performance of exchange-traded 

derivatives and OTC derivatives transactions. At the same time, 

TAIFEX Clearing has implemented internal control policies under 
30

which the Board of Directors, management and employees shall work 

together to achieve the following objectives:

1. Sound and efficient operations

2. Reliable financial reporting

3. Regulatory compliance

Operations mentioned above are measurable using indicators such as 

profitability, performance targets and asset security. TAIFEX Clearing 

has also identified risk factors that are relevant to its operations, and 

adopted processes to assess likely impact should any risk materialize. 

Results of such assessments are helpful towards designing, revising and 

executing necessary controls to mitigate risks. In the event of an 

emergency situation, TAIFEX Clearing will continue operations 

according to its emergency response regulations to ensure the financial 

stability of the futures market as a whole.

TAIFEX Clearing reviews its internal control systems annually. 

Processes that are considered outdated or impractical will be revised to 

ensure the effectiveness of the risk management framework.

Authority and level of independence of risk management and audit 

personnel

TAIFEX has an Internal Audit Office created directly under the Board 

of Directors. It conducts internal audits according to relevant laws and 

TAIFEX's Articles of Incorporation, and is responsible for developing 

internal controls within the company, supervising risk management, 

clearing margins and the default funds, and reporting to the company's 

supervisors and Board of Directors on such matters.

Key consideration 7: The board should ensure that the FMI’s design, 

rules, overall strategy, and major decisions reflect appropriately the 

legitimate interests of its direct and indirect participants and other 

relevant stakeholders. Major decisions should be clearly disclosed to 

relevant stakeholders and, where there is a broad market impact, the 

public.

Identification and consideration of stakeholder interests

TAIFEX's Board of Directors comprises representatives from clearing 
31

members, and shareholders and non-shareholders with relevant 

expertise. These representatives are directly involved in the decision 

making of TAIFEX's organization, policies and future strategies 

therefore making sure that stakeholders' interests are wellaccommodated.

With regards to identifying and resolving conflicts of interest, 

TAIFEX complies with Paragraphs 2 and 4, Article 206 of the 

Company Act, which requires any director who has a personal interest 

in a matter under discussion at a Board meeting to explain to the 

Board the nature of such personal interest. Furthermore, directors are 

not allowed to vote, whether on their own or on behalf of others, in 

any agenda where their personal interests conflict with that of the 

company.

Information disclosure

Major decisions of the Board such as stock listing, trade suspension or 

termination of futures contracts are subject to approval by the 

Competent Authority, and must be announced to the market prior to 

implementation. Other material decisions of the Board are disclosed in 

annual reports.

Principle 3:Framework for the comprehensive management of 

risks

An FMI should have a sound risk-management framework for 

comprehensively managing legal, credit, liquidity, operational, and 

other risks.

Summary Narrative

Key consideration 1: An FMI should have risk-management policies, 

procedures, and systems that enable it to identify, measure, monitor, 

and manage the range of risks that arise in or are borne by the FMI. 

Risk-management frameworks should be subject to periodic review.

Risks that arise within or are borne by the FMI

According to Article 3, Article 9, and Article 45, the duties of TAIFEX 
32

include providing clearing services for the future market, futures 

products, and OTC derivatives. TAIFEX Clearing's operations are 

prone to a number of risks, the most significant of which include market 

risk, liquidity risk, credit risk, counterparty risk, business risk, financial 

risk and management risk.

FMI's risk management policy

TAIFEX Clearing currently adopts the following policies and 

procedures for identifying, measuring, monitoring and managing risk: 

1. TAIFEX Clearing is required under Articles 15 and 16 of the Act to 

outline procedures in its Rules of the Taiwan Futures Exchange 

Corporation for purposes such as monitoring suspicious activities, 

handling and penalizing defaults, responding to contingencies, and 

managing risk in both normal and extreme market conditions for 

exchange-traded derivatives market. TAIFEX Clearing may 

publish information regarding any irregular futures trading 

activities it has discovered during market surveillance. Appropriate 

actions may be taken against futures trading that presents serious 

concern to market order.

2. According to Articles 47 and 48 of the Act, a futures clearing house 

is required to outline procedures in its Rules for purposes such as 

monitoring the futures market, handling and penalizing defaults, 

responding to contingencies and managing risk. TAIFEX Clearing 

may take appropriate actions against clearing members that default 

on settlement obligation. 

3. According to Article 95 of the Act, the Competent Authority is 

required to establish market surveillance guidelines for the purpose 

of protecting public interest and maintaining market order. TAIFEX 

has established the "Regulations Governing Market Trading 

Surveillance" and "Rules Governing Surveillance of Market 

Positions" in accordance with Article 5 of "Criteria Governing 

Oversight of Futures Trading" for the purpose of market 

surveillance.

TAIFEX Clearing currently adopts the following policies and 

procedures for managing risks:

1. The definition and treatment of abnormal futures trading have been 
33

outlined in the "Regulations Governing Market Trading 

Surveillance" to maintain fairness of futures trading and prevent 

unlawful manipulative acts. Standards for warnings and the 

limitation of events likely to affect market order have been imposed 

under "Rules Governing Surveillance of Market Positions" to 

regulate the position limit standards on futures traders, futures 

commission merchants and clearing members. These standards are 

established for maintaining futures market order and security. 

Furthermore, position monitoring regulations have been stipulated 

in Chapter 7 of the OTC Rules to control the position centralization 

risks of clearing members and implement related handling 

procedures for clearing members that reach the position 

concentration standards, in order to maintain order in the OTC 

derivatives market and ensure market well-being.

2. The clearance and settlement of futures trading and OTC 

derivatives clearing, unless otherwise approved by the Competent 

Authority, shall be executed by a clearing member with its futures 

clearing house. To reduce the risk of clearing and settlement 

default, TAIFEX Clearing has implemented the "Criteria for 

Clearing Membership" as the first line of defense and "Procedural 

Guidelines for Clearing Members Unable to Maintain Conformance 

with Clearing Member Standards" and Chapter 2 Clearing Members 

of the Enforcement Rules as the basis for reviewing and monitoring 

clearing members' eligibility. If a clearing member fails to perform 

its clearing and settlement obligation, the futures clearing house 

shall appropriate the funds as compensation in the various sources 

specified in Article 49 of the Act. If a clearing member exhibits any 

act of default set out in Article 101 of the Rules and Article 53 of 

the OTC Rules, it may take appropriate actions according to 

Chapter 12 - "Disposition of Defaults by Clearing Members" of the 

Rules or Chapter 9 - "Default Management" of the OTC Rules.

3. Article 97-1 of the Act requires all futures exchange, futures 

clearing house and futures enterprises to establish financial and 

operational internal control systems. TAIFEX Clearing has 

incorporated risk management procedures as part of its internal 

control system.

4. TAIFEX Clearing has implemented a number of risk controls as 
34

part of its internal control system, and utilized a risk management 

system to help identify, measure, monitor and manage risks. The 

following is a description of such controls:

Exchange-traded derivatives market

(1) Intra-day position control: Futures positions held by clearing 

members as well as gains and losses are monitored in real-time 

during intraday hours. Appropriate measures are taken to keep 

positions levels within legal requirements.

A. Basis of operations: Articles 5, 6 and 7 of Taiwan Futures 

Exchange Corporation Rules Governing Surveillance of 

Market Positions for exchange-traded derivatives.

B. Operating procedures: Every day during trading hours, 

TAIFEX Clearing monitors margin requirements of new 

positions by monitoring the system, and trial-calculates 

clearing members' profits and losses using the trading system 

(for futures and options), Standard Portfolio Analysis of Risk 

(SPAN® ), and the clearing system both during and post 

trading periods to evaluate the adequacy of clearing 

members' margin account balances. If the remaining margin 

balance of a clearing member is below the margin 

requirement, TAIFEX Clearing issues an intraday margin 

call to the member.

(2) Margin requirements and adjustment: 

A. Exchange-traded derivatives: Margins are primarily set at a 

level sufficient to cover two-day losses within a 99% level of 

confidence; this serves as a security to delivery for both the 

buyer and the seller.

a. Basis of operations: Taiwan Futures Exchange Corporation 

Methods and Standards for Receipt of Clearing Margins; 

Articles 116 and 117 of the Rules.

b. Operating procedures: TAIFEX utilizes the trading 

statistics management system to recalculate margin 

standards and SPAN® parameters after market close. If the 

simulated margin level differs from the actual margin 

balance to a certain degree, TAIFEX Clearing may 
35

proceed to adjust its margin requirements.

According to Article 43 of the Regulations Governing 

Futures Commission Merchants and Article 53 of the Rules: 

Futures commission merchants shall collect in full the 

margins or premiums required by the regulations of the 

various futures exchanges before it is allowed to accept 

futures trading orders.

TAIFEX Clearing requires all margins to be placed in 

advance; in a futures trade, both the buyer and the seller are 

required to place cash margins before placing trade orders, 

which reduces traders' default risks.

(3) Settlement pricing: Settlements are priced according to the 

trading rules to ensure accuracy of transaction data.

A. Basis of operations: Taiwan Futures Exchange Corporation 

trading rules for various instruments.

B. Operating procedures: Every day after market close, 

TAIFEX Clearing announces the settlement price and open 

positions for each listed instrument through the trading 

system (futures and options).

(4) Limiting new positions: TAIFEX Clearing may no longer allow 

clearing members adding new position. Clearing members may 

specify in their brokerage agreements to: limit trading activities 

if the futures commission merchant is found to have violated 

rules.

A. Basis of operations: Article 6-1 and 7 of Rules Governing 

Surveillance of Market Positions.

B. Operating procedures: When any irregularity is found in 

financial condition, open positions of clearing members, 

TAIFEX Clearing is authorized under Article 6-1 and 7 of 

Taiwan Futures Exchange Corporation Rules Governing 

Surveillance of Market Positions to impose limits on the 

member's new positions. When a clearing member imposes 

limits on new positions of its futures commission merchant, 

such decision must be advised to TAIFEX Clearing via fax 

or telephone so that controls may be implemented by 
36

TAIFEX's surveillance personnel.

(5) Reviews: TAIFEX Clearing conducts regular reviews on clearing 

members' margin balances, open positions and financial health, 

and directs special attention to those that present financial, 

business or credit risks.

A. Basis of operations: Taiwan Futures Exchange Corporation 

Rules Governing Surveillance of Market Positions.

B. Operating procedures: Every day after market close, 

TAIFEX will inquire via its surveillance system and 

clearance system and print out reports to monitor 

concentration of open positions, members with highest open 

positions, exposures to futures commission merchants, 

additional margin collected, and members' maintenance 

margins. TAIFEX Clearing will also check the level of 

adjusted net capital (ANC) and liquidity ratio reported by 

each member to determine its credibility and financial status. 

The above information is then consolidated into a "Aftermarket Clearing Member Risk Analysis" report and 

forwarded for discussion during "Inter-department 

Meetings."

(6) Disposition of Defaults by Clearing Members: 

Exchange-traded derivatives: Defaults by clearing members are 

handled according to procedures with the emphasis on protecting 

futures traders' interests and securing TAIFEX Clearing's debt 

entitlements.

A. Basis of operations: Chapter 12 of the Rules.

B. Operating procedures: TAIFEX Clearing will resort to the 

following measures in the event that a clearing member 

defaults or is rendered unable to fulfill its settlement 

obligations to TAIFEX Clearing:

a. Assemble a Default Action Team.

b. Suspend clearing and settlement services to the 

defaulting member.

c. Dispose of the defaulting clearing member's positions 
37

and margin funds.

d. Utilize the default fund.

e. Conduct a full assessment on the defaulting member's 

asset status.

f. Initiate audit of the defaulting clearing member.

g. Pursue protective measures with respect to TAIFEX 

Clearing's statutory rights.

OTC derivatives market

(1) Intra-day position control: Includes margin check of transactions 

submission for clearing and the notification of margin shortfalls.

A. Basis of operations: Article 26, Article 31, and Article 38 of 

the OTC Rules.

B. Operating procedures: TAIFEX checks the margins of the 

transactions submitted by clearing members on a daily basis.

If the margin is sufficient, TAIFEX will accept the submitted 

transactions for clearing. If the margin is insufficient,

TAIFEX will not accept the submitted transactions for 

clearing. Additionally, the clearing system conducts marking 

to market for clearing members both during and post trading 

periods. If the remaining margin balance of a clearing 

member is below the margin requirement, TAIFEX will issue 

margin call to the member.

(2) Margin collection operation:

A. Initial margin

Used to cover the expected loss caused by price fluctuations in 

the next 5 days for proprietary accounts of clearing members 

or in the next 7 days for client accounts.

B. Variation margin/mark-to-market differences

Used to cover losses caused by net present value changes after 

marking to market of clearing member's positions on the day 

or in the previous working day.

C. Liquidity risk margin

Used to cover the possible losses caused by insufficient market 
38

liquidity to clearing member accounts.

D. Additional margin

TAIFEX may collect an additional margin from clearing 

members based on the market situation or the clearing 

member's position or credit status and other situations deemed 

necessary by TAIFEX.

a. Basis of operations: Article 31, Article 32, and Article 

33, Article 34, and Article 35 of the OTC Rules.

b. Operating procedures: Before submitting a proprietary 

transaction or client transaction to TAIFEX for clearing, 

the clearing margin deposited by the clearing member 

may not be lower than the amount required by TAIFEX. 

Additionally, TAIFEX calculates intra-day and end of 

day clearing margin for each business day. The margin 

includes the initial margin requirement, variation margin 

/ mark-to-market differences, liquidity risk margin, and 

additional margin.

(3) Valuation curve formulation: Used for the valuation of the 

cleared transactions calculated daily and the basis for margin 

calculations according to related operations in the OTC Rules.

A. Basis of operations: Article 37 of the OTC Rules.

B. Operating procedures: When TAIFEX handles the valuation 

of OTC products daily, the reasonability of the product prices 

must be verified and usable market price information must be 

selected. However, if no market price information is 

available, clearing members must provide quotations or 

handle the matter through interpolation.

(4) Reviews: TAIFEX Clearing conducts regular reviews on 

clearing members' margin balances, positions and financial 

status, and directs special attention to those that present financial, 

business or credit risks.

A. Basis of operations: Article 33 and Article 45 of the OTC 

Rules.

B. Operating procedures: TAIFEX calculates the position 
39

concentration of clearing members at the end of each day. 

TAIFEX will send notice to clearing members that exceed 

the position concentration standards of TAIFEX to be 

mindful of positions, collect additional margin, or implement 

other necessary measures to maintain market integrity or the 

soundness of the OTC derivatives market.

(5) Limiting new positions: TAIFEX Clearing may no longer allow 

clearing members submitting new transactions according to the 

regulations.

A. Basis of operations: Article 56 of the OTC Rules.

B. Operating procedures: For defaults caused by financial 

factors of the clearing members, TAIFEX shall suspend the 

defaulting clearing member to submit new transactions.

(6) Disposition of Defaults by Clearing Members: Defaults by 

clearing members are handled according to procedures with the 

emphasis on protecting customer interests and securing TAIFEX 

Clearing's debt entitlements.

A. Basis of operations: Chapter 9 of the OTC Rules.

B. Operating procedures: TAIFEX Clearing will resort to the 

following measures in the event that a clearing member 

defaults or is rendered unable to fulfill its settlement 

obligations to TAIFEX Clearing:

a. Convene the Default Management Group.

b. Suspend clearing and settlement services to the 

defaulting member.

c. Position transfer for the defaulting clearing member.

d. Hedging of defaulting clearing members' positions.

e. Auction for the defaulting clearing member's positions.

f. Utilize the default fund.

g. Conduct a full assessment on the defaulting member's 

asset status.

h. Initiate audit of the defaulting clearing member.

i. Pursue protective measures in respect of TAIFEX 
40

Clearing's statutory rights.

5. Clearing members are obligated to deposit clearing and settlement 

funds according to Chapter 13 - "Clearing and Settlement Funds" 

of the Rules and Chapter 8 - "Clearing and Settlement Fund" of the 

OTC Rules. Clearing members are also required to increase its 

deposits to the clearing and settlement fund within the period of 

time specified by TAIFEX, if any of the conditions mentioned in 

Article 108 of the Rules or Article 49 of the OTC Rules occurs.

6. According to Chapter 15 - "Market Surveillance and Emergency 

Measures" of the Rules and Chapter 10 - "Emergency Measures" of 

the OTC Rules, TAIFEX shall immediately adopt measures to 

safeguard market order, trading fairness and clearing operation 

security if the market encounters any one of the situations described 

in Article 116 of the Rules or Article 66 of the OTC Rules.

Review of risk management policies, procedures and systems

TAIFEX Clearing reviews its operating procedures based on analyzes 

of prevailing risks. It utilizes a risk management system to monitor 

clearing members' margin balances, open positions and financial health,

and directs special attention to those that present financial, business or 

credit risks.

TAIFEX Clearing regularly reviews the policies, procedures and 

systems that participants have adopted to manage risks, and supervises 

flexible adjustments to their policies, procedures and system parameters 

depending on the prevailing market condition.

1. TAIFEX Clearing recalculates margin standards for each listed 

instrument every day after trading hours. If the simulated margin 

level differs from the actual margin balance by a certain degree, 

TAIFEX Clearing may proceed to adjust its margin requirements. 

TAIFEX Clearing also monitors margin parameters on a daily basis 

to determine whether adjustments are needed.

2. In addition to estimating the required default fund amount on a 

quarterly basis, TAIFEX Clearing also takes the initiative to assess 

potential default risks of open positions based on current trading 

activities and price fluctuations, thereby making sure that potential 

risks are adequately covered by the default fund. Adequacy of the 
41

default fund is also subject to ad-hoc review in whatever 

circumstances deemed necessary (e.g. occurrence of a significant 

event in the market).

TAIFEX Clearing follows its "Internal Control Self-assessment 

Policy" and assesses the effectiveness of its risk management policies, 

procedures and systems on a regular basis. TAIFEX Clearing also 

attempts to identify any part of its risk management policies that have 

become outdated or impractical over time, and assesses likely impacts. 

These assessments help TAIFEX Clearing adjust its risk management 

policies, systems, internal controls and regulations in time to 

accommodate new risks.

Key consideration 2: An FMI should provide incentives to participants 

and, where relevant, their customers to manage and contain the risks 

they pose to the FMI.

Pre-margins and incentives

1. The collection method for margins used by TAIFEX is the premargin mechanism. The buyer and seller in exchange-traded 

derivatives market must deposit margins to conduct transactions. 

The transaction parties of the OTC derivatives market shall 

deposit margins before submitting transactions for clearing.

As an incentive for upfront placement of clearing margins, 

TAIFEX Clearing offers to pay time deposit rates on cash that 

members place as clearing margins.

2. TAIFEX Clearing has developed a robust financial safeguard 

system where clearing members and TAIFEX Clearing are jointly 

responsible for settlement and transaction delivery. Source of fund 

for the financial safeguard system includes clearing members' 

clearing margins, the TAIFEX Clearing compensation reserve 

fund, clearing members' contributions to the default fund, and 

common bonds that are allocated among the non-defaulting 

clearing members. These, in aggregate, provide strong support to 

ensure the soundness and success of the market in the event of 

default.

3. TAIFEX has designed incentives according to the payment order 
42

for default handling, auctions, and OTC default funds. TAIFEX 

has established the OTC derivatives default fund payment order 

according to the participation of non-default clearing members in 

auctions, in order to encourage market participants to participate 

in default auctions and manage the risks of default losses.

4. In the event where a clearing member undergoes bankruptcy, 

dissolution, business suspension or default upon its clearing and 

settlement obligations, TAIFEX Clearing is authorized to transfer 

such clearing member accounts and the related accounts of futures 

traders to another member who has executed a succession 

agreement with the default member. If necessary, TAIFEX 

Clearing may also order to have the accounts transferred to 

another member with whom no such agreement has been signed. 

Clearing members that refuse to accept the above mentioned 

accounts may be subject to penalties such as fines, revocation of 

member status, or other actions deemed necessary.

5. In an effort to protect futures traders, TAIFEX has established the 

"Taiwan Futures Exchange Corporation Rules for Encouraging 

Reporting of Unlawful Activities on the Futures Market" in which 

traders are given incentives to report illegal conduct in the futures 

market. 

6. TAIFEX has a Disciplinary Committee consisting of clearing 

member representatives, scholars, and experts in place to enforce 

the discipline of the market. The committee exists to supervise 

compliance and self-discipline among futures commission 

merchants and clearing members, and provides opinion for cases 

that violate against laws.

Provision of information

1. In addition to making SPAN® parameters available for download 

at specific times of the day, TAIFEX Clearing will also generate 

new SPAN® parameters for futures commission merchants 

whenever the market exhibits volatility above a certain level. And, 

aiming to assist market participant in measuring their liquidity risk 

exposure, TAIFEX Clearing publishes the liquidity indicator 

information for options and futures contracts on its website. By 

selecting contract month and strike price, etc., users are able to 
43

obtain certain contract’s liquidity indicator as a reference.

2. TAIFEX implements the review operations of Clearing Members 

Position Concentration Report after market close on a daily basis. 

TAIFEX will remind clearing members that exceed the position 

concentration standards of TAIFEX to be mindful of positions, 

collect additional margin, or implement necessary measures to 

protect market order or market well-being. Clearing members are 

asked to be aware of relevant risks.

Control measures

1. TAIFEX Clearing convenes daily inter-department meetings to 

discuss various issues such as current day's market movements, 

members' clearing margin balances, and maintenance margin of 

high-risk traders. Each day, TAIFEX Clearing generates a list of 

traders who have suffered massive losses in the current day and 

traders who may likely suffer massive losses in the following day, 

and submits the list for discussion during inter-department 

meetings. For high-risk traders, TAIFEX Clearing will remind the 

respective clearing members to escalate risk management, and 

follow up on their responses during the next day's meeting.

2. As a sound risk management practice, clearing members and 

futures commission merchants are required to monitor and manage 

customers' positions. In the exchange-traded derivatives market, 

below are TAIFEX Clearing's controls over open positions held by 

clearing members.

Exchange-traded derivatives market

(1). Adjusted net capital (ANC): ANC is the position management 

criteria generally adopted by global futures exchanges and is 

computed in accordance with the rules prescribed by the 

Competent Authority.

(2). Clearing margin limit: The number of newly increased contracts 

of each clearing member shall be limited by its excess margin 

deposits.

(3). Concentration Risk: If the ratio of the risk exposure for the open 

positions or the sum of open positions for each options series to 
44

total market positions of each clearing member reaches a certain 

level, TAIFEX Clearing may require additional clearing 

margins.

(4). Losses on open positions: The percentage of the loss on the net 

open positions of each clearing member to its adjusted net 

capital shall not exceed the prescribed level.

OTC derivatives market

(1) Clearing margin limit: The OTC derivatives transactions 

which newly submitted for clearing from a clearing member is 

capped by the total excess margins of such clearing account.

(2) Concentration Risk: If the ratio of the sum of required 

margin requirement for all clearing accounts of a clearing member 

to the total required margin requirement for all clearing accounts 

of all clearing members of each clearing member reaches a certain 

level, TAIFEX Clearing may require additional clearing margins.

3. Surveillance of Market Positions:

According to the "Rules Governing Surveillance Of Market 

Positions" and Article 44 and Article 45 of the OTC Rules, 

TAIFEX stipulated the alarm and restriction standards for clearing 

members and position concentration standards to conduct market 

monitoring. Emergency measures will be adopted according to the 

situation to maintain market order and security. 

4. Regular review of the risk management system:

TAIFEX Clearing regularly reviews the policies, procedures and 

systems that participants have adopted to manage risks, and 

supervises flexible adjustments to their policies, procedures and 

system parameters depending on the prevailing market condition.

(1). TAIFEX Clearing recalculates margin standards for each 

cleared product every day after trading hours. If the simulated 

margin level differs from the actual margin balance by a certain 

degree, TAIFEX Clearing may proceed to adjust its margin 

requirements. TAIFEX Clearing also monitors margin 

parameters on a daily basis to determine whether adjustments 
45

are needed.

(2). In addition to estimating the required default fund amount on a 

quarterly basis, TAIFEX Clearing also takes the initiative to 

assess potential default risks of open positions based on current 

trading activities and price fluctuations, thereby making sure 

that potential risks are adequately covered by the default fund. 

Adequacy of the default fund is also subject to ad-hoc review in 

whatever circumstances deemed necessary (e.g. occurrence of a 

significant event in the market).

Key consideration 3: An FMI should regularly review the material 

risks it bears from and poses to other entities (such as other FMIs, 

settlement banks, liquidity providers, and service providers) as a result 

of interdependencies and develop appropriate risk-management tools 

to address these risks.

Clearing and settlement risks between TAIFEX Clearing and 

clearing members

To participate in clearing and settlement, a party must first register as 

a clearing member of TAIFEX Clearing. In order to prevent defaults 

by clearing members, TAIFEX Clearing has established the criteria for 

clearing membership, separately for exchange-traded derivatives 

market and OTC derivatives market, which imposes various financial 

requirements for clearing members of different scopes of operations. 

Members' financial structures are reviewed on a daily basis to ensure 

that they continue to satisfy the eligibility requirements. Members that 

fail to meet the Criteria for Clearing Membership may be instructed to 

provide explanations and improvement plans, or be reported to the 

Competent Authority for an official audit. The above measures are 

intended to gain more insight into clearing members' financial and 

business performances, which TAIFEX Clearing may keep track and 

offer guidance where applicable.

Custody risk arising from TAIFEX Clearing and settlement banks

To facilitate transfers of cash margin, TAIFEX Clearing and all clearing 

members are required to open margin accounts at a settlement bank. 

Clearing members and their settlement banks are required to sign 
46

separate agreements with TAIFEX Clearing, and settlement banks are 

bound to act according to TAIFEX Clearing's instructions when 

facilitating margin payments and receipts between clearing members 

and TAIFEX Clearing. TAIFEX Clearing and clearing members are 

prone to the custody risk that arises due to cash margins placed at 

settlement banks.

TAIFEX Clearing chooses only settlement banks that satisfy certain 

financial and credit requirements, and with extensive experience in 

settling securities transactions or futures margins. All banks that 

TAIFEX Clearing extends banking relationships with are under the 

supervision of the Banking Bureau of FSC, and are entirely covered by 

Central Deposit Insurance. All settlement banks are required to 

implement internal controls, internal audits, accounting controls, 

operating procedures, levels of approval authorities and any other 

systems demanded by TAIFEX Clearing or the Competent Authority as 

part of their business policies.

According to Article 3.2.2 of the Enforcement Rules, TAIFEX shall 

enter into agreements with the settlement bank and other institutions 

with which TAIFEX opens margin accounts to establish the following 

terms and conditions:

1. Where TAIFEX freezes or transfers funds and securities in a 

clearing member's OTC derivatives clearing margin account in 

accordance with Article 54, Paragraph 3, Subparagraph 3 and 

Article 56, Paragraph 1, Subparagraph 2 of the OTC Rules, the 

settlement bank and other institutions shall proceed according to 

TAIFEX's instructions.

2. Where the information is needed for it to conduct business, 

TAIFEX may require settlement banks or other institutions to 

provide details of clearing members' OTC derivatives clearing 

margin accounts, and the settlement banks or other institutions shall 

provide assistance as appropriate.

According to Article 3.2.3 of the Enforcement Rules, the agreements 

signed by clearing members with the settlement bank and other 

institutions with which TAIFEX opens clearing margin accounts shall 

include the following terms and conditions:
47

1. Where TAIFEX freezes or transfers funds and securities in the 

clearing member's OTC derivatives clearing margin account in 

accordance with Article 54, Paragraph 3, Subparagraph 3 and 

Article 56, Paragraph 1, Subparagraph 2 of the OTC Rules, the 

clearing member agrees that the settlement bank and other 

institution will proceed according to TAIFEX's instructions.

2. The clearing member agrees that the settlement bank or other 

institution may provide details of the clearing member's OTC 

derivatives clearing margin accounts with TAIFEX at TAIFEX's 

request.

3. A copy of the contract will be sent to TAIFEX for filing purposes.

The aforesaid provisions to be included in an agreement may be 

provided in the form of commitment letter to TAIFEX if the OTC 

derivatives clearing margin account is opened by a clearing member, 

who is one of the settlement banks and other institutions designated by 

TAIFEX, at its own financial institution.

TAIFEX Clearing conducts regular assessments to determine whether 

settlement banks have the financial strength and credit status to protect 

assets entrusted by TAIFEX Clearing and the clearing members.

Related risks derived from TAIFEX and OTC derivative providers

1. Affirmation Platform

(1) According to Article 23 of the OTC Rules and Article 4.1.1 of 

the Enforcement Rules, TAIFEX accepts transactions for 

clearing. The counterparties in each transaction shall submit the 

transaction for clearing through an approved trade affirmation 

platform announced by TAIFEX and complete the affirmation 

procedure before submitting the transaction for clearing.

(2) According to Article 4.1.2 of the Enforcement Rules, TAIFEX 

will not be responsible for the accuracy, immediacy, integrity 

of transaction data transmission, delay, inability to transmit, 

completeness, any other damage, or other incidents that can be 

attributed to the trade affirmation platform arising from 

problems in the transaction transmission process.

2. Compression Service Provider
48

(1) According to Article 8.3.2 of the Enforcement Rules, the 

clearing member participating in compression shall follow the 

procedure specified by the compression service provider and 

apply through compression service provider by the deadline 

announced by TAIFEX. Clearing member and client 

participating in compression shall enter into agreements with 

the compression service providers as appropriate, and must 

agree that TAIFEX may provide position details on the clearing 

accounts participating in compression to the compression 

service providers.

(2) According to Article 8.3.4 of the Enforcement Rules, TAIFEX 

is not responsible for the compression performance or 

efficiency or any other service provided by the compression 

service providers.

Liquidity risks arising from TAIFEX Clearing and other securities 

related institutions

TAIFEX Clearing, Taiwan Stock Exchange Corporation (TWSE), 

Taipei Exchange (TPEX) and any institution that provides centralized 

trading of securities or futures are prone to liquidity risks in the event 

of a major settlement default, local or foreign crisis, or malfunctions in 

the trading system. This is especially true if the occurrence is capable 

of causing high volatility and provoking a chain reaction that would 

compromise the discipline and security of the market.

TAIFEX Clearing may engage local or foreign institutions in 

information exchange, technological cooperation, joint investigation 

and other collaborative arrangements for the purpose of cross-market 

surveillance. TAIFEX Clearing has signed an Articles for Cross-market 

Information Exchange and Crisis Management with TWSE, TPEX and 

Taiwan Depository and Clearing Corporation (TDCC), in which the 

four parties have agreed to the following: 

1. Active reporting:

Any party that discovers any of the following occurrences capable 

of compromising the safety of TWSE, TPEX and the futures market 

shall immediately inform all other parties to the Articles. 

Occurrences subject to common reporting:
49

(1). Major political or economic events, local or foreign.

(2). Major settlement default.

(3). Malfunction or disruption of trading system.

(4). Abnormal trading activities of material consequences.

2. Request for confidential information:

Parties to the Articles may request from each other information that 

they have or control, and is immediately available, for the purposes 

and to the extent permitted under the Articles.

3. Crisis management and monitoring of abnormal transactions across 

different markets:

A cross-market crisis management team has been assembled to resolve 

major cross-market incidents involving securities firms or futures 

commission merchants. A cross-market monitoring team has been 

assembled to facilitate contact and coordination in the event of a major 

trading incident.

Key consideration 4: An FMI should identify scenarios that may 

potentially prevent it from being able to provide its critical operations 

and services as a going concern and assess the effectiveness of a full 

range of options for recovery or orderly wind-down. An FMI should 

prepare appropriate plans for its recovery or orderly wind-down based 

on the results of that assessment. Where applicable, an FMI should also 

provide relevant authorities with the information needed for purposes 

of resolution planning.

Scenarios that the FMI may be unable to provide critical operations 

and services

TAIFEX Clearing has implemented preventive measures and response 

procedures to react to any possible emergencies capable of disrupting 

the market or TAIFEX Clearing's operations. These protocols help 

minimize damages should a disaster occur, and therefore ensure the 

safety of the trading and clearing process.

An emergency situation includes:

1. Market-wide incidents: 
50

Natural disasters, accidents, settlement defaults, merchants' or 

clearing members' defaults, trade or clearing system malfunctions, 

intranet virus infections, and communication disruptions that affect 

the entire futures market and TAIFEX as a whole.

2. Emergencies and incidents that are specific to a department.

Once a crisis management action is activated, all departments are 

bound to provide relevant information and report to the Competent 

Authority in manners that comply with TAIFEX's Emergency 

Response Committee Foundation and Operating Guidelines.

Recovery and resolution plan

1. TAIFEX Clearing's response procedures for major disasters and 

system malfunctions

(1). Basis of operations: TAIFEX Clearing has implemented a 

Business Continuity Plan (BCP) based on the existing 

"Information Security Management Directions for the 

Executive Yuan and its Subordinate Agencies" , "ISO27001" 

and "ISO22301" to guide its Business Continuity Management 

(BCM). The BCP serves to prevent disruption of key business 

activities, and incorporates a comprehensive set of response and 

recovery procedures to minimize disruption and damages in the 

event of natural disaster, accident, malfunction or malicious 

conduct. In addition to ISO 27001, TAIFEX is also ISO 22301 

(Business Continuity Management System, BCMS) certified, 

which it specifies the requirements for a management system to 

protect against, and reduce the likelihood of and ensure business 

recovers from disruptive incidents.

(2). Response guidelines for emergency and abnormal situations:

A. Pre-incident

Step 1: Establish a reporting network

Step 2: Prepare emergency response manuals

Step 3: Segregate areas of responsibility and assemble task 

forces

Step 4: Rehearse on a regular and ad-hoc basis
51

B. During an incident

Step 1: Execute emergency response procedures and file 

reports

Step 2: Notify the crisis handling meeting convener to hold 

meetings and make decisions

Step 3: Issue press releases through the spokesperson and 

report to the Competent Authority

C. Post-incident

Step 1: Conduct reviews after the state of emergency has been 

dismissed

Step 2: File an "Emergency Response Report"

Step 3: Circulate the "Emergency Response Report" to the 

Chairperson and retain for future reference

(3). The BCP is subject to practice drill and testing on a yearly basis 

to ensure that it continues to be effective, and that all personnel 

involved are familiar with their roles and procedures.

2. Responses to interruptions or malfunctions of the OTC clearing 

system

(1) Basis of operations: Handled in accordance with the 

emergency measures listed in chapter 15 of the Enforcement 

Rules.

(2) Response to interruptions or malfunctions of the OTC 

clearing system are as follows:

In the event of an interruption or malfunctioning to the clearing 

system that affects TAIFEX's normal clearing operation, TAIFEX 

may change the times in the clearing process and notify the 

clearing members. Under such circumstances, if TAIFEX remains 

unable to resolve the malfunctioning or interruption before the 

scheduled clearing date, the clearing process will be postponed, 

and the clearing members will be notified.

(3) Responses to missing data of the OTC clearing system are as 

follows:

After TAIFEX eliminates causes of system malfunction or 
52

disruption, if the data in the computer memory of the TAIFEX 

is fully intact, transactions submitted for clearing shall remain 

valid in the current business hour. If data in the computer 

memory of the TAIFEX is lost in part or in whole, transaction 

that the submission is incomplete for clearing shall be void and 

shall notify clearing members to resubmit transaction for 

clearing.

3. Operating procedures in the event of major default by a clearing 

member that may cause TAIFEX Clearing to default.

(1). Exchange-traded derivatives market

A. Basis of operations: Proceed according to the procedures 

described in Chapter 12 、 13 and 15 of TAIFEX Clearing's 

Operating Rules.

B. Actions in the event of major default by a clearing member:

a. Assemble a Default Action Team.

b. Suspend the defaulting clearing member's clearing and 

settlement operations.

c. Dispose of the defaulting clearing member's positions and 

margin funds.

d. Utilize the default fund.

e. Conduct a full assessment on the defaulting member's asset 

status.

f. Initiate audit of the defaulting member.

g. Pursue protective measures with respect to TAIFEX 

Clearing's statutory rights.

TAIFEX has stipulated the recovery plan in Chapter 

12 、 13 and 15 of TAIFEX Clearing's Operating Rules. 

During the cooling off period, if the ETD prefunded 

financial safeguard resources are still insufficient to cover 

losses due to defaults, cap amounts of non-defaulting 

clearing members and the funds of TAIFEX may be used 

to cover the shortfall. At the end of the cooling off period, 

clearing members and TAIFEX should replenish 

prefunded financial resources. When TAIFEX defaults or 
53

is insolvent, the TAIFEX shall liquidate all open positions 

of clearing members through netting (close-out netting).

(2). OTC derivatives market

A. Basis of operations: Proceed according to the procedures 

described in Chapter 9 of the OTC Rules.

B. Operating procedures: TAIFEX Clearing will resort to the 

following measures in the event that a clearing member 

defaults or is rendered unable to fulfill its settlement 

obligations to TAIFEX Clearing:

a. Establish default management group (DMG)

b. Suspend clearing and settlement services to the defaulting 

member.

c. Position transfer for the defaulting clearing member.

d. Hedging of defaulting clearing members' positions.

e. Auction for the defaulting clearing member's positions.

f. Utilize the default fund.

g. Conduct a full assessment on the defaulting member's asset 

status.

h. Initiate audit of the defaulting clearing member.

i. Pursue protective measures with respect to TAIFEX 

Clearing's statutory rights.

TAIFEX has stipulated default handling measures in Chapter 11 of the 

Enforcement Rules, which includes measures for handling default by 

clearing members, protection of non-defaulting clients of defaulting 

clearing member, risk avoidance transactions, auctions, division of 

default losses, and net amount settlement.
54

Principle 4:Credit risk

An FMI should effectively measure, monitor, and manage its credit 

exposure to participants and those arising from its payment, clearing, 

and settlement processes. An FMI should maintain sufficient financial 

resources to cover its credit exposure to each participant fully with a 

high degree of confidence. In addition, a CCP that is involved in 

activities with a more-complex risk profile or that is systemically 

important in multiple jurisdictions should maintain additional financial 

resources sufficient to cover a wide range of potential stress scenarios 

that should include, but not be limited to, the default of the two largest 

participants and their affiliates that would potentially cause the largest 

aggregate credit exposures to the CCP in extreme but plausible market 

conditions. All other CCPs should maintain, at a minimum, total 

financial resources sufficient to cover the default of the one participant 

and its affiliates that would potentially cause the largest aggregate 

credit exposures to the CCP in extreme but plausible market 

conditions.

Summary Narrative

Key Consideration 1: An FMI should establish a robust framework to 

manage its credit exposures to its participants and the credit risks 

arising from its payment, clearing, and settlement processes. Credit 

exposure may arise from current exposures, potential future exposures, 

or both.

Exchange-traded derivatives market

Financial safeguard resources and source of funding

According to Article 49 of the Act and the Rules, TAIFEX has 

established financial safeguard resources in the Exchange-traded 

derivatives market. TAIFEX's financial stability is founded on a robust 

clearing membership system, where clearing members are required to 

join with TAIFEX in bearing settlement obligations. In order to bear 

this burden, strong financial support is essential, and TAIFEX draws its 

support from clearing margins, the clearing and settlement fund 

contributed by clearing members, its own reserves, and the common 

bond from non-defaulting clearing members which is subject to the cap 
55

amount. In case the cap amount is insufficient, TAIFEX shall fulfill the 

remaining clearing and settlement obligation. Below are descriptions 

of each of the measures taken to address credit risks. 

1. Pre-margin: Futures contracts are traded in margins, and since 

settlement defaults are possible by both the buyer and the seller, both 

sides are required to deposit cash margins. To minimize traders' 

default risks, TAIFEX requires cash margins to be deposited in 

advance of any futures transactions.

2. Clearing margin: Clearing members are required to deposit clearing 

margins depending on the number of positions they hold in their own 

accounts or on behalf of customers. 

(1) Intra-day margin calls: According to the "Operational Key Points 

of Clearing and Settlement for Futures Commission Merchants 

and Clearing Members," TAIFEX will issue margin calls during 

trading hours to clearing members in the event that the margin 

balance of a clearing member does not meet the minimum margin 

requirement. 

(2) The post-trading margin calls: According to the "Operational 

Key Points of Clearing and Settlement for Futures Commission 

Merchants and Clearing Members," clearing members whose 

margin balances (for proprietary and customers' positions) fall 

below the minimum margin requirement after trading hours are 

required to increase the margins to the required level before the 

given due time.

3. Clearing and settlement fund: Clearing members are required to 

make the following contributions to the clearing and settlement fund.

(1) The base clearing and settlement fund

Individual 

Clearing 

Member 

General 

Clearing 

Member 

Special 

Clearing 

Member 

Initial 

contribution 

20% of paidup capital or 

capital fund, 

subject to a 

NTD 40 

million 

NTD 40 

million 
56

maximum of 

NTD 40 

million 

After 

operations for 

one full year

upper limit 

reduced to 

NTD20 

million

NTD30 million

For every 

consigned 

futures 

commission 

merchant

Not 

applicable 

NTD 3 million 

For every 

new branch 

office of its 

contracted 

futures 

commission 

merchant 

Not 

applicable 

NTD 1 million 

For every 

consigned IB 

or every new 

branch office 

of the IBs 

NTD 1 million Not applicable

(2) Contributions to be paid to the clearing and settlement fund: In 

order to ensure that the clearing and settlement fund amount is 

sufficient to cover the default risk of outstanding positions in the 

futures market, TAIFEX estimates the potential loss from defaults 

of clearing members using stress tests, and periodically calculates 

the clearing and settlement fund required for the top one values for 

the estimated loss of clearing members. All clearing members are 

required to contribute to the clearing and settlement fund based on 

the amount computed by TAIFEX subsequent to engaging in 

clearing and settlement operations and it shall be shared based on 
57

the ratio of the average daily required clearing margin of each 

clearing members to the average daily required clearing margin of 

all the clearing members in the last three months.

4. Compensation Reserve Fund: TAIFEX has been contributing 20% 

of its settlement income on a quarterly basis since operations 

began. However, TAIFEX is not required to make further 

provisions once the reserves accumulate to an amount equal to 

TAIFEX's paid-up capital or 1.5 times the capital funds.

5. Common Bond: If a default remains unsatisfied after the above 

funds are applied, TAIFEX will invoke the common bond rule, in 

which the residual balance of the unsatisfied default will be 

proportionally allocated among the non-defaulting clearing 

members by respective required contributions to clearing and 

settlement fund out of all clearing members and is subject to the 

cap amount. In case the cap amount is insufficient, TAIFEX shall 

fulfill the remaining clearing and settlement obligation.

Credit risk management system

TAIFEX has implemented a credit risk management system to address 

credit risks that arise in relation to payment, clearing and settlement. 

Below is a description of the framework:

1. Criteria for Clearing Membership: TAIFEX applies more stringent 

standards on clearing members than it does on futures commission 

merchants, and the standards vary depending on which business 

items the members apply to perform.

(1) Individual Clearing Members: This membership status is for 

futures commission merchants who wish to clear and settle their 

proprietary trades and transactions brokered through their 

brokerage businesses. It requires a minimum paid-up capital of 

NTD 200 million of the futures commission merchant. 

Institutions that concurrently operate as futures commission 

merchants are required to provide dedicated capital funds of at 

least NTD 80 million for the business. The following financial 

covenants apply for this membership status: 

A. Shareholders' equity ÷ paid-up capital ≧ 80%; 
58

B. For futures commission merchants with paid-up capital or 

capital funds equal to or above NTD 200 million: adjusted 

net capital ÷ margins on open positions ≧ 20%. For 

concurrent futures commission merchants with capital funds 

of at least NTD 100 million but less than NTD 200 million: 

adjusted net capital ÷ margins on open positions ≧ 25%.For 

concurrent futures commission merchants with capital funds 

less than NTD 100 million: adjusted net capital ÷ margins on 

open positions ≧ 30%, and must have obtained irrevocable 

credit limits for futures settlement for at least NTD 60 million 

from the settlement bank. 

C. Current assets ÷ current liabilities ≧ 100%. TAIFEX may 

require additional clearing margins if 120%> current assets 

÷ current liabilities ≧100%. 

D. (Total liabilities - traders' equity) ÷ shareholders' equity ≦

80%. 

(2) General Clearing Members: This membership status allows a 

futures commission merchant to clear and settle its proprietary 

trades, transactions brokered through its brokerage business, and 

transactions of other futures commission merchants. A minimum 

paid-up capital or capital funds of NTD 400 million is required 

for this membership status. The following financial covenants 

apply for this membership status: 

A. Shareholders' equity ÷ paid-up capital ≧ 80%; 

B. adjusted net capital ÷ margins on open positions ≧ 20%. 

C. Current assets ÷ current liabilities ≧ 100%. 

D. (Total liabilities - traders' equity) ≦ shareholders' equity. 

(3) Special Clearing Members: This membership status applies to 

financial institutions that have been specially permitted by the 

competent authority to perform futures settlement. These 

members may only clear and settle transactions for other futures 

commission merchants. Minimum capital funds of NTD 400 

million need to be dedicated for the service. The following 

financial covenants apply for this membership status: 
59

A. Shareholders' equity ÷ paid-up capital ≧ 100%;

B. adjusted net capital ÷ margins on open positions ≧ 20%. 

C. Current assets ÷ current liabilities ≧ 100%. 

D. (Total liabilities - traders' equity) ≦ shareholders' equity. 

2. Margin system 

(1) Pre-margin: Futures contracts are traded in margins, and since 

settlement defaults are possible by both the buyer and the seller, 

both sides are required to deposit margins. To minimize traders' 

default risks, TAIFEX requires margins to be deposited in 

advance of any futures transactions. 

(2) Clearing margins: TAIFEX collects clearing margins from 

clearing members based on the gross margining method. 

According to this method, the positions under each clearing 

member’s account will be margined on a gross basis. 

(3) Margin requirement: TAIFEX calculates clearing margin levels 

according to Taiwan Futures Exchange Corporation Methods 

and Standards for Receipt of Clearing Margins on a daily basis, 

then compares whether current margin levels are sufficient to 

cover prevailing market risks. 

(4) Margin adjustments: TAIFEX may adjust margin requirements 

if the level of required margin, calculated after the close of 

trading each day, differs from the amount of margins collected 

by more than a certain percentage. Once margin adjustment is 

announced, the new margin level will take effect from the 

effective date (one business day after the date of announcement, 

after trading hours). 

3. Marking to market 

1. Intraday real-time calculation of gains and losses: To ensure 

transaction security within the market, TAIFEX adopts the 

practice of trial-calculating gains and losses on an intraday basis 

utilizing market prices. Clearing members who have actual 

margin balances falling below the required balance will receive 

margin call immediately from TAIFEX during trading hours. 

2. Daily settlement price: TAIFEX determines the daily settlement 
60

price for each contract so that futures commission merchants and 

clearing members may calculate gains and losses on traders' open 

interest. 

3. The post-trading margin calls: According to the "Operational 

Key Points of Clearing and Settlement for Futures Commission 

Merchants and Clearing Members," clearing members whose 

margin balances (for proprietary and customers' positions) fall 

below the minimum margin requirement after trading hours are 

required to increase the margins to the required level before the 

given due time. 

4. Exposure monitoring 

(1) Adjusted net capital (ANC): The position management criteria 

are commonly used by foreign futures exchanges and clearing 

houses. Calculation of ANC has been defined by the competent 

authority.

(2) Clearing margin: The amount of new positions that a clearing 

member may undertake is capped by the excess amount of 

clearing margins placed with TAIFEX.

(3) Concentration risk: If the ratio of the risk exposure for the open 

positions or the sum of open positions for each options series to 

total market positions of each clearing member reaches a certain 

level, TAIFEX Clearing may require additional clearing margins.

(4) Losses on open interest: Losses on clearing member’s net open 

interest are capped at a certain percentage of its adjusted net 

capital. 

5. Safeguard system: comprising clearing margins, clearing members' 

contributions to the clearing and settlement fund, TAIFEX’s 

compensation reserve fund, and the common bond from nondefaulting clearing members which is subject to the cap amount. In 

case the cap amount is insufficient, TAIFEX shall fulfill the 

remaining clearing and settlement obligation. These, in aggregate, 

provide strong support to maintaining market discipline and 

guaranteeing settlement in the event of default.

OTC derivatives market

OTC financial safeguard resources and source of funding
61

According to Article 49 of the Act, the OTC Rules, and the 

Enforcement Rules, TAIFEX has established OTC financial safeguard 

resources in the OTC derivatives market. The sources of the OTC 

financial safeguard resources fund include clearing margins, the OTC 

compensation reserve fund contributed by TAIFEX, the OTC 

derivatives default fund contributed by clearing members, and the pro 

rata ratio of additional contribution on clearing members specified by 

TAIFEX. If the OTC financial safeguard resources are still insufficient 

to cover losses due to clearing member defaults, the net payable 

amounts of non-defaulting clearing members, voluntary deposits of 

clearing members, the final collateral of TAIFEX may be used. The 

details are as follows:

1. Pre-margin: TAIFXE uses the pre-margin system for margin 

collection to reduce the risk of trader defaults. Before a clearing 

member submits a proprietary transaction or client transaction to 

TAIFEX for clearing, TAIFEX may require that the clearing 

member pay a pre-margin so that the excess margins for the 

clearing accounts are sufficient to pay required clearing margin on 

newly added cleared transactions.

2. Clearing margin: Refers to the margin deposited by a clearing 

member at TAIFEX to fulfill their settlement obligations.

Credit exposures covered by the TAIFEX clearing margin include:

(1) Current risk exposures: TAIFEX calculates the variation 

margin/mark-to-market differences. The net present value of 

transactions are recalculated according to the latest market price 

and daily mark to market, in order to cover the daily changes to 

income.

(2) Future risk exposures: The interest rate and exchange rate 

fluctuations used to calculate the clearing contract valuation in 

the last 5 years by TAIFEX are used to estimate initial margins 

that are calculated as the expected loss at a 99.5% confidence 

interval and the expected losses during the stress period chosen 

by TAIFEX that at least covers net present value changes over 5 

business days for proprietary clearing accounts and 7 business 

days for client clearing accounts of the clearing member. 

TAIFEX may calculate and charge an additional liquidity risk 
62

margin based on PV01, which is the change in net present value 

as a result of a 0.01% change in interest rates, in excess of the 

threshold that TAIFEX sets for the corresponding period.

Furthermore, to avoid setting the margin amount too low due to 

fluctuations in the underlying asset price, leading to the inability 

to cover the risks related to sudden increases in fluctuation of the 

underlying asset price, anti-procyclicality margin considerations 

are included. Apart from adjusting the fluctuation factors 

through the EWMA, the lower limit for underlying asset price 

fluctuations has been stipulated to cover the margin required for 

risk fluctuation calculations.

TAIFEX conducts intraday, end of day, and ad hoc calculations of 

required clearing margin, and issues margin deposit notifications to 

clearing members.

(1) Intraday margin deposit notification: At 12 PM every business 

day, or when major market changes occur, TAIFEX uses the 

intraday valuation to calculate the results. If the clearing margin 

balance of a clearing account is lower than the required clearing 

margin, TAIFEX will issue a margin deposit notification for the 

shortfall to the clearing member.

(2) End-of-day margin deposit notification: During daily clearing, 

TAIFEX will handle the end of day margin collection and 

payment notification in the next business day according to the 

end of day valuation results.

A. The payment/deposit is to be made without notice based on 

the clearing margin cash balance, variation margin and 

mark-to-market differences of the account. Where there is a 

shortfall, TAIFEX will notify the clearing member to make 

a deposit.

B. Where the clearing margin balance on a clearing account is 

lower than the required clearing margin, TAIFEX will 

notify the clearing member to make a deposit according to 

the amount of the shortfall.

(3) Ad hoc margin deposit notification: Where the clearing margin 

balance on a clearing account is lower than the required clearing 
63

margin after the ad hoc valuation calculation based on market 

conditions, TAIFEX will issue a margin deposit notification for 

the shortfall to the clearing member.

3. OTC derivatives default fund: Clearing members must contribute to 

the OTC derivatives default fund as shown in the table below.

(1) The base OTC derivatives default fund

Individual 

Clearing 

Member

General Clearing 

Member

Pre-start up 

deposit

NTD20 million. NTD30 million.

(2) Contributions to be paid to the OTC derivatives default fund: 

In order to ensure that the OTC derivatives default fund amount 

is sufficient to cover the default risk of OTC market positions, 

TAIFEX estimates the potential loss from defaults of clearing 

members using stress tests, and periodically calculates the 

clearing and settlement fund required for the top 2 total values 

for the estimated loss of clearing members. All clearing 

members are required to contribute to the OTC derivatives 

default fund based on the amount computed by TAIFEX 

subsequent to engaging in clearing operations of OTC 

derivatives.

4. OTC compensation reserve fund: TAIFEX made an one-time 

provision of NTD500 million after startup and has contributed 20% 

of its settlement income on a quarterly basis. However, TAIFEX is 

not required to make further provisions once the reserves accumulate 

to an amount equal to TAIFEX's paid-up capital or 1.5 times the 

capital funds.

5. Sharing of losses among non-defaulting clearing members according 

to the specified ratio: The pro rata ratio and pro rata amount cap of 

contributions by non-defaulting clearing members stipulated by 

TAIFEX when the three aforementioned amounts are insufficient to 

cover default losses.

6. Recovery and Resolution Plan (RRP): If the OTC financial 

safeguard resources are still insufficient to cover losses due to 
64

defaults, the net payable amounts of non-defaulting clearing 

members, voluntary deposits of clearing members, and the funds of 

TAIFEX may be used to cover the shortfall.

Credit risk management system

TAIFEX has implemented a credit risk management system to address 

credit risks that arise in relation to OTC derivatives market payment, 

clearing and settlement. Below is a description of the framework:

1. Criteria for Clearing Membership: TAIFEX clearing members are 

limited to financial institutions, and the standards vary depending on 

which business items the members apply to perform.

(1) Individual Clearing Member: Refers to the handler of clearing 

operations for proprietary OTC derivatives. The financial 

standard is a minimum paid-in capital of NTD2 billion. The 

financial structure requirements are as follows:

Item Types of financial 

institutions

Financial 

structure 

requirements

capital 

adequacy 

ratio

Bank ≧10.5%

Insurance enterprise ≧200%

Securities firm ≧200%

Bills finance 

company

≧8%

A subsidiary under 

the Financial 

Holding Company 

Act, its financial 

holding company or 

a foreign financial 

holding company

≧100%

Adjusted net 

capital

Futures commission 

merchant that 

currently operates as 

a leverage 

The adjusted 

net capital shall 

not be less than 

30% of the total 
65

transaction 

merchant

amount of 

customer 

margins 

required for the 

open positions 

of futures 

traders.

Net worth 

ratio

Insurance enterprise ≧3%

(2) General Clearing Member: Refers to the handler of clearing 

operations for proprietary and client OTC derivatives. The 

financial standard requires a minimum paid-in capital of NTD8 

billion. The financial structure requirements are as follows:

Item Types of financial 

institutions

Financial 

structure 

requirements

capital 

adequacy 

ratio

Bank ≧10.5%

Securities firm ≧200%

Adjusted net 

capital

Futures 

commission 

merchant that 

currently operates 

as a leverage 

transaction 

merchant

The adjusted net 

capital shall not 

be less than 30% 

of the total 

amount of 

customer 

margins 

required for the 

open positions 

of futures 

traders.

2. Margin system

(1) Pre-margin: TAIFXE uses the pre-margin system for margin 

collection to reduce the risk of trader defaults. Before a clearing 

member submits a proprietary transaction or client transaction to 
66

TAIFEX for clearing, TAIFEX may require that the clearing 

member pay a pre-margin so that the excess margins for the 

clearing accounts are sufficient to pay required clearing margin 

on newly added cleared transactions.

(2) Margin requirement: TAIFEX calculates clearing margin levels 

according to the OTC Rules on a daily basis, then compares 

whether current margin levels are sufficient to cover prevailing 

market risks.

3. Marking to market

(1) Intraday margin deposit notification: At 12 PM every business 

day, or when major market changes occur, TAIFEX uses the 

intraday valuation to calculate the results. If the clearing margin 

balance of a clearing account is lower than the required clearing 

margin, TAIFEX will issue a margin deposit notification for the 

shortfall to the clearing member.

(2) End-of-day margin deposit notification: During daily clearing, 

TAIFEX will handle the end of day margin collection and 

payment notification in the next business day according to the 

end of day valuation results.

A. The payment/deposit is to be made without notice based on 

the clearing margin cash balance, variation margin and 

mark-to-market differences of the account. Where there is a 

shortfall, TAIFEX will notify the clearing member to make 

a deposit.

B. Where the clearing margin balance on a clearing account is 

lower than the required clearing margin, TAIFEX will 

notify the clearing member to make a deposit according to 

the amount of the shortfall.

(3) Ad hoc margin deposit notification: Where the clearing margin 

balance on a clearing account is lower than the required clearing 

margin after the ad hoc valuation based on market conditions, 

TAIFEX will issue a margin deposit notification for the shortfall 

to the clearing member.

4. Exposure monitoring

(1) Clearing margin limit: The number of newly increased contracts 
67

of each clearing member shall be limited by its excess margin 

deposits.

(2) Concentration Risk: Clearing member position concentration is 

based on the ratio of the sum of required margin requirement for 

all clearing accounts of a clearing member to the total required 

margin requirement for all clearing accounts of all clearing 

members. For those who meet the specific standard, TAIFEX 

may adopt the following measures:

A. Warning standard: If the position concentration of a clearing 

member reaches 15%, and the required margin requirement 

meets TAIFEX's standard, TAIFEX shall notify the clearing 

member to be aware of their position concentration.

B. Disposition standard: For clearing members whose position 

concentration reaches 20% and required clearing margin 

reaches a certain level, apart from notifying the clearing 

members of the position concentration, TAIFEX will collect 

additional margin or adopt other necessary measures to 

maintain market integrity or the soundness of the market.

5. OTC financial safeguard resources and recovery and handling 

measures: The sources of the fund include clearing margins, the 

OTC compensation reserve fund contributed by TAIFEX, the OTC 

derivatives default fund contributed by clearing members, and the 

pro rata ratio of additional contribution on clearing members. If the 

OTC financial safeguard resources are still insufficient to cover 

losses due to defaults, funds may be acquired from the net payable 

amounts of non-defaulting clearing members, voluntary deposits of 

clearing members, and the final collateral of TAIFEX, in order to 

maintain the settlement operations and market safeguard in the 

event of defaults.

Key Consideration 2: An FMI should identify sources of credit risk, 

routinely measure and monitor credit exposures, and use appropriate 

risk-management tools to control these risks.

Source and types of credit risk

Credit risk includes risk of clearing member's default and default of
68

banks in which the default fund or clearing margins are held in 

custody.

Clearing members' credit risk may include:

1. The possibility that futures merchants or customers may default on 

settlement obligations, thereby causing the clearing member to be 

unable to fulfill its settlement obligations to TAIFEX, to the extent 

that it may impair the entire futures market or OTC market. 

2. The possibility that clearing members may default on their 

settlement obligations to TAIFEX, to the extent that it may impair 

the entire futures market or OTC market.

Management of credit risks arose from clearing member

TAIFEX calculates the clearing margin levels of exchange-traded 

derivatives and OTC derivatives transactions according to Taiwan 

Futures Exchange Corporation Methods and Standards for Receipt of 

Clearing Margins and the OTC Rules on a daily basis, then compares 

whether current margin levels are sufficient to cover prevailing market 

risks. Descriptions of the risk management tools used by TAIFEX are 

as follows:

1. Exchange-traded derivatives market

(1) Daily monitoring and clarification of credit risks 

A. Pre-margin: TAIFEX uses the pre-margin system for 

margin collection to reduce the risk of trader default. The 

buyer and seller must deposit the margin to conduct 

trading.

B. Intraday calculation of gains and losses: To ensure 

transaction security within the market, TAIFEX Clearing 

adopts the practice of trial-calculating gains and losses on 

an intraday basis utilizing market prices. Clearing 

members who have actual margin balances falling below 

the required balance will receive margin call from 

TAIFEX Clearing during intraday hours.

C. End of Day margin calls: Clearing member's margin 

balances fall below the minimum margin requirement after 

settlement cycle is required to increase the margins to the 
69

required level before the given due time.

D. Controls over clearing members' open positions, including:

(i) Clearing margin limit: The number of newly increased 

contracts of each clearing member shall be limited by 

its excess margin deposits.

(ii) Concentration Risk: If the ratio of the risk exposure 

for the open positions or the sum of open positions for 

each options series to total market positions of each 

clearing member reaches a certain level, TAIFEX 

Clearing may require additional clearing margins.

(iii) Losses on open positions: The percentage of the loss 

on the net open positions of each clearing member to 

its adjusted net capital shall not exceed the prescribed 

level.

(2) Regularly review the clearing member's financial status on a 

daily and monthly basis

A. Review the adjusted net capital and liquidity ratio of 

clearing members on a daily basis.

B. Review the futures commission merchant monthly 

transaction reports, monthly accounting reports, income 

and expenditure statement, and monthly financial ratio 

statement on a monthly basis.

2. TAIFEX Clearing may take the following measures when a 

clearing member exhibits abnormal financial, business or credit 

status in exchange-traded derivatives market:

(1) Adjust the amount of clearing margins

(2) Issue multiple intraday margin calls

(3) Order liquidation of futures contracts in whole or in part

(4) Suspend its handling of clearing and settlement business 

other than for disposal of existing transactions.

(5) Any other measures necessary to maintain market order or 

to protect futures trading.

By monitoring daily market activities, margin maintenance, and 
70

clearing members' ANC ratio, open interest, and risk exposure etc., 

TAIFEX produces "After-market Clearing Member Risk Analysis" 

reports and raises them for discussion in "Inter-department 

Meetings" as a means of managing risks and taking appropriate 

measures.

3. OTC derivatives market

(1) Daily monitoring and clarification of credit risks

A. Pre-margin: TAIFEX uses the pre-margin system for 

margin collection to reduce the risk of trader default. Both 

parties must deposit the margin to submit transactions for 

clearing.

B. Intraday calculation of gains and losses: At 12 PM every 

business day, TAIFEX uses the intraday valuation to 

calculate the results. If the clearing margin balance on a 

clearing account is lower than the required clearing 

margin, TAIFEX will issue a margin deposit notification 

for the shortfall to the clearing member. When major 

market price changes occur, TAIFEX will issue a margin 

deposit notification for the shortfall to the clearing member 

according to the ad hoc valuation of the market, where the 

clearing margin balance on a clearing account is lower than 

the required clearing margin after the calculation above.

C. End of Day margin calls: During daily clearing, TAIFEX 

will handle the end of day margin collection and payment 

notification in the next business day according to the end

of day valuation results.

(i) The payment/deposit is to be made without notice 

based on the clearing margin cash balance, variation 

margin and mark-to-market differences of the account. 

Where there is a shortfall, TAIFEX will notify the 

clearing member to make a deposit.

(ii) Where the clearing margin balance on a clearing 

account is lower than the required clearing margin, 

TAIFEX will notify the clearing member to make a 

deposit according to the amount of the shortfall.
71

D. Controls over clearing members' open positions, including:

(i) Clearing margin limit: The number of newly increased 

contracts of each clearing member shall be limited by 

its excess margin deposits.

(ii) Concentration Risk: For clearing members whose 

ratio of the sum of required margin requirement for all 

clearing accounts of a clearing member to the total 

required margin requirement for all clearing accounts 

of all clearing members, apart from notifying the 

clearing members of the position concentration, 

TAIFEX will collect additional margin or adopt other

necessary measures to maintain market integrity or the 

soundness of the market.

(2) Regularly review the clearing member's financial status on a 

monthly and semi-annual basis according to Article 13.1.1 of 

the Enforcement Rules as follows:

A. Financial report: Review monthly reports of clearing 

members on a monthly basis.

B. Capital adequacy: Review the financial structure related to 

the declared businesses of clearing members on a semiannual basis.

(3) Monitor the potential credit risks of major events in real time: 

According to Article 13.1.1 of the Enforcement Rules, the 

clearing member shall report major business changes, 

including the inability to maintain the clearing membership, 

capital reductions exceeding a certain level, suspension or 

termination of operations, concerns regarding the occurrence 

of defaults, and other major incidents that affect the financial 

structure.

4. According to Article 33, 45, 66 and 67 of the OTC Rules, the 

TAIFEX may collect an additional margin from clearing members 

based on the market situation or the clearing member's position or 

credit status and other situations deemed necessary by the TAIFEX; 

the calculation and collection method shall be separately prescribed 

by the TAIFEX. If the positions of clearing members reach the 
72

position concentration standard, TAIFEX may adopt the following 

measures:

(1) Notify the clearing member to pay attention to its positions.

(2) Impose additional margin.

(3) Other necessary measures to maintain market integrity or the 

soundness of the market.

In summary, the measures related to margin management during 

trading hours, after-hours, or calculated dynamically, position 

management, daily settlement, and market pressure testing and 

analysis, established by TAIFEX, strengthens risk monitoring and 

alarms through pre-margin collection, daily marking to market, and 

margin calls.

Selection of settlement banks

A default by the bank in which the settlement fund and clearing 

margin of TAIFEX are deposited in custody may render TAIFEX 

unable to withdraw the settlement fund or clearing margin for their 

intended purposes. For this reason, TAIFEX selects custodian banks 

for its settlement fund and clearing margin based on the criteria 

specified in Letter No. Financial-Supervisory-Securities-Futures1060047163 issued by the competent authority on December 8, 2017, 

and Letter No. Taiwan-Futures-Clearing-10603011770 issued by 

TAIFEX on December 29, 2017. Detailed criteria are listed below:

Selection standard of settlement banks

1. Financial qualifications: The selection conditions are stipulated 

according to the net value, capital adequacy ratio, liquidity, and 

profitability of the domestic financial institution.

2. Business experience: Must possess experience related to book-entry 

transfers in the securities market or collection and payment of 

futures related margins.

3. Credit status: Rated above the long- and short-term securities 

investment grade by international and domestic credit rating 

agencies.
73

4. Operational qualifications: Operations and services provided to 

clearing members and TAIFEX.

5. Price competitiveness: Provide the interest rate for the custodian 

accounts of TAIFEX, overdraft and loan interest rates, and 

securities custodian fee.

6. Crisis management abilities: Provide backups for online functions 

and response measures for network interruptions.

Periodic review of the settlement bank qualifications

1. For local banks (including Taiwanese subsidiary of a foreign bank):

(1)The common equity ratio, tier 1 capital ratio, and capital 

adequacy ratio must not be lower than the minimums mentioned in 

Article 5 of Regulations Governing the Capital Adequacy and 

Capital Category of Banks.

(2)The liquidity coverage ratio of domestic banks must comply with 

Article 3 of the Standards for Bank Liquidity Coverage Ratios.

(3)The long-term credit rating must comply with Article 5 of 

TAIFEX's funds allocation guidelines.

2. For a Taiwanese branch of a foreign bank, the head office must have 

attained the following credit rating:

(1) The short-term credit rating must comply with the criteria 

specified in Letter No. Financial-Supervisory-SecuritiesFutures-1060047163 issued by the competent authority on 

December 8, 2017

(2) The long-term credit rating must comply with Article 5 of 

TAIFEX's funds allocation guidelines.

TAIFEX deposits clearing and settlement funds and clearing margins 

in multiple banks as a means to diversify the credit risk of settlement

banks. TAIFEX currently utilizes 8 banks for transaction clearing, 

which includes 7 local banks and 1 foreign bank. There are 5 

settlement banks for the OTC derivatives market, which are all local 

banks.

Key Consideration 3: A payment system or SSS should cover its 
74

current and, where they exist, potential future exposures to each 

participant fully with a high degree of confidence using collateral and 

other equivalent financial resources (see Principle 5 on collateral). In 

the case of a DNS payment system or DNS SSS in which there is no 

settlement guarantee but where its participants face credit exposures 

arising from its payment, clearing, and settlement processes, such an 

FMI should maintain, at a minimum, sufficient resources to cover the 

exposures of the two participants and their affiliates that would create 

the largest aggregate credit exposure in the system. 

TAIFEX does not have a DNS or a DNS SSS to guarantee settlement 

[This key consideration is not applicable to CCPs]

Key Consideration 4: A CCP should cover its current and potential 

future exposures to each participant fully with a high degree of 

confidence using margin and other prefunded financial resources (see 

Principle 5 on collateral and Principle 6 on margin). In addition, a CCP 

that is involved in activities with a more-complex risk profile or that is 

systemically important in multiple jurisdictions should maintain 

additional financial resources to cover a wide range of potential stress 

scenarios that should include, but not be limited to, the default of the 

two participants and their affiliates that would potentially cause the 

largest aggregate credit exposure for the CCP in extreme but plausible 

market conditions. All other CCPs should maintain additional financial 

resources sufficient to cover a wide range of potential stress scenarios 

that should include, but not be limited to, the default of the participant 

and its affiliates that would potentially cause the largest aggregate 

credit exposure for the CCP in extreme but plausible market conditions. 

In all cases, a CCP should document its supporting rationale for, and 

should have appropriate governance arrangements relating to, the 

amount of total financial resources it maintains.

Coverage of current and future risk exposures of each participant

1. Margin system

(1). Pre-margin

TAIFEX uses the pre-margin system for margin collection to 
75

reduce the risk of trader default. The buyer and seller in the 

futures market must deposit the margin for the new position to 

conduct trading. The transaction parties of the OTC derivatives 

market shall provide margins for the new position before 

submitting for clearing.

(2). Required margin

A. Exchange-traded derivatives market

Current exposure based on mark-to-market and potential future 

exposure based on analysis of historical price movements which 

margin will be collected. For exchange-traded derivatives, the 

required margins are primarily set at covering two-day price 

volatility within a 99% level of confidence and includes antiprocyclical effects of margins. If a major market event occurs, 

TAIFEX Clearing would also flexibly raise the required margin 

to avoid margin calls and defaults. The amount of margins that 

clearing members have deposited above the required margin of 

open positions is known as excess margins. Excess margins can 

be treated as additional margin that clearing members have 

deposited to cover future price variations.

B. OTC derivatives market

a.Initial margin: For proprietary accounts and client accounts of 

clearing members, initial margins are calculated as the 

expected loss at a 99.5% confidence interval that at least 

covers net present value changes over a certain period and the 

expected loss given TAIFEX's chosen stress period. The 

aforesaid certain period refers to five business days for 

proprietary accounts of clearing members; and seven business 

days for client accounts of clearing members.

b. Liquidity risk margin: TAIFEX may require additional 

liquidity risk margin for the cleared transactions of clearing 

members' proprietary account and each client account 

respectively when the change in net present value as a result 

of a basis point change in interest rates or exchange rates, in 

excess of the threshold that TAIFEX sets for the corresponding 

maturities.
76

c.Additional margin on long weekends/holidays: TAIFEX may 

calculate additional margin for long weekends/holidays 

sufficient to cover potential fluctuation risks in cleared 

transactions during long weekends/holidays according to the 

clearing member accounts.

2. Contributions to the default fund

TAIFEX has established separate clearing and settlement funds for 

the exchange-traded derivatives market and OTC derivatives 

market.

According to Article 3 of TAIFEX's "Regulations Governing 

Clearing Member Deposits to the Clearing and Settlement Fund 

Following Clearing and Settlement Operations" and Article 10.1.1 

of the Enforcement Rules, the amount of additional clearing and 

settlement funds to be deposited by clearing members as a whole 

after the carrying out of clearing and settlement operations shall be 

the amount by which the total clearing and settlement fund 

exceeds the base clearing and settlement fund. TAIFEX Clearing 

adopts the practice of performing quarterly calculations to review 

the amount the various funds need to cover default risks associated 

with the futures market’s open positions and OTC clearing 

members in different markets. In addition, TAIFEX Clearing also 

takes the initiative in monitoring trade activities and price 

variations to measure the risks of default associated with futures 

market's open positions and OTC member positions.

3. Stress testing scenarios used for determining adequacy of financial 

resources

(1). Stress testing of required margins

Every day after market closes, for early warnings purposes, 

TAIFEX Clearing performs a stress test to estimate the amount 

of losses clearing members may endure and margin calls for the 

next business day. Based on results of stress tests, TAIFEX 

Clearing lists the accounts that may suffer major losses and 

monitor those accounts or clearing members during trading 

hours and followed up on margin calls on next business day. 

Clearing members may be contacted by phone if necessary to 
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prevent default. 

TAIFEX monitors the stress tested margin call accounts during 

trading hours. The amount of new positions that a clearing 

member may undertake is capped by the excess amount of 

clearing margins placed with TAIFEX.TAIFEX issues margin 

calls during trading hours to clearing members in the event that 

the margin balance of a clearing member does not meet the 

minimum margin requirement. The margin requirement is 

discretionary according to the amount of new positions that a 

clearing member may undertake.

Stress test scenarios are designed to simulate extreme market 

conditions given the recent changes in market price, volatility 

and position. The parameters of stress tests are adjusted 

according to market conditions.

(2). Stress testing of default fund

A. Exchange-traded derivatives market: 

In order to ensure that the clearing and settlement fund is 

sufficient to cover default risks for outstanding positions in 

the futures market, TAIFEX uses historical scenarios for 

stress testing to estimate any single clearing member that are 

likely to suffer the largest potential losses as total clearing and 

settlement fund. With the exception of during the cooling-off 

period, at the beginning of January, April, July, and October 

of each year, the TAIFEX shall calculate the amount that each 

clearing member is required to deposit to the clearing and 

settlement fund. All clearing members shall contribute to the 

clearing and settlement fund and it shall be shared based on 

the ratio of the average daily required clearing margin of each 

clearing members to the average daily required clearing 

margin of all the clearing members in the last three months.

B. OTC Derivatives Market: 

TAIFEX adopts historical scenarios and hypothetical scenarios 

for stress testing to estimate the two largest total values of 

possible losses for clearing members, which is used as the OTC 

clearing and settlement fund total. The amount of additional 
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OTC derivatives default funds to be contributed by clearing 

members as a whole shall be divided among the clearing 

members according to the ratio of the average daily required 

clearing margin of each clearing members to the average daily 

required clearing margin of all the clearing members in the last 

three months.

Additional financial resources

Apart from clearing members' clearing margins and the clearing and 

settlement fund mentioned above, TAIFEX reserves compensation 

reserve funds for Taiwan's futures market and OTC market. The 

compensation reserve funds have been established separately for the 

exchange-traded derivatives market and the OTC derivatives market. 

TAIFEX Clearing made an initial provision of NTD 500 million to the 

compensation reserve fund at startup, and has contributed 20% of its 

total clearing income on a quarterly basis thereafter. To date, TAIFEX 

Clearing's compensation reserve fund has amassed to NTD 1.5 billion 

for the futures market, which accounts for 38% of the pre-paid financial 

safeguard resources. According to Article 49 of the Act and Article 58 

of the OTC Rules, in case a clearing member fails to perform its clearing 

and settlement obligation, the defaulted clearing member's paid clearing 

margin shall be used first to cover the default.

If that is insufficient, it shall apply the defaulting member's contribution 

to the default fund, TAIFEX Clearing’s compensation reserve fund, the 

other clearing members' contributions to the default fund, and amounts 

to be borne by the other clearing members in proportions determined by 

TAIFEX Clearing.

Furthermore, NTD 8.2 billion of short-term credit facilities have been 

obtained from settlement banks to meet market emergencies, as 

required by the Competent Authority.

Overall, TAIFEX Clearing possesses adequate financial resources to 

cover all stress scenarios, including the default of clearing members at 

their highest credit exposure under extreme market conditions.

Supporting reasons and corporate governance

According to Article 55 and Article 38 of the Act, Article 26 of the 

Regulations Governing Futures Clearing Houses, Article 36 and Article 
79

37 of the Articles of Incorporation of TAIFEX, TAIFEX has established 

the Clearing Committee for the exchange-traded derivatives market. For 

the OTC derivatives market, TAIFEX has established the Clearing and 

Risk Management Committee for OTC derivatives vested with the 

authority to manage financial resources and review uses of members' 

clearing margins. The Committee may also recommend clearing margin 

adjustments to the Board depending on the market's overall risks, and 

supervise contributions, custody and uses of the default fund.

According to Article 108 of the Rules and Article 49 of the OTC Rules, 

clearing members that exhibit any of the following are required to make 

additional contributions to the default fund within the timeframe 

specified by TAIFEX Clearing. The amount of the contribution is to be 

determined by the Clearing Committee, and effected with Board' 

resolution:

1. Irrevocable execution of assets by a court;

2. Dishonor of any issued bills due to insufficient funds where there is 

no record of cancellation of the dishonored bill;

3. A substandard rating under the TAIFEX's Guidelines for Early 

Warning of Operational Risk of Futures Commission Merchants 

and clearing members, or occurrence of consecutive losses and 

owner's equity lower than 60 percent of paid-in capital; not 

applicable to OTC derivatives. 

4. A substandard rating for internal auditing where improvements 

have not been made after guidance and reassessment; not applicable 

to OTC derivatives. 

5. Likelihood of an increase in market risk under the provisions of the 

internal control system of a clearing member or its mandating 

futures commission merchant, or inability to practically implement 

provisions of its internal control system;

6. Material violations of laws or regulations or bylaws of TAIFEX 

Clearing, resulting in multiple instances of sanctions being imposed 

by the Competent Authority or TAIFEX Clearing without 

improvement;

7. When the default fund is insufficient to cope with perceived market 

risk, the TAIFEX Clearing may adjust the default fund 
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requirements for all clearing members; 

8. Other severe unforeseen incidents or upon instructions of the 

Competent Authority.

Key Consideration 5: A CCP should determine the amount and 

regularly test the sufficiency of its total financial resources available in 

the event of a default or multiple defaults in extreme but plausible 

market conditions through rigorous stress testing. A CCP should have 

clear procedures to report the results of its stress tests to appropriate 

decision makers at the CCP and to use these results to evaluate the 

adequacy of and adjust its total financial resources. Stress tests should 

be performed daily using standard and predetermined parameters and 

assumptions. On at least a monthly basis, a CCP should perform a 

comprehensive and thorough analysis of stress testing scenarios, 

models, and underlying parameters and assumptions used to ensure 

they are appropriate for determining the CCP’s required level of 

default protection in light of current and evolving market conditions. A 

CCP should perform this analysis of stress testing more frequently when 

the products cleared or markets served display high volatility, become 

less liquid, or when the size or concentration of positions held by a 

CCP’s participants increases significantly. A full validation of a CCP’s 

risk-management model should be performed at least annually.

Stress testing

Regarding the exchange-traded derivatives market and the OTC 

derivatives market, TAIFEX uses stress testing to estimate the default 

amount to use as the total clearing and settlement fund. TAIFEX has 

established separate clearing and settlement funds for the exchangetraded derivatives market and OTC derivatives market, and to ensure 

that the clearing and settlement fund is sufficient to cover potential 

defaults in the markets, TAIFEX takes the initiative in assessing 

adequacy of the clearing and settlement fund whenever it believes there 

is increased risk of defaults in the market. The sufficiency of the fund 

shall be tested periodically, as explained below:

Exchange-traded derivatives market

1. Conduct Stress Testing on daily basis
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To ensure that the clearing and settlement fund (default fund) is 

adequate to cover the default risk of open interest in the futures 

market, TAIFEX constructs a stress test to estimate the required 

amount by calculating any single ETD market clearing member that 

is likely to suffer the highest losses under a stress scenario on daily 

basis.

2.Evaluate sufficiency/adequacy of defund fund on monthly basis

TAIFEX takes the initiative to assess the required default fund on a 

monthly basis to evaluate stress-testing scenarios and the potential 

default risks, thereby making sure that potential risks are adequately 

covered by the default fund. When the clearing and settlement fund 

is insufficient to cope with market risk, the TAIFEX shall review the 

total clearing and settlement fund and report the amount to the 

competent authority for approval and recordation. TAIFEX also 

reviews the model and parameters, determines the total clearing and 

settlement fund and reports the amount to the competent authority for 

approval on an annual basis.

3.Reallocate defund fund contribution by risk exposure on quarterly 

basis

With the exception of during the cooling-off period, at the beginning 

of January, April, July, and October of each year, the TAIFEX shall 

calculate the amount that each ETD clearing member is required to 

deposit to the clearing and settlement fund. Adjustments to the 

default fund are allocated among ETD clearing members according 

to the ratio of the average daily required clearing margin of each ETD 

clearing member to the average daily required clearing margin of all 

the ETD clearing members in the last three months.

OTC Derivatives Market

1. Conduct Stress Testing on daily basis

To ensure that the default fund is sufficient to cover potential 

defaults in the OTC market, TAIFEX calculates the potential 

defaulting losses for OTC clearing members through daily stress 

tests.
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2.Evaluate sufficiency/adequacy of defund fund on monthly basis

TAIFEX takes the initiative to assess the required default fund on a 

monthly basis to evaluate stress-testing scenarios and the potential 

default risks, thereby making sure that potential risks are adequately 

covered by the default fund. When the default fund is insufficient to 

cope with market risk, the TAIFEX shall review the total default fund 

and report the amount to the competent authority for approval and 

recordation. TAIFEX also reviews the model and parameters, 

determines the total default fund and reports the amount to the 

competent authority for approval on an annual basis.

3.Reallocate defund fund contribution by risk exposure on quarterly 

basis

Except for the cooling-off period, at the beginning of January, April, 

July, and October of each year, TAIFEX shall calculate the amount 

of additional OTC derivatives default funds required to be deposited 

by each clearing member. Adjustments to the default fund are 

allocated among OTC clearing members according to the ratio of the 

average daily required clearing margin of each OTC clearing member 

to the average daily required clearing margin of all the OTC clearing 

members in the last three months.

Review and validation

For the exchange-traded derivatives market and the OTC derivatives 

market, TAIFEX adopts the practice of performing quarterly and daily 

after-market calculations to determine the amount of clearing margins 

and clearing and settlement funds needed to separately cover default 

risks associated with the open positions in the exchange-traded 

derivatives market and clearing member positions in the OTC market. 

In addition, TAIFEX takes a pro-active approach to review the 

appropriateness of its existing models and scenarios, and estimate 

default risk of open interest in exchange-traded derivatives market and 

positions in the OTC market based on trade volume, price volatility and 

other stress test parameters on a monthly basis, thereby making sure that 

the risks are adequately covered by the clearing margins and clearing 

and settlement fund. 

When the company reports the total amount of the clearing and 
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settlement fund to the competent authority every year, TAIFEX will 

fully review the stress test model and suitability of the scenarios and 

parameters concurrently, in order to maintain the risk bearing ability of 

the clearing and settlement fund.

Key Consideration 6: In conducting stress testing, a CCP should 

consider the effect of a wide range of relevant stress scenarios in terms 

of both defaulters’ positions and possible price changes in liquidation 

periods. Scenarios should include relevant peak historic price 

volatilities, shifts in other market factors such as price determinants and 

yield curves, multiple defaults over various time horizons, simultaneous 

pressures in funding and asset markets, and a spectrum of forwardlooking stress scenarios in a variety of extreme but plausible market 

conditions.

Description of stress test

Exchange-traded derivatives market

TAIFEX Clearing constructs stress test scenarios using historical 

events as adopted by futures exchanges around the world, and 

estimates stress levels based on the stress presented during the 

historical event.

Below are descriptions on the scenarios, models, parameters, and 

assumptions used in a stress test analysis:

1. Parameters on price volatility for stress tests

TAIFEX Clearing constructs stress test scenarios using historical 

events as adopted by futures exchanges around the world, and 

estimates price volatility based on the level of volatility presented 

during the historical event. When applying stress tests on clearing 

members' gains/losses, TAIFEX Clearing adopts scenarios of 

extreme but possible volatility on the price of futures and options 

as the basis for clearing members' stress tests.

2. Estimating gains/losses for each trading account

The possible gains/losses that each clearing member may be 

prone to are estimated by summing up trading accounts’ 

gains/losses on open positions, after considering the risk-
84

mitigating effects of a trading account.

3. The adequacy of the default fund is assessed based on any single 

clearing member that presents the highest losses under stress 

scenarios

(1) Central Counterparties such as Chicago Mercantile Exchange 

(“CME”) defines the total size of default fund based on total 

amount of the two clearing members that present the highest 

losses under stress scenarios.

(2) IOSCO recommends setting the amount of the default fund 

based on the greatest possible losses estimated from a number 

of stress test scenarios.

When evaluating the adequacy of TAIFEX Clearing's default 

fund, any single clearing member that presents the highest losses 

is used for determining the size of the default fund.

4. Description of the calculation procedures

(1) Estimate gains/losses on open positions given extreme but 

possible price changes.

(2) A trading account presents risks of default if the sum of losses 

for the trading account and the account's initial margin is 

negative.

(3) A clearing member's possible losses are equal to the sum of 

estimated trading account defaults.

(4) The amount for the potential default given a rise in price is 

calculated as any single clearing member that is likely to suffer 

the greatest losses.

(5) The amount for the potential default given a fall in price is 

calculated as any single clearing member that is likely to suffer 

the greatest losses.

(6) Take the higher between losses given a rise and fall in price to 

estimate the default fund.

OTC derivatives market

After referencing the methods of international organizations and 
85

clearing institutions, TAIFEX adopted the Historical Stress Scenarios 

and Hypothetical Scenarios for stress testing to analyze the response of 

the OTC market during major events, in order to ensure that TAIFEX 

financial resources are sufficient to defend against exposure in extreme 

but possible situations. The stress test models and parameters are 

periodically reviewed. Below are descriptions on the scenarios, models, 

parameters, and assumptions used in a stress test analysis:

1. Stress test parameters

(1) Historical Stress Scenarios: The interest rate and exchange 

rate fluctuations of major past events and changes to the yield 

curves are used for stress testing.

(2) Hypothetical Scenarios: The following scenarios are used 

for hypothetical scenario analysis with the CFTC Supervisory 

Stress Test of Clearinghouses as reference.

Situation 1 Situation 2 Situation 3 Situation 4

Interest 

rate price

Increase Increase Decrease Decrease

Exchange 

rate price

Increase Decrease Increase Decrease

Apart from the 4 basic scenarios above, additional 

considerations include yield curve changes and events that 

have occurred in other countries, or possible future scenarios 

should be considered to configure other theoretical scenarios.

2. Estimating gains/losses for each account

TAIFEX conducts stress testing at the end of each day. The losses 

for each clearing member is estimated according to the outstanding 

balance of proprietary accounts and client accounts based on the 

stress testing. The possible losses for each clearing member is 

estimated.

3. Assessing the adequacy of the OTC derivatives default fund

According to the suggestions of international OTC clearing 

institutions and IOSCO, the adequacy of the default fund is 

assessed based on the total of the two clearing members that present 

the highest losses under stress scenarios.
86

4. Description of the calculation procedures

(1) The losses for each clearing member is estimated according to 

the outstanding position balance of proprietary accounts and 

client accounts based on the stress testing.

(2) The expected uncollateralized loss (EUL) of each account is 

calculated with the stress testing profit/loss value and collateral 

balance of each account. When EUL is negative, the account 

possesses risks of default.

(3) TAIFEX then sums up the EUL result of all potential default 

accounts of each clearing member to estimate possible losses 

each clearing member may be prone to.

(4) The total loss for the two largest clearing members was 

estimated under stress testing.

(5) The largest value of the calculated results described above will 

be used as the total amount for the OTC derivatives settlement 

fund.

To ensure that the OTC derivatives default fund is sufficient to cover 

potential defaults, TAIFEX Clearing is required to perform timely 

assessments based on a number of factors such as the size of the market, 

the variety of instruments, asset prices, and volatility. As a conservative 

approach, TAIFEX Clearing takes the initiative in assessing adequacy 

of OTC derivatives default fund whenever it believes there is increased 

risk of defaults in the market.

Key Consideration 7: An FMI should establish explicit rules and 

procedures that address fully any credit losses it may face as a result of 

any individual or combined default among its participants with respect 

to any of their obligations to the FMI. These rules and procedures 

should address how potentially uncovered credit losses would be 

allocated, including the repayment of any funds an FMI may borrow 

from liquidity providers. These rules and procedures should also 

indicate the FMI’s process to replenish any financial resources that the 

FMI may employ during a stress event, so that the FMI can continue to 

operate in a safe and sound manner.
87

Allocation of credit loss

Exchange-traded derivatives market

In case a clearing member fails to perform its clearing and settlement 

obligation, the futures clearing house shall first apply the defaulting 

clearing member's clearing margin to cover the default. If that is 

insufficient, it shall apply the defaulting member's contribution to the 

default fund, the compensation reserve fund of the futures clearing 

house, the other clearing members' contributions to the default fund, and 

amounts to be borne by the other clearing members in proportions 

determined by the clearing house, as stipulated in Paragraph 1, Article 

49 of the Act.

In the event that a clearing member fails to fulfill settlement obligations 

and the amount of default cannot be covered after exhausting available 

resources of reserve funds as the defaulting clearing member's clearing 

margin, the defaulting member's contribution to the clearing and 

settlement fund, the compensation reserve fund of the futures clearing 

house described in Paragraph 1, Article 49 of the Act and in the order 

under Paragraph 1, Article 105 of the Rules, other clearing members 

shall share the loss according to Item 4 other clearing members' 

contributions to the clearing and settlement fund and Item 5 cap amount 

of the same paragraph. The other clearing members shall deposit the 

clearing and settlement funds based on the ratio of the amount of the 

clearing member's required contribution to the clearing and settlement 

fund to the total amount of all other clearing members' required 

contributions to the clearing and settlement fund on the business day 

immediately preceding the first day of the cooling-off period set out in 

paragraph 3 of the same article.

According to Paragraph 2, Article 105 of the Rules, the cap on the 

apportioned levies referred to in the preceding paragraph shall be 

determined as follows: when a single clearing member defaults during 

the cooling-off period (the period of 20 trading days beginning from the 

date on which a default by a single clearing member occurs), the cap 

shall be 150% of other clearing members' respective required 

contributions to the default fund on the business day immediately 

preceding the first day of the cooling-off period; when multiple clearing 

members default during the cooling-off period, the cap shall be 300% 
88

of other clearing members' respective required contributions to the 

default fund on the business day immediately preceding the first day of 

the cooling-off period. Any shortfall after the jointly apportioned levies 

on other clearing members shall be appropriated from the TAIFEX 

Clearing.

All clearing members are required to pay their share of the losses 

according to the procedures and timeframe notified by TAIFEX 

Clearing in writing. Clearing members who refuse to follow procedures 

or pay their share of the loss may have clearing and settlement services 

suspended or terminated by TAIFEX Clearing.

OTC derivatives market

According to Article 58 of the OTC Rules, TAIFEX Clearing shall first 

apply the defaulting clearing member's clearing margin to cover the 

default losses. If it is insufficient, TAIFEX shall apply the default 

clearing member's OTC derivatives default fund, TAIFEX's OTC 

derivatives compensation reserve fund, non-clearing member's OTC 

derivatives default fund at the ratio and amount specified by TAIFEX 

(referred to below as additional deposit amount).

According to Article 10.2.1 and Article 11.5.2 of the Enforcement 

Rules, TAIFEX shall decide the payment order according to the 

following matters for the OTC default fund and additional margin of 

non-default clearing members:

1. The risk ratio of contracts in each product category in the portfolio 

of each non-defaulting clearing member to contracts in all product 

categories on the business day preceding default.

2. Non-defaulting clearing member participating in auctions:

(1) A compulsory auction participant who did not make a bid or 

whose bid was lower than the reserve price

(2) A compulsory auction participant who made a bid higher than or 

equal to the reserve price and lower than the winning bid

(3) A compulsory auction participant who made the winning bid or 

a bid higher than or equal to the winning bid

(4) A non-compulsory auction participant
89

The maximum additional deposit amount of non-default clearing 

members shall be handled according to the following regulation:

1. If only one clearing member defaults during the cooling-off period, 

then the limit is 150% of the OTC derivatives default fund to be 

deposited by the clearing member on the business day before the 

start of the cooling-off period.

2. If multiple clearing members default during the cooling-off period, 

then the limit is 300% of the OTC derivatives default fund to be 

deposited on the business day before the start of the cooling-off 

period.

Cooling-off period means the period of 20 trading days beginning from 

the date on which a default by a single clearing member occurs. If a 

different clearing member defaults before the end of the cooling-off 

period, then the new end of the cooling-off period is 20 business days 

from the day the last clearing member defaulted.

For clearing members who do not comply with the additional deposit 

amount, TAIFEX may suspend its clearing operations or terminate its 

clearing participant agreement.

Replenishment of financial resource

Exchange-traded derivatives market

According to Article 110 of the Rules, TAIFEX Clearing, on the last 

day of the cooling-off period, shall recalculate the total clearing and 

settlement fund and the amount of clearing and settlement fund 

contributions required to be deposited by clearing members. After 

clearing members' contributions to the clearing and settlement fund are 

used under Paragraph 1, Article 49 of the Act and Article 109 of the

Rules, clearing members are required to replenish the default fund based 

on the amounts required to be deposited as recalculated within the 

period of time specified by TAIFEX Clearing.

According to TAIFEX Clearing's Apportionment Procedures for 

Managing Default by Clearing Members, the amount recovered by the 

Exchange from the defaulting clearing member shall be indemnified in 

the following order, after deducting all expenses:
90

1. Amount paid by TAIFEX Clearing according to Subparagraph 6, 

Paragraph 1, Article 105 of the Rules of the TAIFEX Clearing.

2. Amount apportioned among the clearing members according to 

Subparagraph 5, Paragraph 1, Article 105 of the Rules of the 

TAIFEX Clearing.

3. Amount of default fund paid by the clearing members according to 

Subparagraph 4, Paragraph 1, Article 105 of the Rules of the 

TAIFEX Clearing.

4. Amount of compensation reserve fund paid by TAIFEX Clearing 

according to Subparagraph 3, Paragraph 1, Article 105 of the Rules 

of the TAIFEX Clearing.

OTC derivatives market

Pursuant to Article 60 of the OTC Rules, TAIFEX Clearing shall 

calculate the total required amount of the OTC derivatives default fund 

and contributions to be made by clearing members on the last day of the 

cooling-off period. After the OTC derivatives default fund is utilized 

during a cooling-off period in accordance with Article 58, Paragraph 1, 

Subparagraph 4, clearing members must replenish the contribution 

amount notified by TAIFEX Clearing within the specified period.

Pursuant to Article 64 of the OTC Rules, TAIFEX will seek 

compensation from defaulting clearing members for funds, interest and 

necessary overheads used to cover losses in accordance with these 

Rules. 

Amounts recovered from the defaulting clearing member minus 

expenses must be used to make repayments in following order:

1. The amount paid by TAIFEX in accordance with Article 63. 

2. The amount paid by clearing members in accordance with Article 

62. 

3. The amount paid by clearing members in accordance with Article 

61. 

4. The amount shared by clearing members in accordance with Article 

58, Paragraph 1, Subparagraph 5, recovered in reverse order. 
91

5. The amount of clearing member's OTC derivatives default fund 

used in accordance with Article 58, Paragraph 1, Subparagraph 4, 

recovered in reverse order of the utilization order. 

6. The amount of TAIFEX's OTC Derivatives Compensation Reserve 

Fund used in accordance with Article 58, Paragraph 1, 

Subparagraph 3.

Principle 5:Collateral

An FMI that requires collateral to manage its or its participant’s credit 

exposure should accept collateral with low credit, liquidity, and market 

risks. An FMI should also set and enforce appropriately conservative 

haircuts and concentration limits.

Summary Narrative

Key Consideration 1: An FMI should generally limit the assets it 

(routinely) accepts as collateral to those with low credit, liquidity, and 

market risks.

Acquisition of low-risk collaterals approved by the Competent 

Authority

Exchange-traded derivatives market

The margin for clearing members and traders may be paid for in cash 

(NTD or foreign currencies announced by TAIFEX) or securities 

announced by TAIFEX, in order to ensure liquidity.

Use of securities in lieu of cash margin is governed by TAIFEX's 

"Guidelines for Futures Commission Merchants and Clearing Members 

Conducting Operations in Relation to the pledging of securities as 

Margin Collateral." For futures merchants and clearing members 

placing securities as margins, the placed securities shall not exceed 50% 

of the clearing margin. The types of securities that can be placed as 

margin are determined by TAIFEX and announced once approved by 

the competent authority. Currently, TAIFEX Clearing only allows 

securities that are held by sizable investors or those that exhibit 

relatively lesser risk to be placed as margins. Shares, for example, are 

allowed only if they meet the internationally accepted "blue chip" 
92

criteria.

For exchange-traded derivative market, TAIFEX Clearing has publicly 

announced to accept the following securities as margin:

1. Underlying assets of any stock futures and options traded through 

TAIFEX, any constituent stocks of the FTSE TWSE Taiwan 50 

Index, and beneficial certificates of Yuanta/P-shares Taiwan Top 50 

ETF.

2. Book-entry central government bonds. 

3. Foreign currency-denominated international bonds traded at Taipei 

Exchange (TPEx) according to Article 3 of its Rules Governing 

Management of Foreign Currency Denominated International 

Bonds.

OTC derivatives market

According to Chapter 7 of the Enforcement Rules, clearing members 

and their clients can deposit the margin in cash (NTD or foreign 

currencies announced by TAIFEX) or central government bonds or 

other securities announced by TAIFEX, in order to ensure liquidity. 

Currently, the currencies that TAIFEX announced to be eligible cash 

collateral are NTD and USD, and the security that TAIFEX announced 

to be eligible security collateral is only Taiwan central government 

bonds.

According to article 7.3.1 of the OTC Enforcement Rules, the 

percentage of bonds in a clearing member's clearing account that can be 

posted as margin collaterals out of the required clearing margin for the 

account is 100%, unless otherwise stated by the competent authority or 

TAIFEX.

Key Consideration 2: An FMI should establish prudent valuation 

practices and develop haircuts that are regularly tested and take into 

account stressed market conditions.

Method of verification

Margins placed in the form of securities are valued every day by 

applying designated haircut rate; their equivalent margin values are 
93

determined at the lower of traders' open positions and the discounted 

value.

Securities that TAIFEX Clearing accepts as margin are entirely traded 

on stock exchanges, the money market and OTC securities market such 

as electronic bond trading system of Taipei Exchange. Their market 

prices are determined by the rules of the respective markets. 

Haircutting practices

Given the price risks associated with securities, most exchanges and 

clearing institutions around the world apply haircuts on securities that 

have been placed as margins, in order to mitigate the effect of price 

fluctuations and ensure that futures contracts for exchange-traded 

derivatives market are adequately covered by margins at all times. For 

exchange-traded derivatives market, haircuts for acceptable collaterals 

have been clearly disclosed in TAIFEX Clearing's Methods and 

Standards for Receipt of Clearing Margins.

For OTC derivatives market, TAIFEX classifies the Taiwan central 

government bonds into 4 groups according to their remaining maturity. 

The haircut is the value-at-risk, at a confidence level of 99.5%, expected 

to be able to cover price volatility over a certain period of time for the 

past 5 years. The certain period of time refers to the estimated days to 

liquidate the securities based on daily trading volume. TAIFEX may 

take into account liquidity risk to adjust haircut rates. TAIFEX reviews 

and publishes haircut rates regularly on a quarterly basis. TAIFEX may

adjust haircut rates as needed in response to larger changes in market 

prices or exchange rates. 

Key Consideration 3: In order to reduce the need for procyclical 

adjustments, an FMI should establish stable and conservative haircuts 

that are calibrated to include periods of stressed market conditions, to 

the extent practicable and prudent.

Stable and conservative collateral haircut

Currently, securities that TAIFEX Clearing accepts as margins are 

limited only to book-entry central government bonds, approved stocks 

and international bonds. Their haircuts are determined on the following 

grounds: 

1. Book-entry central government bonds 
94

According to foreign stock exchanges and clearing institutions, the 

haircut for government bonds (typically government bonds with 5-

10 years maturity or longer) ranges between 0-30%. Due to the 

fact that government bonds are less prone to cyclical, credit and 

liquidity risks, TAIFEX Clearing has set its haircut at 5% for 

government bonds as do the five stock exchanges presented for 

comparison. This haircut is applied to the market price or 

theoretical price of the valued security as at the preceding day to 

determine margin coverage. 

For OTC derivatives market, TAIFEX classifies the Book-entry 

central government bonds into 4 groups according to their 

remaining maturity, adopts the preceding rules to calculate haircut 

rates, and publishes them on the website on a quarterly basis.

2. Stocks (Not applicable to OTC derivatives market) 

According to the rules of foreign stock exchanges and clearing 

institutions, the haircut for stocks ranges between 0-50%. Since 

most of the world's major stock exchanges have set the haircut at 

30%, and given the fact that the local stock market caps single-day 

gain/loss at 10%, TAIFEX Clearing has also set its haircut at 30% 

for stocks placed as margin. In addition, the local stock market has 

been relatively stable in recent years, and only very few stocks 

exhibited consecutive losses at the maximum limit. This haircut 

covers the spot market for 3 days of consecutive loss at the 

maximum limit, which is considered adequate for majority of 

stress scenarios. 

3. International bonds (Not applicable to OTC derivatives market)

According to foreign stock exchanges and clearing institutions, the 

haircut for foreign bonds ranges between 2-15%. Since most of the 

world's major stock exchanges have set the haircut at 10%, 

TAIFEX Clearing also announces its haircut at 10% for 

international bonds placed as margin.

Key Consideration 4: An FMI should avoid concentrated holdings of 

certain assets where this would significantly impair the ability to 

liquidate such assets quickly without significant adverse price effects.
95

Avoidance of concentration risk

Most foreign stock exchanges and clearing institutions have set limits 

on how much one type of security can be placed as a margin for the 

purpose of risk diversification. TAIFEX Clearing has taken a more 

conservative approach with regards to international bonds due to the 

instrument's relatively low liquidity, by stating that no more than 20% 

of a particular issue of international bonds can be placed as margin. If 

any subsequent repayments are made to the bonds, the 20% maximum 

shall apply to the remaining principal. For stocks, the level of 

concentration is capped at 10% as this percentage is commonly used by 

domestic and foreign stock exchanges and clearing institutions to 

govern the trade volume of a particular stock relative to the number of 

outstanding stocks issued. No concentration limit is imposed on 

government bonds given the relative low risks of this security.

Key Consideration 5: An FMI that accepts cross-border collateral 

should mitigate the risks associated with its use and ensure that the 

collateral can be used in a timely manner.

TAIFEX Clearing currently does not accept cross-border collateral

.

Key Consideration 6: An FMI should use a collateral management 

system that is well-designed and operationally flexible.

Collateral management system design

Exchange-traded derivatives market

The ETD collateral management system is part of the ETD clearing 

system. TAIFEX uses the ETD clearing system to manage collateral 

accounts and process deposit, withdrawal, substitution, and liquidation 

of collateral instantly through Interbank Remittance System(cash 

margin), S.M.A.R.T(stock and international bond), and Central 

Government Securities Settlement System(central government bond). 

Besides, TAIFEX maintains the ETD clearing system for its ETD 

clearing members to check their collateral held by TAIFEX at any time.

1. Interbank Remittance System (cash margin):
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TAIFEX and participants use the Interbank Remittance System built by 

Financial Information Service Company(FIS) to deposit, withdraw cash 

from margin accounts.

2. S.M.A.R.T (stock and international bond)

Taiwan Depository & Clearing Corporation builds S.M.A.R.T system 

for their participants to handle securities depository business. TAIFEX 

as the participants of Taiwan Depository & Clearing Corporation 

transfers stocks and international bonds posted as collateral through the 

S.M.A.R.T system.

3. Central Government Securities Settlement System (central 

government bond)

The “Central Government Securities Settlement System” (hereinafter 

referred to as the “CGSS”) is a computer network built by the Central 

Bank to effect real-time interbank transfers of securities. The 

transferring of central government bonds, which is posted as collateral 

between clearing members and TAIFEX, is handled by clearing banks 

using the CGSS network.

1. Timely Deposit

ETD clearing members deposit cash and non-cash collateral 

through Interbank Remittance System, S.M.A.R.T, or CGSS into 

TAIFEX ETD clearing margin accounts, then apply to TAIFEX and 

fill in the relevant account details via clearing system. After 

TAIFEX confirms the deposit information, TAIFEX renews the 

cash amount and non-cash collateral margin in clearing margin 

balance instantly.

2. Batch Withdrawal

When ETD clearing members apply to TAIFEX to withdraw cash 

or non-cash collateral, the clearing system timely checks the 

balance of total clearing margin after withdrawal shall not be less 

than the required clearing margin. 

Upon application approval, TAIFEX transfers the cash and noncash collateral through Interbank Remittance System, S.M.A.R.T, 
97

or CGSS into the ETD clearing margin account designated by the 

ETD clearing member. Daily batches for withdraw is:

(1) Cash collateral: daily four times at 9:00am, 11:00 am, 2:00pm 

and 2:45pm.

(2) Non-cash collateral: daily three times at 9:00am, 11:00 am and 

2:00pm.

3. Timely Substitution

ETD clearing members can substitute the collateral through deposit 

and withdrawal process. Besides, TAIFEX will notify the clearing 

members to withdraw and make replacement with other eligible 

collateral when the following scenarios happen:

(1) Stock: beginning from the fifth business day before the stock 

issuer conducts a book closure as a result of capital reduction or 

statutory consolidation.

(2) Central government bond: beginning from the fifth business day 

before the maturity date of the bond.

4. Liquidation

When the clearing member defaults, according to the article 104 of 

the Rules, TAIFEX may open a default handling account with a 

clearing member that has engaged in a succession agreement with 

the defaulting clearing member and liquidate proprietary positions 

held by the defaulting clearing member and the defaulting futures 

commission merchant.

Stock can be liquidated at Taiwan Stock Exchange while 

international bonds and central government bonds can be liquidated 

at Taipei Exchange, and in either case the cash can be transferred 

to the margin accounts in a reasonable time period. Liquidation 

period of the stocks and central government bonds is T+2 days 

while that for international bonds is T+3 days.

5. Reuse of collateral
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Cash collateral can only be maintained in the form of demand 

deposit or time deposit in accounts opened with settlement banks 

by TAIFEX. Besides, TAIFEX maintains a margin management 

system to record the daily cash collateral balance and accrued 

interest in settlement banks.

TAIFEX records accrued interest of each member's proprietary and 

client clearing accounts daily and makes interest payments 

semiannually. Clearing members could check their accrued interest 

on the Web portal after TAIFEX’s confirmation.

 And non-cash collateral is not allowed to be reused.

Flexibility

Depending on whether the exchanged traded derivatives market trader 

has made third-party arrangements with their futures commission 

merchants, traders' securities that have been placed as margin are 

maintained either in the futures commission merchant's account or in 

TAIFEX's margin account:

1. Where the trader does not agree to use securities to secure other 

traders' positions:

(1). Stocks and international bonds: The trader can place securities 

into TAIFEX Clearing's margin account, which is categorized 

according to futures commission merchants and managed with a 

separate set of ledgers, using the TDCC system. Balances 

maintained in this account can be used to secure the trader's 

positions. 

(2). Government bonds: The futures trader is required to open a 

government bond account in a settlement bank to facilitate 

transfers of government bonds. 

2. Where the trader agrees to use securities to secure other traders' 

positions: 

(1). The trader shall place securities into the futures commission 

merchant's margin account (with separate ledger maintained by 

the futures commission merchant) using the TDCC system, and 

have the futures commission merchant transfer securities into 
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TAIFEX Clearing's margin accounts created for various clearing 

members to secure members' positions (excluding positions held 

by traders who do not agree to the third party arrangement). 

(2). The futures commission merchant must become a depository 

member before accepting traders' placement of stocks and 

international bonds, and apply for system networking for realtime display and control of the trader's security balance. 

(3). The futures commission merchant must open a government bond 

account before accepting traders' placement of government 

bonds. This account enables real-time display and control of the 

trader's security balance.

OTC derivatives market

Collateral management system is part of the OTC clearing system. 

TAIFEX uses the OTC clearing system to manage collateral accounts 

and process deposit, withdrawal, substitution, and liquidation of 

collateral instantly through the Interbank Remittance Service (cash 

margin) and Central Government Securities Settlement 

System(government bond) handled by settlement banks. Besides, 

TAIFEX maintains the OTC clearing system and Web portal for its 

OTC clearing members to check their collateral held by TAIFEX at 

any time.

1. Timely Deposit

OTC clearing members deposit cash or government bonds through 

Interbank Remittance Service or Central Government Securities 

Settlement System into TAIFEX OTC clearing margin accounts, 

then apply to TAIFEX and fill in the relevant account details via 

Web portal. After TAIFEX confirms the deposit information, 

TAIFEX renews the cash amount and non-cash collateral margin in 

clearing margin balance instantly.

2. Batch Withdrawal

When OTC clearing members apply to TAIFEX to withdraw cash 

and bonds, the web portal timely checks the balance of total 
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clearing margin after withdrawal shall not be less than the required 

clearing margin. The same rule applies to the OTC clearing system 

when TAIFEX confirms the withdrawal application. 

Upon application approval, TAIFEX transfers the cash and noncash collateral through Interbank Remittance System or CGSS into 

the OTC clearing margin account designated by the OTC clearing 

member. Daily batches for withdrawal are:

(3) Cash collateral: daily two times at 11:00am and 2:00pm

(4) Non-cash collateral: daily two times at 11:00am and 2:00pm

3. Timely Substitution

OTC clearing members can substitute the no-cash collateral 

through deposit and withdrawal process.

Where OTC clearing members deposit central government bonds, 

the clearing members are to complete a withdrawal starting on the 

fourth business day preceding a maturity date or installment date. 

The clearing member is not to post such bonds as margin 

collaterals.

4. Liquidation in a short period of time

Pursuant to article 54 and 55 of OTC Rules, when an OTC clearing 

member defaults, TAIFEX has the right to suspend withdrawal of 

the clearing member's margin, and use cash or funds from disposal 

of securities of the clearing member’s clearing account to meet 

payment obligations within the same clearing account.

The central government bonds can be liquidated at Taipei 

Exchange, and the cash can be transferred to the margin accounts 

in a reasonable time period.

5. Reuse of collateral

Cash collateral can only be maintained in the form of demand 

deposit or time deposit in accounts opened with settlement banks 

by TAIFEX. Besides, TAIFEX maintains a margin management 
101

system to record the daily cash collateral balance and accrued 

interest in settlement banks.

TAIFEX uses a clearing system to record accrued interest of each 

member's proprietary and client clearing accounts daily and makes 

interest payments semiannually. Clearing members could check 

their accrued interest on the Web portal after TAIFEX’s 

confirmation.

And non-cash collateral is not allowed to be reused.

Principle 6:Margin

A CCP should cover its credit exposures to its participants for all 

products through an effective margin system that is risk-based and 

regularly reviewed.

Summary Narrative

Key Consideration 1: A CCP should have a margin system that 

establishes margin levels commensurate with the risks and particular 

attributes of each product, portfolio, and market it serves.

The margin model of TAIFEX is mainly used to cover market price 

fluctuations for future clearing. Anti-procyclicality margin factors are 

included to consider counter-effects of risk on the margin of the entire 

investment portfolio. Therefore, descriptions of the exchange-traded 

derivatives market and OTC derivatives market margin models are as 

follows:

Margin model for the Exchange-traded derivatives market

1. Includes future market price fluctuation risks

TAIFEX measures the adequacy of its clearing margins by observing 

the price volatility of each listed instrument over a period of time, 

and sets them at an amount that covers two-day price change within 

a 99% level of confidence. The initial and maintenance margin

requirements are further determined based on this amount.

2. Includes anti-procyclicality margin factors

(1) The price risk coefficient includes long-term samples:
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In response to procyclicality changes, when calculating the price 

risk coefficient for various contracts, TAIFEX included 10-year 

long-term samples in order to reflect the risk of price changes 

caused by prospective cycles.

(2) Minimum price risk coefficient:

To avoid the risk of setting margin requirements at levels too low 

to cover a sudden increase in risk following a period of excessively 

low price volatility, TAIFEX has imposed minimum risk factors for 

each instrument listed for trading and included anti-procyclicality 

margin measures, so that the clearing margins are adequate to cover 

a certain level of risk volatility at all times.

3. Calculated margin from a portfolio perspective

TAIFEX collects margins from clearing members using the Standard 

Portfolio Analysis of Risk (SPAN) approach. SPAN measures risk 

from a portfolio perspective; it utilizes a standardized definition of 

the sixteen risk scenarios, a variety of parameters and models to 

estimate risk mitigation effects between different instruments, and 

therefore allows calculation of the margin amount needed to cover 

portfolio risks.

4. Additional margin for long holidays

In order to cover long holiday periods in Taiwan (such as: Lunar New 

Year) in which fluctuations in international markets can cause 

fluctuation risks in the futures market after the long holiday, 

TAIFEX will generally collect additional margin before the holiday 

to cover the risk, and return the margin after the holiday.

Margin model for the OTC derivatives market

1. Includes future market price fluctuation risks

Taifex referred to other international CCPs to use five years for a 

historical sample period with EWMA volatility scaled historical 

returns. TAIFEX calculates changes in interest and exchange rates 

used in valuation curves for clearing in the last five years. 

In addition to the past five-year data, stress data (beyond past five 

years) are also considered to prevent sudden changes in required 
103

initial margin when stress events are applied to or removed from the 

market rate fluctuations during the past five-year period.

For client accounts and proprietary accounts of clearing members, 

initial margins are calculated as the expected loss at a 99.5% 

confidence interval that at least covers net present value changes over 

5 business days for proprietary accounts and 7 business days for 

client accounts and the expected loss given TAIFEX's chosen stress 

period.

About the appropriate weights assigned to stressed observations, 

TAIFEX referred to the Article 28 (Procyclicality) of ESMA 

regulatory technical standards on requirements for central 

counterparties, assigning at least 25 % weight to stressed 

observations. The most recent samples (past five-year samples) are 

weighted most highly by TAIFEX while the most distant samples

(stress samples) contribute little in order to reflect current market 

environment. TAIFEX conducts daily back-testing of the initial 

Margin model and completes an annual review of margin 

methodology to ensure appropriate weights.

2. Includes anti-procyclicality margin factors

To avoid setting the margin amount too low due to fluctuations in the 

underlying asset price, leading to the inability to cover the risks 

related to sudden increases in fluctuation of the underlying asset 

price, the margin model for OTC derivatives shall include antiprocyclicality margin considerations. Apart from adjusting the 

fluctuation factors through the EWMA, the lower limit for 

underlying asset price fluctuations has been stipulated to cover the 

margin required for risk fluctuation calculations.

3. Calculated margin from a portfolio perspective 

TAIFEX uses the OTC derivatives portfolios of the clearing accounts 

as the risk assessment basis. It uses the Historical Simulation 

Approach to account for the cross-product discounts in the account 

and the mutual impact of interest rate and exchange rate risks, to 

calculate the margins required for each clearing account.

4. Liquidity risk margin

Considering the liquidity of the OTC derivatives is worse than the 
104

exchange-traded derivatives market, for proprietary accounts and 

client accounts of clearing members, TAIFEX may calculate and 

charge an additional liquidity risk margin based on PV01, which is 

the change in net present value as a result of a 0.01% change in 

interest rates, in excess of the threshold that TAIFEX sets for the 

corresponding period.

The rules regarding the aforesaid additional liquidity risk margins to 

be charged within and over the thresholds for different periods will 

be established by TAIFEX after clearing members provide the 

bid/ask spreads and related data as required by TAIFEX.

5. Additional margin for long holidays

In order to cover long holiday periods in Taiwan (such as: Lunar New 

Year:) in which fluctuations in international markets can cause 

fluctuation risks in the OTC derivatives market after the long 

holiday, TAIFEX will generally collect additional margin before the 

holiday to cover the risk, and return the margin after the holiday.

Key Consideration 2: A CCP should have a reliable source of timely 

price data for its margin system. A CCP should also have procedures 

and sound valuation models for addressing circumstances in which 

pricing data are not readily available or reliable.

Source of price information

Exchange-traded derivatives market

For exchange-traded derivatives, its margin system obtains price 

information entirely from TAIFEX's trading system and the third party. 

All price information in margin system is verified through proper 

procedures before it is transmitted through the trading system and the 

third party. Where pricing data is not available, TAIFEX uses pricing 

data of relevant underlying in respective markets for price estimation. 

TAIFEX Clearing's role as a CCP thus enables it to obtain timely and 

reliable price data. TAIFEX validates the pricing data on daily basis and 

conducts system testing activities along with annual system testing 

drills. If there is a need to compare the reliability and accuracy of pricing 

services offered by a third party, TAIFEX Clearing will compare its 

first-hand price information with the pricing provided by the third party.
105

OTC derivatives market

The valuation information used by TAIFEX includes benchmark 

interest rates and exchange rates (such as: Taipei Interbank Offered 

Rates (TAIBOR) published by the Bankers Association of the Republic 

of China) and the bid/ask price and transaction price of major OTC 

derivative brokers.

Where the pricing data are not available, TAIFEX supplements the data 

in the following methods. (1) by interpolation (2) by the market data 

that TAIFEX asks clearing members to provide. If the pricing data are 

supplemented by the aforementioned method, TAIFEX will confirm 

whether the price estimation results are appropriate before the price 

estimation adopted.

Stipulate comprehensive procedures and valuation models

The margin levels for the exchange-traded derivatives market are 

calculated based on: actual deal price of the instrument, actual deal price 

of the underlying securities at TWSE or other securities exchange, and 

quoted price of the instrument in question. The margin levels for OTC 

derivatives are calculated based on benchmark index, actual deal price 

and quoted price. This price information adequately reflects changes in 

market conditions.

Handling procedures and models for the inability to obtain 

information

1. Price information is obtained from multiple sources as backup

The valuation information for TAIFEX OTC derivatives use the 

bid/ask price and transaction price of multiple brokers and market 

data. The multiple information sources can reduce the occurrence of 

worthless information from a single source. However, when 

information cannot be obtained or is missing from the multiple 

information sources described above, TAIFEX will adopt an 

interpolation method or ask the clearing members to provide the 

quotation information.
106

2. Interpolation method for the valuation Curve

If some of the price information for the OTC derivatives period is 

missing or cannot be obtained, TAIFEX will adopt price 

interpolation measures depending on the missing information (such 

as: linear interpolation and cubic spline interpolation), in order to use 

available market price information to supplement the missing price 

information.

3. Quotation provided by clearing members.

When the majority of price information for OTC derivatives is 

missing or cannot be obtained, and interpolation is not possible, 

TAIFEX will ask the clearing members to provide the quotation. 

TAIFEX will remove the highest and lowest 25% of the quotations 

and use the middle 50% of the information to supplement the missing 

information.

Key Consideration 3: A CCP should adopt initial margin models and 

parameters that are risk-based and generate margin requirements 

sufficient to cover its potential future exposure to participants in the 

interval between the last margin collection and the close out of positions 

following a participant default. Initial margin should meet an 

established single-tailed confidence level of at least 99 percent with 

respect to the estimated distribution of future exposure. For a CCP that 

calculates margin at the portfolio level, this requirement applies to each 

portfolio’s distribution of future exposure. For a CCP that calculates 

margin at more-granular levels, such as at the subportfolio level or by 

product, the requirement must be met for the corresponding 

distributions of future exposure. The model should (a) use a 

conservative estimate of the time horizons for the effective hedging or 

close out of the particular types of products cleared by the CCP 

(including in stressed market conditions), (b) have an appropriate 

method for measuring credit exposure that accounts for relevant 

product risk factors and portfolio effects across products, and (c) to the 

extent practicable and prudent, limit the need for destabilising, 

procyclical changes.

Initial margin model
107

Exchange-traded derivatives

TAIFEX Clearing uses a margin model to calculate the amount of 

clearing margins required. With the amount of required clearing 

margin derived, a ratio of 135% is then applied to determine the 

amount of initial margin. Take futures products as an example, 

clearing margin calculation = futures price × value per index point 

×risk coefficient.

The margin model adopts the simple moving average approach (SMA)

to calculate average returns (μn) and standard deviation (σn) over the 

sample period. These results are used to estimate value at risk (VaR) 

for various sample groups (30-day, 60-day, 90-day, 180-day, and 

2,500-day), and to calculate the margin amount that is sufficient to 

cover two-day price volatility within a 99% level of confidence 

(single-tailed).

Margin model - the SMA approach assumes daily price changes to be 

normally distributed, while returns at various timings are independent 

and identically distributed. With regards to the sampled period, 

TAIFEX Clearing avoids bias on samples collected within a short 

timeframe, which could lead to frequent changes in margin 

requirements, or bias on samples collected within a long timeframe, as 

the required margin would not be able to reflect the current situation.

TAIFEX Clearing takes a balanced approach of estimating margin 

requirements using 30-day, 60-day, 90-day, 180-day, and 2,500-day 

average VaR or maximum VaR and adopts the SPAN model for 

measuring risk from a portfolio perspective and the risk mitigation 

effect across different products when calculating margin requirements.

In addition to SMA approach, Exponentially Weighted Moving 

Average (EWMA) and SMA for Maximum Drawdown are used to 

calibrate the volatility parameter of the model.

OTC derivatives market

During and at the end of each business day, TAIFEX calculates changes 

in interest and exchange rates used in valuation for clearing in the last 

five years. For proprietary accounts and client accounts of clearing 

members, initial margins are calculated as the expected loss at a 99.5% 
108

confidence interval that at least covers net present value changes over 5 

business days for proprietary clearing accounts and 7 business days for 

client clearing accounts, the expected loss given TAIFEX's chosen 

stress period, and the effects between risks related to cross-product, 

interest rates and exchange rates.

For proprietary accounts and client accounts of clearing members, 

TAIFEX may calculate and charge an additional liquidity risk margin 

based on PV01, which is the change in net present value as a result of a 

0.01% change in interest rates, in excess of the threshold that TAIFEX 

sets for the corresponding period.

The rules regarding the aforesaid additional liquidity risk margins to 

be charged within and over the thresholds for different periods will be 

established by TAIFEX after clearing members provide the bid/ask 

spreads and related data as required by TAIFEX.

Closure and sample period

When sampling data for the margin model, TAIFEX Clearing avoids 

basing its calculations solely on samples collected within a short 

timeframe, which could lead to frequent changes in margin 

requirements, or solely on samples collected within a long timeframe, 

as the required margin would not be able to reflect the current 

situation. 

In the event where a clearing member undergoes bankruptcy, 

liquidation, business cessation or fails to fulfill settlement obligations, 

TAIFEX is authorized under Article 54 of the Act to transfer the 

member's and its clients' accounts to another clearing member that had 

previously signed an obligation transfer agreement with the distressed 

member. Where it is deemed necessary, TAIFEX Clearing may 

appoint a non-contractual member as transferee to assume the liability 

and responsibility of the defaulting member. In the event where 

TAIFEX is required to close positions held by the defaulted clearing 

member, TAIFEX will close the member's outstanding positions as 

early as possible to minimize impact on the stability of the market.

Exchange-traded derivatives market
109

TAIFEX Clearing takes a balanced approach of estimating margin 

requirements covering two-day price change within a 99% level of 

confidence using 30-day, 60-day, 90-day, 180-day, and 2,500-day 

average VaR or maximum VaR.

OTC derivatives market

The interest rate and exchange rate fluctuations of the stress periods in 

the last 5 years and selected by TAIFEX are used to estimate initial 

margins that are calculated as the expected loss at a 99.5% confidence 

interval that at least covers net present value changes over 5 business 

days for proprietary clearing accounts and 7 business days for client 

clearing accounts.

Cyclicality and wrong way risk

Exchange-traded derivatives market

To avoid the creation of risk by reducing margins to excessively low 

levels due to lessened price volatility, resulting in margins being set 

too low to cover a sudden increase in risk, TAIFEX Clearing has 

imposed minimum risk factors and the look-back period of ten years 

for exchange-traded derivatives as a more conservative approach 

towards calculating clearing margins. 

Based on the estimated margin requirements, TAIFEX Clearing sets 

an initial margin level and a maintenance margin level as a double 

security to prevent sudden price changes that may give rise to 

inadequate equity in traders' accounts to cover market risks. 

Furthermore, the extent of gains and losses is capped for every type of 

instrument to limit downside risks during periods of irrational market 

behavior.

OTC derivatives market

In order to include anti-procyclicality and reduce specific downside 

risks in the margin models, apart from adjusting the fluctuation factors 

through the EWMA, the lower limit for underlying asset price 

fluctuations has been stipulated to cover the margin required for risk 
110

fluctuation calculations.

In order to prevent the volatility and subsequently the margins from 

dropping too low at times, TAIFEX introduced a volatility floor at 

approximately the level of the lowest observed value of implied 

volatility period in recent history. Taifex chooses 10-years back 

average 5-day volatility to be a volatility floor.

Key Consideration 4: A CCP should mark participant positions to 

market and collect margin at least daily to limit the build-up of current 

exposures. A CCP should have the authority and operational capacity 

to make intraday margin calls and payments, both scheduled and 

unscheduled, to participants.

Exchange-traded derivatives market

Multiples for TAIFEX Clearing's margin structure are: initial margin: 

maintenance margin: clearing margin = 1.35: 1.035: 1.

After periodic and ad hoc marking to market, TAIFEX collects 

variation margins from clearing members every day. Clearing 

members that have account margin balance lower than the required 

clearing margin will be margin called and are required to place 

additional margin within the given time.

After marking to market, traders that have account margin balance 

lower than the maintenance margin level will be called by the futures 

commission merchant and will be required to increase margin account 

balances to the initial margin level within the given time.

According to "Taiwan Futures Exchange Operational Key Points of 

Clearing and Settlement for Futures Commission Merchants and 

Clearing Members," clearing members that receive margin calls from 

TAIFEX Clearing during trading hours are required to deposit at least 

the requested amount of cash into TAIFEX Clearing's clearing margin 

account opened with the settlement bank within 1 hour. If a clearing 

member is found to have maintained an inadequate margin after 

TAIFEX Clearing closes the market, the clearing member would be 

required to transfer fresh funds into TAIFEX Clearing's clearing 

margin account before the end of banking hours (3:30 pm) on the 

current day. If a clearing member were to miss the margin deadline, 
111

TAIFEX Clearing may impose a penalty according to Article 102 of 

the Rules. If a clearing member defaults on settlement due to financial 

reasons, TAIFEX Clearing may dispose any open positions and 

margins held by the defaulted member according to Article 103 of the 

Rules.

OTC derivatives market

After daily regular marking to market and for collecting the variation 

margins from clearing members, the margin payment notification 

times for intraday and end of day are 12 PM on the day and 8:30 AM 

of the next day, respectively. The clearing member shall transfer the 

margin to the clearing margin account opened by TAIFEX in the 

settlement bank before 3:30 PM of the same day and 11 AM of the 

next day, respectively. 

Additionally, in the event of massive fluctuations in market prices, 

TAIFEX will issue margin payment notices ad-hoc to clearing 

members with insufficient margins. The clearing member must 

transfer fresh funds into TAIFEX Clearing's clearing margin account 

opened with the settlement bank within 2 hour after receiving a margin 

call from TAIFEX Clearing. If a clearing member fails to deposit the 

clearing margin within the specified period, TAIFEX Clearing may 

impose a penalty according to Article 54 of the OTC Rules. If a 

clearing member defaults on settlement due to financial reasons, 

TAIFEX Clearing may dispose any open positions and margins held 

by the defaulted member according to Article 55 of the Rules.

Key Consideration 5: In calculating margin requirements, a CCP may 

allow offsets or reductions in required margin across products that it 

clears or between products that it and another CCP clear, if the risk of 

one product is significantly and reliably correlated with the risk of the 

other product. Where two or more CCPs are authorised to offer crossmargining, they must have appropriate safeguards and harmonized 

overall risk-management systems.

Margin estimation for portfolios

Exchange-traded derivatives
112

TAIFEX Clearing adopts the SPAN®system to calculate margins that 

each clearing member is required to maintain on open positions. In 

addition, traders' portfolios are assessed on an account-by-account 

basis to determine the maximum VaR of the following trading day, 

which lead to calculations of traders' margin requirements. 

The SPAN®system also takes into account the risk mitigation effect 

across different products when calculating margin requirements. For 

example: A long position in one index futures and a short position in 

another index futures may have margin requirements reduced by up to 

50%, leaving room to accommodate possible changes in correlation 

between the two instruments.

With regards to cross-margining, TAIFEX Clearing currently collects 

margins only on instruments traded over TAIFEX, and does not take 

into account margins that traders have placed for positions held with 

other CCPs.

Cross-margining

Exchange-traded derivatives

The SPAN system that TAIFEX Clearing has adopted was developed 

by CME. This system is implemented in many foreign futures 

exchanges. CME notifies every exchange that adopts the SPAN system 

whenever there is a change to the calculation, thereby ensuring the 

integrity of this system.

When calculating margin requirements using SPAN, TAIFEX Clearing 

recognizes risk mitigation only for index instruments within the same 

portfolio. Furthermore, TAIFEX Clearing has adopted a more 

conservative approach by reducing margin requirements by up to 50% 

to accommodate possible changes in correlation. With regards to Price 

Scan Range (“PSR”), TAIFEX Clearing has imposed minimum values 

on the price risk factor to prevent margin requirements from dropping 

to excessively low levels over a period of low volatility, and therefore 

ensure adequate margin coverage to accommodate sudden changes in 

volatility.
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OTC derivatives market

TAIFEX views all instruments of a clearing account as an investment 

portfolio. After accounting for the risk mitigation effects of various 

instruments, the margin required for the clearing account is calculated 

using the Historical Simulation Approach. 

Methodology

TAIFEX Clearing currently does not have a cross-margining system.

Key Consideration 6: A CCP should analyse and monitor its model 

performance and overall margin coverage by conducting rigorous daily 

backtesting – and at least monthly, and more-frequent where 

appropriate, sensitivity analysis. A CCP should regularly conduct an 

assessment of the theoretical and empirical properties of its margin 

model for all products it clears. In conducting sensitivity analysis of the 

model’s coverage, a CCP should take into account a wide range of 

parameters and assumptions that reflect possible market conditions, 

including the most-volatile periods that have been experienced by the 

markets it serves and extreme changes in the correlations between 

prices.

Back testing and sensitivity analysis

Exchange-traded derivatives market

TAIFEX Clearing assesses risk coverage of its margin model using the 

penetration back testing respectively for SMA、EWMA and SMA for 

Maximum Drawdown approach on daily basis with one year sampling 

period. TAIFEX calculates the clearing margin penetration rates for 

each product. In order to calculate each product’s initial margin 

penetration ratio, the penetration test begins by applying a multiplier

(1.35) to clearing margins collected by TAIFEX Clearing to derive the 

initial margin; this initial margin is then compared to actual changes in 

contract value at the same time. If actual price changes exceed the 

initial margin, the margin would be considered to have been 

penetrated. 
114

Penetration ratio is measured as the ratio of penetration numbers to 

total observations of one year sampling period. If the penetration ratio 

is below 1%, the margin model is conformed to a 99% level of 

confidence. If the penetration ratio is higher than 1%, the model does 

not perform as expected, TAIFEX would review the parameters and 

assumptions of the margin model. 

TAIFEX Clearing monitors model performance by regularly 

reviewing its minimum price risk coefficient, and anti-procyclicality 

margin measures, in order to prevent margin requirements from 

dropping to excessively low levels over a period of low volatility, and 

therefore ensure adequate margin coverage to accommodate sudden 

changes in volatility.

In terms of sensitivity analysis, TAIFEX conducts varying different 

parameters and assumptions to analyze the penetration test of current 

margin model on monthly basis. If the penetration ratio of the current 

margin model is higher than 1%, TAIFEX would review the 

parameters of the margin model and further assess the sensitivity 

analysis of penetration test results to decide whether to adjust the 

parameters related to the margin model when necessary. The 

penetration test analyzes not only the daily price volatility, but also 

whether the current margin level is adequate to cover two-day price 

changes. 

Furthermore, TAIFEX Clearing reviews and adjusts margin 

requirements quarterly for stock-related instruments to cover price 

volatility of the underlying stock.

Currently, all regularly analyzed results are approved according to 

internal procedures or reported to Competent Authority.

OTC derivatives market

Similar to exchange-traded derivatives, TAIFEX Clearing assesses 

risk coverage of its margin model using the penetration test. TAIFEX 

Clearing conducts daily back testing of the initial margin model by 

calculating and comparing initial margin amount to profit and loss for 

each house account looking back 5 days and for each client account 

looking back 7 days of the risk coverage, provided that all cleared 
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contracts were held for a continuous period of 5 or 7 clearing days, 

respectively. 

Based on empirical analysis of penetration ratio, it has to be 

maintained below 0.5%, which conformed with the goal of 99.5% 

confidence interval to cover 5-day holding period for house positions 

and 7-day holding period for client positions.

If the historical initial margin is insufficient to cover the loss on an 

account, one exceedance will be recorded. If the number of 

exceedances exceeds the initial margin confidence level over a 

specific period of time, TAIFEX Clearing will evaluate the source of 

back-testing exceedances and recalibrate the initial margin model 

parameters (e.g. lookback period and confidence level) and scenarios 

when necessary.

Currently, all regularly analyzed results are approved according to 

internal procedures or reported to Competent Authority.

Similar to the back testing method for margins in the exchange-traded 

derivatives market, penetration testing is used as the assessment 

standard for risk coverage capabilities of margin model performance. 

TAIFEX uses back testing on a daily basis to review whether the initial 

margin requirement is sufficient to cover the actual 5-day losses of 

proprietary accounts and 7-day losses of client accounts. If the actual 

loss exceeds the initial margin requirement, with a confidence level of 

99.5%, the back test penetration rate should be lower than 0.5%. If the 

penetration rate is higher than 0.5%, TAIFEX will review and adjust the 

parameters related to the margin model when necessary.

The back testing of margins covers sensitivity analysis, which includes 

the analysis of the average penetration value and maximum 

penetration value of the margins during the back testing period, the 

average value and maximum value of the margin penetrating amount 

ratio against the initial margin requirement, and the consecutive days 

of margin penetration.

Key Consideration 7: A CCP should regularly review and validate its 

margin system.

Exchange-traded derivatives market
116

TAIFEX Clearing regularly assesses the appropriateness of its existing 

margin structure and the adequacy of its minimum price risk factor 

and volatility floor. In addition, TAIFEX Clearing also conducts daily 

reviews on whether the current margin requirement adequately and 

quarterly reviews of margin rate requirement for single stock contracts.

TAIFEX also checks daily whether the parameters of the SPAN 

margin need to be adjusted in a timely manner.

TAIFEX's margin methodology would be reviewed on an annual basis 

by the Clearing Committee with whose members comprise experts 

from academia and industry participants, or more frequently if there 

are any major changes. Any material revisions or adjustments to 

margin methodology are also subject to review by the board of 

directors, and the approval of the FSC before announcement to the 

public.

OTC derivatives market

TAIFEX reviews the adequacy of the parameters related to the margin 

according to the results of the daily back tests. If the penetration rate is 

higher than 0.5%, TAIFEX will review and adjust the parameters 

related to the margin model when necessary.

TAIFEX's margin methodology are reviewed and validated by the 

OTC Derivatives Clearing Operations and Risk Management 

Committee (whose members comprise independent experts from 

academia and industry participants) on an annual basis. 

Moreover, the calculation method, risk coverage days, and level of 

confidence for the margin of OTC derivatives are clearly stated in 

Section 1, Chapter 6 of the Enforcement Rules. Relevant revisions 

shall be reported to the OTC Derivatives Clearing Operations and Risk 

Management Committee and the Board of Directors. The revisions 

shall then be reported to the Financial Supervisory Commission 

Securities and Futures Bureau for approval before implementation, 

which shall be announced in the market.
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Principle 7:Liquidity risk

An FMI should effectively measure, monitor, and manage its liquidity 

risk. An FMI should maintain sufficient liquid resources in all relevant 

currencies to effect same-day and, where appropriate, intraday and 

multiday settlement of payment obligations with a high degree of 

confidence under a wide range of potential stress scenarios that should 

include, but not be limited to, the default of the participant and its 

affiliates that would generate the largest aggregate liquidity obligation 

for the FMI in extreme but plausible market conditions.

Summary Narrative

Key Consideration 1: An FMI should have a robust framework to 

manage its liquidity risks from its participants, settlement banks, nostro 

agents, custodian banks, liquidity providers, and other entities.

TAIFEX Clearing's liquidity risk management framework

TAIFEX Clearing's liquidity risk is mainly attributable to the risk of 

clearing members defaulting, causing a shortfall in short-term liquidity.

The goal of TAIFEX Clearing's liquidity management practice is to 

maintain adequate level of cash and cash equivalents to ensure that 

clearance and settlement activities are carried out properly. TAIFEX 

Clearing has imposed haircuts on all securities pledged as margin 

collateral, while at the same time making sure that such securities are 

adequately liquid. Agreements have been signed with settlement banks 

to acquire short-term credit limits, giving TAIFEX Clearing adequate 

financial flexibility.

TAIFEX Clearing has developed a management framework for 

measuring and monitoring liquidity risks. Functionality of this 

framework is explained below:

Exchange-traded derivatives market

1. Pre-margin system

TAIFEX Clearing requires margins to be placed in advance for 

both the trading of exchange-traded derivatives and the clearing of 

OTC derivatives. Since margins are collected in full prior to each 

transaction, TAIFEX Clearing is able to minimize risk of liquidity 
118

shortfall should a clearing member default on its obligations.

2. Margin deposit method

The margin for clearing members and traders may be paid for in cash 

(NTD or foreign currencies announced by TAIFEX) or securities 

announced by TAIFEX, in order to ensure liquidity.

TAIFEX Clearing's exchange-traded derivatives are mostly 

denominated in NTD, and cash margins are also placed in NTD. 

For futures that are denominated in foreign currencies, traders may 

arrange with their futures commission merchants to place cash 

margins in NTD and have the futures commission merchant 

perform currency exchange on their behalf. This gives TAIFEX 

Clearing the ability to realize gains and losses of contracts 

denominated in any currency, and hence is not prone to currency 

liquidity risks.

3. Use of the clearing margin is limited to bank deposits: According 

to TAIFEX's funds allocation guidelines, clearing margins can only 

be maintained in the form of demand deposit or time deposit in 

accounts opened with settlement banks by TAIFEX.

4. Deposit method for client margin accounts opened by futures 

commission merchants:

Futures commission merchants are only allowed to place 

customers' margin deposits in the form of highly liquid assets, 

namely demand deposits, time deposits and book-entry central 

government bonds

According to Article 6 of the Directions Concerning the 

Utilization and Management of Customer Margin Accounts by 

Futures Commission Merchants enforced by FSC, a futures 

commission merchant shall place deposits received from customer 

margin accounts in the form of demand deposits, unless the futures 

commission merchant has agreed otherwise with the customer to 

allow placement of time deposits. In addition, time deposits and 

demand deposits need to be allocated in a manner that allows 

adequate liquidity, and futures commission merchants have the 

responsibility to assign dedicated personnel to monitor the 

liquidity and security of the allocation.
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Pursuant to Letter No. Financial-Supervisory-Securities-Futures1040016866 issued by FSC on February 19, 2016, futures 

commission merchants are now allowed to place NTD deposits 

received from customer margin accounts in the form of book-entry 

central government bonds, subject to a maximum of 50% and only 

under the condition that the margin had been placed for the trading 

of domestic futures.

OTC derivatives market

1. TAIFEX adopted the pre-margin system

Before a transaction is submitted to TAIFEX for clearing, the 

clearing member shall deposit margin in advance so that the excess 

margins for the clearing accounts are sufficient to pay required 

clearing margin on newly added cleared transactions.

TAIFEX may require additional liquidity risk margin for the cleared 

transactions of clearing members' proprietary account and each client 

account respectively when the change in net present value as a result 

of a basis point change in interest rates, in excess of the threshold 

that TAIFEX sets for the corresponding maturities, in order to 

effectively manage liquidity risks.

2. Margin deposit method

Clearing members and their clients can deposit the clearing margin 

and client margin in NTD or foreign currencies announced by 

TAIFEX or central government bonds or other securities announced 

by TAIFEX, in order to ensure liquidity. Based on securities prices 

calculated by TAIFEX in the payment of the margin, a haircut rate is 

the value at risk expected to be able to cover price volatility over a 

certain period of time. Apart from reviewing and announcing haircut 

rates regularly every quarter, TAIFEX may adjust haircut rates as 

needed in response to larger changes in market prices or exchange 

rates.

The percentage of securities in a clearing member's clearing account 

that can be posted as margin collaterals out of the required clearing 

margin for the account ("collateral ratio") is 100%, unless otherwise 

stated by the competent authority or TAIFEX.
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3. Use of the clearing margin is limited to bank deposits: According to 

Article 40 of the OTC Rules and TAIFEX's funds allocation 

guidelines, clearing margins can only be maintained in the form of 

demand deposit or time deposit in accounts opened with settlement 

banks by TAIFEX. 

Apart from the management structure for the exchange-traded 

derivatives market and OTC derivatives market mentioned above, 

TAIFEX has implemented other measures to manage liquidity risks 

from market participants.

1. Contributions to the Default fund by TAIFEX Clearing's clearing 

members

TAIFEX has established separate clearing and settlement funds for 

the exchange-traded derivatives market and OTC derivatives market. 

The fund shall be paid in cash unless otherwise stated, in order to 

ensure the liquidity to pay for default losses.

According to the Act, the Rules and the OTC Rules, every clearing 

member is required to contribute a certain sum to the Default fund to 

participate in TAIFEX Clearing's clearance and settlement service 

and clearing for OTC derivatives.

TAIFEX Clearing allocates the default fund in the following ways in 

accordance with Regulations Governing Futures Clearing Houses: 

(1) Bank deposit, (2) Purchase of treasury bills and government 

bonds (capped at 50% of default fund balance), and (3) Other uses 

approved by FSC.

Practically, the clearing and settlement fund ensures liquidity for 

fixed bank deposits.

TAIFEX Clearing calculates and reviews the adequacy of its default 

fund at least once a year based on the market size. All findings are 

reported to and acknowledged by the Competent Authority. The 

adequacy of the settlement fund is assessed using stress tests. The 

size of the clearing and settlement funds for the exchange-traded 

derivatives market and OTC derivatives market must be able to cover 

any single clearing member and the total of the two clearing 

members that present the highest losses under stress scenarios, 
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respectively.

In the event that a clearing member defaults and the member's margin 

balance is inadequate to cover the amount of the default, TAIFEX 

Clearing is entitled under Paragraph 1, Article 49 of the Act to utilize 

the following resources of reserve funds as the defaulting clearing 

member's clearing margin, the defaulting member's contribution to 

the default fund, the compensation reserve fund of the futures 

clearing house, the other clearing members' contributions to the 

default fund, and amounts to be borne by the other clearing members 

in proportions determined by the clearing house.

2. TAIFEX Clearing's short-term credit agreement with the settlement 

bank

In Letter No. (87)-Taiwan-Finance-Securities-VII-28330 issued by 

Securities and Futures Commission, Ministry of Finance on April 

15, 1998, TAIFEX Clearing was advised to obtain as much credit 

limit from its settlement banks as possible to cover risks of the 

entire exchange-traded derivatives market or OTC derivatives 

market in the event of an emergency.

TAIFEX Clearing has made short-term credit arrangements with 

multiple settlement banks; its current credit limit amounts to 

approximately NTD 8.2 billion.

In the exchange-traded derivatives market or OTC derivatives 

market, If a clearing member encounters an emergency event such 

as a default, and the amount of the default could not be fully 

covered using the defaulting member's clearing margin, TAIFEX 

Clearing is authorized under Article 49 of the Act to utilize 

various resources at its disposal to cover the amount of default of 

the defaulting member.

To avoid market-wide liquidity risk being caused by a delay in 

fund transfer or process during an emergency event, TAIFEX 

Clearing may draw working capital from short-term credit limits 

from settlement banks. These credit limits are unsecured and 

short-term (overdraft) in nature, renewable after 1 year. 

The balance may also be drawn in other currencies for margin of 

TAIFEX foreign currency-denominated instruments (e.g. USD, 
122

CNY, JPY etc.).

According to Article 49 of the Act, the amount drawn shall be 

used to cover the amount of default of the defaulting member. The 

sum of principals borrowed plus interest is then repaid to the 

settlement bank according to the terms of the credit agreement.

A bank needs to possess sufficient capacity to be able to serve as a 

settlement bank of TAIFEX Clearing. 

A bank needs to possess sufficient capacity to be able to serve as a 

settlement bank of TAIFEX Clearing. TAIFEX Clearing monitors 

common equity ratios, tier 1 capital ratios, capital adequacy ratios, 

and liquidity coverage ratios of its settlement banks on a regular 

basis; in addition, settlement banks' credit ratings are also 

reviewed regularly to ensure the security of customers' funds.

In addition to liquidity risk management framework that has adopted 

for exchange-traded derivatives mentioned above, TAIFEX Clearing 

also introduces liquidity risk margin for OTC derivatives to reduce 

liquidity risk of liquidating OTC derivatives of defaulting clearing 

member.

In summary, TAIFEX Clearing faces liquidity risk mainly due to the 

default of its clearing members. TAIFEX Clearing has liquid resources 

including clearing margins, default fund, compensation reserve fund, 

and short-term credit from settlement banks at its disposal to meet 

liquidity risks. The size of liquid resources is sufficient to cover 

clearing members that suffer the highest losses. The above liquid 

resources are mostly placed in the form of demand deposits and time 

deposits, offering high liquidity that assures financial security and 

stability of the entire market. In addition, TAIFEX Clearing has 

implemented robust management practices on the use of liquid 

resources and prevention of liquidity risks.

Key Consideration 2: An FMI should have effective operational and 

analytical tools to identify, measure, and monitor its settlement and 

funding flows on an ongoing and timely basis, including its use of 

intraday liquidity.

Ascertaining, measuring and monitoring settlement activities and 
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cash flow

Exchange-traded derivatives market

TAIFEX Clearing monitors clearing members' margins every day and 

in real time to make sure that they are not prone to liquidity risks. 

TAIFEX Clearing adopts the practice of trial-calculating gains and 

losses using actual or hypothetical prices at certain trading hours and 

whenever the market exhibits high volatility, and monitoring adequacy 

of members' margin accounts in real-time. Members who have actual 

margin balance falling below the required balance will be immediately 

margin called during trading hours.

Clearing members that receive margin call via TAIFEX Clearing's 

computer system during trading hours are required to notify the 

settlement bank within the specified deadline and deposit cash margins 

no lesser than the amount advised into TAIFEX Clearing’s clearing 

margin account.

According to Article 7, Paragraph 2 of the "Operational Key Points of 

Clearing and Settlement for Futures Commission Merchants and 

Clearing Members," clearing members whose margin balances fall 

below the required level (for proprietary and customers' positions) after 

trading hours are required to place additional margin before the given 

due time.

OTC derivatives market

TAIFEX starts building the intraday valuation curve and the end-of-day 

valuation curve at 11:00 am and 4:00 pm, respectively, every business 

day. TAIFEX then builds the ad-hoc valuation curve according to 

market conditions.

Where the clearing margin balance on a clearing account is lower than 

the required clearing margin after the valuation calculation, TAIFEX 

will issue a margin deposit notification for the shortfall to the clearing 

member. The clearing member shall meet the margin standards of 

TAIFEX's margin requirement within the stipulated period.

For the futures market and OTC market, TAIFEX has established the 

financial management team to manage margin deposits and fund 

usage. It allocates the funds appropriately and configures the fixed 
124

deposits as long and short term. The team observes and assesses the 

capital flow required for clearing and dynamically conducts fund 

allocation, in response to the liquidity requirements for clearing.

Key Consideration 3: A payment system or SSS, including one 

employing a DNS mechanism, should maintain sufficient liquid 

resources in all relevant currencies to effect same-day settlement, and 

where appropriate intraday or multiday settlement, of payment 

obligations with a high degree of confidence under a wide range of 

potential stress scenarios that should include, but not be limited to, the 

default of the participant and its affiliates that would generate the 

largest aggregate payment obligation in extreme but plausible market 

conditions.

[This key consideration is not applicable to CCPs]

Key Consideration 4: A CCP should maintain sufficient liquid 

resources in all relevant currencies to settle securities-related 

payments, make required variation margin payments, and meet other 

payment obligations on time with a high degree of confidence under a 

wide range of potential stress scenarios that should include, but not be 

limited to, the default of the participant and its affiliates that would 

generate the largest aggregate payment obligation to the CCP in 

extreme but plausible market conditions. In addition, a CCP that is 

involved in activities with a more-complex risk profile or that is 

systemically important in multiple jurisdictions should consider 

maintaining additional liquidity resources sufficient to cover a wider 

range of potential stress scenarios that should include, but not be 

limited to, the default of the two participants and their affiliates that 

would generate the largest aggregate payment obligation to the CCP in 

extreme, but plausible market conditions.

Adequacy of liquid resources

1. TAIFEX Clearing maintains adequate liquid resources for several 

currencies:

(1). TAIFEX Clearing's instruments are mostly denominated in NTD, 

while cash margins are also placed in NTD. For futures 
125

denominated in foreign currencies, TAIFEX Clearing requires 

clearing margins to be placed in the foreign currency at the time 

the trade instruction is accepted by futures commission merchant 

or clearing member. However, if wire transfer cannot be 

completed in time to meet the foreign currency margin call, a 

clearing member may place the margin using NTD or another 

foreign currency accepted by TAIFEX Clearing, and have 

TAIFEX Clearing perform currency exchange on the member's 

behalf. Traders may enter into agreements with their futures 

commission merchants to place margins in NTD, and have the 

futures commission merchant perform currency exchange on 

their behalf. 

In terms of the OTC derivatives market, clearing members and 

their clients can deposit the clearing margin and client margin in 

NTD or foreign currencies announced by TAIFEX or central 

government bonds or other securities announced by TAIFEX. If 

the clearing margin in the clearing account of the clearing 

member is insufficient, and in the event that the fund transfer 

cannot be completed within the time limit, or force majeure, or 

the clearing member defaults, TAIFEX may handle the 

exchange settlement on behalf of the clearing member.

As a result, TAIFEX Clearing has the ability to realize gains 

and losses of contracts denominated in any currency. There are 

no concerns regarding the adequacy of liquid resources in any 

currency, and hence TAIFEX Clearing is not prone to currency 

liquidity risk.

(2). TAIFEX Clearing has made short-term unsecured credit 

arrangements with multiple settlement banks. For the purpose of 

supporting trading of CNY exchange rate futures, TAIFEX 

Clearing is permitted under Letter No. Taiwan-Central-FX-V1040022531 issued by the Central Bank on June 18, 2015 to 

borrow CNY currency from domestic banking units (DBU). As 

a result of this announcement, credit limits granted by settlement 

banks can now be used to draw CNY funds in addition to USD 

funds.

2. TAIFEX Clearing collects clearing margins from clearing members 
126

based on total outstanding contracts:

TAIFEX Clearing requires margins to be placed in advance (premargin system). With the exception of special portfolio positions 

and spread positions, TAIFEX Clearing calculates the required 

amount of clearing margins on a market-wide basis. Positions of 

different accounts cannot be offset against each other except for 

proprietary futures traders. In other words, margin requirement is 

calculated by TAIFEX Clearing based on outstanding positions 

held in all accounts of the same clearing member.

3. Yearly review of the size of the clearing and settlement fund and 

financial safeguard resources

TAIFEX maintains complete financial safeguard resources to 

support the liquidity gap created when a clearing member defaults. 

The losses incurred when clearing members do not fulfill their 

clearing obligations, the clearing margin contributed by clearing 

members shall cover the losses. If the margin is insufficient, 

TAIFEX may use sources of funds, including the clearing and 

settlement fund, compensation reserve fund deposited by TAIFEX, 

and shared funds between clearing members, to cover the losses.

TAIFEX has established separate financial security protection 

resources for the exchange-traded derivatives market and OTC 

derivatives market. The descriptions are as follows.

(1) Exchange-traded derivatives market

A. Total Clearing and settlement fund: 

The calculations use the stress test method. The size of the 

Clearing and Settlement fund must be able to cover clearing 

members that suffer the highest losses under stress scenarios. 

The total clearing and settlement fund shall be reviewed at 

least once a year according to market scale. The amount that 

the total default fund exceeds the base default fund by should 

be paid by all clearing members. According to Article 4 of 

the TAIFEX "Regulations Governing Clearing Member 

Deposits to the Clearing and Settlement Fund Following 

Clearing and Settlement Operations", all clearing members 

shall continue clearing and settlement fund payments and it 
127

shall be shared based on the ratio of the average daily 

required clearing margin of each clearing members to the 

average daily required clearing margin of all the clearing 

members in the last three months.

B. Compensation Reserve Fund: 

In order to increase clearance capacity and better guarantee 

delivery of futures contracts in Taiwan, TAIFEX made a 

NTD500-million one-time provision for the compensation 

reserve fund in 2016, which increased total reserves to 

NTD1.5 billion and offered better assurance to the market's 

security and stability.

C. Sharing of losses among clearing members: 

According to Paragraph 2, Article 105 of the Rules, the cap 

on the apportioned levies shall be determined as follows: 

when a single clearing member defaults during the coolingoff period, the cap shall be 150% of other clearing members' 

respective required contributions to the default fund on the 

business day immediately preceding the first day of the 

cooling-off period; when multiple clearing members default 

during the cooling-off period, the cap shall be 300% of other 

clearing members' respective required contributions to the 

default fund on the business day immediately preceding the 

first day of the cooling-off period.

(2) OTC derivatives market

A. OTC derivatives default fund total:

The calculations use the stress test method. The size of the 

OTC derivatives default fund must be able to cover the total 

of the two clearing members that present the highest losses 

under stress scenarios. The OTC derivatives default fund 

total shall be reviewed at least once a year according to 

market scale. When the total OTC derivatives default fund 

exceeds the base OTC derivatives default fund, all clearing 

members shall contribute additional funds. According to 

Article 10.1.2 of the Enforcement Rules, the amount of 
128

additional OTC derivatives default funds to be contributed 

by clearing members as a whole shall be divided among the 

clearing members according to the ratio of the average daily 

required clearing margin of each clearing members to the 

average daily required clearing margin of all the clearing 

members in the last three months.

B. OTC compensation reserve fund:

In order to maintain adequate clearance capacity and better 

guarantee delivery of futures contracts in Taiwan, TAIFEX 

made a NTD500-million provision for the compensation 

reserve fund, and will increase total reserves each quarter to 

NTD1.5 billion, in order to offer better assurance to the 

market's security and stability.

C. Sharing of losses among clearing members: 

According to Paragraph 2, Article 58 of the OTC Rules, the 

cap of sharing losses shall be determined as follows: when a 

single clearing member defaults during the cooling-off 

period, the cap shall be 150% of other clearing members' 

respective required contributions to the OTC derivatives 

default fund; when multiple clearing members default during 

the cooling-off period, the cap shall be 300% of other 

clearing members' respective required contributions to the 

OTC derivatives default fund.

Risk profile and systemic importance in multiple jurisdictions

TAIFEX's clearing service only covers futures trades and OTC 

derivatives within domestic borders, and does not involve multiple 

jurisdictions.

Key Consideration 5: For the purpose of meeting its minimum liquid 

resource requirement, an FMI’s qualifying liquid resources in each 

currency include cash at the central bank of issue and at creditworthy 

commercial banks, committed lines of credit, committed foreign 

exchange swaps, and committed repos, as well as highly marketable 

collateral held in custody and investments that are readily available 

and convertible into cash with prearranged and highly reliable funding 
129

arrangements, even in extreme but plausible market conditions. If an 

FMI has access to routine credit at the central bank of issue, the FMI 

may count such access as part of the minimum requirement to the extent 

it has collateral that is eligible for pledging to (or for conducting other 

appropriate forms of transaction with) the relevant central bank. All 

such resources should be available when needed.

Size and composition of qualifying liquid resources

TAIFEX Clearing’s qualifying liquid resources consist mainly of the 

following:

1. Clearing margins contributed by clearing members

2. Securities pledged as margin collateral by clearing members

3. Clearing members' contribution to the default fund

4. The compensation reserve fund of TAIFEX

5. TAIFEX Clearing's short-term unsecured credit agreements with 

settlement banks.

Availability and coverage of qualifying liquid resources

TAIFEX Clearing's liquid resources are mostly placed in the form of 

demand and time deposits. Time deposits may be terminated at any time 

to fund TAIFEX Clearing's demand deposit account if needed. 

For this reason, TAIFEX Clearing does not have difficulties liquidating 

its liquid resources, and given the fact that all TAIFEX Clearing 

margins are placed in the base currency, there are no concerns regarding 

currency conversion.

In the futures market or OTC market, if a clearing member encounters 

an emergency event such as a default, and the amount of the default 

could not be fully covered using the defaulting member's clearing 

margin, TAIFEX Clearing is authorized under Article 49 of the Act to 

utilize various resources at its disposal to cover the amount of default 

of the defaulting member.

To avoid market-wide liquidity risk being caused by a delay in fund 

transfer or process during an emergency event, TAIFEX Clearing may 
130

engage settlement banks in short-term unsecured borrowing 

arrangements and draw from the credit limit that offers the quickest 

disbursement or the best interest rate to meet short-term funding needs.

TAIFEX's short-term unsecured borrowing arrangements with 

settlement banks may also be drawn in other currencies for margin of 

TAIFEX's foreign currency-denominated instruments (e.g. USD, 

CNY, JPY etc.).

Key Consideration 6: An FMI may supplement its qualifying liquid 

resources with other forms of liquid resources. If the FMI does so, then

these liquid resources should be in the form of assets that are likely to 

be saleable or acceptable as collateral for lines of credit, swaps, or 

repos on an ad hoc basis following a default, even if this cannot be 

reliably prearranged or guaranteed in extreme market conditions. Even 

if an FMI does not have access to routine central bank credit, it should 

still take account of what collateral is typically accepted by the relevant 

central bank, as such assets may be more likely to be liquid in stressed 

circumstances. An FMI should not assume the availability of emergency 

central bank credit as part of its liquidity plan.

Size and composition of supplemental liquid resources

If liquidity shortage remains even after all qualifying liquid resources 

such as clearing margin, default fund and compensation reserve fund 

have been used up, TAIFEX Clearing may proceed to utilize the 

following supplemental liquid resources. The availability of qualifying 

liquid resources plus supplemental liquid resources should be sufficient 

to meet TAIFEX Clearing's liquidity needs. TAIFEX Clearing's 

supplemental liquid resources consist of the following:

1. In the event that a clearing member defaults and the amount of 

default cannot be fully covered using resources of reserve funds as 

the defaulting clearing member's clearing margin, the defaulting 

member's contribution to the default fund, the compensation reserve 

fund of the clearing house, and the other clearing members' 

contributions to the default fund described in Paragraph 1, Article 

49 of the Act, TAIFEX Clearing may request other clearing 

members to share the loss at prescribed percentages.
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2. TAIFEX shareholders' equity totaled NTD 29.9 billion at the end of 

2022.

Availability of supplemental liquid resources

Exchange-traded derivatives market

According to TAIFEX Clearing's Responsibility Breakdown and 

Procedures for Handling Default by Clearing Members, in the event that 

a clearing member fails to fulfill settlement obligations and the amount 

of default cannot be covered after exhausting available resources of 

reserve funds as the defaulting clearing member's clearing margin, the 

defaulting member's contribution to the clearing and settlement funds, 

the compensation reserve fund of the clearing house described in 

Paragraph 1, Article 49 of the Act and Paragraph 1, Article 105 of the 

Rules, other clearing members shall be instructed to share the loss 

according to item 4 other clearing members' contributions to the 

clearing and settlement fund and item 5 cap amount of the same 

paragraph. 

The other clearing members shall deposit the clearing and settlement 

funds based on the ratio of the amount of the clearing member's required 

contribution to the clearing and settlement fund to the total amount of 

all other clearing members' required contributions to the clearing and 

settlement fund on the business day immediately preceding the first day 

of the cooling-off period set out in paragraph 3 of the same article.

OTC derivatives market

According to Article 58 of the OTC Rules, the futures clearing house 

shall first apply the defaulting clearing member's clearing margin to 

cover the default losses. If it is insufficient, TAIFEX shall apply the 

default clearing member's OTC derivatives default fund, OTC 

compensation reserve fund, non-clearing member's OTC derivatives 

default fund at the ratio and amount specified by TAIFEX (referred to 

below as additional deposit amount).

TAIFEX shall decide the payment order according to the following 

matters for the OTC default fund and additional margin of non-default 
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clearing members:

1. The risk ratio of contracts in each product category in the portfolio 

of each non-defaulting clearing member to contracts in all product 

categories on the business day preceding default.

2. Non-defaulting clearing member participating in auctions:

(1) A compulsory auction participant who did not make a bid or 

whose bid was lower than the reserve price

(2) A compulsory auction participant who made a bid higher than 

or equal to the reserve price and lower than the winning bid

(3) A compulsory auction participant who made the winning bid or 

a bid higher than or equal to the winning bid

(4) A non-compulsory auction participant

The maximum additional deposit amount of non-default clearing 

members shall be handled according to the following regulation:

1. If only one clearing member defaults during the cooling-off period, 

then the limit is 150% of the OTC derivatives default fund to be 

deposited by the clearing member on the business day before the 

start of the cooling-off period.

2. If multiple clearing member default during the cooling-off period, 

then the limit is 300% of the OTC derivatives default fund to be 

deposited on the business day before the start of the cooling-off 

period.

Cooling-off period means the period of 20 trading days beginning from 

the date on which a default by a single clearing member occurs. If a 

different clearing member defaults before the end of the cooling-off 

period, then the new end of the cooling-off period is 20 business days 

from the day the last clearing member defaulted.

For clearing members who do not comply with the additional deposit 

amount, TAIFEX may suspend its clearing operations or terminate its 

clearing participant agreement.

Key Consideration 7: An FMI should obtain a high degree of 

confidence, through rigorous due diligence, that each provider of its 

minimum required qualifying liquid resources, whether a participant of 

the FMI or an external party, has sufficient information to understand 
133

and to manage its associated liquidity risks, and that it has the capacity 

to perform as required under its commitment. Where relevant to 

assessing a liquidity provider’s performance reliability with respect to 

a particular currency, a liquidity provider’s potential access to credit 

from the central bank of issue may be taken into account. An FMI should 

regularly test its procedures for accessing its liquid resources at a 

liquidity provider.

Use of liquidity providers

1. TAIFEX Clearing's liquidity providers are mainly the settlement 

banks. TAIFEX Clearing has made short-term unsecured credit 

arrangements with multiple settlement banks; its current credit limit 

amounts to approximately NTD 8.2 billion.

2. All settlement banks are chosen through a selection process, where 

meetings are held to evaluate financial capacity, IT processes, 

relevant experience, and credit standing of each candidate. Only 

those that pass assessment can be appointed as settlement banks for 

TAIFEX Clearing.

3. All TAIFEX Clearing settlement banks are participants of the 

Central Bank's "Foreign Currency Clearance Platform," which 

enables them to deliver "same-day, full-sum wire transfer" that 

greatly reduces funding time, cost and risks.

Reliability of liquidity providers

TAIFEX Clearing's settlement banks consist entirely of credit worthy, 

sizable banking institutions from Taiwan and abroad. TAIFEX 

Clearing is able to utilize at any time its demand and time deposits 

placed at settlement banks, and may draw at any time from the 

unsecured short-term credit facilities that settlement banks have 

granted to TAIFEX Clearing. These short-term credit facilities are 

renewed on a yearly basis.

Key Consideration 8: An FMI with access to central bank accounts, 

payment services, or securities services should use these services, 

where practical, to enhance its management of liquidity risk.
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TAIFEX Clearing's payments and settlements are entirely completed by 

clearing members and settlement banks without involving the Central 

Bank.

Key Consideration 9: An FMI should determine the amount and 

regularly test the sufficiency of its liquid resources through rigorous 

stress testing. An FMI should have clear procedures to report the results 

of its stress tests to appropriate decision makers at the FMI and to use 

these results to evaluate the adequacy of and adjust its liquidity riskmanagement framework. In conducting stress testing, an FMI should 

consider a wide range of relevant scenarios. Scenarios should include 

relevant peak historic price volatilities, shifts in other market factors 

such as price determinants and yield curves, multiple defaults over 

various time horizons, simultaneous pressure in funding and asset 

markets, and a spectrum of forward-looking stress scenarios in a 

variety of extreme but plausible market conditions. Scenarios should 

also take into account the design and operation of the FMI, include all 

entities that might pose material liquidity risks to the FMI (such as 

settlement banks, nostro agents, custodian banks, liquidity providers, 

and linked FMIs), and where appropriate, cover a multiday period. In 

all cases, an FMI should document its supporting rationale for, and 

should have appropriate governance arrangements relating to, the 

amount and form of total liquid resources it maintains.

Stress test program

TAIFEX assesses the required balance of the clearing and settlement 

funds for the exchange-traded derivatives market and OTC derivatives 

market on a quarterly basis. These assessments are consolidated into an 

annual report that is subsequently reported to the competent authority. 

Adjustments to the clearing and settlement fund are allocated among 

clearing members according to their share of the trading activity.

Meanwhile, TAIFEX also takes the initiative to assess potential default 

risks of open futures positions and OTC market clearing member 

positions based on current trading activities and price fluctuations, 

thereby making sure that potential risks in the market are adequately 
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covered by the clearing and settlement fund.

Uses of stress test result

Exchange-traded derivatives market

The calculation method is based on the total open positions in the 

market. TAIFEX constructs stress test scenarios using historical events 

as adopted by futures exchanges around the world, and estimates price 

volatility based on the level of volatility presented during the historical 

event. 

When applying stress tests on clearing members' gains/losses, TAIFEX 

adopts scenarios of extreme but possible volatility on the price of 

futures and options as the basis for clearing members' stress tests. Take 

the higher between largest losses for the potential default given a rise 

and fall scenarios to estimate the total clearing and settlement fund. The 

amount of additional clearing and settlement funds to be contributed by 

clearing members as a whole shall be divided among the clearing 

members according to the ratio of the average daily required clearing 

margin of each clearing members to the average daily required clearing 

margin of all the clearing members in the last three months.

OTC derivatives market

Based on the accounts, TAIFEX adopts historical stress scenarios and 

hypothetical scenarios for stress testing to estimate the two largest total 

values of possible losses for clearing members, which is used as the 

OTC clearing. The largest value from each scenario shall be used as the 

OTC default fund total. The amount of additional clearing and 

settlement funds to be contributed by clearing members as a whole shall 

be divided among the clearing members according to the ratio of the 

average daily required clearing margin of each clearing members to the 

average daily required clearing margin of all the clearing members in 

the last three months.

Adequacy review of liquidity resources

Apart from quarterly assessments of the clearing and settlement fund 
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balance, TAIFEX conducts daily stress tests to review the larger 

possible losses to clearing members, the clearing margin of the clearing 

member, TAIFEX's clearing and settlement fund, and compensation 

reserve fund to assess potential liquidity needs.

Review and validation

TAIFEX Clearing assesses the required balance of the default fund on 

a quarterly basis. These assessments are consolidated into an annual 

report that is subsequently acknowledged by the chief executive and 

reported to the Competent Authority. Capital management meetings 

and Clearing Committee meetings are held on a monthly basis to 

discuss the use of funds. TAIFEX Clearing maintains good lines of 

communication with industry participants, and holds regular 

discussions with clearing members regarding TAIFEX Clearing's 

clearing services. All establishment and amendment of regulations is 

communicated to industry participants and enacted with their support.

Key Consideration 10: An FMI should establish explicit rules and 

procedures that enable the FMI to effect sameday and, where 

appropriate, intraday and multiday settlement of payment obligations 

on time following any individual or combined default among its 

participants. These rules and procedures should address unforeseen 

and potentially uncovered liquidity shortfalls and should aim to avoid 

unwinding, revoking, or delaying the same-day settlement of payment 

obligations. These rules and procedures should also indicate the FMI’s 

process to replenish any liquidity resources it may employ during a 

stress event so that it can continue to operate in a safe and sound 

manner.

Same-day settlement

If a clearing member fails to fulfill its settlement obligations, TAIFEX 

is vested under Article 49 of the Act to cover the shortfall using liquid 

resources. Article 101 to Article 105 of the Rules, Article 52 to Article 

65 of the OTC Rules, and Chapter 11 of the Enforcement Rules clearly 

outline the means of handling clearing members' defaults. It also has an 

emergency response manual that lays out procedures in the event that a 
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clearing member fails to fulfill its settlement obligations to TAIFEX 

Clearing, to an extent capable of disrupting the futures market and OTC 

market as a whole.

TAIFEX Clearing's margins, default fund and liquid resources are 

placed in the form of highly liquid assets such as cash and central 

government bonds. These assets can be settled and paid on the same day 

as the withdrawal.

According to Article 57-1 of the Rules and Article 19 of the OTC Rules, 

when the margin equity of the principle is negative or the client margin 

account is less than the required amount and cannot be supplemented 

within the specified period, the futures commission merchant or 

clearing member should cover the inadequacy with their own funds, in 

order to support the same-day completion of clearing obligations.

Replenishment of liquidity resources

The amount of clearing and settlement funds that have been used up 

may be reimbursed according to TAIFEX's "Regulations Governing 

Clearing Member Deposits to the Clearing and Settlement Fund 

Following Clearing and Settlement Operations", Chapter 8 of the OTC 

Rules, and Chapter 10 of the Enforcement Rules

According to Article 49, Paragraph 3 of the Act, claims can be made 

against the defaulting clearing member to cover any drawing made on 

non-defaulting members' contributions to the default fund, as well as 

compensation reserve fund of TAIFEX Clearing and losses shared 

proportionally by other clearing members.

TAIFEX Clearing maintains good lines of communication with market 

participants and holds regular discussions with clearing members 

regarding TAIFEX Clearing's clearing services. Establishment and 

amendment of all regulations are communicated to industry 

participants and enacted with their support. Participants are also 

regularly briefed on TAIFEX Clearing's clearing services operations 

and related planning.
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Principle 8:Settlement finality

An FMI should provide clear and certain final settlement, at a minimum 

by the end of the value date. Where necessary or preferable, an FMI 

should provide final settlement intraday or in real time.

Summary Narrative

Key Consideration 1: An FMI’s rules and procedures should clearly 

define the point at which settlement is final.

Point of settlement finality

The Rules, the OTC Rules, the Enforcement Rules, Operational Key 

Points of Clearing and Settlement for Futures Commission Merchants 

and Clearing Members, and other policies have laid out detailed 

procedures for margin placement, margin call, and final settlement etc. 

that futures commission merchants and clearing members must follow.

The final settlement date for all instruments cleared by TAIFEX 

Clearing, including index futures and options, stock futures and 

options, exchange rate futures and options, gold futures and options, 

NTD-denominated gold futures, interest rate swaps and nondeliverable forwards, shall proceed as stated in the relevant rules of 

the respective contract.

Key Consideration 2: An FMI should complete final settlement no 

later than the end of the value date, and preferably intraday or in real 

time, to reduce settlement risk. An LVPS or SSS should consider 

adopting RTGS or multiple-batch processing during the settlement day.

Intraday final settlement on the rights transfer date or real-time 

final settlement

Exchange-traded derivatives market

Currently, NTD-denominated gold futures and gold options can either 

be settled in cash or using gold inventory according to "Taiwan Futures 

Exchange Operational Key Points of Clearing and Settlement for 

Futures Commission Merchants and Clearing Members" and "Taipei 

Exchange Rules on Registration and Trading of Gold Inventory."
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All other instruments traded over TAIFEX such as index futures, stock 

futures and options have the final settlement date set as the same day as 

the final clearing date. All settlement procedures including bank entries 

must be completed in real-time before the specified intraday time 

without delay.

OTC derivatives market

When performing daily settlement on each business day, TAIFEX 

according to Article 7.1.1 and 7.1.2 of the OTC Enforcement Rules, 

calculates the settlement amounts for the proprietary accounts and 

client accounts of clearing members, including the end-of-day markto-market difference and price alignment amounts, end-of-day 

variation margins and price alignment interests, payable or receivable 

amount of interest on a cleared transaction for the following business 

day and other payable amounts stipulated by TAIFEX for the next 

business day. 

TAIFEX will conduct clearing and settlement collection at 8:30 AM 

on the next business day. If it continues to be insufficient, TAIFEX 

will send a margin deposit notification. The clearing member shall 

transfer the amount before 11 AM to complete clearing processes. 

According to Article 53 of the OTC Rules, TAIFEX shall deem a 

clearing member as being in default on the occurrence of failure to pay 

the clearing margin within the deadlines.

Key Consideration 3: An FMI should clearly define the point after 

which unsettled payments, transfer instructions, or other obligations 

may not be revoked by a participant.

Clearing/settlement time and rules

TAIFEX performs settlement at maturity in accordance with the Act, 

Regulations Governing Futures Clearing Houses, the Rules, the OTC 

Rules, the Enforcement Rules, Operational Key Points of Clearing and 

Settlement for Futures Commission Merchants and Clearing Members, 

and terms of the settlement agreements it has signed with clearing 

members for futures or clearing agreements for OTC derivatives.
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TAIFEX Clearing has relevant rules and procedures in place for 

markets it serves. The rules and procedures specified the point when 

transfer instructions become irrevocable for clearing members based 

on TAIFEX Clearing’s Rules and the OTC Rules. Settlement 

instructions to TAIFEX Clearing may not be revoked after 

completion. 

TAIFEX has stipulated the clearing obligations deadline for 

payment of the margins by clearing members.

The contractual agreements between TAIFEX Clearing and its 

settlement banks provide specific instances and conditions, such as a 

correction of errors, where settlement instructions can be amended or 

revoked. The settlement instruction in question would be revoked via 

fax with verbal and/or written communications involving such 

settlement bank and clearing member.

In the exchange-traded derivatives market, when events listed in 

Paragraph 1, Article 58 of the Rules occur to the principle, the futures 

commission merchant will be deemed as defaulted and it shall be 

reported to TAIFEX. 

In the OTC derivatives market, when events listed in Article 3.3.7 of 

the Enforcement Rules occur to the client of the clearing member, the 

client will be deemed as defaulted and it shall be reported to TAIFEX. 

Moreover, according to Article 10 of the OTC Rules, the clearing 

member is still required to fulfill its settlement obligations to TAIFEX.
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Principle 9:Money settlements

An FMI should conduct its money settlements in central bank money 

where practical and available. If central bank money is not used, an FMI 

should minimise and strictly control the credit and liquidity risk arising 

from the use of commercial bank money.

Summary Narrative

Key Consideration 1: An FMI should conduct its money settlements in 

central bank money, where practical and available, to avoid credit and 

liquidity risks.

The Central Bank of Taiwan performs clearing services for the 

following:

1. Check clearance.

2. Check clearance proceeds payable/receivable.

3. Net proceeds payable/receivable from electronic payment or 

securities clearance.

According to the Directions for the Central Bank of the Republic of 

China (Taiwan) to Govern Electronic Interbank Funds Transfer and 

Settlement, the Central Bank of Taiwan’s counterparties include that 

of check clearing houses, electronic payment clearing houses, and 

securities clearing houses. The term "securities" in a securities clearing 

house includes bills, bonds, equity stocks etc. Since TAIFEX Clearing 

does not meet any of the clearance services mentioned above, 

TAIFEX Clearing currently does not involve the central bank for 

settlement.

Key Consideration 2: If central bank money is not used, an FMI should 

conduct its money settlements using a settlement asset with little or no 

credit or liquidity risk.

Liquidity risk of settlement assets

TAIFEX engages settlement banks for money settlement. The 

settlement assets are limited to cash in NTD or foreign currencies, and 

shall have high liquidity. A settlement bank needs to possess sufficient 
142

capacity to be able to serve as a settlement bank of TAIFEX Clearing. 

TAIFEX Clearing monitors common equity ratios, tier 1 capital ratios, 

capital adequacy ratios, and liquidity coverage ratios of its settlement 

banks on a regular basis; in addition, settlement banks' credit ratings 

are also reviewed regularly to ensure the security of customers' funds.

Key Consideration 3: If an FMI settles in commercial bank money, it 

should monitor, manage, and limit its credit and liquidity risks arising 

from the commercial settlement banks. In particular, an FMI should 

establish and monitor adherence to strict criteria for its settlement 

banks that take account of, among other things, their regulation and 

supervision, creditworthiness, capitalisation, access to liquidity, and 

operational reliability. An FMI should also monitor and manage the 

concentration of credit and liquidity exposures to its commercial 

settlement banks.

Reliability of the settlement bank

TAIFEX Clearing's settlement banks consist entirely of state-owned 

and private commercial banks with the upper-most credit ratings and 

asset size in the nation. The criteria for a settlement bank include: 

1. Primary indicators: Financial eligibility, business experience and 

credit status, operational qualifications, price competitiveness, and 

ability to respond to a crisis.

2. Secondary indicators: Computer testing and consent from clearing 

members to serve as a settlement bank. 

TAIFEX Clearing's annual review of the financial standing of each 

settlement bank is conducted by inspecting the following according to 

the Competent Authority's orders regarding the criteria for banks where 

futures commission merchants open customer margin accounts, the 

Standards for Bank Liquidity Coverage Ratios, and TAIFEX Clearing's 

fund utilization guidelines:

1. common equity ratio

2. tier 1 capital ratio

3. capital adequacy ratio

4. liquidity coverage ratio
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5. credit rating

Credit ratings of TAIFEX Clearing's settlement banks are reviewed on 

a regular basis. TAIFEX Clearing also assesses deposit balances, loan 

portfolios, and deposit-to-load ratios of its settlement banks on a 

monthly basis to ensure risk diversification, and uses a variety of 

measures to monitor compliance. 

TAIFEX Clearing places margins in all of its settlement banks to 

achieve risk diversification. Margins are placed entirely in cash at 

settlement banks for high liquidity. Should one of its settlement banks 

encounter a credit risk or liquidity risk event, TAIFEX Clearing is able 

to quickly transfer cash margins to other settlement banks. Even if a 

settlement bank causes losses to TAIFEX Clearing due to a risk event 

or error, TAIFEX Clearing can still make a proportional claim from the 

Central Deposit Insurance Corp. 

Furthermore, TAIFEX Clearing reviews the credit ratings of its 

settlement banks on a regular basis, and follows the resolution made 

by its capital management team that no more than the maximum of 

total clearing margins can be placed in any single settlement bank.

Key Consideration 4: If an FMI conducts money settlements on its own 

books, it should minimise and strictly control its credit and liquidity 

risks.

Reliability of settlement process

According to TAIFEX Clearing's policies, every settlement process 

must be completed within one hour there has never been an incident of 

default by any settlement bank.

Key Consideration 5: An FMI’s legal agreements with any settlement 

banks should state clearly when transfers on the books of individual 

settlement banks are expected to occur, that transfers are to be final 

when effected, and that funds received should be transferable as soon 

as possible, at a minimum by the end of the day and ideally intraday, in 

order to enable the FMI and its participants to manage credit and 

liquidity risks.
144

Legal agreements between TAIFEX Clearing and settlement banks

Below are terms of the Futures Clearing Service Fund Transfer 

Agreement and OTC Clearing Service Fund Transfer Agreement that 

TAIFEX Clearing has signed with its settlement banks:

1. The settlement bank shall process book-entry transfers of clearing 

margins according to the clearing margin transfer statement and 

relevant computer data produced by TAIFEX Clearing. The 

settlement banks shall assigned dedicated departments and 

personnel to process book-entry transfer and manage 

communication with TAIFEX Clearing.

2. If a clearing member or customer has insufficient balance in its 

clearing margin account to execute the abovementioned book-entry 

transfer, the settlement bank shall collect all remaining balance in 

the account first and make continuous efforts to debit the account 

until the amount in question is collected in full. (Not applicable to 

OTC derivatives market) 

3. When TAIFEX Clearing has insufficient balance in its clearing 

margin account, the settlement bank shall extend credit to TAIFEX 

Clearing according to the credit agreement.

4. The settlement bank must produce computer files containing the 

outcome of its book-entry transfers within the prescribed deadline 

on the deal date. If the settlement bank does not complete 

transactions within the specified time but fails to notify TAIFEX 

Clearing of the delay, the settlement bank would still be deemed to 

have completed TAIFEX Clearing's book-entry transfer 

instructions.

5. Any outcome of book-entry transfer and any electronic media 

presented by the settlement containing details of amounts received 

shall be construed as irrevocable commitments to pay TAIFEX 

Clearing.

6. The settlement bank shall be held responsible for any overdrawn 

amount, duplicate debit or dispute that are due to errors committed 

by the settlement bank. Similarly, TAIFEX Clearing and clearing 

members shall be held responsible for any overdrawn amount, 

duplicate debit or dispute caused by errors contained in TAIFEX 
145

Clearing's statements or computer files.

7. The settlement bank shall perform margin account services and 

book-entry transfer services for the benefit of TAIFEX Clearing 

outside normal banking hours.

The settlement bank's agreements with various clearing members shall 

contain the following terms; TAIFEX Clearing must be notified in 

writing of any agreement that does not contain the following terms:

1. The clearing member shall authorize the settlement bank to collect 

funds from the member's or its customers' clearing margin accounts 

when instructed to do so by TAIFEX Clearing. (Not applicable to 

OTC derivatives market) 

2. If the clearing member has insufficient balance in its clearing 

margin account to make a payment, the settlement bank shall collect 

all the remaining balance in the account and make continuous 

efforts to debit the account until the amount in question is collected 

in full. (Not applicable to OTC derivatives market) 

3. In the event that the clearing member fails to fulfill its clearance or 

settlement obligations to the domestic futures or OTC derivatives 

market, the settlement bank shall dispose of the fund balance in the 

clearing margin account as instructed by TAIFEX Clearing.

4. Balances maintained in customers' clearing margin accounts that 

the clearing member has opened under the settlement bank may be 

drawn only by way of fund transfer.

5. The clearing member agrees for the settlement bank to provide 

account information to TAIFEX Clearing upon request.
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Principle 10:Physical deliveries

An FMI should clearly state its obligations with respect to the delivery 

of physical instruments or commodities and should identify, monitor, 

and manage the risks associated with such physical deliveries.

Summary Narrative

Key Consideration 1: An FMI’s rules should clearly state its 

obligations with respect to the delivery of physical instruments or 

commodities.

According to the Article 91 of the Rules, for futures trading contracts to 

be settled by physical delivery upon expiration, the clearing member 

shall, pursuant to the TAIFEX Clearing's notice, complete settlement 

procedures as provided below:

1. Where the underlying are payable, the underlying or vouchers 

therefore shall be delivered within the delivery period and in 

accordance with the types of deliverable underlying as prescribed 

by the TAIFEX Clearing. 

2. Where the underlyings are receivable, the underlyings or vouchers 

therefor shall be collected after the settlement price has been paid 

without error. 

To effect physical delivery of futures trading contracts, the TAIFEX 

Clearing may, through the centralized securities depository enterprise 

or other institutions, carry out receipt/delivery procedures of the 

deliverable underlyings by book-entry transfer or other means.

Currently, for NTD-denominated gold futures and gold options, traders 

have the choice to convert into TPEX gold deposits upon maturity.

With regards to the physical delivery and conversion of NTDdenominated gold futures or gold options into TPEX gold inventory, 

TAIFEX Clearing has clearly outlined in its "Rules on Conversion of 

NTD-Denominated Gold Futures and Gold Options to TPEX Gold 

Inventory at Maturity" the settlement procedures, buyer's obligation to 

deliver settlement proceeds, seller's obligation to deliver gold, and 

actions to be performed by TAIFEX Clearing, futures commission 

merchants and clearing members, which include:
147

1. Process trader's request to convert matured futures or options into 

gold inventory (to be performed by futures commission merchants 

and clearing members)

2. Reporting trader's conversion of matured futures or options into 

gold inventory (to be performed by futures commission merchants 

and clearing members)

3. Allocation of inventory and calculation of settlement proceeds at 

maturity

4. Collection/payment of proceeds

5. Book-entry transfer of gold receivable by the buyer

The abovementioned "Rules on Conversion of NTD-denominated 

Gold Futures and Gold Options to TPEX Gold Inventory at Maturity" 

have both been published on TAIFEX Clearing's website for easy 

access and compliance by market participants.

Key Consideration 2: An FMI should identify, monitor, and manage 

the risks and costs associated with the storage and delivery of physical 

instruments or commodities.

The risks and costs associated with the storage and delivery of 

physical instruments 

Gold inventory converted from NTD-denominated gold futures or gold 

options is stored according to TAIFEX Clearing's "Rules on Conversion 

of NTD-denominated Gold Futures and Gold Options to TPEX Gold 

Inventory at Maturity," using TAIFEX Clearing's special account 

opened with TDCC. During settlement, TAIFEX Clearing would notify 

TDCC to perform a book-entry transfer of gold balance from its account 

into the buyer's account as advised by the clearing member. This 

practice enables sound identification, supervision and management of 

settlement risks and costs.

Fees and costs payable by clearing members for participating in the 

settlement and clearance service have been outlined in "Taiwan 

Futures Clearing Service Fee Schedule." and Chapter 12 - "Clearing 

Service Fees and Connection Fees" of the Enforcement Rules.
148

Principle 11:Central securities depositories

A CSD should have appropriate rules and procedures to help ensure the 

integrity of securities issues and minimise and manage the risk 

associated with the safekeeping and transfer of securities. A CSD 

should maintain securities in an immobilized or dematerialized form for 

their transfer by book entry.

Summary Narrative

Key Consideration 1: A CSD should have appropriate rules, 

procedures, and controls, including robust accounting practices, to 

safeguard the rights of securities issuers and holders, prevent the 

unauthorised creation or deletion of securities, and conduct periodic 

and at least daily reconciliation of securities issues it maintains.

Safeguarding the rights of securities issuers and holders

[This principle is not applicable to CCPs] 

Prevention of the unauthorized creation or deletion of securities 

[This principle is not applicable to CCPs] 

Periodic reconciliation of securities issues 

[This principle is not applicable to CCPs]

Key Consideration 2: A CSD should prohibit overdrafts and debit 

balances in securities accounts.

[This principle is not applicable to CCPs] 

Key Consideration 3: A CSD should maintain securities in an 

immobilised or dematerialised form for their transfer by book entry. 

Where appropriate, a CSD should provide incentives to immobilise or 

dematerialise securities.

[This principle is not applicable to CCPs] 
149

Key Consideration 4: A CSD should protect assets against custody risk 

through appropriate rules and procedures consistent with its legal 

framework.

[This principle is not applicable to CCPs] 

Key Consideration 5: A CSD should employ a robust system that 

ensures segregation between the CSD’s own assets and the securities of 

its participants and segregation among the securities of participants. 

Where supported by the legal framework, the CSD should also support 

operationally the segregation of securities belonging to a participant’s 

customers on the participant’s books and facilitate the transfer of 

customer holdings.

[This principle is not applicable to CCPs] 

Key Consideration 6: A CSD should identify, measure, monitor, and 

manage its risks from other activities that it may perform; additional 

tools may be necessary in order to address these risks.

[This principle is not applicable to CCPs] 
150

Principle 12:Exchange-of-value securities systems

If an FMI settles transactions that involve the settlement of two linked 

obligations (for example, securities or foreign exchange transaction), it 

should eliminate principal risk by conditioning the final settlement of 

one obligation upon the final settlement of the other.

Summary Narrative

Key Consideration 1: An FMI that is an exchange-of-value settlement 

system should eliminate principal risk by ensuring that the final 

settlement of one obligation occurs if and only if the final settlement of 

the linked obligation also occurs, regardless of whether the FMI settles 

on a gross or net basis and when finality occurs.

TAIFEX Clearing currently does not adopt exchange-of-value 

settlement, as settlement obligations of existing TAIFEX Clearing 

instruments are not linked to any other obligations.
151

Principle 13:Participant-default rules and procedures

An FMI should have effective and clearly defined rules and procedures 

to manage a participant default. These rules and procedures should be 

designed to ensure that the FMI can take timely action to contain losses 

and liquidity pressures and continue to meet its obligations.

Summary Narrative

Key Consideration 1: An FMI should have default rules and 

procedures that enable the FMI to continue to meet its obligations in 

the event of a participant default and that address the replenishment of 

resources following default.

Exchange-traded derivatives

Participant-default rules and procedures

Chapter 12 of the Rules outlines the method of which clearing 

member's default is handled. According to Article 101 of the Rules, 

where any of the following circumstances exists in respect of a 

clearing member, TAIFEX Clearing shall consider that clearing 

member in default:

1. Failure to pay the clearing margin within the deadline specified 

by regulations;

2. Failure to fulfill settlement obligations within the specified time 

period;

3. Violation of provisions of the clearing and settlement contract.

Where a clearing member is in default under any of the circumstances 

enumerated in the preceding paragraph, then TAIFEX Clearing, in 

addition to handling the matter under the provisions of this Chapter, 

may make any additional necessary disposition against the clearing 

member pursuant to the provisions of the clearing and settlement 

contract.

According to Article 103 of the Rules, where a clearing member is in 

default due to financial factors, TAIFEX Clearing may take the 

following measures:

1. Suspend the defaulting clearing member's clearing and 

settlement operations and report the matter in writing to the 

Competent Authority.

2. Notify all clearing members and futures commission merchants 
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through TAIFEX Clearing's online information system.

3. Check the defaulting clearing member's clearing margin 

balance, bank account balance, operating bond, default fund, 

and other assets and immediately pursue protective measures in 

respective of the statutory rights.

4. Dispose of the defaulting clearing member's positions and 

margin funds.

5. Conduct an audit of the defaulting clearing member and an 

investigation and analysis of the incident.

According to Article 104 of the Rules, where a clearing member is in 

default due to financial factors, TAIFEX Clearing may dispose of 

positions and margin in that clearing member's account by the 

following means:

1. Halt all trading between the defaulting clearing member and its 

mandating futures commission merchant; provided, this 

restriction shall not apply to trading for the purpose of liquidating 

existing positions;

2. Freeze or transfer funds and securities in the defaulting clearing 

member's clearing margin account;

3. Pursuant to the provisions of Article 54 of the Act, open a default 

handling account with a clearing member that has engaged in a 

succession agreement with the defaulting clearing member and 

liquidate proprietary positions held by the defaulting clearing 

member and the defaulting futures commission merchant;

4. A futures commission merchant that has engaged in a succession 

agreement with the defaulting futures commission merchant 

shall, at the instructions of TAIFEX Clearing, liquidate open 

positions of the defaulting customer.

A defaulting futures commission merchant shall submit itemized 

trading statements for all of its customers to the succeeding futures 

commission merchant. In the event the defaulting futures commission 

merchant refuses to hand over the itemized trading statement, 

TAIFEX Clearing may liquidate all customer positions of the 

defaulting futures commission merchant.

Non-defaulting clients of the defaulting clearing member and 

defaulting futures commission merchant shall liquidate their positions 
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or apply to have their positions transferred to another futures 

commission merchant. Where a customer fails to do so within 5 days, 

the succeeding futures commission merchant may liquidate all open 

positions in that customer's account.

A non-defaulting mandating futures commission merchant shall select 

another clearing member and enter into an agreement mandating that 

clearing member to handle clearing and settlement, and shall not 

resume trading until after notifying TAIFEX Clearing of the execution 

of the agreement.

Procedures for clearing member's default

TAIFEX Clearing has implemented a set of "Clearing Member 

Default Resolution Procedures" that calls for the following actions if a 

clearing member defaults:

1. Conduct special audit; the scope of audit shall cover:

(1) Reasons for the breach of settlement obligation.

(2) Positions and margin balances held by clearing members 

under the names of other futures commission merchants and 

futures traders.

(3) Clearing member's financial status.

(4) Whether the person-in-charge or any employee has violated 

law.

2. Take count of assets owned by the clearing member and take 

legal actions immediately to secure debts.

3. Report the default case to the Competent Authority.

4. Announce the default case to the market.

5. Arrange a default resolution meeting.

6. Verify actions to be taken by the defaulted clearing member and 

the succeeding clearing member.

7. Utilize the default fund.

8. Stop the defaulted clearing member from taking further 

positions.

9. Terminate clearing and settlement services to the defaulted 

member.

10. Report findings of the default case to the Competent Authority.
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Use of financial resources and the utilization procedure

According to Article 49 of the Act, Article 105 of the Rules and 

Apportionment Procedures for Managing Default by Clearing 

Members, in case a clearing member fails to perform its clearing and 

settlement obligation, TAIFEX Clearing shall first apply the defaulting 

clearing member's clearing margin to cover the default. If that is 

insufficient, it shall apply the defaulting member's contribution to the 

default fund, the compensation reserve fund of the futures clearing 

house, the other clearing members' contributions to the default fund, 

and amounts to be borne by the other clearing members in proportions 

determined by the clearing house.

In the event that a clearing member fails to fulfill settlement 

obligations and the proportion of contribution according to TAIFEX 

regulations as the defaulting clearing member's clearing margin, the 

defaulting member's contribution to the clearing and settlement fund, 

the compensation reserve fund of the futures clearing house, and the 

other clearing members' contributions to the clearing and settlement 

fund described in Paragraph 1, Article 49 of the Act and in the order 

under Paragraph 1, Article 105 of the Rules, clearing members shall 

share the loss according to item 4 other clearing members' 

contributions to the clearing and settlement fund and item 5 cap 

amount of the same paragraph. The other clearing members shall 

deposit the clearing and settlement funds based on the ratio of the 

amount of the clearing member's required contribution to the clearing 

and settlement fund to the total amount of all other clearing members' 

required contributions to the clearing and settlement fund on the 

business day immediately preceding the first day of the cooling-off 

period set out in paragraph 3 of the same article.

According to Paragraph 2, Article 105 of the Rules, the cap on the 

apportioned levies referred to in the preceding paragraph shall be 

determined as follows: when a single clearing member defaults during 

the cooling-off period (the period of 20 trading days beginning from 

the date on which a default by a single clearing member occurs), the 

cap shall be 150% of other clearing members' respective required 

contributions to the default fund on the business day immediately 
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preceding the first day of the cooling-off period; when multiple 

clearing members default during the cooling-off period, the cap shall 

be 300% of other clearing members' respective required contributions 

to the default fund on the business day immediately preceding the first 

day of the cooling-off period. Any shortfall after the jointly 

apportioned levies on other clearing members shall be appropriated 

from the TAIFEX Clearing.

Members who refuse to follow procedures or pay their share of the 

loss may have clearing and settlement services suspended or 

terminated by TAIFEX Clearing.

OTC derivatives market

In order to ensure the operational security of OTC derivatives clearing 

and avoid the impact of defaults, TAIFEX has established the OTC 

Default Management Group, procedures related to default handling, 

OTC financial security protection resources, and order of compensation 

and settlements. It has established default handling mechanisms that 

fully reflect market examples.

When a clearing member defaults due to financial factors, according to

Chapter 9 - “Default Handling" of the OTC Rules and Chapter 11 of the 

Enforcement Rules, TAIFEX reserves the right to adopt necessary 

measures to manage the losses and liquidity issues caused by defaults, 

in order to maintain the daily clearing operations of TAIFEX.

Establish Default Management Group

According to Article 52 of the OTC Rules, TAIFEX shall establish an 

OTC Default Management Group (DMG). Members include clearing 

member representatives with the expertise in cleared transaction risk 

management, trading and/or hedging, and TAIFEX personnel. The 

DMG must serve as an advisory unit for TAIFEX to manage clearing 

member defaults, conduct defaults fire drills, and provide 

recommendations for the following matters:

1. Hedging strategy for the defaulting clearing member's positions.

2. Auction method for the defaulting clearing member's positions.
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3. Other matters relating to default management.

According to Article 3 of Rules of the Taiwan Futures Exchange OTC 

Derivatives Clearing Default Management Group, TAIFEX may 

establish DMG for each product class. Each DMG shall consist of six 

members appointed as described below with the approval of TAIFEX's 

board of directors.

1. Five clearing member representatives are to be appointed by 

TAIFEX out of individuals with at least two years' experience in 

trading, hedging, and risk management for the relevant product.

2. One TAIFEX representative to be proposed by the president and 

nominated by the Chairman of the board of directors.

According to Article 2 of Rules of the Taiwan Futures Exchange OTC 

Derivatives Clearing Default Management Group, The roles and 

responsibilities of the Default Management Group ("DMG") are as 

follows:

1. To provide advices for defaulting clearing members' positions:

(1) Matters about hedging strategies for a defaulting clearing 

member's positions, selection of hedging counterparties, and 

terms and execution of transactions.

(2) Matters such as position composition of an auction portfolio, 

and auction rules, date, and time.

(3) Matters relating to default management and loss control 

procedures, including VMGH.

2. To provide advice for TAIFEX's default management process.

3. To participate in TAIFEX's default fire drills.

TAIFEX is arranging to set up DMG. After DMG is established, 

TAIFEX will conduct a default fire drill on an annual basis. Besides, 

TAIFEX will also have a discussion with DMG about the fire drill 

framework and potential approach.

According to Article 11.1.5 of the OTC Enforcement Rules, the DMG 

shall participate in regular default fire drills conducted by TAIFEX on 

an annual basis. TAIFEX will notify the timetable and scope for each 

default fire drill prescribed in the preceding paragraph to the clearing 

members and the DMG. TAIFEX basically holds regular fire drills at 

the moment, and will consider carrying out unscheduled drills in the 
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future.

According to Article 2 of Organizational Rules of the Taiwan Futures 

Exchange OTC Derivatives Clearing and Risk Management 

Committee, the TAIFEX OTC Derivatives Clearing and Risk 

Management Committee will review the annual default fire drill plans 

and results.

Handling of Defaults Caused by Financial Factors

According to Article 55 of the OTC Rules, where a clearing member is 

in default due to financial factors, TAIFEX Clearing may take the 

following measures:

1. Suspend the defaulting clearing member's centralized clearing 

and settlement operations and report the matter in writing to the 

Competent Authority.

2. Suspend the defaulting clearing member's withdrawal of cash

margin or negotiable securities.

3. Notify clearing members and make an announcement to the 

market.

4. Check the defaulting clearing member's margin balance, bank 

account balance, operating bond, OTC derivatives settlement

fund, and other assets and immediately pursue protective 

measures in respective of the obligatory rights.

5. Convene the Default Management Group to handle cleared 

transactions and margins of the defaulting clearing member.

6. Conduct an audit of the defaulting clearing member and an 

investigation and analysis of the incident.

Handling Cleared Contracts and Margins of the Defaulting 

Clearing Member

According to Article 56 of the OTC Rules, in the event that a clearing 

member defaults due to financial reasons, TAIFEX may take the 

following actions and dispose of the clearing member’s cleared 

transactions and margin in the following manner:

1. Suspension of a defaulting clearing member’s ability to submit 

new transactions.

2. Either freeze or transfer funds and securities in the defaulting 
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clearing member's OTC derivatives clearing margin account.

3. The cash or funds from the disposal of securities of the defaulting 

clearing member’s clearing account will be utilized to meet 

payment obligations within the same clearing account.

4. Port non-defaulting client’s cleared transactions and margins 

from defaulting clearing member to another clearing member 

selected by the non-defaulting client, or the succeeding clearing 

member with an agreement with the defaulting clearing member.

5. Hedge cleared transactions in the defaulting clearing member's 

proprietary account and individual client accounts that were not 

ported.

6. Auction cleared transactions in the defaulting clearing member's 

proprietary account, individual client accounts that were not 

ported, and hedging transactions in Subparagraph 5.

After the cash or securities of the aforementioned client clearing 

account are disposed by TAIFEX and found to be insufficient to cover 

the payable amount, TAIFEX may dispose of the cash and securities 

in the proprietary account of the defaulting clearing member to cover 

the amount.

Clearing members who comply with the conditions stipulated by 

TAIFEX shall participate in the auction according to Item 6, 

Paragraph 1.

Auction

According to Article 11.4.2 of the OTC Enforcement Rules, Nondefaulting clearing members who, within sixty business days preceding 

the date of default, hold products identical with those in an auction 

portfolio announced by TAIFEX are to participate in the auction 

("compulsory auction participants").

Clearing members who are non-compulsory auction participants may 

apply to TAIFEX to participate in an auction on a voluntary basis.

Defaulting clearing members may not participate in auctions.

When TAIFEX conducts auctions for cleared transactions of a 

defaulting clearing member according to Article 57 of the OTC Rules, 

the following measures shall be taken in the absence of bids or in the 
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situation where TAIFEX rejects bids:

1. Announce auction failure and re-auction a part or all of the 

defaulting clearing member's cleared transactions.

2. Invite non-defaulting clearing members to agree the loss allocation 

method for defaulting cleared transaction(s).

If TAIFEX deems the clearing contract of the defaulting clearing 

member is unable to be handled through auctions or an agreement 

cannot be reached with the clearing member according to Item 2 of the 

aforementioned Paragraph, TAIFEX shall discuss the case with the 

Default Management Group to conduct multi-sided early termination of 

the clearing contract.

The cleared transactions designated by TAIFEX, as described above, 

are as follows:

1. Cleared transactions of defaulting clearing member that failed to 

be auctioned.

2. Cleared transactions held by the non-defaulting clearing member 

which have equal but opposite terms to the cleared transactions in 

the preceding subparagraph.

3. Cleared transactions executed between the non-defaulting clearing 

member and TAIFEX for the purpose of hedging the cleared 

transactions in subparagraph 1.

4. Other cleared transactions TAIFEX deems necessary to be 

designated.

Default Fund Juniorization and the Cap of Member Assessment 

Shared by Clearing Member

According to Article 58 of the OTC Rules, TAIFEX may use the 

following funds in the order below when a clearing member fails to 

fulfill its clearing and settlement obligations:

1. The defaulting clearing member's clearing margin.

2. The defaulting clearing member's OTC derivatives default fund.

3. The OTC Derivatives compensation reserve fund.

4. Other clearing member's contributions to the OTC derivatives 

default fund.

5. The pro rata ratio and pro rata amount cap of additional 

contributions on other clearing members shall be prescribed by 
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TAIFEX.

The deposit amount of other clearing members described above shall be 

handled according to the following regulation:

1. If only one clearing member defaults during the cooling-off period, 

then the cap is 150% of the OTC derivatives default fund to be 

deposited by the clearing member on the business day before the 

start of the cooling-off period.

2. If multiple clearing member default during the cooling-off period, 

then the cap is 300% of the OTC derivatives default fund to be 

deposited on the business day before the start of the cooling-off 

period.

Cooling-off period in the preceding paragraph means the period of 20 

trading days beginning from the date on which a default by a single 

clearing member occurs. If any other clearing member defaults before 

the end of the cooling-off period, then the new end of the cooling-off 

period is 20 business days from the day the last clearing member 

defaulted.

Contributions to make up the shortfall after utilization of OTC 

derivatives settlement funds

According to Article 60 of the OTC Rules, TAIFEX shall calculate the 

total required amount of the OTC derivatives default fund and 

contributions to be made by clearing members on the last day of the 

cooling-off period.

For the OTC derivatives default clearing fund contributed to by the 

clearing member, after it is used during the cooling-off period according 

to Item 4, Paragraph 1, Article 58 of the OTC Rules, the fund shall be 

replenished within the stipulated period with the amount requested by 

TAIFEX.

Default losses to be covered by using net deposits of non-defaulting 

clearing members

According to Article 61 of the OTC Rules, when the fund stipulated in 
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Items 1 to 5, Paragraph 1, Article 58 of the OTC rules is insufficient to 

cover the default losses of the clearing member, the difference shall be 

covered by the daily positive amount of cash receivable from each 

clearing account. 

The aforementioned net positive amount of cash receivable refers to the 

positive net amounts of the clearing accounts of each clearing member 

within the calculation period set by TAIFEX. The amount is calculated 

by multiplying the positive amount with the ratio stipulated by TAIFEX

above.

Voluntary payment of funds by clearing members to cover default 

losses

According to Article 62 of the OTC Rules, when the fund stipulated in 

Items 1 to 5, Paragraph 1, Article 58 of the OTC Rules plus the net 

amounts of cash receivables mentioned above of the clearing accounts 

is insufficient to cover the default losses of the clearing member, 

TAIFEX shall notify the clearing member to provide funds (voluntary 

payment of funds) to cover the losses.

Default losses covered by TAIFEX

According to Articles 58, 61, and 62 of the OTC Rules, the insufficient 

amount after payment shall be covered by TAIFEX.

According to Article 64 of the OTC Rules, the defaulting clearing 

member shall compensate TAIFEX for the amounts, interests, and 

necessary fees covered by TAIFEX for defaulting clearing member 

handling, as stated in this chapter.

Amounts recovered from the defaulting member, net of expenses, shall

be used to make the following repayments in the order presented:

1. The amount paid by TAIFEX according to Article 63 of the OTC 

Rules.

2. The amount paid by clearing members according to Article 62 of 

the OTC Rules.

3. The amount paid by clearing members according to Article 61 of 

the OTC Rules.

4. The amount shared by clearing members according to 

Subparagraph 5, Paragraph 1, Article 58 of the OTC Rules, 
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recovered in reverse order.

5. The amount of OTC derivatives default fund used in accordance 

with Subparagraph 4, Paragraph 1, Article 58 of the OTC Rules, 

recovered in reverse order of the utilization order.

6. The amount of TAIFEX’s OTC Derivatives Compensation 

Reserve Fund used in accordance with Subparagraph 3, Paragraph 

1, Article 58 of the OTC Rules.

Close-out Netting

According to Article 65 of the OTC Rules, in the event of TAIFEX's 

payment default, the affected clearing member may apply for Close-out 

netting in writing (which does not require approval), and TAIFEX shall 

terminate all cleared transactions with such clearing member and any 

other cleared transactions that could offset the cleared transactions of 

the affected clearing member. Additionally, TAIFEX may terminate all 

cleared transactions with all clearing members.

In the event of TAIFEX's insolvency, TAIFEX shall promptly notify 

the clearing members and, based on a written request from the clearing 

members or TAIFEX's own authority, terminate all cleared transactions 

of all clearing members through close-out netting.

After the cleared transactions are terminated through close-out netting, 

TAIFEX will calculate the termination value for each clearing member's 

clearing accounts.

When conducting a close-out netting process, TAIFEX calculates the 

termination value for each clearing member's individual client clearing 

account and its proprietary clearing account separately. The termination 

value for each clearing account is the sum of the positive values of the 

receivables of the clearing member for all the terminated cleared 

transactions (expressed as positive values) and the payables of the 

clearing member for all the terminated cleared transactions (expressed 

as negative values), and the positive and negative values of other 

receivables and payables in the clearing account. If the net amount after 

such calculation is positive, TAIFEX shall pay that amount to the 

clearing member. If the net amount is negative, the clearing member 

shall pay the absolute value of the net amount to TAIFEX. This 

calculation may be done separately for each clearing member's own 

proprietary clearing account and its individual client clearing accounts.
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TAIFEX's payment default event refers to the following three situations 

occurring consecutively where TAIFEX fails to make payment within 

the deadline due to reasons beyond its control, such as power supply 

interruption, computer system failure, communication transmission 

equipment failure, natural disasters, riots, war, or other force majeure 

events:

1. TAIFEX fails to pay clearing margin, clearing funds, or other receivables of 

the clearing member.

2. The clearing member sends a written notice of payment reminder, and after 

five business days from the delivery date have passed, payment has not been 

completed.

3. TAIFEX has not completed payment within the deadline in the previous 

clause, and the clearing member sends a written reminder, and after five 

business days from the delivery date have passed, payment has not been 

completed.

TAIFEX's insolvency event refers to any of the following situations:

1. TAIFEX's assets are insufficient to offset its debts.

2. The board of TAIFEX passes a resolution to suspend, cease, 

dissolve, apply for statutory reorganization under bankruptcy law, 

or declare bankruptcy.

3. TAIFEX is ordered by the competent authority to suspend, 

revoke, or terminate its business license.

4. TAIFEX's creditor files a bankruptcy petition against the company 

under the Bankruptcy Act. However, this does not apply to cases 

where the petition is clearly unreasonable or has an improper 

purpose.

TAIFEX stipulates certain timelines for collection of clearing margin, 

settlement amounts, OTC default fund, etc. for both TAIFEX and 

clearing members, and the related rules are as follows:

1.For the collection of clearing margin: Chapter 6 (Margin) of the OTC 

Enforcement Rules.

2.For the payment and withdrawal of settlement amounts: Chapter 7 

(Clearing and Settlement) of the OTC Enforcement Rules.

3.For OTC the payment and withdrawal of settlement amounts: Chapter 

10 (Default Fund) of the OTC Enforcement Rules.
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Both TAIFEX and clearing members are subject to the rules as 

mentioned above. For example, according to Article 7.2.3 of the OTC 

Enforcement Rules, Where a clearing member requests to withdraw 

clearing margin by 11:00 am, TAIFEX will start processing the 

withdrawal requests at 12:00 pm on the same day, and transfer the funds 

to the OTC clearing margin account designated by the clearing member. 

When a request is made by 2:00 pm, TAIFEX will start processing the 

withdrawal requests at 3:00 pm on the same day, and transfer the funds 

to the OTC clearing margin account designated by the clearing member.

When determining the above-mentioned rules, TAIFEX takes into 

account the rules of ETD markets and the international practice of other 

CCPs..

Key Consideration 2: An FMI should be well prepared to implement 

its default rules and procedures, including any appropriate 

discretionary procedures provided for in its rules.

Preventive measures and resolution procedures

TAIFEX has established preventative handling procedures related to 

possible defaults by clearing members. Default handling procedures 

have been stipulated in the emergency and abnormal situation handbook 

to define the scope of responsibilities and mission teams of each 

department. Relevant reporting procedures have been established to 

ensure that the competent authority, securities related organizations, 

and market can understand the situation and formulate response 

measures in a timely manner.

The TAIFEX emergency and abnormal situation handbook is given to 

all internal employees to ensure that all employees are familiar with 

default handling procedures. Emergency and abnormal situation drills 

are implemented periodically and irregularly to fully prepare the 

employees, so that when a clearing member default occurs, TAIFEX 

can continue to fulfill its clearing obligations.

1. Preventive measures

(1) The Trading Department is responsible for handling incidents 

of out-trades and settlement defaults reported by futures 
165

commission merchants. Out-trades and defaults that exceed a 

certain level are reported in writing to the Intermediaries 

Compliance and Service Department, whereas defaults of 

extremely large amounts are referred to the Surveillance 

Department for inter-market reporting. In which case, an 

"Inter-market Information Exchange Form" would have to be 

completed according to the inter-market reporting guidebook 

and acknowledged by the accountable manager before it is 

forwarded to the Surveillance Department.

(2) Based on clearing members' financial and business strength, 

the Intermediaries Compliance and Service Department 

assesses clearing members' business risks using a variety of 

risk indicators. Clearing members that trigger an alert in one 

of the risk indicators may be subjected to on-site audit 

depending on severity.

(3) During trade hours, TAIFEX Clearing performs real-time 

monitoring of clearing members' margin maintenance ratios 

and margin requirements given the size of orders placed. The 

department may call clearing members for additional margin 

if necessary, and performs stress tests every day after the 

market closes to assess risk levels. The focus of the stress test 

is to evaluate each clearing member's value at risk in the 

following business day.

(4) Every day after the market closes, the Surveillance 

Department will invite TAIFEX Clearing, Trading 

Department and Intermediaries Compliance and Service 

Department into an "Inter-department Meeting" to review 

current day's top losing traders list, next day's market-wide 

traders VaR estimate, clearing members' risk analysis, nonclearing members' ANC ratio, and whether futures 

commission merchants have reported any trader with a 

negative equity. These meetings are also used to resolve 

actions that are deemed necessary for effective management of 

market risks.

2. Basis of operations and procedures

(1) Basis of operations

A. Exchange-traded derivatives market
166

a. Taiwan Futures Exchange Corporation Regulations 

Governing Market Trading Surveillance.

b. Risk Alert Rules for Futures Commission Merchants and 

Clearing Members.

c. Taiwan Futures Exchange Corporation Rules for Auditing 

Futures Commission Merchants and Clearing Members.

d. Taiwan Futures Exchange Corporation Regulations 

Governing Procedures for Special Audits and Provision of

Guidance to Futures Commission Merchants and Clearing 

Members.

e. The Rules, Chapter 12 - Disposition of Defaults by Clearing 

Members.

f. Apportionment Procedures for Managing Default by 

Clearing Members.

g. Taiwan Futures Exchange Corporation Procedures for 

Suspension or Termination of a Futures Commission 

Merchant and Clearing Member.

B. OTC derivatives market

a. Default handling in Chapter 9 of the OTC Rules.

b. Default handling in Chapter 11 of the Enforcement Rules.

(2) Procedures

A.If any clearing member fails to fulfill settlement obligations to 

TAIFEX Clearing to the extent that may disrupt the entire 

futures or OTC market as a whole, a command center that 

consists of directors from Trading Department, TAIFEX 

Clearing, Surveillance Department, Intermediaries Compliance 

and Service Department, System Development Department, 

Computer Operation Department, Administration Department, 

and Business Development Department will be assembled to 

resolve the issue. In which case, the head of TAIFEX Clearing 

will serve as the convener of the command center, while 

meetings are hosted by the Chairman or the CEO.

B.TAIFEX Clearing will suspend all clearance and settlement 

services to the defaulted clearing member, and report the 

incident to the Competent Authority in writing.

C.If the incident requires use of the default fund, TAIFEX 
167

Clearing is responsible for approval of default fund use.

D.The Trading Department will suspend all transaction activities 

of the clearing member and the futures commission merchants it 

serves, except for trade orders issued to close outstanding 

positions.

E. TAIFEX Clearing then makes an announcement to the market 

on the incident.

F. TAIFEX Clearing notifies the Competent Authority, clearing 

members, futures commission merchants and information 

providers in writing about the business suspension that the 

defaulted clearing member is undergoing.

G.TAIFEX Clearing and other relevant departments will dispatch 

personnel to guide the defaulted clearing member through 

closure of proprietary and customer positions, and transfer of 

customer positions to the succeeding clearing member.

H.Regarding defaults in the OTC derivatives market, the clearing 

department shall transfer the cleared transactions and margin of 

the non-defaulting clients of the defaulting clearing member to 

another chose clearing member or clearing members who have 

signed a succession agreement with the defaulting clearing 

member. The OTC Default Management Group is convened to 

hedge the risks from or auction the defaulting proprietary 

positions or non-porting client positions of defaulting clearing 

members.

I. TAIFEX Clearing and other relevant departments will dispatch 

personnel to freeze or transfer clearing margins held by the 

defaulted clearing member.

J. To secure TAIFEX Clearing's debt entitlements, the 

Administration Department will prepare adequate collateral and 

accompany the Business Development Department to a court of 

law to apply for provisional seizure of securities, time deposits, 

real estate, bank deposits, safety deposit boxes and any valuable 

property of the defaulted clearing member.

K.The Intermediaries Compliance and Service Department will 

notify the Securities and Futures Investors Protection Center to 

assist in protecting traders' interests.
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Procedures for clearing member's default

Exchange-traded derivatives

The internal operating procedures for clearing member defaults 

stipulated by TAIFEX ("Clearing Member Default Resolution 

Procedures") in order to ensure that the responsible units comply with 

the laws and regulations and implements the handling procedures 

when a clearing member default occurs:

1. Conduct special audit; the scope of audit shall cover:

(1) Reasons for the breach of settlement obligation.

(2) Positions and margin balances held by clearing members 

under the names of other futures commission merchants and 

futures traders.

(3) Clearing member's financial status.

(4) Whether the person-in-charge or any employee has violated 

law.

2. Take count of assets owned by the clearing member and take legal 

actions immediately to secure debts.

3. Report the default case to the Competent Authority.

4. Announce the default case to the market.

5. Arrange a default resolution meeting.

6. Verify actions to be taken by the defaulted clearing member and 

the succeeding clearing member.

7. Utilize the default fund.

8. Stop the defaulted clearing member from taking further positions.

9. Suspend cleared transactions of the defaulting clearing member.

10.Terminate clearing and settlement services to the defaulted 

member.

11.Report findings of the default case to the Competent Authority.

OTC derivatives market

1. Preventive Measures for responding to the default of a clearing 

member:

(1) The Clearing Department shall monitor the margin retention 

rate and the margins necessary for clearing transaction 
169

contracts of clearing members during trading hours. Where 

necessary, it may request clearing members to pay arrears.

(2) The Clearing Department shall calculate the concentration 

level of clearing members based on the concentration criteria. 

For clearing members that exceed the concentration criteria, 

the Clearing Department shall notify clearing members to pay 

attention to their positions, collect additional margins, or 

execute other necessary measures to maintain market order or 

protect the healthy development of the market.

(3) The Clearing Department shall review whether clearing 

members continue to meet the qualifications set by the 

Company based on the basic information, material changes in 

business operations, customer clearing business information, 

financial report, and financial structure information. It shall 

also learn about the financial or business operations of the 

clearing member to obtain early warning for potential future 

risks.

(4) The Clearing Department may collect additional margins 

from clearing members based on market conditions, positions 

or credit conditions of the clearing member, or other 

conditions deemed as necessary by TAIFEX.

2. Basis of operations and response procedures of default 

management procedures:

(1) Basis of operations:

A.Article 31, Article 33, Article 38, Article 45, Article 55, 

and Article 56 of the OTC Rules.

B. Article 6.1.3, Article 6.1.5, Article 6.2.1, Article 6.2.2, 

Article 6.2.3, Article 9.2, and Article 13.1.1 of the OTC 

Enforcement Rules.

(2) Response procedures:

A. If a clearing member fails to perform clearing and settlement 

obligations to the Company and affects the normal operations 

of clearing and settlement in over-the-counter clearing 

operations, the Clearing Department shall suspend the 

centralized clearing operations of the clearing member and 

report to the competent authority with an official letter.
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B. The Clearing Department shall notify the Surveillance 

Department to send notifications to four parties.

C. The Clearing Department shall suspend the withdrawal of the 

cash deposit or securities of the defaulting clearing member, 

and suspend the submission of transaction contracts by the 

defaulting clearing member for centralized clearing 

operations.

D. The Clearing Department shall notify all clearing members 

and make an announcement to the market.

E. The Clearing Department shall conduct an inventory of the 

balance of margins, balance of bank deposits, business 

security deposit, OTC clearing and settlement fund, and other 

properties of the clearing member. The Administration 

Department and the Business Development Department shall 

take measures to secure creditor rights.

F. The Clearing Department shall freeze or transfer the funds 

and securities in the OTC settlement security deposit account 

of the defaulting member.

G. The Clearing Department shall assemble the OTC Default 

Management Team to process the clearing contracts and 

margins of the defaulting clearing member.

H. The Clearing Department shall transfer the clearing contracts 

and margins of the non-defaulting customers of the 

defaulting clearing member to another clearing member 

chosen by the customer or a clearing member that has signed 

a succession contract with the defaulting clearing member.

I. The Clearing Department shall execute hedging transactions 

with the clearing account of the defaulting clearing member 

and the clearing contracts of the clearing accounts of 

customers that have not yet been transferred.

J. The Clearing Department shall auction the clearing account 

of the defaulting clearing member and the clearing contracts 

of the clearing accounts of customers that have not yet been 

transferred and hedging transactions.
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K. The funds obtained after the disposal of the cash of securities 

in the clearing accounts of the defaulting clearing member 

shall be used to pay for the payables of the clearing accounts.

L. If the OTC clearing and settlement fund must be utilized, the 

Clearing Department shall organize related matters for the 

utilization of the clearing and settlement fund.

M. The Intermediaries Compliance and Service Department 

shall conduct special audits on the defaulting clearing 

member and it shall investigate and analyze the incident. 

Where necessary, the Department may inquire and request 

related information from the defaulting clearing member or 

notify the defaulting clearing member to provide 

explanations.

Key Consideration 3: An FMI should publicly disclose key aspects of 

its default rules and procedures.

TAIFEX Clearing has specified in Chapter 12 of the Rules and Chapter 

9 of its OTC Rules detailed procedures for resolving clearing members' 

default, including: definition of clearing members' default, available 

actions, methods for disposing positions and margins held in clearing 

members' accounts, and available defensive resources. These details 

have been announced on TAIFEX's website as a means of disclosure to 

all market participants.

Key Consideration 4: An FMI should involve its participants and other 

stakeholders in the testing and review of the FMI’s default procedures, 

including any close-out procedures. Such testing and review should be 

conducted at least annually or following material changes to the rules 

and procedures to ensure that they are practical and effective.

Rehearsal of emergency response and procedures

Exchange-traded derivatives market

According to TAIFEX’s “Business Continuity Plan” , TAIFEX shall 

conduct regular and unscheduled drills. These tests have exercised 

several procedures as the following:

1. Check the defaulting clearing member's clearing margin 
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balance, bank account balance, operating bond, clearing and 

settlement fund, and other assets.

2. Suspend the defaulting clearing member's clearing and 

settlement operations. 

3. Freeze or transfer funds and securities in the defaulting clearing 

member's clearing margin account.

4. Convene an emergency response meeting.

5. Pursue protective measures in respective of the obligatory 

rights.

6. Waterfall scheme to compensate for the default. 

7. Conduct an audit of the defaulting clearing member and an 

investigation.

OTC derivatives market

According to Article 11.1.5 of the Enforcement Rules, TAIFEX will 

notify the timetable and scope for each default fire drill prescribed in 

the preceding paragraph to the clearing members and the DMG. Upon 

receiving such notification from TAIFEX, the clearing members shall 

dispatch their representatives to participate in the default fire drill.

TAIFEX is arranging to set up DMG. After DMG is established, 

TAIFEX will conduct a default fire drill on an annual basis. Besides, 

TAIFEX will also have a discussion with DMG about the fire drill 

framework and potential approach.

According to Article 11.1.5 of the OTC Enforcement Rules, the DMG 

shall participate in regular default fire drills conducted by TAIFEX on 

an annual basis. TAIFEX will notify the timetable and scope for each 

default fire drill prescribed in the preceding paragraph to the clearing 

members and the DMG. TAIFEX conducts regular default fire drills 

and, when necessary, implements unscheduled drills depending on the 

occasion.

According to Article 2 of Organizational Rules of the Taiwan Futures 

Exchange OTC Derivatives Clearing and Risk Management 

Committee, the TAIFEX OTC Derivatives Clearing and Risk 

Management Committee will review the annual default fire drill plans 

and results.
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Principle 14:Segregation and portability

A CCP should have rules and procedures that enable the segregation 

and portability of positions of a participant’s customers and the 

collateral provided to the CCP with respect to those positions.

Summary Narrative

Key Consideration 1: A CCP should, at a minimum, have segregation 

and portability arrangements that effectively protect a participant’s 

customers’ positions and related collateral from the default or 

insolvency of that participant. If the CCP additionally offers protection 

of such customer positions and collateral against the concurrent default 

of the participant and a fellow customer, the CCP should take steps to 

ensure that such protection is effective.

Protecting customers from default of the participant (clearing 

member) and fellow customers

To protect futures customers' interests, the Act specifies that 

customers' margins must be deposited separately from TAIFEX 

Clearing and futures commission merchants' assets. The Act also 

requires customers' assets to be deposited separately from each other.

Legal basis for segregation and transfer of assets

1. According to Article 51 of the Act, the clearing margin collected by 

TAIFEX Clearing shall be deposited separately from its own assets. 

The creditors of a futures clearing house, the financial institution 

holding the clearing margins, or clearing members, unless 

otherwise provided by the Act, shall not attach or claim any rights 

on such clearing margins. A futures clearing house shall separately 

deal with the clearing margins between proprietary and brokerage 

accounts that it collects from its clearing members.

2. According to Article 54 of the Act, TAIFEX Clearing may, in case 

a member is bankrupt, dissolved, suspended for business or 

defaulted upon its clearing and settlement obligation, transfer such 

member's account and the related accounts of futures traders to 

another member who has executed a succession agreement with the 

defaulting member. Where it is deemed necessary, TAIFEX 
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Clearing may appoint a non-contractual member as transferee to

assume the liability and responsibility of the defaulting member.

3. According to Article 70 of the Act, a futures commission merchant 

shall open an exclusive customer margin/premium account in a 

banking institution designated by the Competent Authority, and 

shall deposit its futures customers' margins or premiums into such 

an exclusive account. The said account shall be segregated from the 

account of the futures commission merchant's own assets.

The client protection rules for segregation and transfer of client 

assets stipulated by TAIFEX protect customers from participants' 

(clearing members') defaults

In order to implement the Act regulations related to the segregation and 

transfer of trader assets, TAIFEX has clearly stipulated client asset 

separation, transfer arrangement, and other client protection measures 

in the Rules. The descriptions for the exchange-traded derivatives 

market and OTC derivatives market are as follows:

1. Exchange-traded derivatives market

(1) To protect futures customers' interests, the Act specifies that 

customers' margins must be deposited separately from TAIFEX 

Clearing and futures commission merchants' assets. The Act also 

requires customers' assets to be deposited separately from each 

other. According to the Regulations Governing Futures 

Commission Merchants stipulated by the competent authority, a 

futures commission merchant shall not exercise overdrafts on funds 

or securities in customer margin accounts, nor create any security 

interests or other rights thereupon, nor divert them to serve as 

another client's margin, premiums, clearing and delivery fees, 

commissions, or processing fees, or to cover insufficient funds of 

other clients.

(2) As a means of enhancing management over customers' margin 

accounts, the competent authority has established a set of 

Guidelines on Use of Customers' Margin Accounts for Futures 

Commission Merchants that require all futures commission 

merchants to deposit futures customers' margins and premiums into 
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separate accounts opened at designated financial institutions. In 

addition, the agreement of customers' margin accounts shall be 

reported to the competent authority for recordation.

(3) TAIFEX has stipulated rules related to position transfers for nondefaulting members in Chapter 12 of the Rules. It states when 

clearing members default due to financial factors, the client 

positions of the defaulting clearing member may be transferred to 

other clearing members who have signed an undertaking contract 

with the clearing member, in order to complete the position transfer 

operations for non-defaulting clients.

2. OTC derivatives market

(1) Segregation

Regarding segregation, the self-owned assets and margin deposits of the 

Taifex, clearing members, and clients are stored separately. The 

interests of each entity will not be influenced due to events such as 

defaults.

(2) Portability

Regarding Portability, once the clearing member defaults:

A.In the event that a clearing member defaults due to financial 

reasons, TAIFEX may take the following actions and dispose of 

the clearing member's cleared transactions and margin in the 

following manner: Suspension of a defaulting clearing member’s 

ability to submit new transactions. 

Either freeze or transfer funds and securities in the defaulting 

clearing member's OTC derivatives clearing margin account. 

The cash or funds from disposal of securities of the defaulting 

clearing member’s clearing account will be utilized to meet 

payment obligations within the same clearing account.

B.Port non-defaulting client’s cleared transactions and margins 

from defaulting clearing member to another clearing member 

selected by the non-defaulting client, or the succeeding clearing 

member with an agreement with the defaulting clearing 

member.The final payment for auctioned positions (separately 
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grouped from defaulting positions) will be returned to nondefaulting clients to safeguard their rights.

(3) According to Article 51 of the Act, and as stated in Chapter 3 of the 

OTC Rules and Chapter 3 of the Enforcement Rules related to the 

quarantine and protection of individual client margins, the clearing 

member margin and the assets of TAIFEX shall be deposited 

separately. The proprietary margin and client margins of a clearing 

member shall also be deposited separately. The OTC client margin 

account shall be separated from the proprietary assets of the 

clearing member. The clearing member may not overdraw, apply a 

guarantee, or exercise other rights over the deposits or securities 

deposited by the clearing member or the client in the OTC 

derivatives client margin account, and may not divert the funds to 

cover the margins, clearing fees, commission, processing fees, or 

shortfall of other clients.

(4) According to Article 54 of the Act, and as stated in the transfer rules 

for positions and margins in Chapter 9 of the OTC Rules and 

Chapter 11 of the Enforcement Rules, if the clearing member 

defaults due to financial factors, TAIFEX shall transfer the 

positions and margins of the non-defaulting clients of the defaulting 

clearing member to other clearing members specified by the nondefaulting client. The defaulting clearing member shall handle the 

transfer according to the instructions of the non-defaulting client.

(5) According to article 3 and 11 of the OTC Enforcement Rules, 

clearing members must separately open proprietary and individual 

client accounts and record the positions, margins and other account 

details each day. If a clearing member was default, TAIFEX can 

instruct those non-defaulting clients to transfer their position and 

margin to another clearing member.

Key Consideration 2: A CCP should employ an account structure that 

enables it readily to identify positions of a participant’s customers and 

to segregate related collateral. A CCP should maintain customer 

positions and collateral in individual customer accounts or in omnibus 

customer accounts.

Client collaterals shall be deposited separately and quarantined 
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and protected

Descriptions of the exchange-traded derivatives market and OTC 

derivatives market are as follows:

1. Exchange-traded derivatives market

(1) Regulations for separate deposit of client collaterals

A. According to the Act, TAIFEX Clearing shall separately deal 

with the clearing margins between proprietary and brokerage 

accounts that it collects from its clearing members. In practice, 

TAIFEX Clearing has implemented the Rules and the OTC 

Rules that require clearing members to set up segregated 

"Proprietary Clearing Margin Accounts" and "Customer 

Clearing Margin Accounts" with a settlement bank through 

which all proprietary and customer margin transfers with 

TAIFEX Clearing shall be carried out. 

B. In addition, futures commission merchants are required to open 

"Customer Margin Accounts" in a financial institution 

designated by the clearing member for margin payment and 

collection purposes. Futures commission merchants that 

engage in proprietary futures trading are also required to open 

a "Proprietary Margin Account" in a financial institution 

designated by the clearing member. The design of the account 

structure ensures that customer positions and collateral are 

clearly identified and segregated from clearing member its own 

positions and collateral and TAIFEX Clearing’s funds. 

(2) Client collaterals shall be quarantined and protected

Futures merchants may not overdraft, set guarantees, or exercise 

other rights over the deposits or negotiable securities in the client 

clearing margin account of the trader, and may not divert the funds 

to cover the margins, premiums, clearing fees, commission, 

processing fees, or shortfall of other clients.

2. OTC derivatives market

(1) Regulations for separate deposit of client collaterals

A. For the deposit, payment, and disposal of funds and securities
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between TAIFEX and clearing member, TAIFEX may open 

margin accounts with settlement banks or other institutions, in 

order to segregate margins of clearing member and assets of 

TAIFEX.

B. TAIFEX has established the OTC Rules to state that clearing 

members shall open the "OTC proprietary clearing margin 

account" and "OTC client clearing margin account" in the 

settlement bank or other institution specified by TAIFEX. The 

proprietary margin and client margins shall be deposited and 

paid for separately.

C. Clearing member shall open "OTC Derivatives Client Margin 

Account" with institutions designated by the Competent 

Authority for client margin deposits and the margin shall be 

deposited separately from proprietary assets.

(2) Client collaterals shall be quarantined and protected

Clearing member may not overdraw, apply a guarantee, or exercise 

other rights over the deposits or securities deposited by the clearing 

member or the client in the OTC derivatives client clearing margin 

account, and may not divert the funds to cover the margins, clearing 

fees, commission, processing fees, or shortfall of other clients.

Account structure that enables it to readily identify positions of a 

participant’s (clearing member's) customers and to segregate 

related collateral

TAIFEX Clearing has employed an account structure that enables it to 

readily identify positions of a participant's (clearing member's) 

customers and to segregate related collateral based on the exchangetraded derivatives market and OTC derivatives market, which are 

described below:

1. Exchange-traded derivatives market

(1) TAIFEX has established client statements to report the client 

margin account balance and equity of individual client accounts 

to TAIFEX on a daily basis. When a futures commission 

merchant accepts futures trading brokerage orders, the payments

shall be made through the customer's margin account.
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A. Current regulations require futures commission merchants 

shall set up an itemized account record for each customer, 

including direct (individual) customer accounts and omnibus 

customer accounts, and on a daily basis shall calculate the 

balance of cash and securities on deposit in each customer's 

margin account and changes of the actual marginable value 

of securities and prepare an itemized statement for each 

customers' margin account, and furthermore shall report the 

owner equity balance and the total equity value in the 

principal's Customer Margin Account to the TAIFEX 

Clearing.

B. When a futures commission merchant accepts futures trading 

brokerage orders, the payments shall be made through the 

customer's margin account. All withdrawals shall be made 

through bank transfer, and a detailed and accurate record and 

receipt shall be prepared as proof of payment.

C. The futures customer shall transfer the securities deposited 

as margin that a futures commission merchant receives or 

delivers during futures trading into the TAIFEX Clearing's 

segregated margin account. However, where the futures 

customer agrees that the futures commission merchant or 

clearing member may utilize the securities to offset the 

margin required for the positions carried by the clearing 

member, the futures customer shall transfer the securities 

into the futures commission merchant's segregated margin 

account.

(2) TAIFEX has established client statement for positions and 

securities used as margins in direct (individual) and combined 

client accounts. Changes in the client account positions and 

margins are recorded daily.

A. The futures customer shall transfer the securities deposited 

as margin that a futures commission merchant receives or 

delivers during futures trading into the TAIFEX Clearing's 

segregated margin account. However, where the futures 

customer agrees that the futures commission merchant or 

clearing member may utilize the securities to offset the 
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margin required for the positions carried by the clearing 

member, the futures customer shall transfer the securities 

into the futures commission merchant's segregated margin 

account.

B. When performing futures clearance and settlement services, 

TAIFEX Clearing prepares an Itemized Table for each 

trading account so as to effectively confirm positions 

composition of futures trading in direct (individual) 

customer accounts or in omnibus customer accounts. In 

terms of margin management, although clearing members' 

margin levels are monitored based on total positions held by 

each clearing member, TAIFEX Clearing still maintains an 

itemized account record for each futures customer, including 

direct (individual) customer accounts and omnibus customer 

accounts, and on a daily basis calculate the balance of 

securities on deposit in each customer's margin account and 

changes of the actual marginable value of securities.

2. OTC derivatives market

(1)Clearing member must separately prepare statements for individual 

clients and record the positions, margins and other account details 

each day. Client centralized clearing by clearing members shall be 

handled through OTC derivatives client margin accounts.

A. The OTC Rules and the Enforcement Rules of TAIFEX stipulate 

that clearing member must separately open proprietary and 

individual client account and record the positions, margins and 

other account details each day.

B. Clearing member shall open "OTC Derivatives Client Margin 

Account" with settlement banks designated by the Competent 

Authority for client margin deposits. When a clearing member 

is entrusted by a client to conduct clearing, the OTC client 

margin account shall be used to handle the deposit, collection, 

and disposal of client payments and securities. The funds within 

the account can only be transferred and cannot be withdrawn as 

cash. Clearing member shall provide details of the account for 

auditing purpose by the Competent Authority or TAIFEX if 

necessary.
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C. When clearing members use securities as margins for clients, the 

securities shall be deposited in TAIFEX, and the securities shall 

be used to pay the required clearing margin for the client's 

clearing account.

(2)TAIFEX has established separate statements for individual clients, 

which record the positions and margins of the individual clients on 

a daily basis.

A. For the handling of OTC derivatives clearing, TAIFEX 

separately establishes clearing member proprietary accounts and 

individual client accounts according to the account information 

and daily clearing types reported by the clearing member. The 

number and specifications of the cleared transactions and the 

payable amount of the clearing contract are recorded daily. The 

client clearing accounts should clearly state whether an 

agreement between the clearing member and the client exists, 

where the margins deposited by client will be paid to TAIFEX 

in full. The margins and funds in the individual clearing 

accounts must be separated.

B. Regarding the management of margins, TAIFEX controls the 

margin standard for each clearing account for all clearing 

accounts of the clearing member. Before a clearing member 

submits a proprietary transaction or client transaction to 

TAIFEX for clearing, TAIFEX may demand that the clearing 

member pay a pre-margin so that the excess margins for the 

clearing accounts are sufficient to pay required clearing margin 

on newly added cleared transactions. When the clearing margin 

in accounts of clearing members is lower than the required 

clearing margin, TAIFEX shall make margin calls for the 

shortfall. The margins and funds in the individual clearing 

accounts of clearing members must be separated.

C. TAIFEX established the margin account in the settlement bank. 

Information about margin accounts will be disclosed 

immediately on TAIFEX Web-Portal. Customers can check 

their account information in our system. The margin of the 

clearing member and the proprietary assets of TAIFEX are 

deposited separately. The margin statements are established 
183

separately according to the clearing member's proprietary 

account and individual client accounts to record the margin 

amount, types, and quantities for clearing members on a daily 

basis and for clearing members to check the balance.

In summary, TAIFEX Clearing has the capability to quickly identify 

positions and margins of a participant’s (clearing member's) customers 

in direct (individual) customer accounts or in omnibus customer 

accounts and to segregate related collateral. TAIFEX may, when a 

clearing member defaults, dispose of its non-defaulting client's 

positions into the OTC default account when TAIFEX determines that 

the client's positions poses too great a risk to TAIFEX or the client 

involves any other management material event which may cause a 

default deemed by TAIFEX. It depends on market conditions 

(commodity volatility, liquidity, economic indicator, etc.). The 

defaulting clearing Member is responsible to notify the customers.

Key Consideration 3: A CCP should structure its portability 

arrangements in a way that makes it highly likely that the positions and 

collateral of a defaulting participant’s customers will be transferred to 

one or more other participants.

Rules on account transfer

Both the Competent Authority and TAIFEX Clearing have 

implemented rules and procedures to protect customers from adverse 

impacts such as bankrupt, dissolved, suspended for business, or 

defaulted upon its clearing and settlement obligation of futures 

commission merchants. TAIFEX Clearing is empowered by law to 

transfer customers' accounts to another functioning futures 

commission merchant as below:

1. According to Article 54 of the Act, a futures clearing house may, in 

case a member is bankrupt, dissolved, suspended for business or 

defaulted upon its clearing and settlement obligation, transfer such 

member's account and the related accounts of futures traders to 

another member who has executed a succession agreement with the 

defaulting member. Where it is deemed necessary, TAIFEX 

Clearing may appoint a non-contractual member as transferee to 

assume the liability and responsibility of the defaulting member. 
184

A clearing house may impose a monetary penalty, void the 

membership, or take other necessary measures upon a member 

who refuses to accept the succession as referred to in the 

preceding Paragraph.

2. Article 75 of the Act also states that, the Competent Authority may, 

in case a futures commission merchant is bankrupt, dissolved, 

suspended, or is required by acts or regulations to cease to accept 

trading orders from futures traders, order it to transfer the relevant 

accounts of its futures traders to another futures commission 

merchant with whom it has a succession agreement. The futures 

commission merchant, unless with justified reason and approved by 

the Competent Authority, shall within two business days of 

receiving the transfer order from the Competent Authority, transfer 

the balance of the segregated customer margin/premium account 

and statements of the futures traders to the designated futures 

commission merchants.

Regarding the participants' (clearing members') defaults caused by 

financial factors, the measures adopted by TAIFEX for the exchangetraded derivatives market and OTC derivatives market are described as 

follows:

1. Exchange-traded derivatives market

(1) According to Article 103 of the Rules, TAIFEX Clearing may 

take the following measures:

A. Suspend the defaulting clearing member's clearing and 

settlement operations and report the matter in writing to the 

Competent Authority.

B. Notify all clearing members and futures commission merchants 

through the TAIFEX Clearing's online information system.

C. Check the defaulting clearing member's clearing margin balance, 

bank account balance, operating bond, default fund, and other 

assets and immediately pursue protective measures in respective 

of the statutory rights.

D. Dispose of the defaulting clearing member's positions and margin 

funds.
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E. Conduct an audit of the defaulting clearing member and an 

investigation and analysis of the incident.

(2) According to Paragraph 1, Article 104 of the Rules, TAIFEX 

Clearing may dispose of positions and margin in that clearing 

member's account by the following means:

A. Halt all trading between the defaulting clearing member and its 

mandating futures commission merchant; provided, this 

restriction shall not apply to trading for the purpose of liquidating 

existing positions.

B. Freeze or transfer funds and securities in the defaulting clearing 

member's clearing margin account.

C. Pursuant to the provisions of Article 54 of the Act, TAIFEX open 

a default handling account with a clearing member that has 

engaged in a succession agreement with the defaulting clearing 

member and liquidate proprietary positions held by the defaulting 

clearing member and the defaulting futures commission 

merchant.

D. A futures commission merchant that has engaged in a succession 

agreement with the defaulting futures commission merchant 

shall, at the instructions of the TAIFEX Clearing, liquidate open 

positions of the defaulting customer.

(3)And, according to Paragraph 3, Article 104 of the Rules, Nondefaulting customers of the defaulting clearing member and 

defaulting futures commission merchant shall liquidate their 

positions or apply to have their positions transferred to another 

futures commission merchant. Where a customer fails to do so 

within five days, the succeeding futures commission merchant may 

liquidate all open positions in that customer's account. A nondefaulting mandating futures commission merchant shall select 

another clearing member and enter into an agreement mandating that 

clearing member to handle clearing and settlement, and shall not 

resume trading until after notifying the TAIFEX Clearing of the 

execution of the agreement.

2. OTC derivatives market

(1)According to Article 55 of the OTC Rules, TAIFEX may adopt the 
186

following measures:

A. Suspend the defaulting clearing member's clearing operations and 

report the matter in writing to the competent authority.

B. Suspend the defaulting clearing member's withdrawal of margin.

C. Notify clearing members and make an announcement to the 

market.

D. Check the defaulting clearing member's margin balance, bank 

account balance, operating bond, OTC derivatives default fund, 

and other assets and immediately pursue protective measures in 

respective of the statutory rights.

E. Convene the Default Management Group to handle cleared 

transactions and margins of the defaulting clearing member.

F. Conduct an audit of the defaulting clearing member and an 

investigation and analysis of the incident. The relevant 

information will be requested from the defaulting clearing member 

or a request for an explanation will be submitted if necessary.

(2)According to Article 56 of the OTC Rules, TAIFEX may dispose of 

positions and margin in that defaulting clearing member's account by 

the following means:

A. Suspension of a defaulting clearing member’s ability to submit 

new transactions.

B. Either freeze or transfer funds and securities in the defaulting 

clearing member's OTC derivatives clearing margin account.

C. The cash or funds from the disposal of securities of the defaulting 

clearing member’s clearing account will be utilized to meet 

payment obligations within the same clearing account.

D. Port non-defaulting client’s cleared transactions and margins from 

defaulting clearing member to another clearing member selected 

by the non-defaulting client, or the succeeding clearing member 

with an agreement with the defaulting clearing member.

E. Hedge cleared transactions in the defaulting clearing member's 

proprietary account and individual client accounts that were not 

ported.
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F. Auction cleared transactions in the defaulting clearing member's 

proprietary account, individual client accounts that were not 

ported, and hedging transactions described above.

(3) According to Article 11.2.1 and Article 11.2.2 of the Enforcement 

Rules, clearing members who have been suspended from clearing 

operations by TAIFEX for financial reasons shall transfer cleared 

transactions and clearing margins of non-defaulting clients who 

have agreed to transferring to the succeeding clearing member and 

have the succeeding clearing members to perform the clearing 

obligations to TAIFEX. 

Where non-defaulting clients of defaulting clearing members 

instruct to transfer their cleared transactions and clearing margins 

to other clearing members designated by the non-defaulting clients, 

the defaulting members shall follow the instructions. 

Clearing members, following the rules above, shall enter into client 

clearing agreements with the clients before applying to TAIFEX for 

the porting of the cleared transactions and clearing margins of the 

clients. In addition, such clearing members shall submit a porting 

application to TAIFEX by 17:00 on the second business day after 

the default. The receiving clearing member shall have a sufficient 

clearing margin in the client's clearing account. Besides, client 

accounts applying for porting that have received a margin call 

notice from TAIFEX shall make up the shortfall before submitting 

an application.

(4) According to article 11.2.1 of the OTC Enforcement Rules, Nondefaulting clients of defaulting clearing members are instructed to 

transfer their cleared transactions and clearing margins to other 

clearing members designated by the non-defaulting clients, the 

defaulting members shall follow the instructions. TAIFEX cannot 

be aware of any legal impediments that could prevent successful 

porting of client accounts. However, according to article 51 of 

Futures Trading Act, the creditors of a futures clearing house, the 

financial institution holding the clearing margins, or clearing 

members, unless otherwise provided by this Act, shall not attach or 

claim any rights on such clearing margins.

Key Consideration 4: A CCP should disclose its rules, policies, and 
188

procedures relating to the segregation and portability of a participant’s 

customers’ positions and related collateral. In particular, the CCP 

should disclose whether customer collateral is protected on an 

individual or omnibus basis. In addition, a CCP should disclose any 

constraints, such as legal or operational constraints, that may impair 

its ability to segregate or port a participant’s customers’ positions and 

related collateral.

Disclosure of separate account treatment

The procedures and regulations that TAIFEX, clearing member and 

futures commission merchants follow when handling customers' 

cash/security margins have been published on TAIFEX's website for 

public access, such as the segregation and portability of a clearing 

member's customers' positions, disposing of positions and margin in the 

defaulting clearing member's clearing margin account by TAIFEX, the 

creditors of a futures clearing house, the financial institution holding the 

clearing margins, or clearing members, shall not attach or claim any 

rights on such clearing margins, etc.

Disclosure regarding customers' protection

Measures adopted by TAIFEX Clearing, clearing member and futures 

commission merchants to protect customers' margins, and response 

measures taken to address various situations that may affect 

customers' interests, are published on TAIFEX's website for public 

access.

Principle 15:General business risk

An FMI should identify, monitor, and manage its general business risk 

and hold sufficient liquid net assets funded by equity to cover potential 

general business losses so that it can continue operations and services 

as a going concern if those losses materialize. Further, liquid net assets 

should at all times be sufficient to ensure a recovery or orderly winddown of critical operations and services.

Summary Narrative

Key Consideration 1: An FMI should have robust management and 

control systems to identify, monitor, and manage general business risks, 

including losses from poor execution of business strategy, negative cash 
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flows, or unexpected and excessively large operating expenses.

Supervision and governance of general business risks

TAIFEX Clearing has a robust management and control system in place 

to identify, monitor and manage general business risks. Its internal 

control policies have been designed to coordinate the Board, the 

management and employees into accomplishing the following goals 

with reasonable assurance:

1. Sound and efficient operations.

2. Reliable financial reporting.

3. Regulatory compliance.

Operations mentioned above are measurable using indicators such as 

profitability, performance targets and asset security. TAIFEX Clearing 

has also identified risk factors that are relevant to its operations, and 

adopted processes to assess likely impact should any risk materialize. 

Results of such assessments are used to draw up an extensive business 

plan to design, revise and execute necessary controls to mitigate such 

risks. In addition, TAIFEX Clearing also established emergency 

measures to ensure that it can continue operating under the stressed 

situation, to maintain the financial stability of the futures market. 

To provide the management team and the Board a comprehensive and 

timely risk profile that TAIFEX Clearing exposes to, the following 

procedures are adopted.

1. Financial risks: Before the 10th calendar day of each month, 

TAIFEX Clearing is required to submit to the Competent Authority 

its financial statements for the previous month, and report budget 

execution on a quarterly basis to allow the Competent Authority to 

better monitor TAIFEX Clearing's income and expenses. TAIFEX 

Clearing complies with the Competent Authority's instructions and 

makes provision for special reserves from after-tax earnings on a 

yearly basis to reimburse previous losses or to provide additional 

share capital.

2. Risk of malfunction to the trading/clearing system: 

(1)Exchange-traded derivatives futures market: 
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 According to Article 10 of the Rules, futures commission 

merchants and their principals shall not request compensation 

when normal operations are obstructed by interrupted 

transmissions or malfunctions of trading information and 

facilities provided by TAIFEX Clearing.

(2) Over-the-counter OTC derivatives market:

According to article 11 of Taiwan Futures Exchange OTC 

Derivatives Clearing Agreement, Force Majeure. Party 

A(TAIFEX) shall not be liable for any loss or damage suffered 

by Party B(Clearing member) due to force majeure events such 

as market emergency, changes in applicable laws or regulations, 

any order from the competent authority, disruption or 

malfunction of computer system or communications facilities, 

war, strike, natural disasters or events caused by human 

behavior.

3. Business risks involving loss of profit or capital due to 

inappropriate strategies or decisions, negative reputation, and fraud: 

TAIFEX formulates the operating plan for the following year 

annually. The plan is approved by the Board of Directors and then 

reported to the competent authority. The competent authority shall 

review, evaluate, and assess the results of the operating plan before 

the end of each year.

TAIFEX Clearing draws up annual business plans, which were 

approved by the board and reported to the Competent Authority. The 

result of the execution of the business plan is reviewed, assessed, and 

rated by the Competent Authority by the end of each year.

TAIFEX Clearing scrutinizes its internal control systems once a year. 

Processes that are considered outdated or impractical will be revised to 

ensure effective management of risks associated with clearance, 

settlement, margins, and general business activities.

Key Consideration 2: An FMI should hold liquid net assets funded by 

equity (such as common stock, disclosed reserves, or other retained 

earnings) so that it can continue operations and services as a going 

concern if it incurs general business losses. The amount of liquid net 

assets funded by equity an FMI should hold should be determined by its 
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general business risk profile and the length of time required to achieve 

a recovery of orderly wind-down, as appropriate, of its critical 

operations and services if such action is taken.

Sufficient liquidity net assets

TAIFEX Clearing has maintained shareholders' equity (including 

common capital, statutory reserves, special reserves and unappropriated 

earnings) at a level that far exceeds the capital requirements imposed by 

the Competent Authority. It has liquid net assets funded by equity that 

sufficiently cover more than six months of operating expenses, and most 

of the liquid net assets are held in highly liquid form such as cash, cash 

equivalents, and time deposits with more than 3 months tenor 

(representing more than 90% of liquid net assets). In the unlikely 

situation of a general business loss, these assets can be utilized promptly 

to sustain TAIFEX Clearing's operation and service. 

According to Article 13 of the Regulations Governing Futures 

Clearing Houses, TAIFEX Clearing shall report to the competent 

authority the monthly accounting summary, assets and liabilities 

statement (balance sheet), and statement of comprehensive income for 

the previous month within the first ten days of each month.

Key Consideration 3: An FMI should maintain a viable recovery or 

orderly wind-down plan and should hold sufficient liquid net assets 

funded by equity equal to at least six months of current operating 

expenses. These assets are in addition to resources held to cover 

participant defaults or other risks covered under the financial resources 

principles. However, equity held under international risk-based capital 

standards can be included where relevant and appropriate to avoid 

duplicate capital requirements.

Recovery or resolution plan

TAIFEX Clearing is an exchange that concurrently operates as a 

clearing house. It was established with the approval of the Competent 

Authority. TAIFEX Clearing's primary mission is to facilitate the sound 

development of the futures market and to maintain the orderly 

transaction of the market in the best public interest and fairness of the 
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market. Given the fact that TAIFEX Clearing is the only one of its kind 

in Taiwan, its establishment and dismissal are highly regulated by the 

Competent Authority. Decisions such as change in capital, transfer of 

entire or major businesses or assets, and merger/dissolution may 

proceed only with the approval of the Competent Authority. It has been 

stated in TAIFEX's Articles of Incorporation, that the Company is 

required to report to the Competent Authority immediately of the 

following occurrences:

1. The suspension, resumption, or cessation of business.

2. The execution, amendment, or termination of the contact for use of 

the centralized futures exchange market entered into between the 

members or futures commission merchants and the futures 

exchange.

3. Events which shall be reported to the FSC in accordance with 

Article 39 of the Act.

4. Entering into any cooperation agreement or memorandum with a 

foreign exchange, self-regulatory institution, or other institution.

5. Other events which shall be reported to the FSC for review and 

recordation under the Act or other rules of the competent authority.

Furthermore, as a response to market changes and crises, TAIFEX 

Clearing has "Emergency response manual" and "Business continuity 

plan" in place to guide various activities such as reporting of 

significant events or occurrences, repair of information system, 

activation of backup system, and system recovery. Both "Emergency 

response manual" and "Business continuity plan" are revised and 

rehearsed on a regular basis.

TAIFEX has formulated handling procedures and measures for 

possible emergencies in the market that may significantly impact 

normal OTC clearing operations, disrupt or break the computer 

systems or communication equipment, or cause major defaults among 

clearing members in Chapter 10 - "Emergency Response Measures" of 

the OTC Rules, and Chapter 11 - "Default Handling" and Chapter 15 -

"Emergency Response Measures of the Enforcement Rules, in order to 

ensure the security of OTC clearing.
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Resources

1. Financial: TAIFEX Clearing has liquid net assets that amount to 

more than 6 months of current operating expenses.

2. TAIFEX Clearing has set aside the compensation reserve fund to 

meet its maximum liability in the event that a clearing member fails 

to fulfill clearing and settlement obligations.

In addition, TAIFEX Clearing's capital is entirely issued in ordinary 

shares, and is not required to hold equity under international riskbased capital standards. Issuance of higher risk capital such as bonds 

is subject to the Competent Authority's approval.

Key Consideration 4: Assets held to cover general business risk should 

be of high quality and sufficiently liquid in order to allow the FMI to 

meet its current and projected operating expenses under a range of 

scenarios, including in adverse market conditions.

High quality liquid net assets

According to Article 16 of the Regulations Governing Futures Clearing 

Houses, TAIFEX shall propose a special earnings reserve according to 

the after-tax earnings surplus each year. The purpose of the reserve is 

to compensate for losses or maintain the net asset flow of those 

approved by the FSC, in order to maintain operations and services after 

normal operational losses.

More than 90% of TAIFEX Clearing's current assets are held in the 

form of time deposits with more than 3 months tenor, while the 

remainder is kept in the form of cash and cash equivalents. All of which 

are high quality and highly liquid assets that TAIFEX Clearing may 

utilize to meet current and expected operating expenses under various 

scenarios, including adverse market conditions.

Banks in which the above assets are held are required to satisfy 

TAIFEX Clearing's financial criteria and credit rating standards on an 

ongoing basis (see Principle 16 - "Custody and investment risks").

Key Consideration 5: An FMI should maintain a viable plan for 

raising additional equity should its equity fall close to or below the 

amount needed. This plan should be approved by the board of directors 
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and updated regularly.

Share capital

The shareholder's equity of TAIFEX at the end of 2022 was NTD 29.9 

billion, which is far superior to the requirements imposed by the 

Competent Authority. In order to strengthen its risk bearing capabilities 

and financial protection mechanisms, TAIFEX regularly distributes 

earning surpluses as new shares, expanding the scale of capital every 

year and ensuring the security of the financial market. TAIFEX 

Clearing reports its financial status and major business activities to the 

Board on a monthly basis to give the board timely insights into TAIFEX 

Clearing's operations.

Capital increase procedures

Any plan to increase capital would need to be passed by TAIFEX's 

Board and shareholders, and would require the approval of the 

Competent Authority.
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Principle 16:Custody and investment risks

An FMI should safeguard its own and its participants’ assets and 

minimise the risk of loss on and delay in access to these assets. An 

FMI’s investments should be in instruments with minimal credit, 

market, and liquidity risks.

Summary Narrative

Key Consideration 1: An FMI should hold its own and its participants’ 

assets at supervised and regulated entities that have robust accounting 

practices, safekeeping procedures, and internal controls that fully 

protect these assets.

Supervision and management of custodians

To ensure they are protected to the fullest, TAIFEX Clearing places its 

own assets and the assets of clearing members in the custody of 

institutions where effective accounting practices, custodian procedures 

and internal controls have been soundly implemented.

According to Article 14 of the Regulations Governing Futures Clearing 

Houses, TAIFEX shall not loan the clearing and settlement fund to 

others or use the fund for other purposes. The use of the fund is limited 

to the following: 

1. Bank deposits.

2. Purchasing treasury bond and government bond.

3. Other purposes approved by FSC.

The fixed deposits, treasury bills, and government bonds obtained by 

TAIFEX according to the above regulation shall be in the custody of the 

bank with which a custody contract has been signed.

According to Article 15 of the Regulations Governing Futures Clearing 

Houses, the Compensation Reserve Fund deposited by TAIFEX shall 

be deposited in different accounts in banks approved by the FSC for 

management and operations. TAIFEX shall not loan the Compensation 

Reserve Fund to others or use the fund for other purposes. The use of 

the fund is limited to the following:

1. Bank deposits.
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2. Purchasing treasury bond and government bond.

3. Other purposes approved by FSC.

The fixed deposits, treasury bills, and government bonds obtained by 

TAIFEX according to the above regulation shall be in the custody of the 

bank with which a custody contract has been signed. The items shall not 

be distributed and stored, reported as missing, or the contracts shall not 

be terminated. The deposited items and their custody certification shall 

not be defined with guarantees, and shall not be withdrawn or 

transferred with FSC approval.

According to Article 23 of the Regulations Governing Futures 

Commission Merchants, the funds of the futures merchant that are not 

related to management and operational needs shall not be loaned to 

others or transferred for other purposes, unless approved by the FSC. 

The use of the fund is limited to the following:

1. Bank deposits

2. Purchase of government bonds or financial bonds.

3. Purchase of treasury bills, negotiable certificates of deposit, 

commercial paper, or other short-term notes and bills approved by 

the FSC.

4. Other purposes approved by the FSC.

Financial institutions which TAIFEX Clearing borrows from and 

deposits funds into must comply with the following financial criteria 

and credit rating requirements set by TAIFEX Clearing:

1. Banks and bills financing companies that hold custody, make use 

or guarantee the Company's proprietary capital must maintain credit 

rating above a certain level.

2. Securities investment trust companies with which proprietary 

capital is utilized must satisfy the two standards below:

(1). Ranking among the top 50% of all investment trust companies in 

terms of the size of domestic non-private equity funds managed.

(2). The total size of managed funds must amount to NTD 20 billion 

or more.

TAIFEX Clearing holds capital management meetings regularly to 
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select counterparties and to diversify funds at various financial 

institutions. Use of capital in the upcoming week is planned one week 

in advance to ensure sound execution. All banks that TAIFEX 

Clearing deals with are supervised by the Banking Bureau, and are 

covered under the central deposit insurance scheme. All settlement 

banks are required to implement internal controls, internal audits, 

accounting controls, operating procedures, levels of approval 

authorities and any other systems demanded by TAIFEX Clearing or 

the Competent Authority as part of their business policies.

Key Consideration 2: An FMI should have prompt access to its assets 

and the assets provided by participants, when required.

Safety and immediacy of funding

TAIFEX Clearing's capital guidelines and settlement bank 

management procedures impose stringent requirements on the 

financial health and credit status for all financial institutions it deals 

with. TAIFEX Clearing requires clearing margins to be deposited only 

in the form of demand deposit or time deposit at a settlement bank, 

therefore funds are immediately accessible should any market 

participant default.

Key Consideration 3: An FMI should evaluate and understand its 

exposures to its custodian banks, taking into account the full scope of 

its relationships with each.

Management of asset exposure

TAIFEX Clearing monitors the financial status of its settlement banks 

on an ongoing basis. The credit rating of each settlement bank is 

reviewed on a regular basis, while the performance of financial 

institutions, guarantors and funds that it involves with are also subject 

to review. TAIFEX Clearing follows the resolutions made by its 

capital management team that no more than the maximum total of 

50% clearing margin can be placed in any single settlement bank.

Key Consideration 4: An FMI’s investment strategy should be 

consistent with its overall risk-management strategy and fully disclosed 

to its participants, and investments should be secured by, or be claims 
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on, high-quality obligors. These investments should allow for quick 

liquidation with little, if any, adverse price effect.

Investment strategy

Regulations Governing Futures Clearing Houses, the Rules, the OTC 

Rules and TAIFEX Clearing's capital guidelines have introduced clear 

policies on how TAIFEX Clearing may utilize, invest and manage its 

proprietary capital, and clearing margins and the default funds 

contributed by clearing members. Details of these policies have been 

fully disclosed.

TAIFEX Clearing may allocate available capital in the form of time 

deposits, NCD, treasury bills, guaranteed short-term notes, government 

bonds, bank debentures, domestic bond funds, domestic money market 

funds, domestic equity funds, domestic exchange-traded funds, 

domestic index funds, domestic balanced funds, and other financial 

products. All of which should be subject to prior planning and analysis, 

as well as approval from the Board and the Competent Authority before 

execution.

Contributions of exchange-traded derivatives market to the default fund 

(including OTC clearing member's contributions to the OTC derivatives 

default fund) can only be allocated in the form of bank deposits, treasury 

bills, government bonds, and other uses approved by FSC. Clearing 

margins can only be held in the form of time deposit in omnibus deposit 

accounts opened with settlement banks.

Financial institutions, which TAIFEX Clearing borrows from and 

deposits funds into, must comply with the financial criteria and credit 

rating requirements set by TAIFEX Clearing.

Risk characteristics of invested assets

TAIFEX Clearing has a "capital management team" in place that pays 

constant attention to changes in the economic and financial 

environment. The team projects and plans weekly capital utilization 

based on interest rate, exchange rate or share price changes.

It convenes capital meetings regularly to review capital allocation by 
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instrument category, investment horizon, counterparty financial 

institution and fund holding position before planning for next month's 

allocation. TAIFEX Clearing chooses its counterparties based on the 

amount of investment limits assigned and utilized, and diversifies 

capital allocation where possible to minimize risks.

As a result, all investments of TAIFEX Clearing capital are carefully 

planned to achieve safety, quality income and high liquidity, and are 

therefore less susceptible to adverse price impacts. In addition, given 

the fact that clearing margins and the default fund are deposited in the 

form of deposits at institutions with strong financial backgrounds and 

credit ratings, there is virtually no liquidity risk.

Principle 17:Operational risk

An FMI should identify the plausible sources of operational risk, both 

internal and external, and mitigate their impact through the use of 

appropriate systems, policies, procedures, and controls. Systems should 

be designed to ensure a high degree of security and operational 

reliability and should have adequate, scalable capacity. Business 

continuity management should aim for timely recovery of operations 

and fulfilment of the FMI’s obligations, including in the event of a 

wide-scale or major disruption.

Summary Narrative

Key Consideration 1: An FMI should establish a robust operational 

risk-management framework with appropriate systems, policies, 

procedures, and controls to identify, monitor, and manage operational 

risks.

Identify operational risk

TAIFEX Clearing understands the importance of a robust operational 

risk-management framework with appropriate systems, policies, 

procedures, and controls to identify, monitor, and manage operational 

risks. As a result, TAIFEX Clearing has policies and plan to identify, 

monitor, and manage operational risks. Sources of operational risks may 
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arise from failure in internal operations and systems, human error, and 

external events. The prudent Business Continuity Management Policy 

and operational risk management framework in place as the tools 

TAIFEX and TAIFEX Clearing rely on. Internal factors are mostly 

management-related, such as organizational strategies and goals, 

internal communication, supervision and review, employee quality and 

discipline etc. All associated risks can be identified through measures 

such as annual business planning, audits, and employee performance 

appraisal. Given the status of current operations, occurrence of 

abovementioned events is relatively low. In terms of impacts from 

external factors such as natural disasters and external parties, TAIFEX 

Clearing has an emergency response manual in place that outlines 

responses for various situations including fire, earthquake, theft, bank 

crisis, member's default, data transmission error, and malfunction of 

carrier's network.

Operational risk management 

TAIFEX Clearing has robust internal control practices, ISO procedures, 

self-examination and risk assessment systems in place. In an attempt to 

reduce operational risks, TAIFEX Clearing has established clearing and 

settlement guidelines in its Operational Key Points of Clearing and 

Settlement for Futures Commission Merchants and Clearing Members 

and the Enforcement Rules to guide procedures such as: deposit and 

withdrawal of margin, margin call, settlement at expiration, foreign 

exchange settlement agent services for margin, settlement service 

billing, position management, contract adjustment, and process timing. 

TAIFEX Clearing has implemented standardized workflows as part of 

its internal ISO procedures, thereby ensuring the stability of its business 

operations. To ensure consistent quality in daily operations, TAIFEX 

Clearing has outlined in its "Documentation Procedures" a set of 

standardized guidelines to control how documents are prepared, 

reviewed, approved, implemented, amended, updated, distributed, 

abolished and followed.

Policies, procedures and controls 

TAIFEX Clearing is responsible for overseeing the development and 
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risks of the market, which is why it has implemented risk control and

security surveillance systems, and conducts regular inspections to make 

sure that every procedure is properly managed. The goals, procedures 

and control points of each major operation have been outlined in 

TAIFEX Clearing's "Internal Control System" and "Internal Audit 

Implementation Rules." These documents can be used to evaluate the 

completeness and appropriateness of Company's existing controls, and 

effectively reduce risk of operations. With regards to the human 

resources policy, TAIFEX's ISO procedures have implemented 

standardized processes such as: employment agreements, employee 

training manuals, resignation procedures, and disciplinary policy to 

minimize the risks associated with staff transfer and attrition. With 

regards to fraud prevention, TAIFEX Clearing has purchased loyalty 

insurance for employees involved with cash disbursement, financial 

management, procurement and market surveillance, and implemented a 

"Gift Purchase and Distribution Management Procedure" to guide its 

procurement processes.

Supervision and reporting

The goals, procedures and control points of each major operation have 

been outlined in TAIFEX Clearing's "Internal Control System" and 

"Internal Audit Implementation Rules." These documents can be used 

to evaluate the completeness and appropriateness of Company's 

existing controls, and effectively reduce risk of operations. TAIFEX 

Clearing's internal control system and internal audit practices are 

revised on a yearly basis to accommodate changes in the 

internal/external environment, new regulations and new business 

strategies, and are implemented with Board' approval. To ensure 

effective execution of internal control, each department is required to 

conduct monthly self-assessments according to the Internal Selfassessment Guidelines, and adjust current practices to conform with 

new operational and regulatory requirements. Detailed reports of these 

exercises are presented to the Internal Audit Office for review on a 

monthly basis. The Internal Audit Office carries out internal audits 

according to the yearly audit plan. All audit reports are presented to 

the Board for review on a quarterly basis and filed with the Competent 

Authority. Overall execution is considered satisfactory.
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Key Consideration 2: An FMI’s board of directors should clearly 

define the roles and responsibilities for addressing operational risk and 

should endorse the FMI’s operational risk-management framework. 

Systems, operational policies, procedures, and controls should be 

reviewed, audited, and tested periodically and after significant changes.

Roles, responsibilities and framework 

TAIFEX has an Internal Audit Office established directly under the 

Board. The office is responsible for planning and executing audits on 

the Company's business activities and annual targets. The office 

prepares a Declaration of Internal Control to explain effectiveness, 

efficiency and compliance of current operations and management 

practices, and presents it to the Board and the Competent Authority on 

a regular basis. 

Review, audit and testing

TAIFEX Clearing 's internal control system and internal audit 

practices are revised on a yearly basis to accommodate changes in the 

internal/external environment, new regulations and new business 

strategies, and are implemented with Board' approval. To ensure 

effective execution of internal control, each department is required to 

conduct monthly self-assessments according to the Internal Selfassessment Guidelines, and adjust current practices to conform with 

new operational and regulatory requirements, which are verified by 

the Internal Audit Office.

Key Consideration 3: An FMI should have clearly defined operational 

reliability objectives and should have policies in place that are designed 

to achieve those objectives.

Main goals

TAIFEX Clearing's risk management policy has been established for 

the purpose of developing robust and comprehensive risk management 

framework and procedures throughout TAIFEX Clearing that would 

support the stability and security of the clearing system.

TAIFEX has passed ISO27001 and ISO22301 certification and 
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established the data security management system. TAIFEX continues 

to strengthen data security management and identify the risks and 

threats facing operations, in order to prevent destructive events 

affecting operations and ensure that the system can be recovered.

Policy principles

TAIFEX Clearing employs a team of professional and experienced 

personnel to develop a clearing system that promotes fair, just and 

open trading. It also implements standard operating procedures to 

ensure that all processes are completed properly, modifies outdated 

procedures when needed and implements continuous improvements, 

protective and corrective measures in the event of quality incidents. At 

the same time, TAIFEX Clearing strives to deliver better services and 

excellence by introducing new products and clearing systems that 

meet trader needs more closely.

Key Consideration 4: An FMI should ensure that it has scalable 

capacity adequate to handle increasing stress volumes and to achieve 

its service-level objectives.

Expansion of system capacity

1. Trading and clearing are the two main computer systems used in 

TAIFEX Clearing's clearing and settlement services. The TAIFEX 

Electronic Trading System (TAIFEX ETS) as well as OTC 

derivatives clearing system are in-house developed and 

maintained, whereas the exchange-traded derivatives clearing 

system is outsourced to TDCC. The trading and clearing systems 

are connected via network for data transmission. Futures 

commission merchants and securities firms that are licensed to 

perform futures services will connect themselves to TAIFEX 

Clearing and TDCC to create their own front/back-office systems. 

The following concerns have been taken into consideration when 

designing hardware and software for computer systems:

(1). Trading system: TAIFEX hosts a central server that connects to 

all users. Each futures commission merchant is given the 

freedom to develop their own terminals using TCP/IP protocol. 
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After in-house development of electronic trading system 

TAIFEX has been monitoring capacity utilization using a 

variety of indicators to ensure that there are adequate resources 

to meet extreme situations and future growth and to provide a 

basis for future hardware expansion. Data such as TWSE 

historical trade volumes and deal percentages are also taken 

under consideration.

(2). Exchange-traded derivatives clearing system: Securities firms 

that concurrently engage in futures services may simply install 

an additional multiprotocol switch to their existing TDCC lease 

line to be able to connect with the TDCC server and futures 

clearing server, and thereby saving the cost of leasing an 

additional line. Ever since TAIFEX Clearing outsourced its 

clearing system to TDCC, the clearing system has undergone 

several capacity expansions and performance upgrades to 

accommodate increases in business volume and the introduction 

of new services, and the expanded capacity of the trading 

system. Constant adjustments are being made to improve the 

quality and performance of test environment for trading and 

clearing systems. 

(3). OTC derivatives clearing system: With an in-house built OTC 

derivatives clearing system, TAIFEX has been monitoring 

capacity utilization using a variety of indicators to ensure that 

there are adequate resources to meet extreme situations, to 

achieve future growth and to provide a basis for further 

hardware expansion.

2. TAIFEX as a whole continues to gather information relating to the 

technology, structure and hardware used by exchanges worldwide, 

and has adopted three indicators to monitor utilization of system 

resources:

(1). Alert: Usage of resources above the alert level will trigger 

enhanced monitoring and a series of appropriate measures such 

as activation of backup capacity or adjustment of system 

structure, so that resource utilization can be reduced to a safe 

level (below the alert level) before it becomes critical. In other 

words, when available system resources have dropped to the 
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alert level, system administrators will begin analyzing the 

patterns that gave rise to the increased use of resources and 

make adjustments accordingly. Once adjustments have been 

made, resource utilization will be continuously monitored until 

it falls back to within a safe level.

(2). Warning: Usage of resources above the warning level will 

trigger emergency measures such as activation of backup 

capacity or adjustment of system structure, so that resource 

utilization can be reduced to a safe level (below the alert level) 

before it becomes critical.

(3). Critical: The critical level represents a state where, if no drastic 

restrictions are placed on the use of resources, the system will 

be unable to operate once trading activity peaks, causing market 

disruption. System resource utilization is calculated as the sum 

of utilization of the operating system and the application 

system.

Key Consideration 5: An FMI should have comprehensive physical 

and information security policies that address all potential 

vulnerabilities and threats.

Hardware security

1. To protect the information assets of TAIFEX as a whole from 

damage, whether due to internal or external negligence, intentional 

or accidental actions, TAIFEX has established an Information 

Security Policy that serves as the fundamental guideline in its 

information security measures. This policy provides employees 

with appropriate guidance, and also signifies the executive 

management's commitment to information security.

2. By conducting appropriate risk assessment, TAIFEX is able to 

analyze potential risks associated with its information assets, and 

mitigate such risks to acceptable levels with appropriate controls. 

At the same time, employees are instructed to comply with 

intellectual property rights regulations, the Personal Information 

Protection Act and terms and conditions agreed with customers 

while performing their duties.
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3. The following describes the scope of the Information Security 

Policy; management guidelines and implementation plans are 

developed based on this policy by various departments, and are 

assessed on a regular basis:

(1). Personnel: Applies to TAIFEX's permanent and contract staff, 

and any contractor or third party that makes use of TAIFEX's 

information resources.

(2). Application system: The policy covers the following 

information systems used within TAIFEX: trading system, 

monitoring system, website, firewall/IDS, media reporting 

system, post-market information system, knowledge 

management system, domain name server, e-mail system, realtime quotation system, real-time quotation server, office 

automation system, backup order entry system, and other 

relevant information systems.

(3). Hardware: mainframes, workstations, servers and personal 

computers of all kinds.

(4). Network and facilities: local area networks within TAIFEX's 

offices and server rooms, and connections to the Internet or 

leased data lines of designated units as well as related network 

equipment.

Information security

1. To protect the information assets of TAIFEX as a whole from 

damage, whether due to internal or external negligence, intentional 

or accidental actions, TAIFEX has established an Information 

Security Policy that serves as the fundamental guideline in its 

information security measures. This policy provides employees 

with appropriate guidance, and also signifies the executive 

management's commitment to information security.

2. The Information Security Policy embodies all measures that have 

been taken to ensure business continuity, reduce losses and 

increase investment returns. At TAIFEX, information security 

concerns all personnel, processes and equipment that involve 

information, such as computers, system users and operating 
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procedures.

3. The Information Security Policy has the following features:

(1). Confidentiality: Ensuring that only authorized personnel may 

access information, and that information is not leaked to the 

outside when being processed, transmitted or stored.

(2). Integrity: Ensuring that information and system configurations 

are protected against malicious tampering that may compromise 

data and system integrity while data is being transmitted, stored 

or processed.

(3). Availability: Ensuring that information is available to 

authorized users when needed.

4. TAIFEX has assembled an Information Security Panel that 

comprises an Information Security Management Review 

Committee, an Information Risk Prevention Team, an Information 

Security Execution Team, and an Information Security Audit 

Team to support its Information Security Policy. The position of 

Chief Information Security Officer is held by the Vice President of 

the IT Planning Department and IT Operations Department. The 

position is responsible for coordinating information security 

policy promotions, supervising information security management 

items, delegating and coordinating information security 

responsibilities, dispatching information security resources, 

supervising the implementation of information security protection, 

reviewing and supervising information security incidents, and 

approving the annual information security management 

maintenance plan. The Information Security Panel consists of 

members assigned from each department. Its members list is 

updated regularly to reflect personnel changes.

Key Consideration 6: An FMI should have a business continuity plan 

that addresses events posing a significant risk of disrupting operations, 

including events that could cause a wide-scale or major disruption. The 

plan should incorporate the use of a secondary site and should be 

designed to ensure that critical information technology (IT) systems can 

resume operations within two hours following disruptive events. The 

plan should be designed to enable the FMI to complete settlement by 

the end of the day of the disruption, even in case of extreme 
208

circumstances. The FMI should regularly test these arrangements.

Objectives of the business continuity plan

TAIFEX has implemented preventive measures and response 

procedures to react to any possible emergencies that could disrupt the 

futures market or TAIFEX's operations. These protocols help 

minimize damages should a disaster occur, and therefore ensure the 

security of the trading and clearing process.

Design of business continuity plan

TAIFEX has implemented a Business Continuity Plan (BCP) based on 

the existing "Information Security Management Directions for the 

Executive Yuan and its Subordinate Agencies","ISO27001" and 

"ISO22301" to guide its Business Continuity Management (BCM). 

The BCP serves to prevent disruption of key business activities, and 

incorporates a comprehensive set of response and recovery procedures 

to minimize disruption and damages in the event of natural disaster, 

accident, malfunction or malicious conduct. The BCP is subject to 

practice drill and testing on a yearly basis to ensure that it continues to 

be effective, and that all personnel involved are familiar with their 

roles and procedures.

1. Scope of emergency/incident

(1). Market-wide incidents:

Major natural disasters, accidents, settlement defaults, merchant 

defaults, trading or clearing system malfunctions, intranet virus 

infection, and communication disruptions that affect the entire 

futures market and TAIFEX.

(2). Department-specific emergencies/incidents:

A. Business emergencies and incidents.

B. Financial emergencies and incidents.

C. Hardware/software emergencies and incidents.

2. Scope of daily preventive measures

(1). Compile a comprehensive list of emergency situations that the 
209

company is likely to encounter, prepare an Emergency Response 

Manual that addresses the identified situations and disseminate it 

to all employees through every possible means.

(2). Enhance internal defenses; outline areas of responsibility for 

each department; raise employees' awareness and responsiveness 

to emergency situations.

(3). Establish an emergency reporting system that enables 

communications with internal and external parties.

(4). Familiarize employees with situations that they are likely to 

encounter within their respective departments; backup critical 

files on a timely basis to ensure rapid recovery in the event of an 

emergency.

(5). Develop habits of backing up data.

(6). Maintain a secondary site system with capacity sufficient to 

support the market even under extreme scenarios.

(7). Develop systematic practices that allow a convener to hold crisis 

handling meetings and coordinate inter-department support in 

times of need.

(8). Continually disclose material information pertaining to the local 

market.

(9). Maintain contacts with and direct attention to other markets and 

exchanges around the world.

(10). Perform regular and unscheduled practice drills to test and 

improve effectiveness of existing response measures.

3. Response procedures in case of emergencies/incidents

(1). Respond in a calm manner; the department head shall actively 

contact with and ensure employees' safety.

(2). Without compromising personal safety, staff should carry 

important business files if instructed to evacuate.

(3). Reporting and handling procedures:

A. Staff are required to assess the situation, follow the procedures 

set out in TAIFEX's Business Continuity Plan, and report to 

the department head. An Emergency Response Report should 
210

also be filled out.

B. If the situation deteriorates to the point where procedures 

outlined in the Business Continuity Plan are no longer 

considered adequate or appropriate, the department head may 

inform the crisis handling meeting convener to hold a meeting 

to decide a suitable response.

C. The convener of the crisis handling meeting notifies TAIFEX's 

spokesperson to issue statements to the media.

D. The manager, deputy manager and all relevant staff will be put 

on standby to respond to situations as needed.

E. In situations where a department encounters a major, 

exceptional event, or if the company is warned by the media 

or investors of a risk concern sufficient to cause extreme 

market volatility, the related department will assess the extent 

of the likely impact and report to upper management 

immediately, while at the same time preparing press releases 

for the spokesperson and notifying the Competent Authority if 

deemed necessary.

4. Post-incident operations

(1). Once the situation is resolved, all departments will gather to 

discuss and record all relevant facts and actions into an 

Emergency Response Log, to be circulated along with the 

Emergency Response Report to the Chairman.

(2). Based on the discussions, further amendments are made to 

TAIFEX's Business Continuity Plan for guidance in the event of 

future occurrences.

TAIFEX's Business Continuity Plan has identified several "Intermarket Reporting Contacts" with which TAIFEX may exchange 

documents such as Inter-market Information Exchange Form, Intermarket Information Reporting Form, Confidential Information Inquiry 

Form, and Confidential Information Progress Form. Furthermore, 

TAIFEX has a Domestic Public Relations Process that guides 

dissemination of press releases to media contacts.
211

Secondary Site

TAIFEX operates a secondary site capable of providing real-time 

backup of trading and clearing systems, and next-day backup of the 

surveillance system. In the event that the primary system encounters a 

total malfunction due to natural disaster or force majeure, the 

secondary site is able to restore trading activities in the market within 

1 hour.

If an emergency occurs, the affected department will accompany the 

Computer Operations Department to determine the scope of impact 

and to decide whether to recover the primary system or to activate the 

secondary site.

Review and testing

TAIFEX conducts the "National Key Infrastructure Protection Drill" 

according to the instructions of the Office of Homeland Security, 

Executive Yuan, in order to maintain key operations and meet 

operational goals when facing different threats or disasters.

TAIFEX's business continuity management is guided by its Business 

Continuity Plan. Execution of this plan is rehearsed annually on a 

regular and unscheduled basis to serve as guidance for future 

improvements. Incidents are reviewed and discussed once the state of 

emergency has been rescinded. The results of these discussions 

provide the basis for future amendments to the Business Continuity 

Plan.

Key Consideration 7: An FMI should identify, monitor, and manage 

the risks that key participants, other FMIs, and service and utility 

providers might pose to its operations. In addition, an FMI should 

identify, monitor, and manage the risks its operations might pose to 

other FMIs.

Risks to the FMI’s own operations

In order to support the electronic trading system employed by the 

domestic futures market, TAIFEX Clearing has commissioned the 

Taiwan Depository and Clearing Corporation (TDCC) to develop and 
212

maintain its clearing system. Clearing operations between TAIFEX 

Clearing and clearing members are completed via closed private 

network to ensure the highest level of security and efficiency. TDCC 

also defines futures commission merchants' (clearing members') 

transmission interfaces and the communication protocols for

transmitting data with TAIFEX Clearing, including the clearing server 

specifications, the interface functionality, the format of messages 

transmitted etc. These specifications provide futures commission 

merchants (clearing members) with the fundamental guidelines for 

developing their computer systems.

TAIFEX handles the clearing operations of OTC derivatives and signs 

contracts with institutions that provide a trading contract submission 

platform (Affirmation Platform). TAIFEX has stipulated the 

responsibilities of TAIFEX related to the accuracy, timeliness, 

integrity, transmission delays, or inability to transmit and other issues 

of the information submitted to the Affirmation Platform in the 

Enforcement Rules. Regarding compression service providers, 

TAIFEX has stipulated the responsibilities of TAIFEX related to the 

position compression effects, efficiency, or other related services 

provided by the compression service provider in the Enforcement 

Rules.

Risks posed to other FMIs

Currently, TAIFEX Clearing is the only futures clearing house in the 

domestic futures market as a whole, and TAIFEX Clearing only 

performs clearing services for products traded over TAIFEX and for 

clearing of OTC derivatives transactions, such as NTD interest rate 

swap transaction. It is not involved in any cross-border clearance or 

mutual offset arrangement, and nor is it interdependent with another 

FMI. TAIFEX Clearing has a robust set of internal control practices, 

ISO procedures, "Emergency Response manual," and "Business 

Continuity Plan" that covers an extensive range of operational risk 

events and helps the Company respond to market changes and crises. 

As a result, the TAIFEX 's clearing operations are considered 

adequately managed and present no risk to other FMIs.
213

Principle 18:Access and participation requirements

An FMI should have objective, risk-based, and publicly disclosed 

criteria for participation, which permit fair and open access.

Summary Narrative

Key Consideration 1: An FMI should allow for fair and open access 

to its services, including by direct and, where relevant, indirect 

participants and other FMIs, based on reasonable risk-related 

participation requirements.

Participation criteria and requirements

All direct and indirect participants of TAIFEX Clearing are required to 

comply with the Act, Regulations Governing Futures Commission 

Merchants, the Rules, the OTC Rules, the OTC Enforcement Rules, 

and the eligibility criteria for clearing members. Regarding the 

eligibility rules for futures merchants and clearing members, the 

relevant information has been disclosed on the TAIFEX website. The 

clearing membership eligibility summary and laws and regulations for 

participation in the market are provided in Chinese and English, in 

order to provide a fair and open route to market participation.

The eligibility criteria mentioned above have been established in a fair 

and open manner based on rational risk assessments, without being 

overly strict and burdensome. By ensuring consistent financial 

strength, business performance and risk management capacity across 

participants, TAIFEX is able to maintain top efficiency in its clearing 

operations and optimal risk management capacity, and thereby provide 

services to direct and indirect participants in a fair and open manner.

Key Consideration 2: An FMI’s participation requirements should be 

justified in terms of the safety and efficiency of the FMI and the markets 

it serves, be tailored to and commensurate with the FMI’s specific risks, 

and publicly disclosed. Subject to maintaining acceptable risk control 

standards, an FMI should endeavor to set requirements that have the 

least restrictive impact on access that circumstances permit.
214

Justification and rationale of participation criteria for exchangetraded derivatives

Exchange-traded derivatives market

TAIFEX Clearing offers three types of clearing memberships in the 

exchange-traded derivatives market: Individual Clearing Member, 

General Clearing Member, and Special Clearing Member. Financial 

requirements and scope of business for all three memberships have 

been specified in TAIFEX Clearing's Criteria for Clearing 

Membership; an abstract of the criteria is presented below:

1. Individual Clearing Member

(1). Scope of Business: This membership status is for futures 

commission merchants who wish only to clear and settle their 

proprietary trades and transactions brokered to their own 

customers.

(2). Financial criteria:

A. Requires minimum paid-in capital of NTD 200 million. 

Institutions that concurrently operate as futures commission 

merchants are required to provide designated operating funds 

of at least NTD 80 million for the business.

B. Financial structure:

a. Owner's equity ÷ paid-in capital ≧ 80%

b.

i. For dedicated futures commission merchants with paidin capital or designated operating funds equal to or above 

NTD 200 million: adjusted net capital ÷ total client 

margins required for outstanding positions ≧ 20%

ii. For concurrent futures commission merchants with 

designated operating funds of at least NTD 100 million 

but less than NTD 200 million: adjusted net capital ÷ total 

client margins required for outstanding positions≧ 25%

iii. For concurrent futures commission merchants with 

designated operating funds less than NTD 100 million: 

Adjusted net capital ÷ total client margins required for 
215

outstanding positions ≧ 30%, and must have obtained 

irrevocable line of credit dedicated for margin clearing 

purposes for at least NTD 60 million from the settlement 

bank.

c. Current assets ÷ current liabilities ≧ 100%. TAIFEX may 

require additional clearing margins if 120%> current assets 

÷ current liabilities ≧100%.

d. (Total liabilities - futures traders' equity) ÷ owner's equity 

≦ 80%

e. Obtain a credit rating report within two years.

(3). Clearing and Settlement Fund

A. Before carrying out clearing and settlement operations, the 

clearing member shall make a deposit to the clearing and 

settlement fund equal to 20 percent of its paid-in capital or 

designated operating funds, but the amount shall be limited to 

a maximum of NTD 40 million.

B. After the clearing member has carried out clearing and 

settlement operations for one full year, the upper limit on the 

amount deposited to the clearing and settlement fund shall be 

reduced to NTD 20 million, and the clearing member shall 

make deposits to the clearing and settlement fund by the 

method and in the amount prescribed by this Corporation.

C. Each time the clearing member consigns an introducing broker 

or each time such an introducing broker establishes an 

additional branch, the clearing member shall make an 

additional clearing and settlement fund deposit of NTD 1 

million with this Corporation.

2. General Clearing Member

(1). Scope of Business: This membership status allows a futures 

commission merchant to clear and settle its proprietary trades, 

transactions of its brokerage customers, and transactions of other 

futures commission merchants.

(2). Financial criteria:

A. Minimum paid-in capital or designated operating funds of 
216

NTD 400 million are required for this membership status.

B. Financial structure:

a. Owner's equity ÷ paid-in capital ≧ 80%

b. adjusted net capital ÷ total client margins required for 

outstanding positions ≧ 20%

c. Current assets ÷ current liabilities ≧ 100%

d. (Total liabilities - futures traders' equity) ≦owner's equity

(3). Clearing and Settlement Fund

A. Before carrying out clearing and settlement operations, the 

clearing member shall deposit NTD 40 million with this 

Corporation.

B. After the clearing member has carried out clearing and 

settlement operations for one full year, the amount deposited 

to the clearing and settlement fund shall be reduced to NTD 30 

million, and the clearing member shall make deposits to the 

clearing and settlement fund by the method and in the amount 

prescribed by this Corporation.

C. For each additional futures commission merchant consigning 

the clearing member to handle clearing and settlement 

operations, the clearing member shall make a clearing and 

settlement fund deposit of NTD 3 million with this 

Corporation before accepting consignment.

D. For each additional branch established by a consigning futures 

commission merchant, or for each additional futures trading 

introducing broker consigned by the clearing member or for 

each additional branch established by such introducing broker, 

the clearing member shall make a clearing and settlement fund 

deposit of NTD 1 million with this Corporation.

3. Special Clearing Member

(1). Scope of Business: This membership status applies to financial 

institutions that are not futures commission merchants but have 

been specially permitted by the Competent Authority to perform 

futures settlement for other futures commission merchants.
217

(2). Financial criteria:

A. Minimum designated operating funds of NTD 400 million 

need to be dedicated for the service.

B. Financial structure:

a. Owner's equity ÷ paid-in capital ≧ 100%

b. adjusted net capital ÷ total client margins required for 

outstanding positions ≧ 20%

c. Current assets ÷ current liabilities ≧ 100%

d. (Total liabilities - futures traders' equity) ≦ owner's equity

(3). Clearing and Settlement Fund

A. Before carrying out clearing and settlement operations, the 

clearing member shall deposit NTD 40 million with this 

Corporation.

B. After the clearing member has carried out clearing and 

settlement operations for one full year, the amount deposited 

to the clearing and settlement fund shall be reduced to NTD 30 

million (CAD 1.3 million), and the clearing member shall 

make deposits to the clearing and settlement fund by the 

method and in the amount prescribed by this Corporation.

C. For each additional futures commission merchant consigning 

the clearing member to handle clearing and settlement 

operations, the clearing member shall make a clearing and 

settlement fund deposit of NTD 3 million (CAD 130,000 ) 

with this Corporation.

D. For each additional branch established by a consigning futures 

commission merchant, the clearing member shall make a 

clearing and settlement fund deposit of NTD 1 million (CAD 

43,000 ) with this Corporation.

OTC derivatives market

The OTC derivatives market clearing membership of TAIFEX is 

divided into individual clearing members and general clearing 

members. The OTC clearing membership applications are limited to 
218

those engaged in derivative trading or handling derivative financial 

instruments approved by the competent authority, and OTC clearing 

member applicants shall be financial institutions legally registered in 

Taiwan. 

After referring to the relevant regulations of foreign Exchanges (e.g. 

CME Group, LCH Group, Eurex, HK OTC Clear, SGX, JSCC and 

KRX) on the eligibility criteria for clearing membership and ‘Margin 

Requirements for Non-centrally Cleared Derivatives’ published by 

Basel Committee on Banking Supervision (BCBS), and analyzing

average nominal principal of IRS, FX Swap and NDF in Taiwan, then 

TAIFEX formulates the required paid-in capital amounts and amounts 

of OTC derivatives default fund pre-clearing deposits.

The detailed financial and operating rules are stipulated in the OTC 

Enforcement Rules. The content is as follows:

1. Individual Clearing Member

(1) Scope of Business: Handles clearing operations of proprietary 

trades.

(2) Financial criteria:

A. Required minimum paid-in capital of NTD 2 billion. 

However, exception applies to those described in Article 

2.1.3 of the OTC Enforcement Rules , and the guarantee 

and commitment letters issued by a clearing member’s 

parent or holding company should guarantee its 

performance of such clearing member’s obligation and 

relevant responsibilities to handle clearing and settlement. 

If the clearing member is a branch established within the 

territory of the R.O.C. (Taiwan) by a foreign financial 

institution according to the law, the required minimum 

paid-in capital of the head office is equivalent to NTD 2 

billion or above.

B. Financial structure

a. If the clearing member is a bank, its Capital Adequacy 

Ratio shall not be less than 10.5%.

b. If the clearing member is an insurance enterprise, its Risk 

Based Capital Ratio shall equal or exceed 200% and Net 
219

Worth Ratio shall not be less than 3%.

c. If the clearing member is a securities firm, its Regulatory 

Capital Adequacy Ratio shall equal or exceed 200%.

d. If the clearing member is a bills finance company, its 

Capital Adequacy Ratio shall not be less than 8%.

e. If the clearing member is a futures commission merchant 

that concurrently operates as a leverage transaction 

merchant, its adjusted net capital shall not be less than 

30% of the total amount of customer margins required for 

the open positions of futures traders.

f. If the clearing member is a subsidiary of a financial 

holding company prescribed in the "Financial Holding 

Company Act," the capital adequacy ratio of such a group 

capital adequacy ratio calculated and reported by a

financial holding company or foreign financial holding 

company shall not be lower than 100%.

g. If the clearing member is a subordinate company 

prescribed in the "Company Act," the financial structure 

of such controlling company shall meet the provisions of 

Items 1 to 5 of this subparagraph according to the type of 

business to which it is attributed.

h. If the clearing member is a branch established within the 

territory of the R.O.C. by a foreign financial institution 

according to the law, the financial structure of the head 

office shall meet the provisions of Items 1 to 5 of this 

subparagraph according to the type of business to which 

it is attributed.

C. OTC derivatives default fund:

a. Clearing members are required to contribute to TAIFEX 

the OTC derivatives Default Fund of NTD 20 million 

prior to engaging in clearing operations of OTC 

derivatives.

b. Clearing members are required to contribute to the OTC 

derivatives Default Fund based on the amount computed 

by TAIFEX subsequent to engaging in clearing operations 
220

of OTC derivatives.

2. General Clearing Member

(1) Scope of Business: Handles clearing operations of proprietary 

and client trades.

(2) Financial criteria:

A. Required minimum paid-in capital of NTD 8 billion.

B. Financial structure:

a. If the clearing member is a bank, its Capital Adequacy 

Ratio shall not be less than 10.5%.

b. If the clearing member is a securities firm, its Regulatory 

Capital Adequacy Ratio shall equal or exceed 200%.

c. If the clearing member is a futures commission merchant 

that concurrently operates as a leverage transaction 

merchant, its adjusted net capital shall not be less than 

30% of the total amount of customer margins required for 

the open positions of futures traders.

C. OTC derivatives default fund:

a. Clearing members are required to contribute to TAIFEX 

the OTC derivatives Default Fund of NTD 30 million 

prior to engaging in clearing operations of OTC 

derivatives.

b. Clearing members are required to contribute to the 

Default Fund based on the amount computed by TAIFEX 

subsequent to engaging in clearing operations of OTC 

derivatives.

Minimum restrictions on market participation

The purpose of this classification system is to have financially sound 

futures commission merchants and eligible financial institutions serving 

as key barriers against market risks. A clearing member's role not only 

includes cleared transactions for market participants, but also helps 

them control risks. Their existence produces a multi-layered risk 

framework that enables risk sharing. In addition, no applicable 
221

derivatives regulations permit unreasonable discrimination among 

participants. Eligible participants own the right to apply for 

membership; TAIFEX Clearing does not impose any burden or 

competition that is not necessary or appropriate.

Disclosure of criteria

The participation criteria has been announced to the public, thereby 

giving all existing and potential clearing members full knowledge of 

the criteria. Exchange-traded derivatives clearing membership rule and 

regulations are mainly stipulated under Taiwan Futures Exchange 

Corporation Criteria for Clearing Membership and Taiwan Futures 

Exchange Corporation Clearing Member Application Procedures. 

OTC derivatives clearing membership rule and regulations are mainly 

stipulated in Chapter II of the OTC Enforcement Rules. The 

participation criteria are revised as needed to conform with the current 

regulatory requirements and market conditions. Amendment will be 

published upon approval.

Key Consideration 3: An FMI should monitor compliance with its 

participation requirements on an ongoing basis and have clearly 

defined and publicly disclosed procedures for facilitating the 

suspension and orderly exit of a participant that breaches, or no longer 

meets, the participation requirements.

Compliance monitoring

TAIFEX continues to review the financial and operational statuses of 

clearing members, and formulates review measures. Routine audits or 

case audits are routinely conducted for clearing members. If faults or 

rule violations are found during the audits, TAIFEX shall send 

representatives to conduct special audits and provide assistance. The 

clearing member audit results are reported to the competent authority 

on a monthly basis.

In accordance with Article 14.1.2 of the OTC Enforcement Rules, 

routine audit means an audit of financial, business, and internal audit 

activities. The scope of routine audits of OTC derivatives market is 

based on Principles Governing Establishment of Internal Control 
222

Systems of OTC Derivatives Clearing (the “OTC Internal Control 

Systems”), which is formulated by TAIFEX.

Suspension and orderly exit

Exchange-traded derivatives market

(1). According to Article 103 of the Rules, TAIFEX Clearing may take 

the following actions if a clearing member defaults due to financial 

reasons:

A. Suspend the defaulting clearing member's clearing and settlement 

operations and report the matter in writing to the Competent 

Authority.

B. Notify all clearing members and futures commission merchants 

through the TAIFEX Clearing's online information system.

C. Check the defaulting clearing member's clearing margin balance, 

bank account balance, operating bond, default fund, and other 

assets and immediately pursue protective measures in respective 

of the statutory rights.

D. Dispose of the defaulting clearing member's positions and margin 

funds.

E. Conduct an audit of the defaulting clearing member and an 

investigation and analysis of the incident.

(2). According to Article 10 of TAIFEX Clearing's "Criteria for 

Clearing Membership," if any of the following circumstances exists 

with respect to a clearing member, TAIFEX Clearing may terminate 

its clearing membership, and handle the matter pursuant to Article 

54 of the Act:

A. A relevant authority has cancelled the clearing member's 

company registration or dissolved the clearing member.

B. The Competent Authority has issued a disposition canceling the 

clearing member's operations permit.

C. The clearing member has been pronounced bankrupt by a final 

court ruling.

D. The clearing member fails to perform clearing and settlement 
223

obligations.

E. The clearing member violates a law or regulation or continues to 

fail to comply following imposition of an administrative 

disposition by the Competent Authority based on a law or 

regulation.

F. The clearing member violates the Articles of Incorporation or the 

Rules of TAIFEX, the Guidelines for the Consignment Contract, 

or other rules or regulations, where the circumstances are serious.

G. The clearing member's clearing or settlement practices violate 

good faith and integrity in a manner sufficient to harm others.

H. The clearing member is unable to maintain compliance with 

TAIFEX Clearing's clearing member criteria and, following an 

inquiry by TAIFEX Clearing and the setting of a deadline for 

improvement, the clearing member fails to implement 

improvements or continues to fall short of criteria after 

implementing improvements.

OTC derivatives market

1. According to Article 55 of the OTC Rules, in the event a clearing 

member is in default due to financial factors, TAIFEX Clearing may 

take the following measures:

(1) Suspend the defaulting clearing member's clearing operations and 

report the matter in writing to the Competent Authority.

(2) Suspend the defaulting clearing member's withdrawal of margin.

(3) Notify clearing members and make an announcement to the 

market. 

(4) Check the defaulting clearing member's margin balance, bank 

account balance, operating bond, OTC derivatives default fund, 

and other assets and immediately pursue protective measures in 

respect of TAIFEX’s statutory rights. 

(5) Convene the Default Management Group to handle cleared 

transactions and margins of the defaulting clearing member. 

(6) Conduct an audit of the defaulting clearing member and an
224

investigation and analysis of the incident.

2. Pursuant to Article 9 of the OTC Rules, TAIFEX Clearing may 

terminate its clearing agreement, and handle the matter according 

to Article 54 of the Act:

(1) A relevant authority has revoked the clearing member's company 

registration or dissolved the clearing member.

(2) The Competent Authority has issued an instruction revoking the 

clearing member's operation license.

(3) The clearing member has been pronounced bankrupt by a final 

court ruling.

(4) The clearing member fails to perform clearing and settlement 

obligations. 

(5) The clearing member violates a law or regulation or continues to 

fail to comply following imposition of an administrative 

instruction by the Competent Authority based on a law or 

regulation.

(6) The clearing member violates the Articles of Incorporation or the 

Rules of TAIFEX, or other rules or regulations, where the 

circumstances are deemed severe by TAIFEX.

(7) The clearing member's clearing or settlement practices violate 

good faith and integrity in a manner sufficient to harm others.

(8) The clearing member is unable to maintain compliance with 

TAIFEX’s clearing member criteria and, following an inquiry by 

TAIFEX and the setting of a deadline for improvement, the 

clearing member fails to implement improvements or continues

to fall short of criteria after implementing improvements.
225

Principle 19:Tiered participation arrangements

An FMI should identify, monitor, and manage the material risks to the 

FMI arising from tiered participation arrangements

Summary Narrative

Key Consideration 1: An FMI should ensure that its rules, procedures, 

and agreements allow it to gather basic information about indirect 

participation in order to identify, monitor, and manage any material 

risks to the FMI arising from such tiered participation arrangements.

Tiered participation arrangements

Exchange-traded derivatives market

TAIFEX participant levels can be distinguished thus:

1. Direct participants: Clearing members.

2. Indirect participants: Customers of clearing members including, 

but not limited to, futures commission merchants, futures 

introducing brokers, banks, insurance companies, bills finance 

companies, securities firms and futures traders.

TAIFEX adopts an account structure that requires disclosure on the 

traders' end, which gives TAIFEX full knowledge of indirect 

participants' account information, positions, and margin levels.

Under the "Futures Commission Merchant Traders Equity Reporting 

System," futures commission merchants and clearing members are 

required to report every trader's margin equity amount, total equity 

value and balance of deposits in customer's margin account to 

TAIFEX Clearing on a daily basis. This practice provides effective 

protection over customers' margin accounts equity and prevents the 

risk of misuse of customers' margins.

OTC derivatives market

TAIFEX participant levels can be distinguished thus:

1. Direct participants: Clearing Members, including Individual 

Clearing Members (for clearing proprietary positions only) and 
226

General Clearing Members (for clearing both proprietary and client 

positions).

2. Indirect participants: Clients (financial institutions that are 

legally allowed to trade OTC derivatives)

TAIFEX adopts an OTC derivatives clearing account structure that 

requires disclosure on the clients' end, which gives TAIFEX full 

knowledge of indirect participants' account information, positions, and 

margin levels.

Clearing members shall establish separate proprietary and client 

clearing accounts. When opening the proprietary and client accounts, 

clearing member shall file the clearing account information for the 

proprietary and individual client account with TAIFEX. All 

subsequent changes to the information must also be reported.

Clearing members must record the positions, margins and other 

account details each day for proprietary and individual client accounts.

The clearing member shall open separate OTC derivatives proprietary 

clearing margin accounts and OTC derivatives client clearing margin 

accounts in the designated settlement bank or other institutions to 

deposit the proprietary margin and client margin separately and to 

handle deposits. Clearing members may not overdraft, set guarantees, 

or exercise other rights over the deposits or negotiable securities in the 

OTC derivatives client clearing margin account, and may not divert 

the funds to cover the margins, clearing fees, commission, processing 

fees, or shortfall of other clients.

TAIFEX can search for the position status and account opening 

information of clients of clearing members through the clearing 

system. TAIFEX may assess the dependence and influence between 

clearing members and their clients according to the position scale and 

account opening information of the clients.

TAIFEX Clearing is able to monitor major risks of tiered 

participation

Exchange-traded derivatives market

In the exchange-traded derivatives market, TAIFEX has been 
227

monitoring futures traders' and futures commission merchants' trade 

volume, open positions and concentration levels and fluctuations in 

accordance with "Regulations Governing Market Trading 

Surveillance," and has set position limits for futures traders, futures 

commission merchants and clearing members in accordance with 

"Rules Governing Surveillance of Market Positions." In the OTC 

derivatives market, Article 45 of the OTC Rules illustrates the 

principle for position concentration of clearing members and the 

actions TAIFEX may take, including but not limited to collect 

additional margin, to maintain market order and to mitigate 

systematical risk.

For effective control of business risk, in the exchange-traded 

derivatives market, futures commission merchants are required to 

report to TAIFEX Clearing their adjusted net capital and the ratio of 

the adjusted net capital to the total amount of client margins required 

for the open positions of futures traders on a daily and monthly basis. 

In addition, TAIFEX Clearing monitors futures commission 

merchants' financial health on a daily and monthly basis, and has 

various alerts in place to highlight potential distress. In the OTC 

derivatives market, as TAIFEX Clearing calculates and monitors the 

margin levels of both direct and indirect participants on a daily basis, 

TAIFEX Clearing possesses sufficient information and is capable to 

monitor major risks of tiered participation.

TAIFEX Clearing collects information on indirect participants for the 

purpose of carrying out clearance and surveillance activities under the 

Act, "Regulations Governing Futures Clearing Houses", the Rules and 

the OTC Rules that it has implemented under the Act. The collection 

of information is also a legal duty imposed by the Act.

OTC derivatives market

TAIFEX is able to monitor major risks of tiered participation in OTC 

markets.

TAIFEX implements the following control measures for managing 

position risk of CM's clients (including all types of indirect 
228

participants) on TAIFEX:

TAIFEX is able to monitor major risks of tiered participation in OTC 

markets.

The position concentration standards have been stipulated in Article 

45 of the OTC Rules, Article 9.1 and Article 9.2 of the OTC 

Enforcement Rules. 

TAIFEX manages the concentration risk through position 

concentration surveillance. For TAIFEX clearing members, position 

concentration is calculated based on the ratio of the sum of required 

margin for all clearing accounts of a clearing member to the total 

required margin for all clearing accounts of all clearing members. In 

addition, TAIFEX will disclose the position concentration information 

of proprietary and client accounts.

Control measures for client's position risk

Based on position concentration of clearing members, TAIFEX sets out 

position concentration standards as follows:

1. Warning Standard: The position concentration of a clearing 

member reaches 15%, and the required margin reaches NT$2 

billion.

2. Disposition Standard: The position concentration of a clearing 

member reaches 20%, and the required margin reaches NT$2 

billion.

TAIFEX may notify the clearing member to monitor position 

concentration when the position concentration standard is reached. In 

addition, TAIFEX may call for additional margin from the clearing 

member if the position concentration of the clearing member reaches 

the “Disposition Standard”. The additional margin will be imposed 

based on the percentage of the required margin. Please refer to the table 

below for details:

Interval Position 

Concentration 

( % )

Additional Margin 

Charge(%)
229

1 20%≦□<30% 5%

2 30%≦□<40% 10%

3 40%≦□<50% 15%

4 50%≦□<60% 20%

5 60%≦□ 25%

For clearing members who exceed the position centralization standard, 

TAIFEX may adopt the following measures to maintain clearing 

security:

1. Notify the clearing member to pay attention to its positions.

2. Impose an additional margin.

3. Other necessary measures to maintain market integrity or the 

soundness of the OTC derivatives market.

Control measures for Clients’ large loss

1. Calculation of Clearing Member's Large Loss

TAIFEX calculates the Large Loss at the end of each business day 

for each account of the clearing member.

2. Clearing Member's Threshold for Large Loss Warning

If the amount of large loss for an account of the clearing member 

reaches or exceeds 50 million and the large loss ratio is ≥50%, the 

clearing member should be notified to pay attention to the risk and 

understand their financial condition1.Calculation of Clearing 

Member's Large Loss

TAIFEX calculates the Large Loss at the end of each business day 

for each account of the clearing member.

Control measures for CM's operational risk

Regarding operational risk management for clearing members, the 
230

clearing members shall submit the financial reports within the period 

stipulated by TAIFEX. The content shall include the monthly report, 

semi-annual report, and annual report. The financial structure 

information shall be reported in the second quarter of the accounting 

year or within 3 months after the end of the year according to the 

industry. TAIFEX is therefore monitoring the financial status of 

clearing members. According to Article 13.1.1 of the Enforcement 

Rules, the clearing member shall report major business changes, 

including the inability to maintain the clearing membership, capital 

reductions exceeding a certain level, suspension or termination of 

operations, concerns regarding the occurrence of defaults, and other 

major incidents that affect the financial structure.

Disposition measures for defaulting clients by clearing members

In the event of client default, the clearing member is still obligated to 

fulfill its obligations to TAIFEX on behalf of the defaulting client in 

accordance with Article 10 of TAIFEX OTC Rules. The clearing 

member may take the following measures against the defaulting client:

1. Suspend the client's submission of new transactions.

2. Suspend the client's withdrawal of margin.

3. Transfer the cleared transactions of the client to CM’s 

proprietary account.

4. Take other measures which are agreed upon in the client 

clearing agreement.

Key Consideration 2: An FMI should identify material dependencies 

between direct and Indirect Participants that might affect the FMI.

TAIFEX Clearing is able to identify interdependencies between 

direct and indirect participants

Exchange-traded derivatives market

Through clearing system, TAIFEX Clearing is able to check traders' 

account status and positions maintained with futures commission 

merchants and clearing members, and use this information to identify 

interdependency between clearing members and market participants.
231

OTC derivatives market

TAIFEX can search for the position status and account opening 

information of clients of clearing members through the clearing system. 

TAIFEX may assess the dependence and influence between clearing 

members and their clients according to the position scale and account 

opening information of the clients..

Key Consideration 3: An FMI should identify Indirect Participants 

responsible for a significant proportion of transactions processed by 

the FMI and Indirect Participants whose transaction volumes or values 

are large relative to the capacity of the direct participants through 

which they access the FMI in order to manage the risks arising from 

these transactions.

TAIFEX Clearing is able to identify risks of indirect participants 

that have significant positions

Exchange-traded derivatives market

Using the surveillance system and the clearing system, TAIFEX 

Clearing is able to check for any concentration of exposure of indirect 

participants each day and rank clearing members by the size of open 

positions they hold in both the exchange-traded and OTC derivatives 

markets. 

In the exchange-traded derivatives market, TAIFEX systems can 

generate an itemized table of futures trading positions, rank traders by 

open positions, generate a list of traders whose open positions and 

marked-to-market losses are of greater concern to the market and 

identify indirect participants that are prone to the impact. Position 

limits have been imposed on futures traders, futures commission 

merchants and clearing members in accordance with "Rules 

Governing Surveillance of Market Positions" as part of the risk 

management practice. TAIFEX performs daily monitoring to identify 

indirect participants that exhibit high trade volumes or values relative 

to direct participants. If any futures trader holds outstanding positions 

that exceed the prescribed limit, TAIFEX may take necessary actions 

according to "Rules Governing Surveillance of Market Positions" to 
232

maintain discipline and security within the market.

OTC derivatives market

TAIFEX manages the OTC derivatives market clearing operations 

according to the separate proprietary accounts and client accounts of 

the clearing member. TAIFEX records the daily positions and margins 

of the accounts and handles the clearing operations. It can identify the 

value of the positions, margins, and collaterals of the direct and 

indirect participants, and manage the risks created by indirect 

participant trading.

Key Consideration 4: An FMI should regularly review risks arising 

from tiered participation arrangements and should take mitigating 

action when appropriate.

TAIFEX Clearing is able to monitor risks arising from tiered 

participation arrangement

Exchange-traded derivatives market

TAIFEX Clearing conducts daily monitoring of risks that arise from 

futures traders, futures commission merchants and clearing members, 

and calls regular surveillance/supervision meetings to discuss its 

findings. In addition, market surveillance reports are analyzed and 

reviewed collectively on a monthly basis to monitor risks arising from 

the tiered participation arrangement.

TAIFEX Clearing convenes daily "Inter-department Meetings" to 

discuss risks associated with participants of the tiered participation 

structure. If a futures commission merchant fails to improve risk 

management after being instructed to do so by TAIFEX Clearing, and 

has been considered to pose serious risks to market discipline during the 

inter-department meeting, the meeting participants may recommend the 

following actions against the futures commission merchant and 

implement them upon approval:

1. Increase clearing margins to the maintenance and initial margin 

levels for the clearing member.

2. Order to liquidate part or all of the trader's open positions.
233

3. Order futures commission merchants or clearing members to 

liquidate their positions or their customers’ trading, in whole or in 

part.

4. Restrict the number of trades executed or positions held by futures 

traders.

5. Stop the futures commission merchant from transacting further 

except for orders that are placed to liquidate open positions.

6. Restrict the number of trading orders futures commission merchants 

may accept or positions they may hold.

7. Dispatch specialists to inspect the futures commission merchant's 

financial and business health, and follow up with further guidance.

OTC derivatives market

TAIFEX monitors the risks arising from clearing members and their 

clients daily, and monitors and manages the position centralization and 

high losses of clearing members, in order to control the major risks of 

multi-level participation.

TAIFEX monitors the centralization of clearing member positions 

daily. For clearing members who exceed the centralization standards, 

TAIFEX shall adopt the following measures:

1. Notify the clearing member to pay attention to its positions.

2. Impose an additional margin.

3. Other necessary measures to maintain market integrity or the 

soundness of the OTC derivatives market.

TAIFEX inspects the large loss list for clearing accounts and the 

proportion of the large losses compared to collateral daily. It also 

monitors the positions and margins of the clearing accounts with high 

losses. If necessary, TAIFEX will notify the clearing members by phone 

in order to prevent the occurrence of defaults.
234

Principle 20:FMI links

An FMI that establishes a link with one or more FMIs should identify, 

monitor, and manage link-related risks.

Summary Narrative

Key Consideration 1: Before entering into a link arrangement and on 

an ongoing basis once the link is established, an FMI should identify, 

monitor, and manage all potential sources of risk arising from the link 

arrangement. Link arrangements should be designed such that each 

FMI is able to observe the other principles in this report.

TAIFEX Clearing is the only futures clearing institution in Taiwan. It 

is not involved in cross-border clearance and hence does not depend on 

other FMIs and is not exposed to the risks of linked arrangements.

Key Consideration 2: A link should have a well-founded legal basis, 

in all relevant jurisdictions, that supports its design and provides 

adequate protection to the FMIs involved in the link.

Legal basis for links

TAIFEX may sign co-operative agreements with the foreign futures 

exchange in order to list New Taiwan Dollar denominated futures 

contracts on the foreign futures exchange (below, "international 

cooperative products"). This legal basis has been founded in Item 7, 

Article 6 of Regulations Governing Futures Exchanges and Item 7, 

Article 7 of Regulations Governing Futures Clearing Houses. Any 

signature or amendment to any such agreement is subject to the 

approval of the Competent Authority. The Competent Authority in 

Taiwan has also announced separate policies to govern participants' 

rights and obligations, whereas the two exchanges have developed 

policies and rules to accommodate the collaborative arrangement, 

giving international cooperative products the complete legal 

framework in their respective jurisdictions.

Key Consideration 3: Linked CSDs should measure, monitor, and 

manage the credit and liquidity risks arising from each other. Any credit 

extensions between CSDs should be covered fully with highquality 
235

collateral and be subject to limits.

[This key consideration is not applicable to CCPs]

Key Consideration 4: Provisional transfers of securities between 

linked CSDs should be prohibited or, at a minimum, the retransfer of 

provisionally transferred securities should be prohibited prior to the 

transfer becoming final.

[This key consideration is not applicable to CCPs]

Key Consideration 5: An investor CSD should only establish a link 

with an issuer CSD if the arrangement provides a high level of 

protection for the rights of the investor CSD’s participants.

[This key consideration is not applicable to CCPs]

Key Consideration 6: An investor CSD that uses an intermediary to 

operate a link with an issuer CSD should measure, monitor, and 

manage the additional risks (including custody, credit, legal, and 

operational risks) arising from the use of the intermediary.

[This key consideration is not applicable to CCPs]

Key Consideration 7: Before entering into a link with another CCP, a 

CCP should identify and manage the potential spill-over effects from 

the default of the linked CCP. If a link has three or more CCPs, each 

CCP should identify, assess, and manage the risk of the collective link 

arrangement.

Default of linked CCP

TAIFEX Clearing does not have links with any other CCP, and hence 

does not identify or manage potential spill-over effects.

Multi-party links (three or more CCPs)

TAIFEX Clearing does not have multi-party links with other CCPs, 
236

and hence does not identify or manage potential spill-over effects.

Key Consideration 8: Each CCP in a CCP link arrangement should 

be able to cover, at least on a daily basis, its current and potential future 

exposures to the linked CCP and its participants, if any, fully with a 

high degree of confidence without reducing the CCP’s ability to fulfil 

its obligations to its own participants at any time.

Exposure and coverage of exposures

TAIFEX Clearing is the only futures clearing institution in Taiwan. It 

does not engage in cross-border clearance or depend on other FMIs, and 

hence is not required to cover potential exposures of any linked CCP.

Risk management

TAIFEX Clearing does not make provision to any settlement fund that 

covers linked CCP defaults.

Key Consideration 9: A TR should carefully assess the additional 

operational risks related to its links to ensure the scalability and 

reliability of IT and related resources.

[This key consideration is not applicable to CCPs]
237

Principle 21:Efficiency and effectiveness

An FMI should be efficient and effective in meeting the requirements 

of its participants and the markets it serves.

Summary Narrative

Key Consideration 1: An FMI should be designed to meet the needs of 

its participants and the markets it serves, in particular, with regard to 

choice of a clearing and settlement arrangement; operating structure; 

scope of products clearing, settled, order recorded; and use of 

technology and procedures.

Methods of satisfying the needs of participants and the market

TAIFEX Clearing is a systemically important CCP in Taiwan and is a 

highly regulated FMI that is designed to meet the needs of participants 

and the market it serves. TAIFEX Clearing offers prudent clearing and 

settlement services for both exchange-traded derivatives and OTC 

derivatives, which are elaborated in “III. General Background of the 

FMI” of this report. The clearing and risk management practices have 

been developed thoroughly by the management to satisfy the market's 

needs. Furthermore, TAIFEX Clearing obtains opinions from the 

market participants to provide a basis for ongoing improvements.

TAIFEX has established a Clearing Committee for the exchangetraded derivatives market and a Clearing and Risk Committee for the 

OTC derivatives market that assist TAIFEX in consultation and 

policy-making in ways that conform to the market's needs. TAIFEX is 

dedicated to serving its clearing members and market. When 

developing new policies, TAIFEX Clearing invites representatives 

from clearing members and the Chinese National Futures Association 

to express opinions and thoughts, so that the new policy can be better 

adjusted to meet the market's needs.

TAIFEX Clearing conducts quarterly interviews with individual 

clearing members to understand the challenges they face when 

promoting businesses under the current clearing system; members' 

opinions are consolidated and reported to TAIFEX's management as a 

reference of the direction of future system amendments.
238

TAIFEX Clearing holds clearing member seminars each year, during 

which members are invited to express their opinions on perceived 

flaws of the current system and the types of improvements that could 

be made to the system to meet market needs.

Key Consideration 2: An FMI should have clearly defined goals and 

objectives that are measurable and achievable, such as in the areas of 

minimum services levels, risk-management expectations, and business 

priorities.

Goal setting

TAIFEX's corporate mandate is to invigorate futures trading while 

serving the real economy. TAIFEX Clearing has clearly defined goals 

and objectives that are measurable and achievable, which are 

established to lower systemic risk through a comprehensive risk 

management framework governed by relevant bylaws in line with 

service levels arrangements. TAIFEX Clearing sets clear performance 

indicators each year to measure the performance of new policies to 

maintain financial health and enhance risk management practices. 

Regular meetings are held to review, track and ensure the achievement 

of performance indicators.

TAIFEX Clearing's clearing services involve the clearing and 

settlement for futures trading in general and providing a guarantee for 

the performance of the futures contracts.

In addition to providing clearing members with better services, 

TAIFEX Clearing is also dedicated to expanding the scope of its 

clearance service and enhancing the risk management framework for 

the stability and security of the market.

Key Consideration 3: An FMI should have established mechanisms for 

the regular review of its efficiency and effectiveness. 

Assessment of efficiency and effectiveness

It is essential to TAIFEX Clearing to prioritize the efficiency and 

effectiveness of the risk management framework, clearing services 

provided to clearing members, and the market. In addition to hosting 
239

annual clearing member seminars, TAIFEX Clearing also visits 

clearing members on a quarterly basis to exchange opinions regarding 

existing and upcoming systems and policies. This enables the TAIFEX 

Clearing to identify clearing members' needs and areas where 

improvements can be made. TAIFEX Clearing holds annual executive 

conferences for clearing members. These conferences are hosted by 

TAIFEX senior executives and provide an excellent opportunity to 

learn the challenges faced by clearing members, which have proven to 

be very helpful in the reform of the clearing system.
240

Principle 22:Communication procedures and standards

An FMI should use, or at a minimum accommodate, relevant 

internationally accepted communication procedures and standards in 

order to facilitate efficient payment, clearing, settlement, and recording.

Summary Narrative

Key Consideration 1: An FMI should use, or at a minimum 

accommodate, internationally accepted communication procedures and 

standards.

Communication procedures

The futures trading system has been created within an exclusive 

network that is isolated from the Internet. This configuration was 

made to prevent improper access, use and leaks of users' information. 

All futures commission merchants and clearing members that connect 

to the system need to have their source IP, socket port and password 

verified before access.

The futures market clearing system uses a four-in-one integrated 

network as its connection interface. VPN equipment between 

connected users and TDCC are used for encryption at the 

communication layer, which creates a private VPN environment that 

ensures the security of transmitted data.

The OTC derivatives market clearing system uses an exclusive 

integrated network as the connection interface platform to ensure the 

security of data transmissions.

Communication standards

The trading system uses the TCP/IP protocol and TMP, FIX4.2, and 

FIX4.4 formats to transmit data, whereas the clearing system uses 

TCP/IP among other international protocols for communication.
241

Principle 23:Disclosure of rules, key procedures, and market 

data

An FMI should have clear and comprehensive rules and procedures and 

should provide sufficient information to enable participants to have an 

accurate understanding of the risks, fees, and other material costs they 

incur by participating in the FMI. All relevant rules and key procedures 

should be public disclosed.

Summary Narrative

Key Consideration 1: An FMI should adopt clear and comprehensive 

rules and procedures that are fully disclosed to participants. Relevant 

rules and key procedures should also be publicly disclosed.

Rules and procedures

The orderly transaction of domestic futures trading is governed by the 

Act. TAIFEX has established and stipulated the Rules, various market 

regulations for futures clearing operations, the OTC Rules and the 

Enforcement Rules according to the Act. These regulations act as the 

basis for the trading market, futures merchants, futures trade contracts, 

futures merchant entrusted trading orders, futures merchant 

proprietary trading orders, clearing, margins and premiums, position 

restrictions, default handling for clearing members, clearing funds, 

trade processing fees and clearing processing fees, and market 

monitoring and emergency response measures.

Disclosure

For the stipulation of laws and regulations, TAIFEX shall fully discuss 

the proposal with the clearing member and seek the opinions of the 

Clearing Committee, OTC Derivatives Clearing and Risk 

Management Committee, and the Chinese National Futures 

Association. The proposed laws and regulations shall be reported to 

the competent authority for approval or announced and implemented 

according to their responsibilities. TAIFEX has implemented seminars 

and public hearings for futures merchants, clearing members and 

market participating financial institutions as channels for promoting 
242

government policies and communicating opinions. TAIFEX has 

publicly disclosed the laws and regulations in Chinese and English to 

improve the understanding of the regulations by the futures merchants, 

clearing members, and market participating financial institutions. The 

TAIFEX website can be used to search for laws and regulations 

related to futures.

Key Consideration 2: An FMI should disclose clear descriptions of the 

system’s design and operations, as well as the FMI’s and participant’s 

rights and obligations, so that participants can assess the risks they 

would incur by participating in the FMI. 

Rights and obligations of participants

Exchange-traded derivatives market

Systems of TAIFEX, as a whole, have been designed and are operated 

according to TAIFEX's Futures Market Usage Contract, Contract for 

Computer Connection to the Centralized Futures Exchange Market, 

Directions for Clearing and Settlement Operations by Mandated 

Clearing Members and other relevant rules and subordinate rules. All 

systems are meant to fully and efficiently support TAIFEX Clearing to 

convey the design concepts and operational aspects of its systems to 

futures commission merchants, clearing members and their information 

providers through means such as computer connections, seminars, 

conferences, and regulatory announcements.

Participant's rights and obligations are governed and disclosed in 

TAIFEX's Futures Market Usage Contract, Contract for Computer 

Connection to the Centralized Futures Exchange Market, Directions for 

Clearing and Settlement Operations by Mandated Clearing Members, 

Criteria for Clearing Membership, and other relevant rules, which are 

available on TAIFEX’s website.

OTC derivatives market

The design and operation of the TAIFEX clearing system are based on 

the TAIFEX OTC Derivatives Clearing Connection Agreement, the 

Enforcement Rules, and other related regulations. All systems are 

meant to fully and efficiently support TAIFEX to convey the design 
243

concepts and operational aspects of its systems to clearing members 

and their information providers through means such as computer 

connections, seminars, conferences, and regulatory announcements.

Participant's rights and obligations are governed and disclosed in the 

TAIFEX OTC Derivatives Clearing Connection Agreement, the 

Enforcement Rules, and other relevant rules, which provide 

information on the rights and obligations.

Key Consideration 3: An FMI should provide all necessary and 

appropriate documentation and training to facilitate participants’ 

understanding of the FMI’s rules and procedures and the risks they face 

from participating in the FMI. 

Education and awareness

In order to provide clearing members with a better understanding of 

TAIFEX Clearing's regulations, procedures as well as their own rights 

and obligations, TAIFEX Clearing organizes regular clearing member 

seminars and Clearing Committee meetings and conducts quarterly 

visits to the clearing members every year. Informational activities are 

also held where needed. Clearing members may clarify queries 

regarding laws or other issues via TAIFEX's website, mailbox, or by 

contacting department staff.

Key Consideration 4: An FMI should publicly disclose its fees at the 

level of individual services it offers as well as its policies on any 

available discounts. The FMI should provide clear descriptions of 

priced services for comparability purposes.

Disclosure of service fee standards

Information such as exchange fees, clearing fees, settlement fees, 

position adjustment fees, position transfer fees is disclosed on 

TAIFEX’s website. All service fees have been implemented with the 

approval of the Competent Authority; the same applies to any 

subsequent amendments. Changes in service fees are published on 

TAIFEX's website once they are approved by the Competent Authority. 

Informational activities may be arranged if necessary to convey changes 

to futures commission merchants and the public.
244

The type, rate, and amount of all fees that TAIFEX Clearing charges 

to clearing members and futures commission merchants comply with 

Article 113 of the Rules, Article 68 of the OTC Rules, Chapter 12 -

"Clearing Service Fee and Connection Processing Fee Standards" of 

the Enforcement Rules, Exchange Fee Standards, Clearing Service Fee 

Standards, and other relevant rules.

Key Consideration 5: An FMI should complete regularly and disclose 

publicly responses to the CPSS-IOSCO disclosure framework for 

financial market infrastructures. An FMI also should, at a minimum, 

disclose basic data on transaction volumes and values. 

Disclosure

According to the CPSS-IOSCO, an FMI's disclosure framework 

should include details such as the FMI's name, the name of the 

Competent Authority, the record date, website address, contact 

method, summaries, the FMI's overall description (including 

organizational structure, market, services, and key business figures), a 

summary of discrepancies with the previous disclosure, detailed 

descriptions for each principle, and attachments where appropriate.

TAIFEX Clearing has made disclosures in accordance with the CPSSIOSCO PFMI disclosure framework.

TAIFEX Clearing has disclosed on its website, both in Chinese and 

English, information regarding the products it offers, market data, 

trading system, the clearing service, relevant rules, regulations, and 

related statistics.
245

Principle 24:Disclosure of market data by trade repositories

A TR should provide timely and accurate data to relevant authorities 

and the public in line with their respective needs.

Summary Narrative

Key Consideration 1: A TR should provide data in line with regulatory 

and industry expectations to relevant authorities and the public, 

respectively, that is comprehensive and at a level of detail sufficient to 

enhance market transparency and support other public policy 

objectives.

[This principle is not applicable to CCPs]

Key Consideration 2: A TR should have effective processes and 

procedures to provide data to relevant authorities in a timely and 

appropriate manner to enable them to meet their respective regulatory 

mandates and legal responsibilities.

[This principle is not applicable to CCPs]

Key Consideration 3: A TR should have robust information systems 

that provide accurate current and historical data. Data should be 

provided in a timely manner and in a format that permits it to be easily 

analysed.

[This principle is not applicable to CCPs]
246

V. List of publicly available resources

Legal Rules and Regulations

1. Futures Trading Act

2. Standards Governing the Establishment of Futures Clearing Houses

3. Regulations Governing Futures Clearing Houses

4. Taiwan Futures Exchange Corporation Contract for Clearing and 

Settlement of Futures Trading

5. Taiwan Futures Exchange Corporation Articles of Incorporation

6. Criteria Governing Oversight of Futures Trading

7. Taiwan Futures Exchange Corporation Rules Governing Surveillance 

of Market Positions

8. =

9. Taiwan Futures Exchange Corporation Methods and Standards for 

Receipt of Clearing Margins

10. Regulations Governing Futures Commission Merchants

11. Trading Rules and Contracts of Various Instruments Traded Over 

TAIFEX

12. Taiwan Futures Exchange Corporation Criteria for Clearing 

Membership

13. Taiwan Futures Exchange Operational Key Points of Clearing and 

Settlement for Futures Commission Merchants and Clearing Members

14. Taiwan Futures Exchange Corporation Regulations Governing 

Clearing Member Deposits to the Clearing and Settlement Fund 

Following Clearing and Settlement Operations

15. Taiwan Futures Exchange Corporation Guidelines for Futures 

Commission Merchants and Clearing Members Conducting 

Operations in Relation to the pledging of securities as Margin 
247

Collateral

16. Guidelines for Futures Trading by Overseas Chinese and Foreign 

Nationals

17. Taiwan Futures Exchange Corporation Rules for Auditing Futures 

Commission Merchants and Clearing Members

18. Taiwan Futures Exchange Corporation Regulations Governing 

Procedures for Special Audits and Provision of Guidance to Futures 

Commission Merchants and Clearing Members

19. Apportionment Procedures for Managing Default by Clearing 

Members

20. Taiwan Futures Exchange Corporation Procedures for Suspension or 

Termination of Futures Commission Merchant and Clearing Member 

Operations

21. Taiwan Futures Exchange Corporation Futures Market Usage Contract

22. Taiwan Futures Exchange Corporation Contract for Computer 

Connection to the Centralized Futures Exchange Market

23. Taiwan Futures Exchange OTC Derivative Clearing Rules

24. Taiwan Futures Exchange OTC Derivative Clearing Enforcement 

Rules

Publications

1. Taiwan Futures Exchange Corporation Annual Report

2. Taiwan Futures Bi-Monthly Journal

3. Journal of Futures and Options