Appendix A:

TAIFEX Rules as Required in CFTC Regulation 39.6(b), (c) and (d)

As set out in CFTC Regulation 39.6(b), (c), and (d), an applicant for exemption 

from registration as a derivatives clearing organization (DCO) is required to set 

out rules on the participation of U.S. persons and FCMs, open access and swap 

reporting. To satisfy these requirements, TAIFEX has revised the Taiwan Futures 

Exchange Corporation OTC Derivative Clearing Enforcement Rules ("the 

Enforcement Rules"), which obtained the Competent Authority's approval on 

February 25, 2022. Notably, several articles were recently amended to 

encompass TAIFEX's second phase clearing service for USD/TWD NDF and 

client clearing, which the FSC approved on April 7, 2023. Relevant rules are 

illustrated below.

1. Rules on the participation of U.S. persons

The CFTC Regulation 39.6(b)(1) requires that the exempt DCO shall have 

rules that limit swaps clearing services for U.S. persons and futures 

commission merchants. TAIFEX has set out its rules accordingly as below.

(1). §1.3 of the Enforcement Rules - Definition

A. U.S. Person: U.S. person generally includes, but not be limited to 

definition under 17 CFR 23.23(a)(23).

B. U.S. Futures Commission Merchant: Futures commission merchant 

registered under Commodity Futures Trading Commission (CFTC).

(2). §4.2.4 of the Enforcement Rules - Submission Relates to the Foreign 

Competent Authority

TAIFEX may, in accordance with the regulations required by the foreign 

competent authority, restrict the scope of the clearing business for certain 

persons. According to CFTC’s rules on Exempt DCO, TAIFEX limits its 

Clearing Business for U.S. Persons and Futures Commissions Merchants 

to the following circumstances: 

A. A U.S. person that is a clearing member of TAIFEX may clear swaps 

for itself and those persons identified in the CFTC’s definition of 

proprietary account;

B. A non-U.S. person that is a clearing member of TAIFEX may clear 

swaps for any affiliated U.S. persons identified in the CFTC’s 
definition of proprietary account; and

C. An entity that is registered with the Commission as a futures 

commission merchant may be a clearing member of TAIFEX, or 

otherwise maintain an account with an affiliated broker that is a 

clearing member, for the purpose of clearing swaps only for itself 

and those persons identified in the CFTC’s definition of proprietary 

account;

The proprietary account in this rule refers to a proprietary account that 

complies with Article 1.3 of Title 17 of the United States Code of 

Federal Regulations (CFR). (The following paragraphs are omitted)

2. Rules on open access

The CFTC Regulation 39.6(b)(2) requires that the exempt DCO shall have 

rules with respect to swaps to which one or more of the counterparties is a 

U.S. person that shall: (i) Provide that all swaps with the same terms and 

conditions, as defined by product specifications established under the exempt 

DCO’s rules, submitted to the exempt DCO for clearing are economically 

equivalent within the exempt DCO and may be offset with each other within 

the exempt DCO, to the extent offsetting is permitted by the exempt DCO’s 

rules; and (ii) Provide that there shall be nondiscriminatory clearing of a 

swap executed bilaterally or on or subject to the rules of an unaffiliated 

electronic matching platform or trade execution facility. TAIFEX has set out 

its rules accordingly as below.

(1). Position offsets: TAIFEX allows market participants, including U.S. 

persons and Non-U.S. persons, to offset identical positions. Relevant 

rules are set out in TAIFEX’s OTC Derivative Clearing Enforcement 

Rules as below. 

A. §8.2.1 of the Enforcement Rules - Netting Methods

TAIFEX adopts the following netting methods:

(A). Basic Netting: means that the cleared transaction in a netting 

application must, except for notional amount and trade direction 

which may vary, have identical designated terms of transaction 

as announced by TAIFEX.

(B). Blended Netting: means that the cleared transaction in a netting 

application must, except for notional amount, trade direction, 
and fixed interest rate or FX forward rate which may vary, have 

identical designated terms of transaction as announced by 

TAIFEX.

B. §8.2.2 of the Enforcement Rules - Netting Application

The netting application procedure for clearing members is as 

follows:

(A). Application shall be submitted between 9:00 and 17:00 on 

TAIFEX business days.

(B). Clearing members shall submit applications to TAIFEX for 

netting of products in the same categories, and the application 

methods are as follows:

a. Specify each of the positions to be netted as well as the 

netting method.

b. Apply for netting for eligible positions in clearing account, 

whereby TAIFEX will perform netting procedures for the 

positions in that clearing account on each business day.

(C). The netting application date and the following business day 

must not be a payment date for the cleared transactions.

(D). If a position transfer or compression is effected for the clearing 

account provided in a netting application on the netting 

application date, the netting application will be invalid.

C. §8.2.3 of the Enforcement Rules - Procedure for Effecting 

Netting

TAIFEX executes netting between 17:00 and daily closing on the 

day when clearing member making the application.

Once cleared transactions are netted, the rights and obligations 

between the clearing member and TAIFEX regarding the cleared 

transactions will be extinguished immediately and the cleared 

transactions terminated. Where a net cash flow remains after 

netting, the clearing member will create a new cleared transaction 

for the cash flow with TAIFEX at the same time.

If the old cleared transaction in the preceding paragraph is a client 

cleared transaction, the rights and obligations between the clearing 
member and the client regarding the client cleared transaction will 

be extinguished immediately and the cleared transaction 

terminated. Where a net cash flow remains after netting, the 

clearing member will create a new client cleared transaction for the 

cash flow with the client at the same time.

The new cleared transaction created under Paragraph 2 and 

Paragraph 3 must, except for notional amount, trade direction, and 

fixed interest rate or FX forward rate which may differ from the 

netted old cleared transactions, have identical designated terms of 

transaction as announced by TAIFEX.

(2). Nondiscriminatory clearing of a swap: TAIFEX sets out rules as below

to ensure that it will provide a nondiscriminatory clearing service to all 

participants. 

A. §4.1.1 of the Enforcement Rules - Approved Trade Affirmation 

Platforms

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.

The counterparties may appoint a third party to submit the 

transaction for clearing through an approved trade affirmation 

platform on their behalf.

TAIFEX shall not discriminate against the submission of an eligible 

transaction executed bilaterally or on or subject to the rules of an 

unaffiliated electronic matching platform or trade execution facility 

without rational reasons during the clearing operation.

3. Rules on swap reporting

The CFTC Regulation 39.6(d) requires that if an exempt DCO accepts for 

clearing a swap that has been reported to a swap data repository pursuant to 

CFTC Regulation part 45, the exempt DCO shall report to a swap data 

repository data regarding the two swaps resulting from the novation of the 

original swap. The exempt DCO shall also report the termination of the 

original swap to the swap data repository to which the original swap was 

reported. In order to avoid duplicative reporting for such transactions, the 

exempt DCO shall have rules that prohibit the reporting, pursuant to CFTC 
Regulation part 45, of the two new swaps by the counterparties to the original 

swap. TAIFEX has set out rules as below. 

(1). §4.2.4 of the Enforcement Rules - Submission Relates to the Foreign 

Competent Authority

(The above paragraphs are omitted) When a clearing member requests 

TAIFEX for clearing eligible transaction that was reported to the Swap 

Data Repository (SDR), TAIFEX shall report to the relevant SDR the 

information on the cleared transactions established as a result of the 

novation. In such cases, the clearing member does not make the

duplicative report for the cleared transactions that have been reported to 

the SDR by TAIFEX.

The foreign natural person or foreign juridical person submitting a

contract to TAIFEX for centralized settlement shall comply with the 

regulations of the foreign competent authority. The company may 

announce relevant matters separately when it deems it necessary.