Dear Friends:

On 18 February 2019, the Bankers Association of the R.O.C announced the "Self-Regulatory Rules for the Business of Pledge on the Beneficial Rights of Specific Money Trust Where the Bank Itself Acts as the Trustee (the "Business")" where beneficial rights of funds, bonds, etc. under specific money trust may be pledged to the same bank for further investment.  We summarize the key points below:

1. Restrictions on the banks doing the Business: (Article 4)

(1) The clients of the Business are limited to professional investors at the initial stage.  Offshore Banking Units shall stipulate in the operation rules the specific standards of the clients qualified to do the Business, and such standards shall be equivalent to the qualified professional investors.

(2) The underlying of the beneficial rights qualified to be pledged are limited to the following investment of the trust which have higher liquidity and public market price:

a. Foreign stocks, exchange-traded funds ("ETF") without leveraging or short-selling effect and foreign bonds under Articles 10 and 11 of the Regulations Governing the Scope of Business, Restrictions on Transfer of Beneficial Rights, Risk Disclosure, Marketing, and Conclusion of Contract by Trust Enterprises; 

b. Offshore funds approved by or effectively registered with the competent authority to be offered and sold domestically in accordance with the Regulations Governing Offshore Funds; and

c. Securities investment trust funds offered in accordance with the Regulations Governing Securities Investment Trust Funds.

(3) The loan to value ratio shall not exceed 50%.

(4) If the clients use the funds borrowed by pledging the beneficial rights as the trust property to make further investment, the beneficial rights of specific money trust incurred therefrom shall not be pledged to the same bank for further borrowing, and the bank shall establish information system to control.  Such system shall be confirmed, tested and approved by the internal risk management unit of the bank before being launched. 

2. For doing the Business, a bank shall submit the following documents to the Financial Supervisory Commission ("FSC") to apply for prior approval: (Article 3)

(1) Control mechanism to prohibit solicitation and improper marketing;

(2) Confirmation and testing result of the internal risk management unit confirming and testing the information system; and

(3) Other documents or information requested by the FSC.

The period for doing the Business is three (3) years.  If the bank intends to apply for continuing the Business after expiration of the above period, it shall apply to the FSC with the operating results six (6) months prior to expiration of the period.

3. When the bank doing the Business, establishment of the pledge and exercise of the setoff shall be handled in accordance with the agreement executed with the borrower.  The important matters shall be disclosed to the borrower conspicuously in the relevant applications and agreements, and the borrowers' written consent shall be obtained as a separately negotiated term. (Article 6)

4. The bank shall establish the management mechanism of the collateral maintenance ratio to evaluate the market value of the pledged subjects every day, and with the prior written consent of the client, send notifications to the clients in relation to the collateral maintenance ratio by stages.  When the bank closes out the position in accordance with the agreement, it shall dispose collaterals by the order and amount agreed by the client in writing in advance. (Article 9) 

5. The bank shall provide to the clients the handling procedure and complaint channel for client disputes, set forth the internal management rules, and submit the credit information of the Business pursuant to the rules of the Joint Credit Information Center. (Articles 10, 11 and 12)

Stacy Lo