Measures to Protect Traders in the Futures Market

Measures to Protect Traders in the Futures Market - Phase Two Implementation Items and Dates
According to the self-regulatory rules for the credit investigation of opening accounts by futures merchants, the letters No. 1070001993, 1070002088, and 1080000036 issued by the Securities and Futures Bureau of the Republic of China, the new risk control system for Phase Two will be implemented. Please refer to the explanation below for relevant content:

I. Phase Two - Implemented on August 1, 2018:
The total trading amount for new accounts opened by individuals and general legal persons shall not exceed NT$500,000:
1. tarting from August 1, 2018, if individuals and general legal persons opening accounts do not provide credit investigation materials or financial proof that meet the requirements of the futures merchant, the total margin required for their domestic futures accounts' unliquidated futures and options positions (hereinafter referred to as the "total trading amount") shall not exceed NT$500,000 (subject to overall account control).
2. If traders wish to relax the total trading amount, they should consult their respective sales representatives and provide the financial proof documents required by the company for total values exceeding NT$500,000. After assessment by the credit investigation personnel confirming eligibility for relaxation, the total trading amount for domestic futures accounts may exceed NT$500,000; however, for online account holders, the maximum total trading amount for domestic futures accounts can only be relaxed to NT$1,000,000. (The company reserves the right to adjust the limit.)

Adjustment of Margin Requirements for Individuals and General Legal Persons:
1. The provision allowing traders to apply for a relaxation of the margin requirement for all contracts is canceled, and applications may only be made for individual contracts.
2. To reduce the risk arising from excessive concentration of positions in individual contracts for individuals and general legal persons, the threshold for increased margin requirements for futures and options contracts, excluding stock futures and stock options, will be reduced from exceeding 20% of the position limit announced by the exchange for that contract to 5%. The margin requirements for stock futures and stock options will remain unchanged.
3. The financial proof amount required to apply for a relaxation of the increased margin requirement will be raised from 30% of the original margin required for the individual contract to 200%, calculated based on the position limit by trader type.
 4. The impact of the increased margin requirement on traders' rights: a. Available balance decreases. b. The increased margin will be included in the denominator of the risk indicator formula after the close of the regular trading session for that product. c. Before the increased margin is fulfilled, if the trader's equity increases (including deposits), it should first be used to fulfill the increased margin amount. d. Even if the unliquidated position of a single product in the after-hours trading session or the next regular trading session is below the position calculated based on the "increased margin indicator," the increased margin for that product will only be released after the close of the next regular trading session.

Increased Margin for Less Liquid Products:
1. For contracts other than the last three months of Taiwan Stock Index futures, an additional original margin of 20% will be added.
2. For futures products, contracts other than the last two months will have an additional original margin of 20%.
3. For Taiwan Index options with exercise prices exceeding 500 points but less than 1000 points out of the money, both A and B values will have an additional original margin of 20%. For exercise prices exceeding 1000 points out of the money, both A and B values will have an additional original margin of 50%.
4. The increased margin for Taiwan Index options contracts from Phase One will no longer apply; however, other options contracts will continue to have an additional original margin of 20% as per Phase One regulations.

Rules for Executing Offset Operations Below the Agreed Ratio:
1. The first order cannot be a market order.
2. If the first order cannot be executed, it should be inquired about, and the use of limit orders is strictly prohibited throughout the entire process.

The regulation prohibiting the use of limit orders throughout the process does not apply if the stock futures have already reached a limit price during that day’s trading session.

II. Phase Two - Implemented on October 1, 2018:
The total trading amount for existing accounts of individuals and general legal persons shall not exceed NT$500,000:
1. For existing accounts (hereinafter referred to as "existing accounts") opened by individuals and general legal persons before August 1, 2018, starting from October 1, 2018, if they do not provide financial proof that meets the requirements of the futures merchant, the total margin required for their domestic futures accounts' unliquidated futures and options positions (hereinafter referred to as the "total trading amount") shall not exceed NT$500,000 (subject to overall account control).
2. In line with the above provisions, the company will adjust the total trading amount for existing account traders to NT$500,000 after the clearing of trades during the after-hours trading session on September 28, 2018 (the company reserves the right to adjust the limit). For traders with multiple accounts, the total trading amount for each account will be calculated based on the ratio of the equity in each domestic account to the total equity of all accounts, rounding down to the nearest thousand, with the total not exceeding NT$500,000.
3. The application method for relaxing the total trading amount for traders is the same as for new accounts. Customers who have applied for a relaxation of the increased margin indicator before August 1, 2018, will begin to apply the adjusted restrictions for the increased margin ratio by classification.

Adding Vertical Spread Notation Function to Non-SPAN Account Risk Indicators:
If there are specified vertical spread trading positions in the trader's open positions, the risk indicator will be calculated according to the following formula, and the results will be handled according to the current intraday risk control regulations.

(Numerator): Equity + Unliquidated non-vertical spread B side market value + Unliquidated vertical spread B side market value - Unliquidated non-vertical spread S side market value - Unliquidated vertical spread S side market value
(Denominator): Original margin + Unliquidated non-vertical spread B side market value + Unliquidated vertical spread B side market value - Unliquidated non-vertical spread S side market value - Unliquidated vertical spread S side market value + Additional margin to be collected

Note: If the calculated risk indicator denominator is less than 1, the risk indicator will be recorded as 100%.


First phase implementation content