The Taiwan Monthly

Oct. 2018

Trading Policies

Amendment to the TWSE SBL Rules

On August 22, 2018, the TWSE announced that the Taiwan Stock Exchange Corporation Securities Borrowing and Lending Rules (TWSE SBL Rules) were amended, with Article 45 and Article 45-1 of the TWSE SBL Rules allowing the implementation of close-out netting clauses under the Global Master Securities Lending Agreement (GMSLA) in the loan agreement of negotiated transactions, so long as the counterparties have signed the GMSLA. Upon occurrence of any default under the subparagraphs of Article 43, paragraph 1 to any of the parties, the counterparty is able to settle all outstanding loans within the new clause.


Before the amendment of the aforementioned rules, the lender default was not specified in the TWSE SBL Rules. When the borrower defaults, the lender shall dispose the collateral on its behalf and buy in subject securities from the market for return of the securities loan. After the amendment, default of the lender is included in relevant rules. Also, by repaying only the unfulfilled debt amount after netting, the settlement process is simplified, especially during market turmoil, as the lender no longer needs to purchase securities from the market.


According to the TWSE, the close-out netting clause is a common practice in global securities lending markets, the aforementioned amendment is significant progress for the Taiwan SBL market to be in line with international practices. However, under the principle of freedom of contract, the close-out netting clause shall be set out in the loan agreement in advance by participants of negotiated transactions. Otherwise, the procedures prescribed by Article 45 shall apply accordingly.


For further inquiries, please contact Mr. Ho at