The Securities and Futures Commission (SFC) in Taiwan has agreed to allow Qualified Foreign Institutional Investors (QFIIs) to engage in securities borrowing and lending.
QFIIs will now be allowed to borrow stocks for “strategic trading purposes” by using onshore assets as collateral, through exemptions from regulatory restrictions on short-selling and the provision of collateral. The Taiwan Stock Exchange says legitimate “strategic” purposes for borrowing include arbitrage and hedging between stocks and convertible bonds, depositary receipts, warrants and exchange traded funds.
QFIIs will also be allowed to lend securities against collateral provided by the borrower from cash deposits onshore or securities listed on the Taiwan Stock Exchange or Gre Tai Securities Markets (GTSM), where these are in the custody of the Taiwan Securities Central Depository. Any collateral received by the QFII will have to remain in the custody of the CSD, and cannot be converted into foreign currency.
The custodian of any QFII active in securities lending and borrowing will have to report on those activities by adding four items to portfolio reports: Receivables for Securities Lending, Refundable Margin Deposit for Securities Lending, Payables for Securities Lending, and Payables Margin Deposit for Securities Lending. These will be shared monthly with the central bank.
The SFC also announced how it planned to monitor and control securities lending in Taiwan. The rules are detailed, but it is clear that lenders will have to prove they own the relevant assets before transactions can be entered into the Taiwan Stock Exchange system, and borrowers will have to declare why they are borrowing the stock. Custodians will have to record transactions on a daily basis, and report monthly to the Central Bank Of China (CBC). The Taiwan Stock Exchange will provide stock lent out, stock borrowed and stock returned data, as well as the long positions of QFIIs, to CBC on a daily basis. The CSD will act as collateral manager.