FSC Eases Restrictions on Banks'' Concurrent Conduct of Proprietary Trading of Bonds
FSC Eases Restrictions on Banks' Concurrent Conduct of Proprietary Trading of Bonds
The FSC has completed the amendment to the “Regulations Governing Applications of Banks (Including Offshore Banking Units) for Concurrent Operations in Underwriting and Proprietary Trading of Bonds, Beneficiary Securities, Asset-Backed Securities” which were promulgated and implemented on July 21, 2021.
The Regulations are amended in response to the amendments of the Regulations Governing Securities Firms, Regulations Governing Foreign Bank Branches and Representative Offices, and other related regulations, as well as the requirements for domestic banks for using concurrent proprietary bond trading to provide corporate bonds issued by overseas subsidiaries to customers. The key points of the amendment are as follows:
1. According to the amendment of Article 19-4 of the “Regulations Governing Foreign Bank Branches and Representative Offices” promulgated on September 26, 2020, 50% of the loan loss provision and reserves against liability on guarantees appropriated in accordance with regulations may be included when calculating the net worth of a foreign bank branch. The net worth of a foreign bank branch referred to this Regulations are amended to include the aforementioned calculation item for the purpose of consistent standards. (Point 6 of the amendment )
2. According to the amendment of Article 31-3 of the “Regulations Governing Securities Firms” promulgated on February 3, 2020, securities firms are allowed to engage in trading of foreign bonds and financial derivatives with offshore affiliates and the transaction limits are calculated based on the net worth of securities firms. The transaction limits for proprietary trading of foreign securities between banks and their offshore affiliates shall also be calculated in Banks’ calculation basis for consistency. (Point 7, Subparagraph 1 of the amendment)
3. Point 5 of the "Directions Governing Limitations on Types and Amounts of the Securities in which a Commercial Bank May Invest" stipulates that a commercial bank may not invest in corporate bonds and other securities issued by a company in which the bank's responsible person acts as a director, supervisor, or manager. As the overseas subsidiaries of domestic banks may issue corporate bonds for raising funds, the FSC added provisions for exempting the aforementioned restrictions when the foreign subsidiaries of banks issue non-equity bonds and the banks buy and sell on the same day. (Point 7, Subparagraph 2 of the amendment)
The FSC states that the amendment includes provisions for allowing transactions with offshore affiliates in accordance with the Regulations Governing Securities Firms, and provisions for calculating the limit based on the calculation basis of banks. The amendment also relaxed restrictions on the acquisition of corporate bonds issued by foreign subsidiaries which helps banks maximize the advantages of the scale of their assets under a consistent risk management system. Banks can thus engage in larger transactions of bonds and integrate resources of their groups to satisfy customer demands. The amendment will increase the competitiveness of domestic banks and increase the internationalization of Taiwan’s financial market.
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- Update： 2021-09-06