TSEC Taiwan 50 Index Futures Operation PlanDocument Transcript
TSEC Taiwan 50 Index Futures
CHAPTER 1 ABOUT THE TSEC TAIWAN 50 INDEX*..........................................1
SECTION 1 COMPILATION OF TSEC TAIWAN 50 INDEX.........................................1
SECTION 2 TSEC TAIWAN 50 INDEX CONSTITUENTS...........................................4
CHAPTER 2 TAIWAN FUTURES EXCHANGE TSEC TAIWAN 50 INDEX
FUTURES CONTRACT SPECIFICATIONS..............................................................7
SECTION 1 TSEC TAIWAN 50 INDEX FUTURES CONTRACT SPECIFICATIONS ...........7
SECTION 2 POSITION LIMITS.............................................................................8
CHAPTER 3 TRADING SYSTEM...........................................................................10
SECTION 1 TRADING FLOW..............................................................................10
SECTION 2 ORDER PLACEMENT........................................................................11
SECTION 3 TRADE MATCHING..........................................................................11
SECTION 4 DISCLOSURE OF TRADING INFORMATION............................................12
CHAPTER 4 CLEARING AND SETTLEMENT SYSTEM....................................13
SECTION 1 POSITION MANAGEMENT..................................................................13
SECTION 2 MARGIN OPERATION.......................................................................14
SECTION 3 SETTLEMENT OPERATION.................................................................15
SECTION 4 DETERMINATION OF DAILY SETTLEMENT PRICE ..................................15
SECTION 5 RISK CONTROL OPERATION..............................................................16
Chapter 1 About the TSEC Taiwan 50 Index*
The TSEC Taiwan 50 Index is the first index for Taiwan designed specifically for
derivative and OTC trading in the Taiwan market. It is an ideal tool to gain exposure to
the Taiwan market.
Taiwan Stock Exchange Corporation (TSEC) enlisted the expertise of FTSE in
the design and ongoing calculation of the TSEC Taiwan 50. TSEC has a long history of
index compilation in the Taiwan market with unique authority and market acceptance.
FTSE's internationally recognized standards compliment TSEC local expertise. The
cooperation of the two institutes provide the TSEC Taiwan 50 with both domestic and
international competitive advantages.
Section 1 Compilation of TSEC Taiwan 50 Index
The TSEC Taiwan 50 has been designed to represent the performance of the
Taiwan stock market. All stocks listed on TSEC that meet the criteria for component
stocks are eligible to join. Following the strict screening process, the top 50 stocks are
selected by market capitalization to become index constituents. This selection process
ensures that the TSEC Taiwan 50 is the most cost effective and tradable index for
FTSE's free float methodology has been applied throughout the index, to ensure
the weights within the index reflect the market capitalization available for investment.
The bands are narrow at the lower end of the scale where greater sensitivity is required
for accurate representation and broader at the higher end to ensure that the weightings
of larger companies do not fluctuate unless a significant corporate event occurs. This
system accurately reflects the investibility of a company, without subjecting the investor
to frequent rebalancing and transactions costs. These bands are shown in Table 1 below.
Table 1: Free Float and Index Weighting of Taiwan 50 Index
Free Float Index Weighting
Less than or equal to 5% Ineligible
Greater than 5% but less than or equal to 15% Actual free float*
Greater than 15% but less than or equal to 20% 20%
Free Float Index Weighting
Greater than 20% but less than or equal to 30% 30%
Greater than 30% but less than or equal to 40% 40%
Greater than 40% but less than or equal to 50% 50%
Greater than 50% but less than or equal to 75% 75%
Greater than 75% 100%
* Actual free float will be rounded up to the next whole number.
The TSEC Taiwan 50 Index is calculated and published in real-time (every 15
seconds) and disseminated by Taiwan Stock Exchange and major data vendors.
The constituents of Taiwan 50 Index are classified according to the FTSE Global
Classification System, a system that has been adopted worldwide by both exchanges
and data vendors and regarded as the best definition of industry sector segmentation by
The TSEC Taiwan 50 is managed by the TSEC Taiwan 50 Index Committee, an
independent committee of market practitioners. The Committee undertakes the quarterly
reviews and approving changes to constituents to ensure an objective and independent
management structure for the index. The index is reviewed quarterly in January, April,
July and October, and constituent changes are implemented on the next trading day
following the third Friday of the same month. The published and publicly available
Ground Rules, detailing inclusion and ongoing maintenance methodology, make the
Index highly transparent.
The base date for Taiwan 50 Index is April 30, 2002 and the base index is set at
The Taiwan 50 Index is calculated by the algorithm descried below:
(( p ×e ) ×s × f )
∑ n1 n1 d n1 n1
n = 1, 2, ,3......., n
n : The number of securities in the Index.
p : Price; the latest trading price of the component stock (or the price at the closing of
the Index on the previous day).
e : Exchange Rate; the exchange rate required to convert the stock’s home currency
into the Index base currency.
s : Shares in Issue; the number of shares in issue used by FTSE for the stock, as defined
in the Ground Rules.
f : Free Float Factor; the factor to be applied to each stock to allow amendments to its
weighting, expressed as a number between 0 and 1, where 1 represents a 100% free
float. The free float factor for each stock is published by FTSE.
d : Divisor; a figure that represents the total issued share capital of the Index at the base
date. The divisor can be adjusted to allow changes in the issued share capital of the
individual stocks to be made without distorting the Index.
FTSE Global Classification Stock Name of Constituent Number of shares Free float
Code in issue factor (%)
Eco- Industry Industry Chinese English Name
nomic Sector Sub-
90 93 932 2409 友 達 光 電 AU Optronics 4,024,194,453 75.00
90 93 932 2303 聯 華 電 子 United Microelectronics 15,474,845,646 75.00
90 93 936 2388 威 盛 電 子 Via Technologies 1,191,854,000 75.00
90 93 936 2344 華 邦 電 子 Winbond Electronics 4,425,297,193 75.00
30 31 311 2201 裕 隆 汽 車 Yulon Motor Co. 1,829,146,403 50.00
*Source: Taiwan Stock Exchange
All rights in the TSEC Taiwan 50 Index vest in the Taiwan Stock Exchange (“TSEC”) and FTSE
International Limited (“FTSE”). “TSEC” is a trademark of TSEC and is used by FTSE under licence.
Neither TSEC, FTSE nor TAIFEX shall be liable (including in negligence) for any loss arising out of,
reliance on or use of the TSEC Taiwan 50 Index or the contents of this publication by any person
Chapter 2 Taiwan Futures Exchange TSEC Taiwan 50
Index Futures Contract Specifications
Section 1 TSEC Taiwan 50 Index Futures Contract
Underlying ● TSEC Taiwan 50 Index
Abbreviation ● Taiwan 50 Futures
Ticker Symbol ● T5F
Trading Hours ● 08:45AM-1:45PM Taiwan time Monday through Friday of the regular trading
days of the Taiwan Stock Exchange
Contract Size ● NT$500 x Index
Delivery Months ● Five delivery months, including spot month, the next calendar month plus
next three quarter months of the March, June, September, and December cycle
Daily Settlement ● The last trading price of the closing session or otherwise determined by the
TAIFEX according to the Trading Rules for TSEC Taiwan 50 Index Futures.
Daily Price Limit ● ±7% of previous day's settlement price
● One index point (NT$500)
Last Trading Day ● The third Wednesday of the delivery month
Final Settlement ● The first business day following the last trading day.
Final Settlement ● The final settlement price of the contract is set based on the index obtained by
calculating the volume-weighted average price of the component stocks of the
index within the first 15 minutes after the beginning of the trading period of
the final settlement day as provided by the Taiwan Stock Exchange. Provided
that there is no trade price established in the first 15 minutes, the closing price
of the previous trading day or the ex-right reference price of the componenet
stock shall be taken as the trade price.
Settlement ● Cash settlement
Position Limit ● Total open position of contracts held at any time is limited as follows:
1. Individuals: 300 contracts.
2. Institutional investors: 1000 contracts.
3. Institutional investors may apply to TAIFEX for an exemption from
position limit for hedging purpose.
4. Position of futures dealers is not limited.
Margin ● The initial and maintenance margin level set by the FCM for its customers
shall not be less than those required by the TAIFEX.
● The margin level will be adjusted and announced by the TAIFEX in
accordance with the Criteria and Collecting Methods regarding Clearing
Section 2 Position Limits
A. Setting position limits
In reference of the systems adopted by other exchanges, some exchanges do not
have position limits for index futures contract (e.g. EUREX and KOFEX), and some
have regulation only over net long or net short position in respect of any one contract
month (e.g. CBOT, CME, and KSE).
In consideration of the maturity of our market, the needs for market management
and the importance of upholding trading security, position limits are set to preclude the
situation where specific investors attempt to manipulate market prices by holding many
Taiwan 50 futures contracts. The aggregate open position of contracts held by a trader
at any one time shall conform to the limits set forth below:
1. Individuals: 300 contracts.
2. Institutional investors: 1000 contracts.
3. The open position of contracts held by futures dealers is not limited.
4. Institutional investors may apply to TAIFEX for an exemption from position
limit for hedging purpose.
The size of Taiwan 50 futures contract might be bigger than other futures
contracts listed on TAIFEX, but TSEC and FTSE plan to authorize domestic securities
investment trust institutions to issue exchange-traded fund (ETF) on Taiwan 50 index to
render the index tradable. ETF units are traded in the secondary market, but their
creation and redemption take place in the primary market. Because these activities
involve the trust of large blocks of stocks, which might be carried out by participating
dealers (PD) as planned, PDs will then have considerable hedging needs.
When there is certain amount of discount or premium existing between ETF
price and net asset value, PD can bring the price back to balance through the creation
and redemption mechanism, while investors can engage in arbitrage through futures
trade to let the market price effectively reflect the real-time information.
B. Definitions of traders
The term “trader” in the description of position limit refers to the same individual
or institutional investor. The accounts of same individual or institution investor with
different futures commission merchant (FCM) are combined together in the calculation
of position limit.
C. Over-limit actions
Upon finding that the open position held by a certain trader exceeds the position
limit set forth above, TAIFEX may ask all FCMs to stop accepting new orders from
said trader or order FCM to liquidate specific positions of such trader in order to uphold
Chapter 3 Trading System
The trading system for Taiwan 50 Futures is basically the same as that of TAIEX
futures as described below:
Section 1 Trading Flow
The trading of Taiwan 50 futures, like other stock index futures, is carried out
electronically by the following process:
Client FCM TAIFEX Information
Fill out order form
TIME - S TAMP - 1
N Control operation - check margin
and account position
Place the order Trading system
TIME - S TAMP - 2
Inquire order Receive order
Display maret information
Inquire trade Trade confirmation
book for Display market
Mail trade statement Produce trade statement
Mail account Produce monthly account
Section 2 Order Placement
Orders may be market order or limit order based on the price instruction. A
market order is an order to buy or sell a stated amount of contracts at the best price
available; a limit order is an order to buy or sell a stated amount of contracts at a
specified price, or at a better price if obtainable. FCMs may accept orders other than the
above two types, such as stop-loss order.
Particulars to be indicated in the order sheet are the same as those for stock index
futures currently on the market, including order No., FCM code, customer’s account
No., ticker symbol, quantity, price (market/limit), buy/sell, and open/offset.
Section 3 Trade Matching
Orders in the trading system are matched by the following principles:
1. Price priority and time priority, that is, execution priority will be given to
orders with the better bid/offer prices; if the prices are the same, execution
priority will be given to orders that enter the system earlier.
2. Market order has precedence over limit order.
3. When order quantity decreases, the priority of the order stays unchanged; when
order price changes or order quantity increases, the order is considered a new order.
Matching is carried out on competitive auction basis at the opening of market,
then order by order during market hours, and on competitive auction basis again at
closing session. That is, all orders accepted by the system before market opens are
matched by competitive auction based on the principles mentioned above (but orders
are ranked randomly if their prices are identical). And, opening price is the price that
satisfies the greatest number of trades where buy orders registered with prices higher
than the determined price or sell orders with prices lower than the determined price
must be all filled. During market hours, orders are matched order by order where each
new order or quote that enters the system will go into the order book to find its
matching. At closing session, trading prices are again determined by competitive
Section 4 Disclosure of Trading Information
The same as the practice for TAIEX futures, TAIFEX only accepts order input by
FCMs for Taiwan 50 futures and does not disclose any such information to the market
before it opens. After trading starts, the system will, in line with the practice of EUREX,
OM and foreign information vendors (e.g. Reuters and Bloomberg) transmit trading
information on each order to information vendors on real-time basis, for fixed-hour
disclosure will undermine the timeliness and truthfulness of the displayed information
under the order by order matching method. The disclosed information includes day’s
opening prices for each delivery month, trading price, number of contract executed, bid/
offer prices and volume, day’s high/low, total trading volume and real-time information
on the spot. Regarding order information, disclosure is planned the same as that of
TAIEX futures, that is information on five best bid and offer prices will be disclosed. At
the start of closing session, orders are accepted, but order information will not be
updated until after the last competitive auction at the time of closing, upon which, the
remaining five best bid and offer prices are disclosed at the time trading volume and
closing prices are disclosed.
Chapter 4 Clearing and Settlement System
The clearing and settlement system and operational flow for the Taiwan 50
futures are planned as follows:
A. Position Management
Position management for Taiwan 50 futures will be the same as that for other
futures contracts of TAIFEX, that is, the opposite positions of the same delivery
month for the same product in the same account are automatically offset.
B. Margin Calculation
Margin required for Taiwan 50 futures will be the same as that for other stock
index futures of TAIFEX, that is, margin is set for covering single-day index
C. Settlement Operation
The futures contracts will be settled by cash.
D. Determination of Daily Settlement
The same method for determining daily settlement price of other stock index
futures will be employed, that is, in principle, the trading price at closing session
of Taiwan 50 futures will be taken as daily settlement price.
E. Risk Control Operation
The risk control operation for Taiwan 50 futures will be the same as that for other
TAIFEX futures contracts.
Section 1 Position Management
The position management operation is described as follows:
1. Account position is calculated on real-time basis during the market.
Positions are entered according to the “new/offset code” of the transaction
records and processed by way of automatic offsetting.
2. The trader should indicate new or offset order by the established code; if
the offset order is transacted but the trader does not have sufficient balance in
the account for offset, offset will be carried out for offsettable positions,
while the remaining open lots are treated as new positions. Such data are
viewed as offset error and available for FCM query.
3. TAIFEX will also make daily new position error data available for FCM
inquiry; if the new order is transacted and the trader has position in the
account available for offset, offset will be carried out and the remaining open
lots are treated as new position.
4. TAIFEX will make position balance information available for FCM
inquiry. If the trader does not provide sufficient margin for open position in
the account and fails to meet the margin call by the prescribed deadline, FCM
may liquidate the open position of the customer.
5. When applying for position adjustment due to account error, FCM should
check first the position balance of the customer.
6. For position adjustment, FCM should transmit the data to the TAIFEX
settlement system via its subsystem to correct the position structure of a
customer before the prescribed deadline (2:15PM, Monday ~ Friday).
Section 2 Margin Operation
The purpose of setting margins to cover the loss from single-day price fluctuation
within certain periods is to guarantee performance of contract and prevent trade default
due to wild price volatility. The margin calculation for Taiwan 50 futures will adopt the
method as that for TAIEX futures, that is, estimate the greatest possible variation of the
price of underlying by market risk. The clearing margin for Taiwan 50 futures will be
calculated by contract size times risk coefficient.
The risk coefficient is calculated based on the movements of the stock index of the
futures contract within certain periods to cover 99.7% of the single-day price volatility
Section 3 Settlement Operation
1. Operating principles
(1) Taiwan 50 futures contracts will be settled by cash.
(2) If a trader has open (unsettled) position after the closing of the last trading day
for the contract, TAIFEX will settle those contracts during the business hours of
the final settlement day by the final settlement price, and charge or pay the
trader on net cash basis.
(3) The final settlement day is the first business day following the last trading day.
(1) The settlement operation starts at 9:30AM on the final settlement day (the first
business day following the last trading day) for the delivery month.
(2) If clearing members have unsettled position after the closing of the last trading
day, TAIFEX will carry out cash settlement by the final settlement price.
(3) The final settlement price of the contract is set based on the index obtained by
calculating the volume-weighted average price of the component stocks of the
index within the first 15 minutes after the beginning of the trading period of the
final settlement day as provided by the Taiwan Stock Exchange. Provided that
there is no trade price established in the first 15 minutes, the closing price of the
previous trading day or the ex-right reference price of the componenet stock
shall be taken as the trade price.
Section 4 Determination of Daily Settlement Price
The determination of daily settlement price for Taiwan 50 futures contracts refer
to that of other stock index futures of TAIFEX, that is, after closing each day, daily
settlement prices are determined according to the established method to calculate the
gain or loss of open positions and published in the market.
Daily settlement prices of Taiwan 50 futures contracts are calculated by the
1. The daily settlement price of a Taiwan 50 futures contract is the trade price at
2. If there are no trade price during closing session of the day, the average of the
highest bid and lowest offer during competitive auction of the closing session will
be used as daily settlement price.
3. If there are no bids during closing session for competitive auction, the lowest offer
price will be taken as daily settlement price; if there are no offers, the highest bid
will be taken as daily settlement price.
4. If there are no bids nor offers for far month futures contracts for competitive auction
during the closing session, the day’s settlement price of the spot month contract plus
the difference between settlement price of spot month contract and that of said far
month contract on the previous business day will be taken as the settlement price for
said far month contract.
5. If none of the methods described above are able to decide the daily settlement price
or the settlement price thus calculated is obviously unreasonable, TAIFEX will
decide the price.
Section 5 Risk Control Operation
The prevailing Measure for Market Position Monitoring Operation of TAIFEX
for risk control of clearing members will still apply as described below after the
introduction of Taiwan 50 futures:
1. Control of order placement
The total of margin and premium required for newly added futures and option
contracts of individual clearing member shall not exceed its excess margin deposits.
2. Control of margin and position
(1) TAIFEX carries out mark-to-market the margin and premium accounts of clearing
members between 9:30 ～ 9:40, 11:00 ～ 11:10, and 12:30 ～ 12:40 each day. When
there is wide fluctuation in the market, TAIFEX will undertake mark-to-market at
any time as deemed necessary.
When the equity in clearing member’s margin and premium accounts fall below
the total clearing margin required for open positions in futures and option writing,
the clearing member must make additional margin deposit in one hour.
(2) Adjusted net capital ratio
Adjusted net capital∕ （ total margin required for open positions of futures ＋ open
positions in option writing）
(3) Concentration risk
The percentage of the open positions of Taiwan 50 futures held by each clearing
member to the total open interest of the same contract shall not exceed the
prescribed level, unless the total open position of the clearing member is less than
(4) Margin call in excess of certain percentage of ANC
The difference between equity in margin and premium accounts of clearing
member and total clearing margin required for open positions in futures and option
writing when the former is less than the latter / adjusted net capital.