To expand the operational scope of securities firms, enhance the efficiency of investors’ capital utilization, and meet the funding needs of employees and original shareholders of listed and OTC companies for subscribing to new shares, the competent authority announced on August 19, 2024, the revision of the “Regulations Governing Borrowing or Lending Money in Connection with Securities Business by Securities Firms,” and the “Share Subscription Lending” service officially launched on November 11, 2024.

The lending business of securities firms can be divided into "Money Lending in Connection with Securities Business" and “Unrestricted Purpose Lending.” Its development can be traced back to 2006, when the regulatory authority first allowed securities firms to handle "Money Lending in Connection with Securities Business" operations to satisfy clients’ short-term capital financing needs for purchasing securities. The authority approved the handling of financing services by securities firms, which could be divided by financing duration into T+5 type (with a financing period from T+2 to T+5 days, interest calculated starting from T+2) and six-month type (with a financing period of six months). However, the purpose of this business was mainly limited to covering settlement payments for purchasing securities. To enable investors to reinvest their held securities and enhance the capital utilization efficiency of securities firms, in 2016, the regulatory authority further allowed securities firms to agree with clients to use securities or other assets held by clients as collateral to provide financing services. The funds could be used freely without restrictions, referred to as “Unrestricted Purpose Lending,” with a financing term capped at six months.

The newly expanded “Share Subscription Lending” business can be classified as a type of "Money Lending in Connection with Securities Business." The scenario involves situations where a listed or OTC company issues new shares (cash capital increase), and investors who qualify as employees or original shareholders intend to subscribe to these new shares. They only need to pay a part of the required funds themselves, with the remaining subscription funds covered through financing provided by securities firms. When the new shares are allocated, the full subscription amount is transferred to the securities firm’s collateral account as pledged collateral. The financing term must not exceed 30 days but may, before the term expires, be converted to a six-month financing method.

To promote this initiative, TDCC collaborated multiple times with the Taiwan Stock Exchange and the Securities Association to establish relevant operational rules and procedures. This included planning the foundational data setup for securities firms to handle share subscription lending, the application process for share subscription lending, and the transfer of collateral. When processing the allocation and delivery of new shares for paid subscriptions, TDCC transfers the new shares from the client account to the collateral account of the securities firm that handles the “Share Subscription Lending” business, in accordance with the details of the share subscription lending application. On the launch day of November 11, 2024, some firms began accepting share subscription lending applications and successfully completed their first case.

The regulations for “Share Subscription Lending” are outlined in the revised “Regulations Governing the Management of Securities Firms’ Lending Business” announced by the Financial Supervisory Commission on August 19, 2024 (Letter No. 1130384044). Additionally, reference can be made to the “Operating Rules for Securities Business Money Lending by Securities Firms” revised by the Taiwan Stock Exchange and TDCC’s “Directions for the Handling by Participants of Book-Entry Operations for Securities and Money Borrowing and Lending.” These documents provide the legal basis for securities firms to handle “Share Subscription Lending” and set restrictions on collateral types, maintenance margin ratios, financing terms, and related operational processes.

The launch of the “Share Subscription Lending” business is expected to bring three significant benefits to the capital market, creating a win-win-win situation for securities firms, investors, and issuing companies. For securities firms, they can expand their operational scope and invigorates the securities market. For investors, the service meets the funding needs of employees or original shareholders for subscribing to new shares and lowers the investment threshold. For issuing companies, it helps improve corporate fundraising efficiency and supports corporate development.