Default by a Trader
I. Definition of Default
Pursuant to Article 58 of the Operating Rules of the Taiwan Futures Exchange Corporation, a trader is deemed to be in default in the following circumstances:
- Where, after an FCM acting pursuant to the terms of the brokerage agreement liquidates in full a principal's futures contracts, the equity amount in the principal's margin account is negative, and the principal fails to pay the full amount of the margin call within three days of notification; excepting that TAIFEX rules otherwise.
- Where, a trader fails to perform the clearing and settlement duties in a futures trading contract.
II. Handling of a Default by a Trader
FCMs handle defaults arising from a trader failing to replenish a negative equity amount in the trader's margin account within three trading days according to the following process:
- FCMs calculate every trader’s margin ratio. If a trader’s margin ratio below that is specified in the brokerage contract, the trader will receive a margin call notice.
- If the trader does not replenish money to resolve the margin, FCMs will close out positions pursuant to the brokerage contract
- After deducting transaction fees, if the equity amount in the trader’s margin account is negative, the trader should resolve it within 3 bank business days, otherwise, FCMs sent a default notice to TAIFEX.
III. Penalties for Default
Once an FCM has reported a default by a trader to TAIFEX and TAIFEX has announced it, the trader may not open a new account or trade futures for five years, except where there is proof that the fault cannot be attributed to the trader, the FCM submits such evidence to TAIFEX, and the default is voided.
If an FCM discovers that one of its principals has had a default and the case is not yet closed (the claims and liabilities are still in dispute) or five years have not yet elapsed since the default's announcement, it will immediately cease accepting orders from that principal (provided, this will not apply to orders offsetting existing open positions). Once the principal's claims and liabilities are settled, the account will be closed.