Frequently Encountered Market-Related Rules and Regulations

 
Article 2 A trader shall make payments of margin and premiums in the manner prescribed by his or her FCM into the FCM’s segregated customer margin/premium account.
Analysis
After a person opens an account at a futures commission merchant (FCM), the person, acting on the instructions of an associated person, deposits the required trading margin, which the associated person unexpectedly embezzles and absconds with. Investigation reveals that the associated person had opened a dummy account, used it to obtain an account number issued by an FCM, then falsely stated to the person that this dummy account number was the person’s own account number. However, the person had never in fact completed the account opening process at an FCM. Under current trading practices, an FCM issues an account number to a trader when the trader completes the account opening process. When this account number is used to trade or to make deposits into the FCM’s segregated margin account, each deposit requires confirmation of the person’s identity. The associated person’s deception caused the person’s margin deposit to become part of the associated person’s dummy account, and the person to be defrauded.
Relevant Rules and Regulations
1. Article 68, Paragraph 1 of the Futures Trading Act states that an FCM mandated for futures trading shall prepare and submit a transaction statement to the futures trader after the consummation of the futures transaction, and it shall further prepare and submit a reconciliation statement to each futures trader by the end of each month.
2. Article 28, Paragraph 1 of the Regulations Governing Futures Commission Merchants (hereafter, “the Regulations”) states that when handling a customer’s request to open an account, an FCM shall provide a brokerage contract and a risk disclosure statement. After a specially assigned staff member has outlined for the customer the contents of the contract and explained futures trading procedures, the said documents shall be signed or sealed, dated by the customer, and kept on file.
3. Article 29, Paragraph 6 of the Regulations states that content of the brokerage contract shall include provisions governing the method for collection of margins, premiums, and any other payments; the currency in which they are to be collected; and the method of foreign exchange settlement.
4. Article 30 of the Regulations states that before accepting an order for futures trading, an FCM shall first enter into a brokerage contract with the principal. For a principal newly opening an account, the FCM shall carefully check the particulars to be filled in to see if there is any mistake or omission. Until an account has been opened, the FCM shall not accept any orders from the principal.
5. Article 32 of the Regulations states that until a customer has opened a deposit account at a financial institution designated by the FCM, such FCM shall not accept orders for futures trading. When an FCM, acting upon a customer’s instructions, pays out surplus cash margins or premiums, it shall do so by transferring the funds into the customer’s deposit account referred to in the preceding paragraph.
6. Article 39, Paragraph 1 of the Regulations states that an FCM accepting futures trading brokerage orders shall produce a trade report after completion of the trade and deliver the same to the futures trader for his/her signature or seal.
7. Article 52, Paragraph 1 of the Regulations states that an FCM shall prepare a monthly reconciliation statement in duplicate and complete it by the 5th day of the following month, with one copy to be delivered to the futures trader and the other to be kept by the FCM.
Key Points for Futures Traders
(1) This situation concerns an associated person with intent to defraud who does not comply with account opening procedures and uses the margin deposit process, which combines the newly opened account number and the FCM’s segregated margin/premium account number into a transfer and deposit account number, to provide the trader with the associated person’s dummy account number as if it were the account number of the trader’s newly opened account. In fact, the FCM has not entertained the trader’s accounting opening. Therefore, the margin transferred and deposited by the trader becomes, according to the transfer account identification, a part of the associated person’s dummy account, which the associated person subsequently withdraws, defrauding the trader. Futures traders opening an account should open the account at the account opening counter at an FCM’s place of business. There, a specially assigned staff member will explain matters related to futures trading, providing the trader with a brokerage contract and a risk disclosure statement, and a detailed understanding of the method by which margin deposits and withdrawals are made. The trader will also on his/her own initiative inquire of the FCM and check the margin and position balance recorded on the trading report. (2) The Taiwan Futures Exchange Corporation provides traders with a position inquiry service. The application process requires that traders bring their National Identification Card and seal specimen to their FCM. Traders can access the function via the Internet (www.taifex.com.tw) or via a dedicated voice-menu line (traders calling from Taiwan’s area code 7 or 8 should dial 412-1111; those calling from area code 6 should dial 41-1111 and enter the service code 112 to inquire about futures and options positions.