The government plans to amend regulations to prevent banks from using derivatives trading for mergers or acquisitions, the Financial Supervisory Commission said.
Banks will also need to have investment grade debt ratings to engage in derivatives trading, the commission said in a statement on its Web site. There is no ratings requirement for banks to trade derivatives now, the statement said.
IMPLEMENTATION
The regulator did not say when it will implement the new rules. It posted the revisions on its Web site to seek public feedback over the next seven days, the statement said.
The regulator is proposing to amend the rules because of Chinatrust Commercial Bank's (中國信託商銀) investment in Mega Financial Holding Co (兆豐金控) last year via an offshore derivatives transaction, the Chinese-language Commercial Times said yesterday.
The financial watchdog aims to tighten supervision of "an increasingly complicated risk nature and the complexity of product types in a growing market," it said in the statement, without mentioning Chinatrust Commercial.
Chinatrust Commercial, based in Taipei, is the nation's largest credit-card issuer. The company bought US$390 million worth of notes convertible into Mega shares through its Hong Kong branch without approval from the board of its parent, Chinatrust Financial Holding Co (
CONVERTIBLE NOTES
Chinatrust Financial had regulatory approval to acquire 10 percent of Mega in February last year by buying shares in the local market.
The convertible note purchase gave Chinatrust Financial a bigger stake in Mega Financial than was allowed by the watchdog.
"Banks will be banned from trading derivatives for mergers and acquisitions, or any illegal purposes, regardless of whether they do this for their own or for clients," the commission said in the statement.
Chinatrust Financial completed the disposal of a 3.9 percent stake in Mega Financial, as ordered by the regulator, in June, reducing its holding in the nation's second-largest financial services company by assets to 11.6 percent.
On July 30, Chinatrust Financial said it will sell the remaining stake within four years because it had ruled out Mega Financial as a potential target for a merger or acquisition.
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