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Taiwan Stock Exchange Corporation Rules Governing Targeted Examinations of and Guidance to Securities Firms  CH

Amended Date: 2014.11.04
Article 1     These Rules are adopted pursuant to Article 23, Paragraphs 2 and 4 of the Regulations Governing Stock Exchanges.
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Article 2     The Taiwan Stock Exchange Corporation ("TWSE") shall conduct targeted examinations of and guidance to securities brokers or securities dealers in accordance with these Rules, unless otherwise regulated by laws and regulations. Other rules adopted by the TWSE shall apply in the absence of regulations in these Rules.
Article 3     The TWSE shall perform a targeted examination upon discovering that any of the following occurs in respect of a securities firm:
  1. (Deleted)
  2. Receiving unsatisfactory ratings under the TWSE Rules Governing Early Warnings for Overall Operational Risk of Securities Firms, or incurring consecutive losses and having a net value below its paid-in capital by at least three-fifths.
  3. Receiving unsatisfactory ratings in the internal audit and showing no improvement in the assessment after receiving guidance.
  4. In material breach of laws or regulations or the rules of the TWSE and showing no improvement after being imposed multiple penalties by the competent authority or the TWSE.
  5. Having a regulatory capital adequacy ratio below the ratio stipulated in Article 66 of the Regulations Governing Securities Firms for three consecutive months.
  6. Other material unexpected events or matters instructed by the competent authority.
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Article 4     To conduct a targeted examination, the TWSE may request the securities firms to submit a review report within the prescribed time. The review report shall include the following matters, be signed and sealed by the responsible person and heads of the relevant finance, sales and audit departments of the securities firm, and attach all of the relevant documents and forms:
  1. Analysis of the causes of any event referred to in the preceding article and an impact evaluation.
  2. Responsibility of the personnel committing the violation.
  3. Improvement plan.
  4. Custodian and locations of articles relating to accounts, documents and properties.
  5. Other matters specified by the competent authority or the TWSE.
    The report referred to in the preceding paragraph shall be submitted to the next board of directors' meeting of the company for discussion and approval within two months, signed by the supervisor(s) and submitted to the TWSE along with the minutes of said board of directors' meeting.
Article 5     The TWSE shall conduct thorough investigation as to the events mentioned in Article 3 and the content of the review report referred to in the preceding paragraph when conducting a targeted examination; and may conduct an overall examination in accordance with the internal control system recognized by the board of directors of the securities firms when necessary.
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Article 6     The TWSE shall, after performing a targeted examination, take the following measures, prepare an examination report and submit the same along with the examination results to the competent authority for recordation:
  1. Report to the competent authority for further handling any violation of laws or regulations discovered.
  2. Impose penalty pursuant to applicable provision against violation of rules of the TWSE.
  3. Provide guidance for the securities firm in drafting an improvement plan or solution plan with respect to its financial, sales and internal control systems with respect to any of the events listed in Article 3, and oversee the exact implementation of the plan.
  4. Other necessary measures.
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Article 7     The TWSE may provide the following guidance for a securities firms after a targeted examination:
  1. Request the securities firm to adopt an improvement plan in accordance with Paragraph 3 of the preceding article, submit said plan to the TWSE for recordation, and periodically report to the TWSE the implementation progress.
  2. Request at any time the securities firm to re-examine its improvement plan and make further amendments based on the implementation result of the plan.
  3. Invite the responsible person and relevant department heads of the securities firm to discussions of improvement measures based on the implementation result of the plan, when necessary.
  4. Other necessary guidance measures.
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Article 8     In the event that any of the events mentioned in Article 3 occurs to a securities firm, or said securities firm fails to improve the situation after receiving repeated guidance, the TWSE may directly adjust its total brokerage amount, halt its trading, restrict or stop its trading or terminate its contract for the use of market pursuant to Articles 28-1, 141 and 142 of the Operating Rules of the TWSE.
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Article 9     The TWSE may appoint disinterested attorneys, accountants or other persons who are familiar with the operation of securities business as advocates, to the extent necessary for a targeted examination and guidance, to assist with the review of the guidance and other necessary measures. The remuneration and expenses incurred therefrom shall be borne by the securities firm.
Article 10     The securities firm may appeal to the TWSE, with reasons stated, where it finds the guidance and relevant measures of the TWSE difficult to comply with.
Article 11     Any targeted examination, guidance and other measures conducted by the TWSE in accordance with these Rules shall not be deemed assumption by the TWSE of the liabilities or other obligations of the securities firm to its clients or other interested persons. The securities firm and its responsible person or employees shall still be responsible for all of their acts in their performance of duties when the TWSE conducts a targeted examination and guidance measures, without avoiding their responsibilities.
    The securities firm shall inform its clients or other interested persons of the preceding two paragraphs in detail without any misleading acts or statements.
Article 12     The TWSE may take measures in accordance with the Operating Rules, Criteria Governing Handling of Stock Affairs by Public Companies, and other rules of the TWSE in the event that the securities firm and its responsible person or employees breach these Rules.
Article 13     These Rules are drafted by the TWSE with the Taiwan Securities Association and shall take effect after having been submitted to and approved by the competent authority. Subsequent amendments thereto shall be effected in the same manner