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Taiwan Stock Exchange Corporation Regulations for Handling Deficiencies in Evaluation Reports or Other Related Information Submitted by a Securities Underwriter  CH

Amended Date: 2012.10.05
Article 1     These Guidelines are established to ensure that securities underwriters play a proper role in their assessment and enable them to provide impartial and professional assessment reports or other relevant information with care in handling cases.
Article 2     The party subject to the imposition of demerit points under these Guidelines is the lead securities underwriter.
Article 3     The assessment reports or other relevant information submitted by securities underwriters shall conform to the Rules Governing the Reporting of Basic Information of Advisory Client Companies by Securities Underwriters, Directions for the Particulars to be Recorded in the Securities Underwriters' Assessment Reports for Initial Stock Listing, and other applicable regulations promulgated by the TWSE.
    The assessment reports or other relevant information submitted by securities underwriters according to Chapter IV-1 of the Operating Rules of the TWSE, are governed by the preceding paragraph mutatis mutandis and, in addition, may also be governed by the applicable provisions of these Guidelines.
    When accepting the appointment by a primary listing company to assist it with compliance with R.O.C. securities laws and regulations, the Articles of Incorporation and the Operating Rules of the TWSE, and regulations for public announcement and listing contract, the lead securities underwriter shall act in accordance with the TWSE Rules Governing Review of Securities Listings (hereinafter the "Review Rules"), the Directions for Lead Securities Underwriters Mandated to Assist Primary Listed Companies in Complying with R.O.C. Laws and Regulations and the Taiwan Stock Exchange Corporation Rules Related to TWSE Listing (hereinafter the "Directions"), and other applicable regulations, and is governed by the requirements of these Guidelines.
Article 4     In the event any of the following deficiencies is found in the assessment reports or relevant information submitted by the securities underwriter, whether or not these reports or information have been withdrawn by the underwriter, the TWSE may impose demerit points depending on the seriousness of the deficiency, according to the following provisions:
  1. Ten demerit points will be imposed in case of false or concealed content; if the assessment report contains any false information or deliberately concealed facts, the TWSE may directly submit a report of the offense, accompanied by a description of relevant facts and evidence, to the Securities and Futures Investors Protection Center (SFIPC) for further action.
  2. In the event of an initial application for listing of securities or an OTC company applying for listing of securities, ten demerit points will be imposed in a circumstance described in Article 9, paragraph 1 of the TWSE Review Rules or where Article 18 or 19 of the Review Rules is violated; where a foreign issuer applying for primary stock listing or a subordinate company of such issuer is involved in the circumstances in Article 28-8, paragraph 1 of the Review Rules, or the foreign issuer violates Article 28-5 or 28-6; or a company applying for second listing of securities is involved in the circumstances under Article 27-2 of the Review Rules; or a merged company that is neither listed on the TWSE nor on the GreTai Securities Market (the "GTSM") under Article 53-2 of the TWSE Operating Rules (the "Operating Rules") or a company participating in conversion of shares that is neither listed on the TWSE nor on the GTSM under Article 53-12 of the Operating Rules is involved in the circumstances under which listing is advised against under Article 9, paragraph 1, subparagraphs 1, 3, 4, 6, 7, and 89 of the Review Rules; or a company participating in conversion to a financial holding company that is neither listed on the TWSE nor on the GTSM under Article 53-31, paragraph 2 of the Operating Rules is involved in the circumstances under which listing is advised against under Article 9, paragraph 1, subparagraphs 1, 3, 4, 6, 8, and 12 of the Review Rules; or the transferee company of a demerger under Articles 53-21 to 53-23 of the Operating Rules is involved in the circumstances under which listing is advised against under Article 9, paragraph 1, subparagraphs 1, 3, 4, 6, 7, 8, 9, 11 and 12, or Article 18 or 19, of the Review Rules, while the securities underwriter fails to provide an explanation.
  3. Five demerit points will be imposed in case of a major omission or apparent error in the assessment report according to the Criteria Governing Particulars to be Recorded in the Assessment Report of Securities Underwriter for Initial Public Offering or the Guidelines for Information to be Published in Assessments of Securities Underwriters for Offering and Issuance of Securities by Foreign Issuers, established by Taiwan Securities Association.
  4. Five demerit points will be imposed in case of a significant error in financial analysis or apparent improper sampling of companies.
  5. Three to five demerit points will be imposed in case of a mistake in the cited information.
  6. Three to five demerit points will be imposed in case of failure to exercise due care when collecting information, therefore not obtaining objective and reasonable evidence.
  7. Three to five demerit points will be imposed in case of failure to provide an adequate explanation on the failure of the specialists appointed by the underwriter or the opinion issued by the specialists to meet the requirements.
  8. One to three demerit points will be imposed in case of failure to submit consultation related information within the prescribed time frame according to the TWSE Rules Governing the Reporting of Basic Information of Advisory Client Companies by Securities Underwriters, or errors or omission in the information filed, for two or more times without reasonable explanation given.
  9. One to three demerit points will be imposed in case of failure to act in accordance with the TWSERules Governing the Reporting of Basic Information of Advisory Client Companies by Securities Underwriters without correction despite of the notice issued by the TWSE.
  10. One to five demerit points will be imposed in case of any other explicit deficiency for which TWSE determines a penalty should be imposed.
    If the securities underwriter has committed a deficiency that falls into more than one circumstance in the first paragraph, the most severe penalty should be imposed. A more severe penalty may be imposed on the securities underwriter that has repeated the same deficiency as described in the first paragraph within the last two years.
    For listed companies, if the securities of a primary listing company or second listing company that is involved in the circumstances under Article 148 of the Securities Exchange Act or Articles 50-1 and 50-3 of the Operating Rules within the first two ears after its shares have become listed are delisted from the TWSE according to Article 144 of the Securities Exchange Act, and its securities underwriter is found to have committed the a deficiency as listed in the first paragraph, the TWSE may impose a more severe penalty as follows on the underwriter, depending on the seriousness of the deficiency:
  1. The penalty will be doubled if the delisting occurs within one year;
  2. The penalty will be increased by half if the delisting occurs during the second year of listing.
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Article 5     If, during the existence of the contract under which it is appointed by a primary listing company to provide assistance with compliance with R.O.C. securities laws and regulations, the Articles of Incorporation and the Operating Rules of the TWSE, and regulations for public announcement and listing contract, the lead securities underwriter violates the TWSE Review Rules, Directions and other relevant regulations, the TWSE may impose three to ten demerit points on it depending on the seriousness of the violation.
Article 6     An announcement on the deficiencies described in Articles 4 and 5 of these Guidelines found by the TWSE to have been committed by securities underwriters in their underwriting will be published regularly once a month at the stock exchange market.
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Article 7     The following actions may be taken based on the accumulated demerit points calculated according to the second paragraph of this article in the event demerit points are imposed on securities underwriters within the past year for deficiencies in the assessment report or other relevant information submitted by them:
  1. If ten or more demerit points have been imposed, the TWSE may decline the assessment report by the underwriter for three months.
  2. If 15 or more demerit points have been imposed, the TWSE may decline the assessment report by the underwriter for six months.
  3. If 20 or more demerit points have been imposed, the TWSE may decline the assessment report by the underwriter for nine months.
  4. If 25 or more demerit points have been imposed, the TWSE may decline the assessment report by the underwriter for 12 months and advise the competent authority to take appropriate action.
    The "demerit points" accumulated in the preceding paragraph shall mean the total count of demerit points imposed by the competent authority, Taiwan Securities Association, GTSM and TWSE during the past year.
    When the accumulated demerit points imposed on a securities underwriter during the past year satisfy the circumstances in the first paragraph, as published by the Taiwan Securities Association, the TWSE shall promptly issue a public notice at the stock exchange market, and the period for which the TWSE will decline submission of assessment reports starts from the first day of the month following the month in which the day of the public notice falls.
Article 8     For securities underwriters that have been given demerit points according to Article 4 above, their handling personnel shall attend and complete, with proof, an advanced underwriting course organized by the Securities Association for at least 15 hours within six months after the public notice of the TWSE, or the TWSE may dismiss cases handled by these personnel.
    The securities underwriter shall send a list of names of the handling personnel of the cases on which demerit points were given according to the preceding paragraph within three days after the issue of the public notice, with copies of the list to be sent to the Taiwan Securities Association and GTSM. The TWSE may extend the time for review of cases pending review that were handled by these personnel if no substitute personnel have been assigned to the cases after careful consideration and the underwriter has not represented that an adequate assessment has been performed.
    Upon completion, with proof, of the advanced course by the handling personnel of cases on which demerit points were given, as described in the preceding paragraph, the securities underwriter shall send a notice to the TWSE, with a copy to the GTSM.
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Article 9     Before imposing demerit points on a securities underwriter according to these Guidelines, the TWSE shall request it to provide written explanation on the circumstances concerned, and submitted such explanation, along with information on the relevant deficiencies as well as opinion on actions to be taken, to the President of the TWSE for approval and implementation.
Article 10     After having imposed demerit points according to the preceding article, the TWSE should immediately report the same in writing to the competent authority for its acknowledgment, with a copy to the Taiwan Securities Association and GTSM. In the event that the assessment reports or other relevant information submitted by a securities underwriter are found to have breached the requirements under Article 25 of the Rules Governing Securities Firms, in addition to imposing demerit points on the underwriter pursuant to Articles 4 and 5, the TWSE shall also forward information about the relevant facts and evidence to the competent authority for further action.
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Article 11     These Guidelines shall take effect after having been submitted to and approved by the competent authority and publicly announced. Subsequent amendments thereto shall be effected in the same manner.