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Taiwan Stock Exchange Corporation Directions For the Recognition of the Qualifications of Issuers of Exchange-Traded Funds and Underlying Indexes  CH

Amended Date: 2014.06.16
Article 1     For the purposes of these Directions, "exchange-traded funds" ("ETFs") refers to ETFs under Article 37 of the Regulations Governing Securities Investment Trust Funds and exchange-traded futures trust funds ("futures ETFs") under Article 10-1 of the Regulations Governing Futures Trust Funds.
Article 2     For the purposes of these Directions, "issuers" refers to domestic securities investment trust enterprises (SITEs) and futures trust enterprises that offer ETFs under Article 23, paragraphs 2 and 3 of the TWSE Rules Governing Review of Securities Listings.
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Article 3     For the purposes of these Directions, "underlying index" refers to the index tracked, simulated, or replicated by an ETF that an issuer applies to have listed and traded on the TWSE.
    The compiler of the underlying index shall meet all the following qualifications:
  1. Has 5 years or more experience in index compilation, and the ability to establish and review index compilation rules, and to maintain or update on a daily basis the files for the components of the index. If the index compiler is a securities firm, bank, or an interested party of the issuer, the compiler must establish an internal firewall system for the index compilation rules, file maintenance, and related operations.
  2. Has the ability to calculate intraday real-time index value, or enter into contracts with market information suppliers to calculate index value.
  3. Has the ability to transmit the intraday real-time index value to make it known throughout the market, or enters into contracts with two or more market information suppliers for the transmission of the index value.
    The components of the underlying index shall meet all the following qualifications:
  1. Meet one or more of the following qualifications:
    1. Listed for trading on the TWSE.
    2. Listed for trading on the GreTai Securities Market.
    3. Listed and traded on a foreign centralized securities market or over-the-counter market approved by the competent authority, and compliant with regulations regarding the types and scope of foreign securities invested by the securities investment trust fund.
    4. Listed for trading on the Taiwan Futures Exchange.
    5. Being spot commodities that are traded in futures trading or are related to futures, are traded on a foreign futures exchange or approved by the competent authority, and furthermore comply with the regulations governing the scope of utilization of futures trust funds.
    6. Being other instruments approved by the competent authority.
  2. The components of the underlying index shall have the following properties:
    1. The components of the index shall be sufficiently dispersed; the component accounting for the highest share of market capitalization of the index may not exceed 30 percent of the total market capitalization of the index, and the cumulative portion of the top five component securities may not exceed 65 percent of the index of the total market capitalization of the index. This requirement, however, does not apply to a fund investment for which the characteristics of the underlying index meet the conditions set forth in Article 10-1, paragraph 4, subparagraph 3 of the Regulations Governing Futures Trust Funds.
    2. The components of the index shall have a definite degree of liquidity. The TWSE may set required liquidity standards depending on the characteristics of the components of the index.
Article 4     If the underlying index of the ETF for which the issuer is applying for listing is not compiled by the TWSE or jointly compiled by the TWSE and other institutions, the issuer shall, pursuant to Article 23, paragraph 3 of the TWSE Rules Governing Review of Securities Listings, before applying to the competent authority for approval to offer the fund, fill out the application form in the appendix and, after paying an application review fee, apply to the TWSE for a letter of consent by submitting the application with the following documents attached:
  1. Photocopy of the index license agreement or letter of intent entered into with the index compiler.
  2. Relevant written documents proving that the index compiler complies with Article 3, paragraph 2.
  3. Relevant written documents proving that the components of the underlying index comply with Article 3, paragraph 3.
  4. Analysis of the liquidity of the components of the underlying index and related reference documents.
  5. A detailed description of the method for and basis of the calculation of the underlying index, and the principles for selecting and replacing the components of the underlying index.
  6. Historical archive of the underlying index for at least the most recent 1 year.
  7. All the channels through which domestic investors, in the future after the ETF has been listed, will be able to access information related to the index, and relevant information.
    The TWSE may request the issuer to provide relevant supplements and descriptions, depending on the circumstances.
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Article 5     The TWSE shall review the documents as specified in subparagraphs of the preceding article in an application for the letter of consent, and approve the documents before issuing the letter of consent, and reply by letter to the applying issuer and forward a copy to the competent authority.
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Article 6     If the underlying index of the ETF under application for listing is compiled by the TWSE, or jointly compiled by the TWSE and other institutions, the issuer shall enter into an index license agreement with the TWSE before applying to the competent authority for approval to offer the fund.
Article 7     These Directions, and any amendment hereto, shall be implemented following approval and recordation by the competent authority.