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Title:

Taiwan Stock Exchange Corporation Procedures for Routine Regulation and Regulation by Exception Over Financial and Business Affairs of Listed Companies  CH

Amended Date: 2021.03.31 
Categories: Primary Market > Management > Auditing and Review
   III Regulation by Exception
Article 8    If any of the following material events occurs to a listed company, the TWSE shall produce an examination report on the impact of the material event on the company's operations or market in accordance with Articles 10 and 11 of these Procedures, and then report to the competent authority for further handling.
  1. Finance
    1. The listed company's financial report for the current period shows a serious deficit, such that the company's equity attributable to owners of the parent is lower than the share capital stated in the financial report. In the case of shares having a par value other than NT$10, the share capital shall mean the sum of the share capital and the capital surplus, additional paid-in capital.
    2. The CPA produces an audit report with a non-unqualified opinion or produces a review report with a non-unqualified conclusion, and the circumstances are serious.
    3. The listed company, and its parent company or any of its subsidiaries has had a negotiable instrument dishonored due to insufficient funds, or has otherwise experienced a loss of creditworthiness.
    4. A principal debtor of the listed company has a negotiable instrument dishonored, has filed for bankruptcy, or experienced any other similar event of a material nature; a principal obligor in favor of whom the company has made an endorsement or guarantee is unable to settle a matured negotiable instrument, loan, or other obligation.
    5. From financial data forwarded by the listed company in accordance with Article 36 of the Securities and Exchange Act, its is found that the company has provided any endorsement or guarantee for a company with which it does not have business transactions, or that it has provided company assets as collaterals for loan borrowings of another person.
    6. The cumulative actual amounts of expenditures and project progress related to a cash capital increase or issuance of corporate bonds are both lagging behind the scheduled amounts by 25 percent or more.
    7. The assets (excluding all types of domestic stock and open-end bond funds) acquired or disposed by a listed company or its subsidiaries reach 20 percent or more of the share capital stated in the company's financial report, or NT$300 million or more. In the case of shares having a par value other than NT$10, for the calculation of the aforementioned 20 percent of share capital, 10 percent of equity attributable to owners of the parent shall be substituted.
    8. The amount of open interest in derivatives held for trading purposes in the current month shows a month-on-month increase in an amount that equals 10 percent or more of the share capital stated in the financial report, or the combined amount of realized and unrealized losses shows a month-on-month increase of NT$100 million or more. In the case of shares having a par value other than NT$10, for the calculation of the aforementioned 10 percent of share capital, 5 percent of equity attributable to owners of the parent shall be substituted.
    9. The year-on-year rate of increase or decline in operating revenue for the current month is high, or the month-on-month changing rate in operating revenue is high, or the year-on-year rate in cumulative operating revenue as of the current month is high, and no reasonable cause is seen for the change; or there is a material revision of the operating revenue of the current period or any previous period.
    10. The year-on-year rate of increase or decline in cumulative operating revenue for a certain period is high, and moved in a direction opposite to that of the industry to which the company belongs.
  2. Business
    1. The financial report of the listed company for the current period indicates a serious reduction in production, or a suspension in whole or in part of operations, resulting in a serious deficit, and it is estimated that the circumstance cannot be improved within a short time.
    2. Company plants or major facilities have been loaned, or all or part of the company's major assets have been pledged, such that there is a likelihood of operational difficulties or suspension of operations, or any circumstance specified in a subparagraph of paragraph 1 of Article 185 of the Company Act occurs.
    3. The company enters into an important contract, changes major contents of the business plan, completes the development of a new product, is merged by others, acquires another enterprise, or signs or rescinds a cooperation plan with another company, and there is an adverse effect on the company's finances or business.
    4. Any instance of major disaster, protest, strike, or environmental pollution occurs and it is estimated that the business operations cannot be restored within a short time, or the estimated losses exceed 20 percent of the share capital stated in the company's financial report, or NT$300 million or more. In the case of shares having a par value other than NT$10, for the calculation of the aforementioned 20 percent of share capital, 10 percent of equity attributable to owners of the parent shall be substituted.
    5. A change in management rights or material change in the scope of business
  3. Others
    1. Elections for the directors/supervisors of the listed company cannot be held as schedule, or half or more of the original directors or supervisors cannot exercise their duties.
    2. A serious deficiency occurs in any stock-related operations of the listed company (such as fraud by company insiders), affecting the market order.
    3. Any matter involving litigious or non-litigious proceedings, an administrative disposition, or contentious administrative proceedings, with a material effect on the company's financial or business operations.
    4. Reorganization or bankruptcy proceedings of the listed company, its parent company, or any of its subsidiaries, and any events that occur in the course of such proceedings, including any application made by the company, any petition made by an interested party and known to the company, any notification or ruling made by a court, or any other matters related to reorganization or bankruptcy proceedings duly conducted in accordance with laws and regulations.
    5. A report is made by the Surveillance Department of the TWSE in accordance with the Procedures Governing Early Warnings Notification for Trading Index.
    6. The listed company issues any material information, or there is reported in the media, any event with a material effect on company operations.
    7. There is any material irregularity in a transaction between the listed company and a related party.
    8. The listed company enters into the TWSE's Market Observation Post System any material information, and its average closing price of the 3 days following the entry differs by 14 percent or more from the average closing price of the 3 days preceding the entry.
    9. The internal control system of the listed company is found in an audit to have any material irregularity.
    10. The share ownership ratio of directors or supervisors, including themselves and their corporate representatives, falls short of requirements for 3 consecutive months or longer.
    11. Any independent director that the listed company appoints in accordance with regulations resigns for any reason other than a force majeure event such as illness or death, resulting in an insufficient number of independent directors or supervisors.
    12. Change of a financial officer, accounting officer, internal audit officer, R&D officer, or CPA of the company (other than an internal adjustment at the accounting firm).
    13. The competent authority or the TWSE deems it necessary for any other reason.
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Article 9    In addition to provision by the listed company at its own initiative, the TWSE also collects information regarding material events from the following relevant sources:
  1. Mass media reportage.
  2. Letter from the competent authority.
  3. Financial reports that the listed company submits in accordance with Article 36 of the Securities and Exchange Act.
  4. Clear evidence provided by the listed company's trade association or investors.
  5. Matters disclosed by the listed company in accordance with The TWSE Procedures for Verification and Disclosure of Material Information of Companies with Listed Securities.
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Article 10    When any material event occurs to a listed company, in addition to conducting verification and public disclosure in accordance with the TWSE Procedures for Verification and Disclosure of Material Information of Companies with Listed Securities , the TWSE personnel responsible for handling the case shall look into and analyze the material event, collect relevant materials and ascertain the circumstances and progress of the case, and when necessary produce an analysis report (in the format in attachment 5-1). In all cases except those in which no irregularity is found through the above procedures, an on-site audit of the company shall be conducted. The personnel handling the case shall write a project report after the audit is complete, and the report content shall include the following items:
  1. The cause of the material event of the listed company.
  2. The impact of the material event on the listed company, and the group, industry, and market to which it belongs.
  3. The listed company's response measures.
  4. The CPA's opinions on relevant matters, when necessary.
  5. Any violation of securities-related laws or regulations found during on-site audit.
  6. The measures adopted by the TWSE.
  7. Suggestions for the competent authority.
Article 11    When any material event occurs to a listed company, the TWSE, after looking into the circumstances in accordance with the preceding Article, shall conduct an on-site audit under regulation by exception. The auditing procedure are as follows:
  1. Appoint dedicated personnel to conduct the audit.
  2. Draft the key points for the audit and submit them to the competent authority for recordation.
  3. Conduct an on-site audit at the listed company.
  4. When any material irregularity is found during the audit, the case shall be reported to the competent authority via telephone or facsimile. If the audited company has violated any securities-related law or regulation, after the audit, a letter shall be sent to the listed company notifying it to make corrections. If the circumstances are serious, the TWSE may issue a letter requiring the listed company to send personnel to attend education classes held by an organization designated by the competent authority, and forward a copy of the letter to the organization. If the company does not send personnel to attend the classes, the TWSE may, depending on the nature of the deficiencies, list the company as a priority subject for auditing in subsequent substantive review of financial reports, routine regulation or regulation by exception, or internal control system audit.
  5. When necessary, [the TWSE] may ask the audited company to hire a CPA to conduct a special audit of the company's internal control system and produce an audit report.
  6. The special audit report shall be completed as soon as possible. If any irregularity is found, the report shall be submitted for review at the appropriate levels [within the TWSE], and then submitted case-by-case to the competent authority for further handling.
  7. Audited companies shall be listed for a period of 1 year for test audit for the verification of material information at each quarter.
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