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Chapter Content

Title：

Regulations Governing Over-the-Counter Trading Enterprises  CH

Announced Date： 2006.06.27 
Article Content Chapter Content Search Article No. Search Legal Basis Legislative History Chinese 
   Chapter III Management and Supervision
      Section 1  Finance and Operations
Article 8    After obtaining permission from the Competent Authority and registering in accordance with law, an OTC trading enterprise shall post an operations bond with the national treasury.
    The amount of the operations bond of the preceding paragraph shall be 5 percent of the company's paid-in capital amount.
Article 9    An OTC trading enterprise shall set aside in one lump sum NT$50 million as a compensation reserve fund, and within 15 days after the end of every quarter, shall deposit 20 percent of its business service fee revenues into that compensation reserve fund, provided that this requirement shall no longer apply once the amount set aside in the compensation reserve fund reaches the amount of the total authorized capital.
    The compensation reserve fund of the preceding paragraph shall be deposited in a designated account, and may only be used for the purposes listed below:
  1. Bank deposit or postal savings.
  2. Purchase of government or financial bonds.
  3. Other purposes approved by the Competent Authority.
Article 10    An OTC trading enterprise shall prepare and submit to the competent authority for approval an annual business plan and a budget, three months and two months before the beginning of the fiscal year, respectively, and shall do the same for any amendments thereto. Within 15 days after the end of each quarter, it shall prepare a report on the implementation status of the annual business plan for that quarter, and file it with the Competent Authority for recordation.
    An OTC trading enterprise shall implement the annual business plan and budget approved by the Competent Authority, and draft performance evaluation and assessment rules for its departments and personnel, and submit them, and any amendment thereto, to the Competent Authority for approval.
Article 11    Within four months after the end of every business year, and within two months after the end of the business half-year, an OTC trading enterprise shall file with the Competent Authority a CPA-audited and certified financial report passed by the board of directors and recognized by the supervisors.
    Any inconsistency between the annual financial report in the preceding paragraph and the annual financial report recognized by the regular shareholders meeting shall be reported to the Competent Authority within two days from the date of occurrence of the fact.
    The preparation of the financial report of paragraph 1 shall be subject mutatis mutandis to the provisions of the Regulations Governing Preparation of Financial Reports by Company-Type Stock Exchanges.
Article 12    An OTC trading enterprise's proprietary funds may not be loaned to any other party or transferred for any other purpose. Aside from utilization for operational purposes, such funds shall be restricted to the following uses:
  1. Bank deposits or postal savings.
  2. Purchase of treasury bills and negotiable certificates of deposit.
  3. Purchase of government bonds or financial bonds.
  4. Other uses approved by the Competent Authority.
Article 13    An OTC trading enterprise shall set aside special reserve from its after-tax earnings each year.
    The special reserve of the preceding paragraph shall be set aside annually at a rate not higher than 80 percent of after-tax earnings, with the actual rate to be set by the Competent Authority with consideration to the OTC trading enterprise's earnings status.
    The special reserve of paragraph 1 may not be used except to cover company losses, or for uses filed with and approved by the Competent Authority.
Article 14    An OTC trading enterprise shall draft procedures for the acquisition and disposal of fixed assets, and file them, and any amendment thereto, with the Competent Authority for approval.
Article 15    The OTC trading enterprise shall draft the fee schedules for its business operations and file them, and any amendments thereto, with the Competent Authority for approval.
Article 16    An OTC trading enterprise shall apply to the Competent Authority for approval before taking any of the following actions:
  1. Amending its articles of incorporation.
  2. Suspending or resuming operations.
  3. Undergoing dissolution.
  4. Transferring all or the principal part of its assets to another or others or receiving transfer of all or the principal part of assets of another or others.
  5. Making an equity investment in another company.
  6. Any other matter that the Competent Authority requires to first be reported for its approval.
Article 17    If any of the circumstances listed below occurs at an OTC trading enterprise, it shall file a report with the Competent Authority:
  1. Temporary suspension of securities trading on the OTC market due to an event of force majeure; also, resumption of trading in such cases.
  2. Malfunction or interruption of the trading system or trading information transmission system.
  3. Tardiness or inability by a securities firm to carry out performance or settlement.
  4. Signing or termination of an OTC trading contract with a securities firm.
  5. Utilization of the clearing and settlement fund deposited by a securities firm with the OTC trading enterprise.
  6. The signing of a cooperation agreement or memorandum of understanding with a foreign exchange, self-regulatory organization, or other institution.
  7. Adoption of a resolution at a shareholders or board of directors meeting.
  8. Preparation and submission of an audit report and notification of the supervisors pursuant to Article 15, paragraph 2 of the Regulations Governing the Establishment of Internal Control Systems by Service Enterprises in Securities and Futures Markets.
  9. Any other matter that the Competent Authority requires to be reported.
    The circumstances in subparagraphs 1 to 3 of the preceding paragraph shall be reported to the Competent Authority on the day following the occurrence of the fact; the circumstances in subparagraphs 4 to 7 shall be reported to the Competent Authority within five days following the occurrence of the fact or any change in the status thereof.
Article 18    An OTC trading enterprise shall draft a business plan and submit it, and any amendment thereto, to the Competent Authority for approval.
    The business plan of the preceding paragraph shall regulate the issues listed below:
  1. The application for and termination of OTC securities trading.
  2. Proprietary trading, trading for customer accounts, and how the two are to be distinguished.
  3. Method for the establishment of a brokerage contract.
  4. Business operation hours and trading units.
  5. Method for the public display of trading prices.
  6. Standards regarding tick size and price limits, and the setting of initial OTC trading prices.
  7. Settlement and payment schedules and methods.
  8. Arbitration and disposition of trading disputes and regulatory violations.
  9. Other matters regarding OTC trading.
    When an OTC-traded financial product's special characteristics render it unsuitable for trading under the methods of the preceding paragraph, the OTC trading enterprise may adopt separate trading rules and submit them, and any amendments thereto, to the Financial Supervisory Commission (FSC) for approval.
Article 19    An OTC trading enterprise shall establish a surveillance system for the OTC securities trading market, and draft rules therefor and submit them, and any amendment thereto, to the FSC for ratification.
    Whenever necessary for the market surveillance of the preceding paragraph, an OTC trading enterprise may make inquiries of a securities firm trading over the counter or of a securities-issuing company, and may requisition and inspect relevant data, or notify such firm or company to submit written statements, and they may not refuse to do so.
Article 20    An OTC trading enterprise may investigate a securities firm's finances, business, and internal audit activities, and provide guidance. If any violation of laws or regulations or any impropriety is discovered, it shall take proper action immediately and notify the Competent Authority.
    When an OTC trading enterprise carries out an investigation under the preceding paragraph and discovers any mismanagement, losses that undermine creditworthiness, or the occurrence of an emergency at a securities firm engaged in OTC trading, or there is any material deficiency in its internal audit activities, the OTC trading enterprise shall immediately conduct a targeted examination and provide guidance.
    When a securities firm engaged in OTC trading is unable to perform its delivery obligations, the OTC trading enterprise shall immediately conduct a targeted examination, and supervise a replacement securities firm to take over its payment and settlement affairs.
    The OTC trading enterprise shall draft procedures and rules for the matters specified in the preceding two paragraphs and submit them, and any amendments thereto, to the Competent Authority for approval.
Article 21    An OTC trading enterprise may not do any of the following acts without the approval of the Competent Authority:
  1. Participate in a merger.
  2. Transfer all, or a principal portion, of its business.
  3. Provide guarantees, endorse negotiable instruments, or provide assets for use as collateral by others.
  4. Any other act specified by the Competent Authority.
Article 22    To protect the public interest, the Competent Authority may from time to time order an OTC trading enterprise to provide a financial or business report or other reference material, and may directly investigate its financial or business situation.
 
      Section 2  Organization and Personnel
Article 23    An OTC trading enterprise shall draft an organizational charter covering matters such as its internal organization, staffing, and position titles, and submit it, and any amendments thereto, to the Competent Authority for approval.
Article 24    An OTC trading enterprise shall draft human resource management rules regarding personnel hiring, salary levels, compensation, attendance, incentives and penalties, training, advanced study, performance, retirement, severance, and disability and bereavement benefits, and submit them, and any amendments thereto, to the Competent Authority for approval.
Article 25    When there is any change in the directors, supervisors, or managerial officers of an OTC trading enterprise, it shall report such change to the Competent Authority within five days after the occurrence of the fact or change therein; any changes in its associated persons shall be compiled and submitted in a monthly summary report to the Competent Authority for recordation.
Article 26    No director, supervisor, or managerial officer of an OTC trading enterprise may fall into any category specified in a subparagraph of Article 53 of the Act; none of its associated persons may fall into any category specified in a subparagraph of Article 54 of the Act.
Article 27    No managerial officer or associated person of an OTC trading enterprise may in any fashion hold any concurrent position or honorary position at an OTC-listed company, emerging stock company, or securities firm.
Article 28    When a managerial officer or associated person of an OTC trading enterprise is remiss in or fails to faithfully carry out business matters entrusted to them, the enterprise shall dismiss such person from their position, terminate their employment, or make another appropriate disposition.
Article 29    No director, supervisor, managerial officer, or employee of an OTC trading enterprise may do any of the following acts:
  1. Directly or indirectly engage in securities trading or financial product transactions using knowledge gained in the performance of duties.
  2. Divulge any secret learned in the performance of duties.
  3. Solicit, agree to accept, or accept any improper benefit for an action performed in the course of duties or in breach of duties.
  4. Fail to recuse oneself when performance of duties involves any interest of one's own.
  5. Commit any misrepresentation, fraud, nondisclosure, omission, or other misleading conduct in the conduct of OTC trading of securities or other financial products.
  6. Violate any law or regulation or the Competent Authority's requirements by commission or omission.
    The provisions of paragraph 1 apply mutatis mutandis to the exercise of duties by the representative or designated representative of a director or supervisor that is a juristic person.