| Title： |
Guidelines for Securities Brokers in Reporting Default by Principals(2003.10.01) |
| Date： |
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Securities brokers shall report and handle of cases of default by their principals in accordance with Article 76, Paragraphs 3 and 91 of the Operating Rules of the Taiwan Stock Exchange Corporation, Article 19 of the Taiwan Stock Exchange Corporation Criteria Governing Consignment Contracts of Securities Brokers, and these Guidelines.
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Reporting default:
A principal who fails to effect settlement within the specified period is in default. Securities brokers shall report the default in accordance with the rules below, and shall notify the principal:
(1) Computer transmission:
(i) Period for computer entry:
(a) Following confirmation of default by a principal, a securities broker shall immediately enter each item of information relating to the default into the corresponding field on the computer interface provided for that purpose by the Taiwan Securities Central Depository Co., Ltd. ("TSCD") at the request of the Taiwan Stock Exchange Corporation ("TSEC"). The deadline for reporting, in the case of delivery of securities sold, is 6:00 p.m. on the first business day following the confirmation of the trade; for the prices of securities purchased, the deadline is 6:00 p.m. on the second business day following the confirmation of the trade. However, on Monday through Friday, when bank operations prevent the broker from learning of any shortfall in the deposit of securities prices until after 6:00 p.m., the information shall be entered immediately, with a deadline of 8:00 p.m., and the bank notice shall be sent with a letter of report to the TSEC for verification.
(b) Securities brokers who enter information in accordance with the time period specified in the above subparagraph may, at 8:30 a.m. the next morning, receive and review the information on the principal's contractual default and submit it for display on the TSEC public announcement information system for that afternoon.
(c) When a natural disaster occurs such that local mayors and county magistrates announce closure of schools and public offices, electronic reporting by securities brokers within the affected region shall be undertaken in accordance with the provisions for handling of settlements due in the Taiwan Stock Exchange Corporation Measures for Market Closing or Trading During Natural Disasters.
(ii) Accidental breakdowns
When accidental breakdowns result in interruptions in the computer transmission lines, securities brokers shall inform the TSCD by telephone, and shall enter information on default at the TSCD or one of its information collection sites.
(2) Letter of report
In addition to the report to the TSCD referred to in the preceding paragraph, in any instance when defaults by the same principal on the same day total NT$10 million or more, the securities broker shall file a letter of report with the TSEC for its files; the same shall be true when the default violates Article 91, Paragraph 2 of the Operating Rules of the Taiwan Stock Exchange Corporation.
(i) Content of the letter of report:
(a) The name of the principal.
(b) The principal's account number.
(c) The principal's national ID number.
(d) The principal's address.
(e) The facts of the default.
(ii) Copies of documents to be attached:
(a)The front and reverse sides of the principal's national ID card.
(b)The consignment contract (front and reverse sides).
(c)The letter of consignment.
(d) The trading report.
(e) The settlement receipt form.
(iii) When a securities broker fails to file a report on a principal's default within the time period specified above, the TSEC may issue a warning in accordance with Article 136 of the Operating Rules of the Taiwan Stock Exchange Corporation, and notify the broker to rectify the situation or submit supplementary materials.
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Procedures for handling default:
(1) A securities broker reporting on the default of a principal in accordance with Article 91, Paragraph 1 of the Operating Rules of the Taiwan Stock Exchange Corporation shall immediately undertake settlement procedures on behalf of the principal. For handling of securities or payments received as a result of settlement, the broker shall consign other securities brokers to dispose or purchase securities on the Exchange on the first day following the principal's default. Resulting gains or losses shall b
e handled in accordance with Article 19 of the "Taiwan Stock Exchange Corporation Criteria Governing Consignment Contracts of Securities Brokers."
(2) The securities broker shall make separate reports on defaults on settlement obligations for securities purchased or sold by the same principal, and the total amount of securities or payments received through effecting settlement on behalf of the principal shall be consigned to other securities brokers for handling and may not be offset by the securities broker. However, for the same securities traded through the same account on the same reporting day, securities brokers may offset trades of the same
volume.
(3) Following handling of a default in accordance with the preceding paragraph, the securities broker shall, prior to 6:00 p.m. of the same day, enter information on the handling of the default into the computers of the TSCD and notify the principal.
(4) When the default of a principal has been reported in accordance with Article 91, Paragraph 2 of the Operating Rules of the Taiwan Stock Exchange Corporation, the securities broker shall buy back the securities in question from the Exchange in accordance with the time period stipulated under Paragraph 5 of the same Article, and thereafter seek compensation from the principal himself.
(5) Where the aggregate number of [shares represented by] the share certificates of securities received by a securities broker handling settlement on behalf of a principal under Paragraph 1 during the period of a single breach reaches 5 percent or more of the number of shares of the underlying securities already issued, and furthermore reaches or exceeds the average daily volume of the underlying securities during the 20 trading days prior to reporting of the breach, the securities broker may adopt eithe
r of the following measures to handle the breach:
1. If handling of the breach cannot be completed through reverse transactions during the three consecutive business days from the day next following the date of confirmation of the breach by the principal, the securities broker, by reaching a mutual agreement with the principal or by notice to the principal, may, depending on market conditions, in accordance with the content of the agreement or the notice, complete handling of the breach through reverse transactions within 180 days, and report the agreem
ent or notice to this Corporation via letter for recordation.
2. The securities broker may reach an agreement with the principal setting a price(s) to serve as the basis for calculating profit/loss, and submit the written agreement reached between the parties to this Corporation via letter for recordation.
(6) When a securities broker fails to handle the default in accordance with the above rules, the TSEC may, in accordance with Article 136 of the Operating Rules of the Taiwan Stock Exchange Corporation, notify the broker to take supplemental action or rectify the situation.
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Procedures for announcing default:
When the TSEC receives a report of default from a securities broker, it will inform all securities brokers based on the particulars of the report, which shall handle related matters as stipulated under Article 76, Paragraph 3 of the Operating Rules of the Taiwan Stock Exchange Corporation. Responsibility for any damage to the rights and interests of the principal or any disputes arising out of such notification shall be borne by the securities broker reporting the default.
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Procedures for revocation of default:
(1) When any of the following circumstances occur in a case of default, the securities broker shall be responsible for verification and shall revoke the default through a letter of report with evidentiary documents attached:
(i) Failure of the principal to make settlement payments within the stipulated time period resulting from negligence in banking operations.
(ii) Negligence by the broker in mistakenly reporting a principal's default.
(iii) Confirmation that the principal's default did not arise from an arbitration decision, a final judgment of the courts, or any other official document having the same effect as a final judgment.
(iv) Delay of settlement by an overseas Chinese or foreign national investor arising out of discrepancies in the times of holidays between two regions, interruption in telecommunications, or any other instance of force majeure.
(v) Circumstances conforming to the conditions of Article 91, Paragraph 3 of the Operating Rules of the Taiwan Stock Exchange Corporation.
(vi) When the principal, after occurrence of default, submits evidentiary documents showing that failure to complete timely settlement for the given discretionary account was due to the consignee's failure to perform responsibilities arising out of an unauthorized trade by the consignee.
(vii) Other reasons sufficient to demonstrate that the default was not attributable to the principal.
(2) When securities brokers report revocation of default and fail to perform complete verification of the grounds for revocation or to attach evidentiary documents as specified in the preceding paragraph, or when, upon examination, the attached documents and the reasons stated in the report do not appear to satisfy the formal requirements for proving that the default was not attributable to the fault of the principal, the TSEC will not accept or process such report; the securities broker reporting defaul
t shall bear full responsibility for any damage to the rights and interests of the principal or for any disputes arising from such a report.
(3) If the revocation of default reported by the securities broker contains any false or misleading statements, the TSEC may handle such event in accordance with the Article 38 of its articles of incorporation or Article 141 of the Operating Rules of the Taiwan Stock Exchange Corporation.
(4) A securities broker that mistakenly reports a default by a principal shall penalize the personnel responsible for the negligence by temporarily suspending their participation in operations for three months; that employee's registration certificate shall be returned with the letter of report revoking the default. The TSEC may handle such matters, according to circumstances, in accordance with Article 38 of its articles of incorporation or Article 140 of the Operating Rules of the Taiwan Stock Exchange
Corporation.
(5) When a securities broker has revoked a case of default and the TSEC has approved the revocation, the case shall be closed and filed for reference. If the facts of the case have already been reported to other securities brokers, the securities broker may receive and review the information on the revocation of the principal's default at 8:30 a.m. the next morning and submit it for display on the TSCE public announcement information system for that afternoon.
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Procedures for announcing conclusion of a case:
Upon conclusion of a case, the securities broker shall report its conclusion to the TSEC; the TSEC will in turn inform all other securities brokers.
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These guidelines shall take force upon approval by the competent authority.
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