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Title:

Taiwan Stock Exchange Corporation Regulations Governing Brokerage Contracts of Securities Brokers  CH

Amended Date: 2019.07.11 
Categories: Basic Laws and Regulations
Market Supervision > Regulation of Securities Firms

Title: Taiwan Stock Exchange Corporation Criteria Governing Consignment Contracts of Securities Brokers(2003.08.15)
Date:
Article 1  These criteria are adopted pursuant to the provisions of Article 158 of the Securities and Exchange Law and the "Main Content of the Criteria for Consignment Contracts of Securities Brokers" promulgated by the competent authority.
Article 2  Where any of the following conditions apply, securities brokers shall refuse to open an account for a principal:
 1. The principal is a minor acting without the representation of a statutory agent.
 2. The principal is an officer or employee of the Taiwan Stock Exchange Corporation or the competent securities authority.
 3. The principal has been declared bankrupt and restoration of rights has not been effected.
 4. The principal is under an order of interdiction and without the representation of a statutory agent.opening an account for a juristic person but cannot provide evidence of authorization.
 5. The principal is opening an account for a juristic person but cannot provide evidence of authorization.
 6. The principal is a securities broker that has not received approval from the competent authority or the stock exchange.
 7. The principal has engaged a director, supervisor, or employee of a securities firm to act as agent in opening an account at said firm.
 8. The same principal in discretionary investing opens more than one account with the same consignee, at the same business location of the same securities broker, provided that this restriction shall not apply when the principal is a government-sponsored fund such as a civil servants' retirement/disability fund, labor retirement fund, labor insurance fund, or postal remittance fund, and that when consigning discretionary investment with the same consignee, the principal opens different discretionary investment accounts at the same business location of the same securities broker so as to correspond to the different respective consignment contracts employed.
 Where any of the following conditions apply, securities brokers shall refuse to open an account for a principal and shall refuse to accept consignments for trades or subscriptions to securities on an already-opened account:
 1. The Taiwan Stock Exchange or the OTC Exchange has sent a general notice to securities brokers that the principal has breached contract through failure to perform settlement obligations on time, and less than three years have passed since conclusion of the case or less than five years have passed and resolution is still pending.
 2. An indictment has been issued against the principal by the public prosecutor for violation of the Securities and Exchange Law or for forgery or alteration of listed or OTC securities, where a judgment is still pending or where not more than five years have passed following issuance of a final and conclusive judgment by the court.
 3. Where the principal has breached a futures trading contract and not more than three years have passed or conclusion of the case is still pending after the passage of three years, or where the principal has violated regulations for management of futures trading and not more than five years have passed since the issuance of a final and conclusive criminal judgment by the judicial authorities.
Article 3  Securities brokers accepting consignments for securities trades must first execute a consignment contract with the principal, and shall not effect securities trades on behalf of those who have not yet executed such a contract.
 Securities brokers shall abide by the following provisions when executing a contract with a principal:
 1. Where the principal is a natural person, with the exception of the following circumstances, that person shall bring their National Identity Card, personally place their seal on the consignment contract, open an account, and place a photocopy of their National Identity Card on file.
 (1) Where the principal has limited or no disposing capacity, the principal's statutory agent or guardian shall bring his/her own and the principal's National Identity Card, open an account, personally place their seal on the consignment contract, and place a photocopy of their own and the principal's National Identity Card on file. Where the principal has not yet obtained a National Identity Card, a household registration or household membership list may be used; the guardian shall also supply proof of guardianship.
 (2) Where the principal is a person working overseas for a juristic person, the principal may engage an agent to open an account by personally bringing their own and the principal's National Identity Cards, a power of attorney notarized by an ROC overseas representative office or other authorized institution, and documents provided by the juristic person evidencing the fact of employment overseas.
 (3) When the principal has specified a trading volume of NT$1 million or less per day and has not yet opened a margin trading account, the broker may accept an account-opening application from the principal through the Internet, by letter, or by another method; however, the principal's personal signature and stamp are still required on the account contract, and the signature and seal-stamp must be verified by the broker before the contract will be legally effective. The broker may determine what type of credit check shall be performed in connection with opening this type of account; however, a new credit check must be carried out at the time of any subsequent adjustment to the then-current limit on trading volume, in accordance with relevant regulations.
 2. When the principal is a juristic person, procedures shall be carried out by an authorized person holding copies of evidentiary documents, including a copy of the juristic person's registration, a copy of the tax authority notice for issuance of a uniform invoice number and establishment of a withholding entity, a legally valid power of attorney and a copy of the authorized person's National Identity Card.
 When the principal, the principal's statutory agent or other authorized person executes a consignment contract, a sample signature card or seal impression card for the principal, the principal's statutory agent or other authorized person shall be kept on file, and an identical signature or seal shall be used when trading, subscribing to, or authorizing another as agent to trade or subscribe to securities, or to complete settlements and related procedures.
 The consignment contract shall specify the name, sex, age, address, birthplace, profession, and National Identity Card number of the principal (or principal's agent, if any). For juristic persons, the contract shall specify the name, address, and government uniform invoice number of the juristic person; in addition, the articles of incorporation, operating rules, and relevant public announcements of the Taiwan Stock Exchange Corporation, as well as the regulations of the ROC Securities Dealers Association, shall be recognized as a part of the contract.
 The broker shall engage in securities trading on behalf of the principal only after the principal opens a centralized securities depository account and a deposit account at the principal's designated financial institution.
 The provisions of the preceding paragraph regarding opening a deposit account are not applicable to the following: qualified foreign institutional investors; securities investment trust funds; insurance companies; foreigners or overseas Chinese outside ROC territory; foreigners or overseas Chinese converting holdings of convertible corporate bonds into stocks or overseas depository receipts into their underlying securities through their accounts at a custodian institution (custodian bank); or depository account owners at the depository institutions issuing overseas depository receipts through their custodian banks.
Article 4  Brokers must receive a request by a principal or principal's agent in person or by means of letter, telegraph, telephone, IC card, or the Internet before they may fill out and print the letter of consignment stipulated under Article 87 of the Securities and Exchange Law in order to execute a trade.
 When a principal or principal's agent requests securities trades through letter, telegraph or telephone, the securities broker's officer managing the trade shall fill out, print, and sign and stamp the letter of consignment. When the principal requests trades by means of IC card, the Internet or other means of electronic interchange, the securities firm may be exempt from the requirement to produce and fill out the letter of consignment; however, it shall promptly print a record of requests for trades in the order received, which after market closing shall be signed by the officer processing the trade and the department manager. The record of requests for trades shall include the principal's name and account number, the time of consignment, the type, number, and face value of the securities, the consigned price, the period of validity, the name or code number of the trader, and the method of request. Requests made in person shall be signed and stamped by the principal or the principal's agent.
 When the principal makes a trading request over the Internet, the record of requests referred to in the preceding paragraph shall also include the principal's Internet address (IP) and digital signature. When the request is made by phone, the broker shall make use of the telecommunications provider's caller ID service to record the caller's telephone number. When the immediate record of requests is printed, the items listed above may be omitted. An agent must first obtain a power of attorney from the principal before trading on his behalf or signing trading documents.
 The securities broker shall not be liable for errors that occur when the principal or his agent makes a trading request by telephone when such errors are not attributable to the fault of the broker. For securities brokers making use of IC cards, the Internet, or other electronic forms of interchange, electronic signatures issued by a certification authority shall be used to differentiate and verify documents transmitted during consignment, order confirmation, and transaction confirmation.
 Where records of requests for trades made by means of IC card, the Internet or other means of electronic interchange are saved in accordance with the following provisions, the broker may be exempt from the requirement to print out a record of requests for trades:
 1. Use of a digital data storage medium that allows neither modification nor deletion, with complete records produced on the date of transaction.
 2. Establishment of a comprehensive directory and procedures for management.
 3. Personnel solely responsible for management of the storage medium, and the capability to convert electronic data files to printed format at any time.
Article 5  The period of validity of a consignment contract shall be determined by the parties to the contract.
Article 6  Execution of consignment contracts and acceptance of consignments by securities brokers shall be undertaken by registered and qualified responsible persons, managers and sales personnel (those acting as trading personnel).
Article 7  When securities brokers accept consignments, they shall undertake the trades in accordance with the particulars of the letters of consignment and in the order of their serial numbers.
 A principal or principal's agent may give written notice to the securities broker to cancel or reduce the volume of the consigned trade, except where the trade has already been confirmed.
 A principal or principal's agent undertaking consigned trades shall do so at a designated price. provided that they may authorize a securities firm to make a decision on the price and time of order submission on behalf of a domestic institutional investor, offshore juristic person or qualified foreign institutional investor (QFII) within the price limits designated by the given institution, and shall retain a record of the client's authorization and consignment order pursuant to regulations.
 When a principal or principal's agent does not state the period of validity at the time of consignment, the consignment order shall be deemed valid only on the day of consignment. For consignment trades accepted by securities brokers through the Internet or other electronic means of transaction, the period of validity shall be specified; for consignments made over the Internet, the period of validity shall be displayed on the electronic interface where consignment information is entered.
Article 8  Securities brokers shall not accept consignment trades under any of the following conditions:
 1. Where the broker is given full authorization to select the type of security traded.
 2. Where the broker is given full authorization to decide the volume of securities traded.
 3. Where the broker is given full authorization to decide the price at which the consigned trade takes place.
 4. Where the broker is given full authorization to decide whether to buy or sell securities.
 5. Where the trade involves securities not approved for listing or for which trading has been temporarily suspended.
 6. Where the trade involves securities no longer listed.
 7. Where the securities trade involves installment payments.
 8. Where the principal is given a guarantee of profit or profit sharing is involved in securities trading.
 9. Where a securities dealer's consignment has not been approved by the competent authority.
Article 9  At the end of each month, securities brokers shall produce reconciliation statements to be delivered to respective principals before the 10th day of the following month.
Article 10  Securities brokers are obliged to keep all the particulars of a principal's consignment in strict confidence. However, this restriction shall not apply when responding to inquiries from the competent authority or the stock exchange.
Article 11  Except for securities which, by regulation, are sold by bidding at counters, securities brokers receiving consignments shall enter each item of the letter of consignment in order into the stock exchange computer system from their computer terminals, and print the order confirmation after acceptance. After the transaction, the broker shall print a transaction confirmation, and immediately produce a trading report as stipulated under Article 86 of the Securities and Exchange Law for notification of the principal on the date of the transaction.
 A securities broker shall exercise the diligence and care of a good custodian in managing the online consignment trading operations referred to in the preceding paragraph. Should the occurrence of war, natural disaster, or other instances of force majeure not attributable to the securities broker hinder the normal operation of online computer connections, the securities broker shall not bear liability for compensation.
Article 12  A securities broker accepting a trading consignment under normal settlement terms shall collect the securities sold or the purchase price of the securities from the principal as the consignment is carried out or prior to 12:00 p.m. on the first business day following the date of transaction (or 11:00 a.m. on Saturdays). When the principal is a qualified foreign institutional investor and there are discrepancies between holidays in different time zones, interruptions in telecommunications, natural disasters, or other occurrences of force majeure, and where such occurrences are verifiable, the deadline for collection of payments or securities may be extended to 5:00 p.m. When settlement is effected through book-entry methods, the deadline may be extended to 6:00 p.m. (revised 20 June 1991).
 A securities broker accepting a consignment for margin trading shall collect the legally required margin for margin purchases or deposits for short sales from the principal before 12:00 p.m. on the first business day after the date of transaction (11:00 a.m. on Saturdays).
Article 13  A securities broker shall collect the securities or prices payable from the principal, as well as the commission and securities transaction tax, by book entry through the centralized securities depository account opened by the principal or the principal's account at the designated financial institution, or by account transfer (or remittance) through the depository account of the custodial institution in accordance with Article 3 of these Criteria.
Article 14  A securities broker accepting securities in connection with consigned trades shall do so in accordance with the regulations governing securities custody operations approved by the competent authority.
Article 15  After a consigned trade transaction is confirmed, a securities broker shall collect the commission from the principal in accordance with Article 85, Paragraph 1 of the Securities and Exchange Law. The stock exchange shall report the rate of such commissions to the competent authority for approval.
 A securities broker may not arbitrarily raise or lower its commissions, nor offer part or all of the commission as compensation to the referring person connected with the principal's trade.
Article 16  A securities broker shall collect commissions from the principal according to a published fee schedule, and may not offer part or all of any commission as compensation to the referring person connected with the principal's trade.
 Securities brokers accepting consignments or acting on behalf of others to trade securities through margin purchases or short sales shall handle such trades in accordance with the Regulations Governing Margin and Stock Loans by Securities Firms, the Rules Governing Securities Finance Enterprises, the Operating Rules for Securities Firms Dealing with Margin Purchases and Short Sales, or the Operating Rules for Securities Financing Enterprises Dealing with Margin Loans and Short Sales.
Article 17  After confirmation and settlement of a consigned trade, a securities broker shall immediately deliver the securities purchased to the principal, or transfer the prices of the securities sold to the depository account in the designated financial institution in accordance with Article 13. For trades that are not confirmed, securities already received shall be immediately returned to the principal.
 A securities firm which is obliged to perform a securities transfer or split on behalf of the principal in a consigned trade shall do so in accordance with the methods and fee schedules set forth in the Stock Exchange regulations. A securities firm receiving or delivering the principal's securities or funds shall keep precise records and retain vouchers of receipt or delivery.
Article 18  A securities firm which violates the Articles of Incorporation of the Taiwan Stock Exchange, its Operating Rules, or any related announced regulations in accepting consignment trades shall be deemed in violation of the consignment contract, and the principal (or principal's agent) shall immediately report such violation to the stock exchange for investigation and handling.
Article 19  A principal who does not perform settlement of securities or funds within the specified period is in breach of contract, and the consignment contract executed with the securities broker will be automatically terminated. The securities broker may collect a sum equal to 2% of the transaction amount as penalty for breach of contract. Accounting procedures for penalties so collected shall conform to the "Criteria Governing the Preparation of Financial Reports by Securities Firms," and a sum equal to the pena
lty shall be allocated as a loss reserve.
 When the principal is in breach of contract, the securities broker shall immediately cancel the principal's consignment trading account and report the breach of contract in accordance with The Taiwan Stock Exchange Corporation's "Guidelines for Securities Brokers in Reporting Breaches of Contract." The securities broker shall then settle the transaction on behalf of the principal.
 A securities broker shall, on the day the principal is determined to be in breach of contract, request other securities brokers to handle the securities or funds it received through settling the transaction referred to in the preceding paragraph on the centralized trading market of the securities exchange. Surplus remaining from the proceeds from such handling, after offsetting debt and fees resulting from the principal's breach of contract, may be returned to the principal. If there is a shortfall, comp
ensation may be deducted from financial assets already received from or payable to the principal pursuant to other consigned trades; if a shortfall remains, compensation may be sought from the principal.
 Following handling of the breach in accordance with the two preceding paragraphs, the securities firm shall make a report in accordance with the "Guidelines for Securities Brokers in Reporting Breaches of Contract," and shall notify the principal.
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 2 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 trading volume of the underlying securities during the 20 trading days prior to reporting of the breach, the securities broker may adopt e
ither 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. Where the consignee of a discretionary trading account fails to perform obligations arising out of an unauthorized trade in a timely manner, a securities broker may collect a sum equal to 2% of the transaction amount for breach of contract. Accounting for breach
of contract penalties collected shall be done in accordance with the Criteria Governing Preparation of Financial Reports by Securities Firms, with an equal amount allocated as a breach of contract reserve fund. In writing off the proceeds of amounts received, the securities broker shall, after offsetting debt and fees resulting from the principal's breach of contract, return the surplus to the consignee; where a shortfall remains, compensation may be sought from the principal.
Article 20  Any of a principal's financial assets received by the securities broker in connection with consigned trades, as well as monies owed the principal arising out of such trades, shall be deemed debt generated in trading performed for the principal by the securities broker, and may be retained and refunded only after discharge of the principal's debt.
Article 21  Disputes between the principal and the securities broker arising out of consigned trades may be submitted for arbitration in accordance with the Securities and Exchange Law, or application may be made for mediation by the ROC Securities Dealers Association.
Article 22  The face value of settlement securities delivered by a principal (or principal's agent) as seller shall in principle conform to the trading unit; however, settlements effected based on prior announcement and at the consent of the consigned securities broker are not subject to such restriction. The principal as seller (or the principal's agent) delivering securities shall bear responsibility for the transfer of rights to the purchaser, and when the securities are name-bearing securities, the form for application for transfer necessary to amend the issuing company's shareholders' roster shall be attached to allow the buyer to gain full ownership; the securities delivered shall be certified by a certification institution when so required by law.
 When a principal, as seller, requires the securities broker to carry out certification procedures on his behalf, he shall make application to the broker at the time of consignment and pay the stipulated fee.
 When the purchaser's securities broker receives name-bearing securities delivered for settlement, it shall apply to the listed company on behalf of the purchasing principal to effect transfer on the day after the settlement date, or during a period when registration of transfer has been suspended during the period of a shareholders meeting, on the day after the listed company resumes registration of transfers.
 A purchasing principal (or principal's agent) who undertakes transfer procedures on his own behalf shall, after receiving the securities, effect the transfer within the period stipulated in the preceding paragraph. When the purchasing principal (or principal's agent) fails to effect transfer within said period, responsibility for any defect in rights in the purchased securities shall be borne by the principal.
Article 23  When a principal delivering securities for settlement is required by law to complete supplemental certification procedures prior to the first settlement, the principal selling securities shall be responsible for effecting the certification prior to the date of settlement.
Article 24  In the event that the stock exchange receives approval from the competent authority to draft regulations governing special trades in securities, brokers shall transact consignments for special trades in accordance with the provisions of said regulations.
Article 25  These Criteria shall take force upon approval by the competent authority.