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Taiwan Stock Exchange Corporation Rules Governing Purchase of Listed Securities by Reverse Auction(2007.10.17) |
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Article 1
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When the Taiwan Stock Exchange Corporation (TSEC), acting pursuant to Article 74 of the TSEC Operating Rules, accepts an application by a securities broker to handle a purchase of exchange-listed securities by reverse auction, it shallcomply with these Rules, except where otherwise provided by law or regulation.
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Article 2
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When a securities broker, acting pursuant to these Regulations, accepts an engagement by a principal to conduct a purchase of securities by reverse auction, it shall fill out an application form and submit it to the TSEC. If the principal is an overseas Chinese or foreign national with special-case approval from the Ministry of Economic Affairs Investment Commission, any of the Science Park Administrations, or the Export Processing Zone Administration, the application shall include evidentiary documentation of government approval of the investment and inward remittance of funds. If the principal is a domestic company, the total amount of any equity investment shall be handled in compliance with the provisions of Article 13 of the Company Act, and supporting documentation shall be annexed.
Once the TSEC has granted permission in response to an application filed in connection with an engagement by a principal, as referred to in the preceding paragraph, it will make a public announcement of the matters listed below three trading days prior to the implementation of the reverse auction. After the TSEC has made the public announcement, neither the principal nor the engaged securities broker may apply to amend or cancel the application. However, this restriction does not apply to cancellation of reverse auctions or amendment of reverse auction quantities pursuant to the provisions of Article 6, paragraph 4.
1. The name and quantity of the securities to be purchased by reverse auction.
2. The date and time of the reverse auction.
3. The following information for the party initiating the reverse auction:
(1) Background.
(2) Purpose of the reverse auction.
(3) If an overseas Chinese or foreign national, the source of the investment capital.
(4) If a juristic person, its financial condition for the most recent year.
4. Floor price for the reverse auction: Limited to within a range of 15 percent above or below the closing price from the previous trading day. At the commencement of the reverse auction, the applying securities broker shall deliver a sealed letter containing the reverse auction floor price to the TSEC, for on-the-spot announcement. A public notice of the reverse auction must also be published in the Market Information System.
5. Auction method: To be selected pursuant to Article 6, paragraph 1.
6. Means of handling a shortfall between the quantity of successful bids and the publicly announced quantity to be purchased through the reverse auction.
7. Period and method for quotes by securities firms participating in the bidding.
8. Other relevant matters.
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Article 3
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The purchase of securities by reverse auction shall be carried out on the market of the TSEC by means of automated computer trading in accordance with these Rules. Only those who have entered into a contract with the TSEC for use of the centralized securities exchange market may participate in the bidding to sell.
Securities brokers participating in the bidding to sell shall have received an order from a principal for submission of a bid to sell, and may not accept any bid-to-sell order from the principal who initiated the reverse auction.
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Article 4
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For securities firms participating in the bidding to sell in a reverse auction, their quotes shall be entered by means of a computer link to the TSEC's computer network from 3:00 p.m. to 4:00 p.m., and trade execution shall be confirmed on the same trading day as the quote is entered.
Except as otherwise provided by public announcement, the quantity of quotes as referred to in the preceding paragraph shall be expressed in the trading unit or multiple for the particular type of stock and shall not be subject to the limit of 500 trading units or less imposed upon ordinary trade orders. Quotes that do not comply with this provision shall be invalid.
The reverse auction floor price and quoted prices of bids to sell shall be calculated on a per-share basis.
During the quoting period, a securities firm may use a computer with an online link to the TSEC's computer network to cancel or amend the quantity or price of any previously quoted bid to sell.
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Article 5
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If the total number of issued shares of the security for which the reverse auction application is made under these Rules is 20 million or less, the quantity of shares to be purchased in the reverse auction may not be less than 20 percent of the total issued shares. If the issued shares exceed 20 million, the quantity of the excess shares to be purchased may not be less than 10 percent. However, this restriction shall not apply to overseas Chinese or foreign nationals applying for purchase by reverse auction with special-case approval.
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Article 6
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A principal initiating a reverse auction shall select from among the following methods for determining successful bids:
1. During the reverse auction, the highest sell quote that does not exceed the reverse auction floor price and that satisfies the reverse auction quantity requirements shall be the successful bid price. All sell quotes priced lower than the successful bid price shall be transacted at the successful bid price. If the quantity of securities for which sell quotes have been submitted at the successful bid price exceeds what can be transacted, each principal will be distributed an integral number of trading units, the quantity to be decided on a pro rata basis according to the quantity specified in each order. If there is still a remainder, distribution shall be conducted randomly by computer, with allocations to individual orders limited to one trading unit.
2. During the reverse auction, the lowest sell quote that does not exceed the reverse auction floor price shall have priority of execution, with subsequent transactions executed in a sequence determined on the basis of the prices at which the sell orders were quoted. Where quotes with an identical sell price are submitted, each principal will be distributed an integral number of trading units, the quantity to be decided on a pro rata basis according to the quantity specified in each order. If any quantity remains, further allocations shall be conducted randomly by computer, with allocations to individual orders limited to one trading unit.
When the quantity of successful bids under the preceding paragraph falls short of the publicly announced reverse auction quantity, the matter shall be handled as publicly announced by the TSEC.
Quotes which --
were submitted in violation of Article 3, paragraph 2 by the principal that initiated the reverse auction; or
are higher than the reverse auction floor price; or
cannot be transacted in compliance with the provisions of paragraph 1;
shall be invalid.
If an overseas Chinese or foreign national engages a securities firm to apply to carry out a reverse auction, and on the day of the auction the quantity applied for exceeds the remaining quantity that the entity is allowed by law or regulation to invest in, the reverse auction shall be carried out for the latter amount. However, if the remaining quantity is insufficient to comply with the minimum reverse auction quantity provisions in the preceding Article, or cannot be confirmed, the reverse auction shall be cancelled.
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Article 7
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When two or more securities brokers make applications for reverse auction for the same securities on the same day, the TSEC shall handle each application separately.
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Article 8
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Trades of securities executed through successful bids in a reverse auction shall be settled in the same way as ordinary trades.
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Article 9
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A securities broker applying to carry out a reverse auction shall collect in advance the full price of the intended purchase from the principal at the time it accepts the order to carry out the reverse auction.
A securities broker accepting an order to participate in the bidding to sell in a reverse auction shall collect in advance all share certificates from the principal at the time it accepts the order from the principal.
Where a securities broker is engaged to conduct a reverse auction or to participate in the bidding to sell under Article 2, paragraph 1, the brokerage contract shall contain express provisions for handling default and damages therefor.
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Article 10
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Where a securities broker is engaged to file an application for a reverse auction or participates successfully in bidding to sell, the broker shall observe the applicable regulations when collecting commissions from the principal.
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Article 11
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When it handles a reverse auction of exchange-listed securities, the TSEC will collect a transaction charge of 0.05 percent of the total amount of the trades executed in the reverse auction from the securities broker that applied to conduct the reverse auction. The TSEC shall then exclude the total amount traded in the reverse auction from the total volume of securities traded by that securities broker in that month when calculating the broker’s monthly handling fee. The TSEC will use ordinary fee rates and methods to collect transaction charges from securities firms that have successfully placed bids to sell.
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Article 12
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When handling a reverse auction for listed securities, the TSEC may suspend any straight auction of those securities while the reverse auction is ongoing. The successful bid price of a reverse auction will not be subject to the daily price fluctuation limits for ordinary trading, and will not be taken as the opening, high, low, or closing price for that day.
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Article 13
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When a securities broker accepts an order from a bills finance enterprise to carry out a reverse auction for exchange-listed securities that will be used either for trade settlement purposes or for purposes of the return of securities obtained in a securities borrowing and lending (SBL) transaction, the securities broker shall submit an application to the TSEC by 2:30 p.m. on the afternoon of the day of the reverse auction. The TSEC will then publicly announce the name, quantity, and other information on the subject securities of the reverse auction via the Market Information System (MIS) website. Once the public announcement has been made, the securities finance enterprise and the securities broker that accepted the order may not apply to amend or cancel it.
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Article 14
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A securities firm intending to participate in bidding to sell in a reverse auction shall submit its quote between 2:30 and 3:00 p.m. via a computer with an online link to the TSEC's computer system, with such trades to be executed on the same day the quote is submitted.
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Article 15
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The unit price of any securities to be purchased by reverse auction shall be within 7 to 15 percent of the closing price of those securities on the business day prior to the date of application for the reverse auction; the sell bid quoted at the unit price farthest below the price of the securities on the date of application for reverse auction will have priority of execution, with quotes at the same price executed in order of the chronological sequence of their entry into the system.
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Article 16
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When two or more securities finance enterprises simultaneously engage securities broker(s) to conduct a reverse auction for a given security, a single reverse auction shall be conducted for the combined total of the quantities sought. The execution price of the reverse auction shall be the average price of all successful bids, and shall be collected from each securities finance firm on the basis of the total number of successful bids for that firm's offer.
If a reverse auction carried out under the preceding paragraph does not result in enough successful bids, each securities finance enterprise will be distributed an integral number of trading units, the quantity to be decided on a pro rata basis according to the quantity specified when the enterprises engaged the securities broker to apply for a reverse auction; any quantity remaining thereafter will further be distributed in decimal fractions of trading units to the securities finance enterprises in the order of the size of the distribution to which they are entitled, and if multiple securities finance enterprises are due to receive the same decimal fraction, the distribution shall be made in random order.
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Article 17
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For successfully executed trades, by 3:30 p.m. of the day of the transaction the securities broker that was engaged by the purchaser in the reverse auction shall transfer payment to a bank account designated by the TSEC. The TSEC will then instruct the central depository to transfer the purchased securities to the securities finance enterprise's dedicated account at the central securities depository on the day of the transaction, and then on the business day following the transaction will give instruction to transfer payments to the securities brokers that submitted the bids to sell. The latter shall then transfer payments to the principals on that same day.
Where a securities firm that handles an order fails to settle in accordance with the provisions of the preceding paragraph, the TSEC may impose a delinquency fine of NT$30,000 if settlement is made no more than an hour late, and if settlement is more than an hour late may increase the fine by an additional NT$10,000 per hour.
Where the securities firm that handles an order fails to make settlement within the required time period, it shall be deemed in default of its settlement obligations, provided that this does not apply if settlement is completed during banking hours on that same day.
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Article 18
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When the TSEC handles a reverse auction for exchange-listed securities, the successful bid price is not subject to the price fluctuation limits that apply to ordinary trading, and will not be treated as the opening, high, low, or closing price for that day.
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Article 19
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Article 3, Article 4, paragraphs 2, 3, and 4, Article 9, paragraphs 1 and 2, Article 10, and Article 11 apply mutatis mutandis to reverse auctions initiated by securities finance enterprises.
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Article 20
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Where --
the TSEC (acting pursuant to Article 47 of the Taiwan Stock Exchange Corporation Securities Borrowing and Lending Rules) requests a securities firm to apply for a reverse auction; or
a securities finance enterprise (acting pursuant to Articles 19 and 54 of the Regulations Governing Securities Finance Enterprises) applies for a reverse auction; or
a securities firm (acting pursuant to Article 29 of the Regulations Governing Securities Lending by Securities Firms or Article 30 of the Regulations Governing the Conduct of Securities Trading Margin Purchase and Short Sale Operations by Securities Firms) applies for a reverse auction;
the reverse auction shall be governed by the provisions of Chapter 3 regarding procedures for reverse auctions by securities finance enterprises.
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Article 21
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Matters on which these Rules are silent shall be handled in accordance with other applicable laws and regulations and the bylaws and rules of the TSEC.
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Article 22
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These Rules shall be publicly announced and implemented after submission to and final approval by the competent authority.
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