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Title：

Supplementary Provisions to the Taiwan Stock Exchange Corporation Rules for Review of Securities Listings  CH

Amended Date： 2024.08.09 (Articles 17, 29 amended,English version coming soon)
Current English version amended on 2023.09.05 
Categories： Primary Market > Review
Article Content Content Search Article No. Search Legal Basis Amended Article Legislative History Chinese

Title： Supplementary Provisions to the Taiwan Stock Exchange Corporation Rules for Review of Securities Listings(2023.06.14)
Date：
Article 1     These Supplementary Provisions are promulgated pursuant to Article 41, Paragraph 1 of the Taiwan Stock Exchange Corporation Rules Governing Review of Securities Listings ("the Rules").
Article 2     The expressions "the fiscal year in which the application for listing is filed" and the "most recent" or a certain number of subsequent "fiscal years" as used in the Rules shall refer to the period from receipt of the application for listing by the TWSE until 1 day before the date of the effective registration of the listing agreement, and the given number of full fiscal years immediately preceding or subsequent to that period.
Article 3     The expression "in the most recent [certain number of] years" in the Rules refers to a certain period terminated by the date upon which the TWSE receives a market listing application for review, provided that the period from receipt of the application by the TWSE to the day before the date of the effective registration of the listing agreement shall also be included.
Article 3-1     The term "information software enterprises" in the Rules refers to those enterprises applying under one of the four principal areas of operations as defined by the Ministry of Economic Affairs Industrial Development Bureau, which are packaged software, professional services, turnkey systems, and systems integration, and whose operating revenue in the most recent 2 fiscal years conforms to one of the following two conditions:
  1. Information software accounts for 50 percent or more of total operating revenues.
  2. Gross profits from information software operations account for 50 percent or more of total gross profits from operations.
Article 4     The term "related party" as used in the Rules is defined in accordance with Article 18 of the Regulations Governing the Preparation of Financial Reports by Securities Issuers. However, if other laws or regulations provide otherwise, those provisions shall govern.
Article 5     The terms "parent" and "subsidiary" as used in the Rules are defined in accordance with International Financial Reporting Standard 10.
Article 6     The term "group enterprise" as used in the Rules refers to a group of corporate entities which, during the fiscal year in which the application for listing is filed and the most recent fiscal year, have a controlling or subordinate relationship with the applicant company.
    Under any one of the following conditions, a controlling or subordinate relationship will be deemed to exist:
  1. The relationship is a parent-subsidiary one.
  2. The applicant company directly or indirectly controls personnel, financial, or business operations; or another company directly or indirectly controls the personnel, financial, or business operations of the applicant company. A relationship of "direct or indirect control of personnel, financial, or business operations" between two companies refers to any one of the following circumstances:
    3.     
    1. Obtaining more than half of the director's positions in the other company.
    2. Having an appointee selected as general manager of the other company.
    3. Owning management rights to the other company under a joint venture agreement.
    4. Providing financing for the other company that equals or exceeds one-third of the total assets of the other company.
    5. Providing endorsement for a guarantee for the other company that equals or exceeds one-third of the total assets of the other company.
  3. The amount of cross-investment between the applicant company and another company reaches an amount equal to or greater than one-third of the total voting shares or capital of each company, and personnel, financial, or business operations of the other company can be directly or indirectly controlled.
    Where any of the following circumstances exist, it will be deemed that there exists a subsidiary or controlling relationship between the applicant company and another company, provided that where the applicant company submits evidence proving that no controlling or subsidiary relationship exists, this restriction will not apply:
  1. More than half of the total number of directors, supervisors, and general managers for the applicant company and another company are the same. Calculation of this figure shall include the spouses, children, and relatives in the second degree of the aforementioned persons.
  2. More than half of the outstanding shares of voting stock or capital of the applicant company and another company are held by the same the shareholders or capital contributors.
  3. Another investing company and its related parties, using equity method of valuation with respect to the applicant company, hold more than one-half of the total outstanding shares of voting stock in the applicant company; or where the applicant company and its related parties, using equity method of evaluation, hold a total number of shares in another invested company exceeding one-half of the total number of outstanding shares of voting stock.
    Calculation of the amount of stock held by or the amount of capital contributions to another company made by the applicant company shall include each of the following stock or capital amounts:
  1. The shares held by or capital contributions made to another company by the subsidiary of a company.
  2. Shares held by or capital contributions made by a third party for the applicant company.
  3. Shares held by or capital contributions made by a third party for a subsidiary company of the applicant company.
Article 6-1     The term "company insider" as used in the Rules shall mean a company's directors, supervisors, managerial officers, and those shareholders who hold more than ten percent of the total shares of the company.
    The calculation of shares held by company insiders referred to in the preceding paragraph shall include shares held by their spouses and minor children and those held in the name of another person.
Article 6-2     The term "market value" as used in Articles 4, 28-1, and 29 of the Rules refers to the value of the number of shares to be issued for listing as identified in the written application for listing, multiplied by the following stock price, whichever is lower:
  1. the offering price as mutually agreed with the securities underwriter; or
  2. for stocks registered as emerging stocks for over-the-counter trading, the average closing price on the 30th, 90th or 120th business day prior to the first day of listing, whichever is lower.
    In the case where a company whose stock is already listed and traded on the GreTai Securities Market applies for the listing or for the primary listing of its stock, the market value shall be the value of the number of shares to be issued for listing as identified in the written application for listing, multiplied by the average closing price on the 30th, 90th or 120th business day prior to the first day of listing or primary listing, whichever is lower.
    The term "total issue amount" as used in Article 8, paragraphs 1 and 2, Article 14, paragraph 2, subparagraph 1, Article 28-12, paragraph 2, and Article 29, paragraph 1, subparagraph 2 of the Rules refers to the product of the par value multiplied by the number of shares issued of the same type of stock if the issuing company issues par-value stocks; the product of the price of the same issue multiplied by the number of shares issued of the same type of stock if the issuing company issues non-par-value stocks; and the sum of all products if stocks are issued in installments.
Article 7     (deleted)
Article 8     The term "financial or business affairs are not independent from other person(s)" as used in Article 9, paragraph 1, subparagraph 2 of the Rules shall mean any of the circumstances below:
  1. Sources of capital are heavily concentrated in non-financial institutions.
  2. The applicant company has entered into contracts that severely limit its operations or that are patently unreasonable such that it creates an adverse influence on the company.
  3. The applicant company jointly shares a line of credit with another person in which its own credit utilization cannot be distinguished, provided that the sharing of a line of credit between a parent company and a subsidiary shall not be subject to this restriction.
  4. The purchase amount in the most recent period or most recent fiscal year from the time of the application for listing from related parties that are not companies within the same group enterprise exceeds 70 percent, provided that such provision may be waived in situations resulting from unique characteristics of its business, market demand and supply conditions, government policy, or any other reasonable causes.
  5. The operating revenue or operating profit in the most recent period or most recent fiscal year from the time of the application for listing from related parties that are not a companies within the same group enterprise exceeds 50 percent, or the operating revenue derived from the use of a critical technology or asset provided by the related parties mentioned above exceeds 50 percent, provided that such provision may be waived in situations resulting from unique characteristics of its business, market demand and supply conditions, government policy, or any other reasonable causes, which situation accounts for not more than 70 percent.
Article 8-1     The situation in Article 31, paragraph 1, subparagraph 2 of the Rules where “its financial or business affairs are not independent from others” means any of the following:
  1. The applicant company's sources of funding are overconcentrated in non-financial institutions.
  2. The applicant company has entered into contracts with others that impose severe limits on its operations or that are obviously unreasonable, creating the likelihood that the company will be adversely influenced.
  3. The applicant company shares a joint a line of credit with another in which the credit of the two is not clearly distinguished. This provision does not apply, however, to a joint line of credit that is shared between a parent company and a subsidiary.
  4. The purchase amount in the most recent period or most recent fiscal year from the time of the application for listing from related parties that is not companies within the same group enterprise exceeds 70 percent, provided that such provision may be waived in situations resulting from unique characteristics of its business, market demand and supply conditions, government policy, or any other reasonable causes.
  5. The operating revenue or operating profit in the most recent period or most recent fiscal year from the time of the application for listing from related parties that are not companies within the same group enterprise exceeds 50 percent, or the operating revenue derived from the use of a critical technology or asset provided by the related parties mentioned above exceeds 50 percent, provided that such provision may be waived in situations resulting from unique characteristics of its business, market demand and supply conditions, government policy, or any other reasonable causes.
Article 9     The phrase "material labor dispute sufficient to affect normal financial and business operations of the company" as used in Article 9, paragraph 1, subparagraph 3 of the Rules refers to any one of the following circumstances:
  1. The occurrence of a material labor dispute.
  2. The occurrence of a material workplace accident due to inadequate safety or sanitation facilities, or a disposition issued with respect to violation of the Occupational Safety and Health Law requiring suspension of part or all of operations, or dangerous machinery or facilities have been installed without passing inspection, provided that where approval is obtained after an application for re-inspection, the above shall not apply.
  3. Failure to make payment for labor insurance premiums and default penalties following initiation of a lawsuit for the same.
    The phrase "material pollution of environment sufficient to affect normal financial and business operations of the company" as used in the same subparagraph means any of the following circumstances with respect to the company or venues for its activities:
  1. Failure to obtain permits required by law for [pollution] discharge or installation or operation [of pollution control equipment].
  2. A pollution incident in which the environmental protection authority has imposed penalties accruing on a daily basis, or failure to make rectification within a specified period of time where rectification has been ordered.
  3. Involvement in a public nuisance incident where the company has no effective pollution control facilities, or failure to provide records of normal operation and regular maintenance of pollution prevention equipment.
  4. A pollution incident in which the competent authority has ordered the company to stop work, suspend operations, or terminate operations or the relevant pollution permits have been revoked.
  5. Careless disposal of waste materials, or failure to store, clean up, or process such materials in accordance with regulations, or a material pollution incident occurring during processing of such materials, resulting in death, serious bodily harm, or endangerment of health leading to illness.
  6. Designation of the land of the company designated by the competent authority of the Soil and Groundwater Pollution Remediation Act as a controlled site or a pollution remediation site due to soil or underground water pollution, unless the pollution control plan or survey and assessment plan has been approved by the environmental protection authority, the remediation fee has been entered in accordance with generally accepted accounting principles and no material impact has been caused to the operation.
  7. Manufacturing, processing, or importation by a juristic person of banned or counterfeited agricultural chemicals, resulting in a conclusive judgment against the responsible person.
    The phrase "has not made improvement" in the same subparagraph shall mean the existence of any of the above circumstances after receipt of the company's application for listing by the TWSE.
    With respect to a material environmental pollution incident as referred to in Subparagraph 2 of the Paragraph 2, the standard for determining whether rectification has been made shall be that the company has requested inspection and testing by an agency authorized by the competent environmental authority, that such agency has prepared a report on the inspection, and that the report is the basis for a report to the environmental authority on completion of rectification procedures, and further, that the company has received no additional penalty within 3 months of issuing the report.
Article 10     The term "material non-arms-length transaction" as used in Article 9, paragraph 1, subparagraph 4 of the Rules shall mean the occurrence of any of the following circumstances with respect to the applicant company, provided that publicly-owned enterprises operated under the relevant accounting laws shall not be subject to this restriction:
  1. Where the purpose, terms, or price of purchase or sale of goods, or where the occurrence of a transaction, or its form or substantive nature or the procedure involved, are at variance with those of a normal transaction or are obviously unreasonable.
  2. Where, in regard to transactions for acquisition or disposal of assets that require public announcement and reporting in accordance with the competent authority's Regulations Governing the Acquisition and Disposal of Assets by Public Companies, the company fails to reasonably demonstrate the legality of its internal decision-making process, the necessity of the transaction, ample disclosure of related financial statements, or reasonable price and payment terms and conditions.
  3. Occurrence of any of the following circumstances with regard to real estate transactions during the most recent 5 years, as determined by the signing date of any such transaction:
    1. A real estate purchase from a related party in which the price of the purchase is higher than the assessed value obtained in accordance with the methods given under Article 16 of the Regulations Governing the Acquisition and Disposal of Assets by Public Companies, and which does not comply with Article 17 of the Regulations Governing the Acquisition and Disposal of Assets by Public Companies.
    2. A sale of real estate to a related party in which the price of the sale is lower than the assessed value obtained in accordance with the methods given under Article 16 of the Regulations Governing the Acquisition and Disposal of Assets by Public Companies.
    3. Terms of payment in a purchase or sale of real estate with a related party obviously different from those of ordinary real estate transactions, and for which there is no legitimate reason.
    4. The applicant company purchases or sells land at approximately the same time in an area adjacent to land purchased or sold by a related party, where there is an obvious difference in price, and where there is no legitimate reason for such difference.
    5. The revenues from sales of products or leasing of real estate to a related party in the final quarters of the most recent 5 fiscal years exceeds 20 percent of yearly operating revenues, and where no legitimate reason exists for the excess.
    6. Purchase or sale of real estate to a non-related party where other evidence exists to show that the transaction is obviously at variance with normal transactions, and where there no legitimate reason exists for the difference.
  4. Where massive funds are lent to others for purposes other than the financing necessary for business transactions between companies.
  5. When, for other trades with related parties and transactions of financial business, of which the necessity and the legality of the decision-making process, and the reasonableness of the price or the payment or receipt of funds cannot be reasonably verified.
    The provisions regarding the purchase or sale of real estate involving a related party under subparagraph 3 of the preceding paragraph shall also apply where either of the two previous owners had the status of related party, provided that there may be exemption from application if the period from the date on which the trading counterpart was to acquire the property under the contract to the date of execution of the present contract exceeds 5 years.
    The term “related party” as referred to in the preceding two paragraphs shall have the same definition of the term in Article 18 of the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and shall include circumstances in the following subparagraph, except where an applicant company can prove it has no control, joint control or material impact:
  1. A shareholder holding more than 10% shares in the applicant company and its affiliated enterprise as defined under Chapter VI-1 of the Company Act (the “affiliated enterprise”).
  2. An individual related to the the director, supervisor or manager of the applicant company in any of the following ways:
    1. A relative within the second degree of kinship with the aforementioned persons or their spouse (including domestic partner treated as spouse, which shall apply hereinafter in this paragraph).
    2. Where the aforementioned persons are legal entities, their parent company, subsidiary or a company controlled by the same company or individual shareholder having control over these corporations.
  3. An individual related to a shareholder holding more than 10% shares in the applicant company or the director, supervisor and manager of and a shareholder holding more than 10% shares in the affiliated enterprise in any of the following ways:
    1. Spouses.
    2. Relatives within the second degree of kindship with the aforementioned persons or their spouse.
    3. Where the aforementioned persons are legal entities, their parent company, subsidiary or a company controlled by the same company or individual shareholder having control over these corporations.
  4. An invested company and its subsidiary in which the director, supervisor and manager of and a shareholder holding more than 10% shares in the applicant company, its parent company and key subsidiary, individually holds, or together with their spouse or a person related in the ways as described in the above two subparagraphs hold, directly or indirectly, more than one-half of the total number of voting shares or the total capital.
    Where an applicant company profits from any of the circumstance set forth under paragraph 1, it shall meet the listing criteria for profitability after deduction of those profits.
Article 11     With respect to the phrase "has not made improvement" as used in Article 9, paragraph 1, subparagraph 4 of the Rules, improvement is determined to have been made if any one of the following circumstances exists:
  1. Where a person other than the applicant company obtains benefit from the non-arms-length transaction, and the person obtaining benefit has returned the benefit to the person entitled to it.
  2. Where a law enforcement or judicial agency has determined that the activity involving the non-arms-length transaction does not constitute a criminal offense.
  3. The non-arms-length transaction has already been restored to its original condition.
Article 12     The phrase "has been effected " as used in Article 9, paragraph 1, subparagraph 5 of the Rules shall mean that the company has already obtained a letter from the Ministry of Economic Affairs approving the amendment of its company registration, as determined on the basis of the date of the letter of approval. The term "is being effected" [as used in the same subparagraph] shall mean that the company has already applied to the competent authority in charge of securities and the application has been accepted for processing but the company has not yet obtained a letter of approval for amendment [of its company registration], and shall also apply to any cash capital increase connected with a public sale effected prior to the [application for] a listing on the TWSE. The term "capital increase through a new share issue" [as used in the same subparagraph] is a general reference to any issue of new stock for the purposes of a cash capital increase, a capital increase in connection with merger, capital increase out of unappropriated earnings, and capital increase out of capital reserves.
Article 13     The term "has failed to prepare financial reports in accordance with relevant laws and regulations and generally accepted accounting principles" as used in Article 9, paragraph 1, subparagraph 6 of the Rules shall mean any of the following:
  1. The financial report is not prepared in accordance with relevant laws and regulations and generally accepted accounting principles, and a certified public accountant issues an adverse opinion or a disclaimer of opinion, or a certified public accountant issues an audit report with a qualified opinion, thereby affecting fair presentation of the financial report.
  2. Failure by a company to make correction in its financial report after being instructed to do so by the competent authority in a letter.
  3. The audit working papers of the certified public accountant are reviewed by the TWSE and found to contain a significant deficiency such that it cannot be ascertained whether fair presentation is achieved in the financial report.
    The term "has failed to effectively implement its written accounting system, internal control system, or internal audit system" in the same subparagraph shall mean the occurrence of any of the following circumstances:
  1. During the year in which it applies for market listing, the applicant company fails to establish a sound accounting system, internal control system, or internal audit system in writing in accordance with the regulations issued by the competent authority to govern the preparation of financial reports for the relevant industry or the laws and regulations relating to internal control systems.
  2. Where the TWSE finds, through on-site audit, that the company fails to operate in reasonable accordance with its written accounting system.
Article 14     The term "serious deterioration" as used in Article 9, paragraph 1, subparagraph 7 of the Rules shall mean any of the following circumstances, provided that these circumstances shall not apply when, for the most recent fiscal year, the ratio of the net operating income and profit before tax to share capital of the company applying for stock listing is not lower than 12 percent:
  1. Operating revenue and net operating income for the most recent fiscal year or the fiscal year in which the application for listing is filed show a marked deterioration relative to other enterprises in the same industry.
  2. Profit before tax for the most recent fiscal year or the fiscal year in which the application for listing is filed show a marked deterioration relative to other enterprises in the same industry.
  3. There is continuing negative growth in operating revenues and net operating income for each of the 3 most recent fiscal years.
  4. There is continuing negative growth in profit before tax for each of the 3 most recent fiscal years.
  5. The company's products or technology are outdated, and it has no plan for improvement.
    The subparagraphs of the preceding paragraph may not apply if the company applying for stock listing in accordance with paragraphs 2 or 3 of Article 4 or Article 5 of the Rules has submitted the explanation of fairness.
    For the "other enterprises in the same industry" in paragraph 1, subparagraphs 1 and 2, the securities underwriter shall evaluate and explain the reasonableness of the enterprises sampled for comparison.
    The provisions of subparagraphs 3 and 4 of paragraph 1 do not apply to a company already having a concrete improvement plan that is producing positive effects.
Article 15     The term "conduct any activities in violation of the principle of good faith" as used in Article 9, paragraph 1, subparagraph 8 of the Rules shall mean any of the following circumstances:
  1. With respect to the company:
    1. The bills clearing house announces that a checking account opened by the company applying for listing has been declined, or that checks or negotiable instruments issued by the company with a financial institution as its paying agent were dishonored due to insufficient funds and the records thereof have not yet been cancelled.
    2. The company has been delinquent in the repayment of any loan extended to it by a financial institution. However, this shall not apply if 3 years has already passed since repayment was completed.
    3. A criminal sanction has been imposed on the company by a final judgment of violation of the Labor Standards Law, provided that where, within the most recent 2 years, an examination agency has found through re-inspection that the violation has been corrected.
    4. A final judgment has found the company in violation of the Tax Collection Law.
    5. The company breaches the warranties and representations made in its application for listing.
    6. The company has made materially false and misleading representations, violated the law, or lost creditworthiness resulting in injury to the company's interests or the rights and interests of the shareholders or the public.
  2. With respect to the directors, general manager, or de facto responsible person:
    1. Any of the circumstances set forth in subparagraphs 1-5 of the preceding paragraph, provided that those subparagraphs shall not apply in the case of delinquency in the repayment of a loan to a financial institution when the delinquency is not of a material nature or when there is a reasonable cause for the delinquency.
    2. Any commission of a crime under a commercial law such as the Company Act, Banking Act, Insurance Act, Financial Holding Company Act, Securities and Exchange Act, Futures Trading Act, Business Entity Accounting Act, Act Governing Bills Finance Business, or commission of a crime of corruption, malfeasance in office, fraud, breach of fiduciary duty, or embezzlement, for which a sentence of imprisonment for a fixed period or a more severe criminal penalty was handed down by a court judgment.
    3. Improper acts such as unlawful termination of business of, or material violation of the principle of corporate governance of, another company they are operating.
    4. Other serious violations of laws or regulations or the principles of good faith.
Article 16     (deleted)
Article 17     The phrase "the board of directors is unable to independently exercise their functions" as used in Article 9, paragraph 1, subparagraph 9 of the Rules means none of the following circumstances may be present:
  1. A person serving as an independent director of the applicant company fails to satisfy any prerequisite set forth in the Regulations Governing Appointment of Independent Directors and Compliance Matters for Public Companies.
  2. Where a person serving as independent director of the applicant company has failed, from the year the company executes an advisory agreement, to receive training of at least 3 hours per year to acquire professional knowledge in the areas of law, finance, or accounting and obtain relevant certification documents issued from any of the continuing education systems under Article 6, subparagraphs 1, 2, and 4 of the Rules Governing Implementation of Continuing Education for Directors and Supervisors of TWSE Listed and TPEx Listed Companies.
  3. Where more than one-half of the directors of the applicant company are mutually related in any of the following ways:
    1. Spouses.
    2. Relatives within the second degree of kinship.
    3. Representatives of the same juristic person.
    The provisions of subparagraph 3 of the preceding paragraph shall also apply to the natural person who, when the government or a juristic person is the shareholder, and in its capacity as government or juristic person is elected as director, and designates a natural person as representative to exercise those functions on its behalf, and shall also apply to the government's or juristic person's representative who is elected to serve as director.
    The provisions of subparagraph 3 of paragraph 1 shall not apply when the relationship set out in item 3 of that subparagraph exists between more than half of the directors and with the approval of the competent authority for the relevant industry.
Article 17-1     The term "to allocate a percentage" as used in Article 11, paragraph 1 of the Rules shall mean:
  1. The first time a public company applies to list its stock on the TWSE, it shall allocate to an underwriter for public sale at least 10 percent of the shares it is planning to list, provided that where this would require the allocation of 20 million shares or more for underwriting, the company may allocate a minimum of 20 million shares for public sale.
  2. Where a public company has traded its stock on the TPEx as emerging stock for less than 2 years, the number of shares it provided for subscription by the recommending securities firm for such emerging stock may be deducted from the number of shares it provides for underwriting hereunder, provided that the deduction shall not exceed 30 percent of the shares provided for underwriting hereunder.
    The "percentage" in Article 36 of the Rules may be lower than neither 3% of the total shares to be listed nor 500,000 shares, and is limited to shares of publicly offered and issued common stock, provided where over 3 million shares shall be allocated for underwriting, a minimum of 3 million shares may be allocated for public sale and shall be confined to common shares publicly offered and issued.
    Paragraph 1, subparagraph 1 applies to the "percentage" in Article 40 of the Rules mutatis mutandis, provided where a Taiwan Innovation Board listed company or Taiwan Innovation Board primary listed company is listed for less than two years, the number of shares that shall be allocated for public sale may be deducted from the number of shares that have been allocated for underwriting as mentioned in the preceding paragraph, and such deduction may not exceed 30% of the total number of shares that shall be allocated for underwriting.
Article 17-2     The "transfers of equity conducted… for purposes of reducing its shareholding ratio in the company applying for listing" as in Article 9, paragraph 1, subparagraph 11, Article 28-8, paragraph 1, subparagraph 7, and Article 31, paragraph 1, subparagraph 10 of the Rules and “transfers of shares … for purposes of reducing the parent company's shareholding in the subsidiary” as in Article 19, paragraph 2, Article 28-6, paragraph 2, and Article 33, paragraph 2 of the Rules include the sale of equity interests and the waiver of pre-emptive rights to new shares in a cash capital increase in favor of subscription by other specific persons.
    The phrase "have damaged shareholders' equity", as used in Article 9, paragraph 1, subparagraph 11, Article 28-8, paragraph 1, subparagraph 7, and Article 31, paragraph 1, subparagraph 10 of the Rules, and the phrase "detrimental to the rights and interests of the shareholders of the parent" in Article 19, paragraph 2, Article 28-6, paragraph 2, and Article 33, paragraph 2 of the Rules, mean a transfer of equity interests that clearly involves an unreasonable circumstance with respect to the assignee or the trading price of the sale, the issue price of a cash capital increase through a new share issue, or the waiver of pre-emptive rights to new shares in a cash capital increase in favor of subscription by other specific persons, thereby profiting specific persons and creating the likelihood of damage to the rights and interests of the shareholders of the TWSE (or TPEx) listed company.
Article 18      (deleted)
Article 18-1     The term "lease-out rate of investment property " as used in Article 16, subparagraph 4 of the Rules shall mean the ratio, in an individual construction project, of the floor area that is leased out under already-signed-and-effective lease(s) to the total floor area available for leasing.
    If the lease-out rate of investment property referred to in the preceding paragraph reaches 50 percent or more, the securities underwriter shall evaluate and explain the necessity and reasonableness of the applicant company's reclassification of investment property, including, with respect to the purpose of the leasing project, whether the planning, motivation for leasing, decision-making process, counterparty(ies), lease period(s), agreement content, and terms and conditions of the transaction(s) are reasonable.
Article 19     (deleted)
Article 20      (deleted)
Article 21     The term "construction company" as used in Article 17 of the Rules shall mean a construction firm engaged in construction and civil engineering in accordance with the Ministry of the Interior's Rules Governing the Construction Industry.
Article 22     The term "principal business or products" as used in Article 18, paragraph 1, subparagraph 1, Article 28-5, paragraph 1, subparagraph 1, and Article 32, paragraph 1, subparagraph 1 of the Rules shall mean those items which account for 30 percent or more of total operating revenues in the 2 most recent fiscal years. Judgments regarding the term "mutual competition" shall be made on the basis of an overall assessment of factors such as the type of enterprise, the substitutability of products, the extent of product differentiation in the future, the business plan, and target customers. The term "independent operational decision-making ability" means that not one-third or more of the directors of the applicant company are also directors of other companies within the same group enterprise.
Article 23     The stock exchanges or securities markets referred to in Article 26, paragraph 1, subparagraph 2, Article 27, paragraph 1, subparagraph 2, and Article 27-1, paragraph 1, subparagraph 3 of the Rules refers to the following:
  1. NYSE Euronext Group
    1. New York Stock Exchange
    2. NYSE Euronext
    3. NYSE Amex
  2. NASDAQ OMX Group
  3. London Stock Exchange Group
    1. London Stock Exchange
    2. Borsa Italiana
  4. Deutsche Borse AG Frankfurter Wertpapierborse (FWB)
  5. TMX Group Inc. Toronto Stock Exchange
  6. Australian Securities Exchange
  7. Tokyo Stock Exchange
  8. Osaka Securities Exchange
  9. Singapore Exchange
  10. Bursa Malaysia
  11. Stock Exchange of Thailand
  12. Johannesburg Stock Exchange
  13. Hong Kong Exchanges and Clearing Ltd.
  14. Korea Exchange
  15. Other overseas securities markets as approved by the competent authority.
Article 23-1     The term "serious deterioration" as used in Article 27-2, subparagraph 4 of the Rules shall mean any of the following circumstances:
  1. Operating revenue and net operating income for the most recent fiscal year or the fiscal year in which the application for listing is filed show a marked deterioration relative to other enterprises in the same industry.
  2. profit before tax for the most recent fiscal year or the fiscal year in which the application for listing is filed show a marked deterioration relative to other enterprises in the same industry.
  3. There is continuing negative growth in operating revenue and net operating income for each of the 3 most recent fiscal years.
  4. There is continuing negative growth in profit before tax for each of the 3 most recent fiscal years.
  5. The company's products or technology are outdated, and it has no plan for improvement.
    The provisions of the preceding paragraph do not apply where the ratio of profit before tax to the net worth of the applicant company in the annual closing of accounts for the most recent fiscal year is not lower than 12 percent, or the profit before tax for the most recent fiscal year is not lower than NT$500 million.
    For the "other enterprises in the same industry" in paragraph 1, subparagraphs 1 and 2, the securities underwriter shall evaluate and explain the reasonableness of the enterprises sampled for comparison.
Article 24     As used in Article 27-2, subparagraph 1, or Article 28-8, subparagraph 1, of the Rules, "circumstance having a serious impact on the company's financial or business condition, or sufficient to cause its dissolution or changes to its organization or capital" means that any of the following circumstances applies to an applicant company or to a company controlled by a foreign issuer that is applying for a primary listing:
  1. Involvement in litigation or non-litigious matters sufficient to cause dissolution or to alter its organization, capital, business plan, or financial condition, or to cause suspension of production.
  2. Involvement in a major disaster, the signing of a major agreement, the occurrence of a special circumstances, the alteration of important aspects of its business plan, or the dishonoring of a check, where sufficient to cause a material change in the financial condition of the company.
Article 25     As used in Article 28-8, paragraph 1, subparagraph 2 of the Rules, "its finances or operations cannot be independently and clearly distinguished from those of another person" means that any of the following circumstances applies to a foreign issuer or a company controlled by it that is applying for a primary listing:
  1. The applicant company's sources of funding are overconcentrated in non-financial institutions.
  2. The applicant company has entered into contracts with others that impose severe limits on its operations or that are obviously unreasonable, creating the likelihood that the company will be adversely influenced.
  3. The applicant company shares a joint a line of credit with another in which the credit of the two is not clearly distinguished. This provision does not apply, however, to a joint line of credit that is shared between business entities that are included in the consolidated financial statement of the foreign issuer.
  4. The purchase amount in the most recent period or most recent fiscal year from the time of the application for listing from related parties that are not companies within the same group enterprise exceeds 70 percent, provided that such provision may be waived in situations resulting from unique characteristics of its business, market demand and supply conditions, government policy, or any other reasonable causes.
  5. The operating revenue or operating profit in the most recent period or most recent fiscal year from the time of the application for listing from related parties that are not a companies within the same group enterprise exceeds 50 percent, or the operating revenue derived from the use of a critical technology or asset provided by the related parties mentioned above exceeds 50 percent, provided that such provision may be waived in situations resulting from unique characteristics of its business, market demand and supply conditions, government policy, or any other reasonable causes, which situation accounts for not more than 70 percent.
Article 26     As used in Article 28-8, paragraph 1, subparagraph 3 of the Rules, " material non arms-length transaction" means that any of the following circumstances applies to a foreign issuer or a company controlled by it that is applying for a primary listing:
  1. The purpose, price, terms and conditions, or the handling procedures for a purchase or sale of goods are at variance with those of an ordinary transaction or are obviously unreasonable.
  2. When, for various trades with related parties and transactions of financial business, there is no verification of reasonable necessity for the trade, or of the legality of the decision-making process for the trade, or the reasonableness of the price or the payment or receipt of funds.
    With respect to “has not been rectified” in the same subparagraph, rectification as so determined means one of the following subparagraphs has been met:
  1. Where a person other than the applicant company profits from non-arms-length transactions, the person receiving the profits has returned the profits to another person who should have received the profits.
  2. The non-arms-length transactions have been found as not involving criminal activities by the prosecutors, investigators or judicial authorities of the jurisdiction where the company is incorporated, the jurisdiction where its main business activities are taking place, and the Republic of China.
  3. The non-arms-length transactions have terminated and the legal relationship has been restored to status quo ante.
    The term “related party” as referred to in the first paragraph shall have the same definition of the term in Article 18 of the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and shall cover what is described in the following subparagraph, except where an applicant company can prove it has no control, joint control or material impact:
  1. A shareholder holding more than 10% shares in the applicant company and a company having a controlling or subordinate relationship with the applicant company or a company between which the applicant company has cross-investment.
  2. An individual related to the director, supervisor or manager of the applicant company in any of the following ways:
    1. A relative within the second degree of kinship with the aforementioned persons or their spouse (including domestic partner treated as spouse, which shall apply hereinafter in this paragraph).
    2. Where the aforementioned persons are legal entities, their parent company, subsidiary or a company controlled by the same company or individual shareholder having control over these corporations.
  3. An individual related to a shareholder holding more than 10% shares in the applicant company or the director, supervisor and manager of and a shareholder holding more than 10% shares in a company having a controlling or subordinate relationship with the applicant company or a company between which the applicant company has cross-investment in any of the following ways:
    1. Spouses.
    2. Relatives within the second degree of kindship with the aforementioned persons or their spouse.
    3. Where the aforementioned persons are legal entities, their parent company, subsidiary or a company controlled by the same company or individual shareholder having control over these corporations.
  4. An invested company or its subsidiary in which the director, supervisor and manager of and a shareholder holding more than 10% shares in the applicant company, its parent company and key subsidiary, individually holds, or together with their spouse or a person related in the ways as described in the above two subparagraphs hold, directly or indirectly, more than one-half of the total number of voting shares or the total capital.
    Where an applicant company profits from any of the circumstance set forth under paragraph 1, it shall meet the listing criteria for profitability after deduction of those profits.
Article 27     As used in Article 27-2, subparagraph 2 and Article 28-8, subparagraph 4 of the Rules, "acted in violation of the principle of good faith" means that any of the following circumstances applies to an applicant company or a company controlled by a foreign issuer applying for TWSE primary listing, or to an incumbent director, supervisor, general manager, or de facto responsible person of the applicant company or controlled company, and the circumstances are material and without reasonable cause:
  1. Being in arrears in the repayment of any loan extended to it by a financial institution.
  2. Any commission of a crime under commercial, financial, securities, or tax laws, or commission of a crime of corruption, malfeasance in office, fraud, breach of fiduciary duty, or embezzlement, for which a sentence of imprisonment for a fixed period or a more severe penalty was handed down by a court judgment.
  3. Having violated the matters declared in the declaration it submitted at the time of application.
  4. Improper acts such as unlawful termination of business of, or material violation of the principle of corporate governance of, another company they are operating.
  5. Having been involved in misrepresentation or suffered a loss of credit, causing damage to the interests of the company, the rights and interests of its shareholders, or the public interest.
Article 28     The term "serious deterioration" as used in Article 28-8, subparagraph 5 of the Rules shall mean any of the following circumstances, provided that these circumstances shall not apply if the profit before tax of the company applying for stock listing for the most recent fiscal year is not lower than NT$240 million:
  1. Operating revenue and net operating income for the most recent fiscal year or the fiscal year in which the application for listing is filed show a marked deterioration relative to other enterprises in the same industry.
  2. Profit before tax for the most recent fiscal year or the fiscal year in which the application for listing is filed show a marked deterioration relative to other enterprises in the same industry.
  3. There is continuing negative growth in operating revenues and net operating income for each of the 3 most recent fiscal years.
  4. There is continuing negative growth in profit before tax for each of the 3 most recent fiscal years.
  5. The company's products or technology are outdated, and it has no plan for improvement.
    The subparagraphs of the preceding paragraph may not apply if the company applying for stock listing in accordance with Article 28-1, paragraphs 2, 5 and 6 of the Rules has submitted the explanation of fairness.
    For the "other enterprises in the same industry" in paragraph 1, subparagraphs 1 and 2, the securities underwriter shall evaluate and explain the reasonableness of such enterprises sampled for comparison.
    The provisions of paragraph 1, subparagraphs 3 and 4 do not apply to a company already having a concrete improvement plan that is producing positive effects.
Article 29     The phrase "any of the applicant company's board of directors is unable to independently exercise their functions" as used in Article 28-8, subparagraph 6 of the Rules means that none of the following circumstances may be present:
  1. A person serving as an independent director of the applicant company fails to satisfy any prerequisite set forth in the Regulations Governing Appointment of Independent Directors and Compliance Matters for Public Companies.
  2. Where a person serving as independent director of the applicant company has failed, from the year the company executes an advisory agreement, to receive training of at least 3 hours per year to acquire professional knowledge in the areas of law, finance, or accounting and obtain relevant certification documents issued from any of the continuing education systems under Article 6, subparagraphs 1, 2, and 4 of the Rules Governing Implementation of Continuing Education for Directors and Supervisors of TWSE Listed and TPEx Listed Companies.
  3. Where more than one-half of the directors of the applicant company are mutually related in any of the following ways:
    1. Spouses.
    2. Relatives within the second degree of kinship.
    3. Representatives of the same juristic person.
  4. The provisions of the preceding subparagraph shall also apply to the natural person who, when the government or a juristic person is the shareholder, and in its capacity as government or juristic person is elected as director, and designates a natural person as representative to exercise those functions on its behalf; and shall also apply to the government's or juristic person's representative who is elected to serve as director.
Article 30     Where a foreign issuer applies for primary listing on the Taiwan Innovation Board in accordance with Chapter 4 of the Rules, the “material labor dispute sufficient to affect its normal financial and business operations” as in Article 31, paragraph 1, subparagraph 3 of the Rules shall mean any of the following:
  1. the occurrence of a serious labor dispute
  2. the failure to contribute to or pay statutory labor insurance at important operation outlets
  3. the occurrence of a serious occupational accident due to inadequate safety or health facilities, rendering of a disposition by an administrative authority or court for violation of occupational safety and health related laws and regulations requiring the foreign issuer to suspend its operations in part or in whole, or installation of dangerous machinery or of equipment that have not passed inspection, except where re-inspection conducted by the inspection agency upon application made is passed.
    The "material pollution of environment sufficient to affect its normal financial and business operations” as in the same subparagraph shall mean any of the following with respect to the company or its business activity-related venues:
  1. failure to obtain permits required by laws and regulations for pollution installation, operation, or discharge
  2. an environmental pollution event resulting in the fiscal year of the listing application or in the most recent fiscal year in the rendering by the environmental protection authority of an administrative disposition imposing successive penalties or requiring rectification within a prescribed time limit, and rectification is not completed
  3. a public nuisance dispute where the company has no effective pollution control equipment, or is unable to provide records of normal operation and regular maintenance of pollution prevention equipment
  4. an environmental pollution event in which the environmental protection authority or court orders the company to stop work or to suspend or terminate its operations, or revokes its pollution-related permits
  5. arbitrary disposal of waste, or failure to store, clean up, or process waste in accordance with regulations, or occurrence of a serious pollution event during the treatment process, causing death, serious physical injury, harm to human health resulting in illness
  6. manufacturing, processing, or importation by the juristic person of banned or counterfeit environmental agents, for which its responsible person is convicted of the violation by a final and unappealable judgment
    The phrase “has not made improvement” in the same subparagraph means the continuance any of the above circumstances after the date the TWSE accepts and handles the company's listing application.
Article 31     Where a foreign issuer applies for primary listing on the Taiwan Innovation Board in accordance with Chapter 4 of the Rules, the failure “to effectively implement its written accounting system, internal control system, or internal audit system” as in Article 31, paragraph 1, subparagraph 5 of the Rules shall mean any of the following:
  1. where during the year in which the listing application is filed the company fails to establish a sound written accounting system, internal control system or internal audit system in conformity with the regulations issued by the competent authority to govern the preparation of financial reports for the relevant industry, the U.S. Generally Accepted Accounting Principles or International Financial Reporting Standards, or relevant internal system laws and regulations
  2. where the TWSE finds in accordance with regulations governing listing review procedures that the company fails to operate reasonably under its written accounting, internal control, and internal audit systems
    The failure “to prepare financial reports in accordance with relevant laws and regulations and generally accepted accounting principles” as in the same subparagraph means any of the following:
  1. where a financial report is not prepared in conformity with the regulations issued by the competent authority to govern the preparation of financial reports for the relevant industry, the U.S. Generally Accepted Accounting Principles or International Financial Reporting Standards, and the CPA issues an audit report containing an adverse opinion or disclaimer of opinion, or the CPA issues an audit report containing a qualified opinion affecting the fair presentation of the financial report
  2. where the competent authority instructs the company by letter to rectify its financial reports and the company fails to do so
  3. where the TWSE reviews by requisition the audit working papers of the CPA and discovers significant defects therein, so it is impossible to determine whether the financial reports are a fair presentation
Article 31-1     The phrase "where the TWSE deems it necessary to extend the term of appointment" in Article 34, paragraph 1, subparagraph 2 of the Rules shall mean any of the following:
  1. The listed securities are placed under an altered trading method by the TWSE in accordance with Article 49-4 of the Operating Rules.
  2. Trading of the listed securities is suspended by the TWSE in accordance with Article 50 of the Operating Rules.
  3. A cumulative penalty over NTD 1 million is imposed for violations of the TWSE bylaws during the most recent fiscal year in which the expiration date of the appointment contract falls.
  4. Other reasons for which the TWSE deems an extension necessary.
    An extension of appointment as in the preceding paragraph is limited to an fiscal year in principle. Upon the expiration of the extension, the Taiwan Innovation Board listed company or Taiwan Innovation Board primary listed company may request the TWSE to terminate the continuation of appointment if none of the circumstances in the preceding paragraph applies; if any of such circumstances still applies, the term of appointment shall continue to be extended until the fiscal year in which none of such circumstances applies before the appointment may be terminated.
Article 32     The conditions where listing is considered inappropriate as in Article 31 of the Rules that are applicable to an application under Chapter 4 of the Rules by a domestic issuer for listing on the Taiwan Innovation Board are governed by Articles 9 to 11, Articles 13 to 15, and Article 17 mutatis mutandis.
    The conditions where listing is considered inappropriate as in Article 31 of the Rules that are applicable to an application under Chapter 4 of the Rules by a foreign issuer for primary listing on the Taiwan Innovation Board are governed by Articles 26 to 29 mutatis mutandis.
    In the event of a “serious deterioration in its business operation” as in Article 31, subparagraph 6, the application of Articles 14 and 28 mutatis mutandis may be waived if the application for listing or primary listing of securities on the Taiwan Innovation Board is supported by an explanation on reasonableness.