CHAPTER I GENERAL PROVISIONS
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| Article 1 | These Regulations are prescribed in accordance with Paragraph 4 of Article 44 of the Securities and Exchange Law (hereinafter referred to as "the Law"). |
| Article 2 | A securities firm shall, according to the Rules Governing the Establishment of Internal Control and Internal Audit System for a Service Enterprise in the Securities and Futures Market set by the Securities and Futures Commission, Ministry of Finance (the "SFC"), and other securities firm internal control regulations set by the Taiwan Stock Exchange Corporation (hereinafter referred to as "the stock exchange"), and other securities-related institutions, establish its own internal control system.
The operation of securities firm shall be in accordance with laws and regulations, articles of incorporation, and the internal control system referred to in the preceding Paragraph.
The prescription and amendment of the internal control system referred to in Paragraph 1 above shall be reported, based on the type of business involved, to the appropriate securities-related institution for recordation. Any amendments to be made per the notice of the SFC or a securities-related institution shall be made within the specified time limit. |
| Article 3 | In case of any of the following events, a securities firm shall report to the SFC for approval in advance:
1. Change of name of the firm;
2. Change of capital amount, working capital, or the fund for operating business;
3. Change of the business premises of the firm or its branch office;
4. Acquisition of the entire or major part of the business or assets of another securities firm, or transfer of the entire or major part of the business or assets of the firm;
5. Merger or dissolution;
6. Investment in foreign securities firms;
7. Any other matters which under the regulation of the SFC shall be reported to and approved by the SFC in advance.
Where a securities firm has entered into a contract for using the centralized securities market with the stock exchange, matters to be reported and approved as referred to in the preceding Paragraph shall be submitted to the stock exchange for transmittal to the SFC. Where a securities firm only entered into a contract for trading securities on the over-the-counter market with the ROC Over-the-Counter Securities Exchange ("OSE"), the said submission shall be made to the SFC through the OSE. Where no contract has been entered into, the submission shall be made to the SFC through a securities dealers' association. |
| Article 4 | In case any of the following events occurs, a securities firm shall report to the SFC:
1. Where the business operation is commenced, suspended, resumed or terminated;
2. Where litigation arises due to operation of or engagement in securities business by a securities firm or its director, supervisor, or employee;
3. Where any director, supervisor, or manager has any of the conditions referred to in Article 53 of the Law;
4. Where any director, supervisor, or employee has violated the order promulgated by the SFC in accordance with the Law;
5. Where there is any change in the shareholding of any director, supervisor, manager or shareholder holding more than 10% of the outstanding shares of the company; or
6. Where there is any matter required to be reported by the SFC.
For the matters under Items 1 in the preceding Paragraph, the company shall report in advance; for the matters under Items 2 through 4, the company shall report within five (5) days from the date on which it becomes aware thereof or on which the matters occur; for matters under Item 5, the company shall report before the 15th day of the following month.
Where a securities firm has entered into a contract for using the centralized securities market with the stock exchange, matters to be reported and approved as referred to in Paragraph 1 above shall be submitted to the stock exchange for transmittal to the SFC. Where a securities firm only entered into a contract for trading securities on over-the-counter market with the OSE, the said submission shall be made to the SFC through the OSE. Where no contract has been entered into, the submission shall be made to the SFC through a securities dealers' association. |
| Article 5 | The advertisements produced and broadcasted by a securities firm shall not be exaggerated or biased.
The regulation for the production and broadcasting of advertisements by securities firms referred to in the preceding Paragraph shall be prescribed by the securities dealers' association and submitted to the SFC for recordation. |
| Article 6 | A securities firm shall install internal auditors to periodically and from time to time examine the company's finance and business and prepare audit reports for inspection.
The audit reports referred to in the preceding Paragraph shall include comments on the compliance of the company's finance and business with relevant laws and regulations and the internal control system of the company. |
| Article 7 | A securities firm which engages in more than two types of securities businesses shall independently operate the business based on the types thereof. |
| Article 8 | In operating securities business, a securities firm shall have its duly registered qualified associated persons business in accordance with the Regulations Governing the Responsible Persons and Associated Persons of Securities Firms. |
CHAPTER II FINANCE
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| Article 9 | After completion of corporate registration, a securities firm shall lodge an operation bond with a bank designated by the SFC as follows:
1. securities underwriter: NT$40 million.
2. securities dealer: NT$10 million.
3. securities broker: NT$50 million.
4. Operators of more than two (2) types of securities business: aggregate of the amounts as referred to in the preceding three Items according to the types of business being engaged in.
5. Branch office: additional NT$10 million for each branch.
The operation bond referred to in the preceding Paragraph shall be paid in cash, government bond, or financial bond. Article 9-1
Unless a securities firm is concurrently operated by a financial institution, which shall be regulated by the Banking Law, it shall maintain a proper ratio between its self-provided capital and an equivalent amount of operational risk unless otherwise approved by the SFC. The rules governing such ratio shall be prescribed by the SFC. |
| Article 10 | A securities firm accepting consignment for trading securities on the centralized securities exchange market shall deposit a settlement/ clearing fund with the stock exchange in the following manners:
1. Before commencement of business operation, the securities firm shall pay a basic amount of NT$15 million; after commencement of business operation, it shall lodge the deposit based on a specified percentage of the trading value of the securities which it has been consigned for trading within 10 days after the close of each quarter until the end of the then-current year. The said percentage shall be separately determined by the SFC.
2. From the year following the commencement of business operation, the original basic amount shall be reduced to NT$7 million and combined into the amount equal to the above-mentioned percentage of the trading value of securities which it has been consigned for trading for the previous year on a yearly basis. At the end of January of each year, the insufficient or excessive amount of the fund shall be deposited or withdrawn from the stock exchange.
Before the commencement of business operation, a securities firm trading securities for its own account on the centralized securities exchange shall deposit a settlement/clearing fund of NT$10 million in a lump sum with the stock exchange.
A securities firm trading securities for customers' accounts and its own account on centralized securities exchange shall deposit an aggregate of the amounts referred to in the preceding two Paragraphs.
Before commencement of business operation of each branch office, a securities firm shall pay a settlement/clearing fund of NT$3 million in a lump sum to the stock exchange; provided that from the year following the business operation, the original amount shall be reduced to NT$2 million.
A joint liability system shall be adopted for the settlement/ clearing fund deposited by securities firms, and a special management committee of the fund shall be set up. The management rules shall be drafted by the stock exchange with input from the securities dealers' association and reported to the SFC for approval. This provision shall apply to the amendment of the said rules.
The special management committee of the fund may, depending on the degree of operational risk of securities firms, notify the securities firms to pay additional settlement/clearing fund and report such to the SFC for recordation. The detailed rules for the above fund shall be drafted by the special management committee of the fund and reported to the SFC for approval. This provision shall apply to the amendment of the said rules. |
| Article 11 | For a securities firm trading securities for its own account, if the profit for trading securities for its own account exceeds the amount of loss, it shall allocate 10% of the portion in excess on a monthly basis as the trading loss reserve.
The trading loss reserve shall not be used except for the purpose of covering the amount of loss in excess of the amount of profit.
When the accumulated amount of the trading loss reserve referred to in Paragraph 1 above reaches NT$200 million, allocation may be suspended. |
| Article 12 | A securities firm trading securities for customers' accounts shall allocate 0.028% of the transaction price of the traded securities on a monthly basis as reserve for breach of contract losses.
The reserve for breach of contract losses referred to in the preceding Paragraph shall not be used except for the purpose of covering the losses caused by breach of contract for trading on customers' accounts or for purposes approved by the SFC.
When the accumulated reserve for breach of contract losses reaches NT$200 million allocation will be suspended.
In calculating the income of a profit-seeking enterprise, the reserve for breach of contract loss shall be handled in accordance with the relevant provisions of the tax laws. |
| Article 13 | Unless a securities firm is concurrently operated by a financial institution and subject to the Banking Law, its total debts to other parties shall not be more than 4 times the net value of its capital. The total amount of its current liabilities shall not exceed the total amount of its current assets; provided that, unless otherwise provided by the SFC, the total amount of debts to other parties of a securities firm trading securities for customers' accounts or for its own account shall not exceed the net value of its capital.
In calculating the total amount of liabilities referred to in the preceding Paragraph, the reserve for trading losses, reserve for breach of contract losses referred to in the preceding two Articles and liabilities arising from trading of government bonds may be deducted. |
| Article 14 | A securities firm, unless concurrently operated by a financial institution and subject to the Banking Law, shall set aside a 20% special reserve from the annual after-tax profit. The special reserve of a securities firm concurrently engaging in securities-related futures business shall be increased to 30%. However, if the accumulated amount reaches the paid-in capital amount, no further fund needs to be set aside.
The special reserve referred to in the preceding Paragraph shall not be used for purposes other than covering the losses of the company or, when the special reserve reaches 50% of the amount of paid-in capital, half of it may be used for capitalization. |
| Article 14-1 | Where any of the following circumstances applies to a securities firm, the SFC may reject or disapprove its application to carry out capital increase for cash or issue corporate bonds; provided, this restriction shall not apply where the application arises from a merger of securities firms:
1. It has been sanctioned by the SFC under Article 66, Subparagraph 1 of the Law within the past three months.
2. It has been sanctioned by the SFC under Article 66, Subparagraph 2 of the Law within the past half year.
3. It has been sanctioned by the SFC under Article 66, Subparagraph 3 of the Law within the past one year.
4. It has been sanctioned by the SFC under Article 66, Subparagraph 4 of the Law within the past two years.
5. It has had its trading rights terminated or restricted by the Stock Exchange, OSE, or Futures Exchange pursuant to bylaws thereof within the past year.
Calculation of the periods in the subparagraphs of the preceding paragraph shall commence from the date of issuance of the disposition letter by the SFC, Stock Exchange, OSE, or Futures Exchange. |
| Article 14-2 | Within the same fiscal year in which it receives a letter of approval or effectiveness from the SFC for a capital increase for cash or a corporate bond issue, a Listed or OTC securities firm may not file another filing (application) for a capital increase for cash or corporate bond issue.
A listed or OTC securities firm may be exempt from the restriction in the preceding paragraph where it has an actual need for a capital increase to achieve statutory capitalization or net value or conform to regulations governing self-provided capital sufficiency ratio as required for merger or to take assignment of the business or assets of another securities firm in whole or in part, establish a branch institution, increase its business or categories or items, or concurrently engage in futures business. |
| Article 14-3 | Where the securities firm substitutes a report from a credit rating institution for the evaluation report issued by the lead underwriter pursuant to the Criteria Governing the Offering and Issuance of Securities by Securities Issuers, it shall obtain a credit rating of a specific grade or higher from a credit rating agency approved or recognized by the SFC. |
| Article 14-4 | (deleted) |
| Article 14-5 | A securities firm offering and issuing securities shall comply with the provisions of the Criteria Governing the Offering and Issuance of Securities by Securities Issuers or the Criteria Governing the Offering and Issuance of Overseas Securities by Issuers in addition to the provisions of these Rules. |
| Article 15 | A securities firm, unless concurrently operated by a financial institution and subject to the Banking Law, shall not act as a guarantor of any nature, make endorsement for transfer of negotiable instruments, or provide its property as security for other persons without the approval of the SFC. |
| Article 16 | The sum of the total amount of fixed assets used for operating purposes and the total amount of real property used for non-operating purposes of a securities firm, unless it is concurrently operated by a financial institution and subject to the Banking Law, shall not be more than 60% of the total amount of its assets. |
| Article 17 | A securities firm, unless concurrently operated by a financial institution, shall not borrow funds from a non-financial or non-insurance institution; provided that this rule shall not apply to the following:
1. Issuance of commercial promissory notes;
2. Issuance of corporate bonds;
3. Meeting urgent capital needs of the company.
When borrowing funds to meet urgent capital needs referred to in Item 3 of the preceding Paragraph, a securities firm shall report to the SFC within 2 days from the date of occurrence of the event. |
| Article 18 | Unless a securities firm is concurrently operated by a financial institution and subject to the Banking Law, its funds not required for business operation shall not be loaned to other persons or used for other purposes; the funds shall be used for the following purposes only:
1. Bank deposits;
2. Purchase of government bonds or financial bonds;
3. Purchase of treasury bills, transferable certificates of deposit, or commercial papers;
4. Purchase of SFC-approved securities of a specific ratio, or transfer of investment in an SFC-approved securities, futures, banking, finance or other related institution of a specific ratio; the total combined amount of such investment shall not exceed 40% of the firm's net capital value, and the total amount of equity investment among such investment shall not exceed 40% of the firm's paid-in capital; and
5. Other purposes approved by the SFC. |
| Article 19 | A securities firm trading securities for its own account, unless it is concurrently operated by a financial institution and subject to the Banking Law, shall not hold more than 10% of the total issued and outstanding shares of any company. The total amount of the cost of the securities issued by any company held by such securities firm shall not be more than 20% of the net value of its capital, and the total amount of the cost of the OTC-listed securities belonging to the Second Category held by such securities firm shall not be more than 10% of the net value of its capital. However, this provision shall not apply if the SFC provides otherwise.
If the aggregate of the securities acquired by a securities firm through underwriting and those traded for its own account by such firm exceeds the limit referred to in the preceding Paragraph, the portion in excess shall be sold within 1 year after its acquisition in accordance with Article 75 of the Law. |
| Article 20 | A securities firm, other than re-investment in SFC-approved businesses, shall obtain corporate stocks for the greatest benefit of the company and may not directly or indirectly participate in the operation of the issuer company or other inappropriate actions. |
| Article 21 | Within 4 months after the close of each fiscal year, a securities firm shall publicly announce and report to the SFC the annual financial reports audited/certified by certified public accounts, approved by the board of directors, and recognized by the supervisors; within 2 months after close of each half fiscal year, it shall publish and report to the SFC the financial reports audited/certified by certified public accountants, approved by the board of directors, and recognized by the supervisors. Where the stocks of such securities firm have been listed on the stock exchange or traded on over-the-counter markets, the provisions of Item 2 and Item 3 of Paragraph 1, and Paragraph 2 and Paragraph 3 of Article 36 of the Law shall be complied with.
A securities firm shall submit to the SFC its monthly statement of account title for the preceding month before the 10th day of each month.
Where a securities firm has entered into a contract for using the centralized securities market with the stock exchange, submission of matters referred to in the preceding two Paragraphs shall be made to the SFC through the stock exchange. Where a securities firm only entered into a contract for trading securities on the over-the-counter markets with the OSE, the said submission shall be made to the SFC through the OSE. Where no has been entered into, the submission shall be made to the SFC through a securities dealers' association. |
CHAPTER III BUSINESS OPERATION
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| Article 22 | Where a securities firm underwrites securities on a firm commitment basis, the total underwriting amount shall not be more than 15 times the balance of its current assets less current liabilities.
Where the self-provided capital sufficiency ratio of a securities firm is less than 120%, the multiple referred to in the preceding Paragraph may be adjusted to 10; where the said ratio is less than 100%, the multiple may be adjusted to 5. |
| Article 23 | A securities firm that underwrites securities on a firm commitment basis by subscribing securities before putting them for re- sale or specifying in the underwriting contract that a portion of the securities covered in the contract shall be subscribed by such firm for its own account in accordance with Paragraph 2 of Article 71 of the Law shall meet the following conditions:
1. The financial status shall meet the relevant laws and regulations;
2. The securities firm has not been subject to the punishment of suspension of business imposed by the competent authority in accordance with Article 66 of the Law during the last half year. |
| Article 24 | A securities firm that underwrites securities shall make public announcement for underwriting securities 2 days prior to the date of commencement of the underwriting and shall publish such announcement in local daily newspapers. Matters to be published shall include the method for deciding the offering price and a description of the basis of pricing, conclusions of the assessment report of the securities firm, the place where the prospectus is available and the method to obtain such prospectus.
If the offering price referred to in the preceding Paragraph is decided through negotiations between the securities underwriter and the issuer or holder of the securities, in addition to the matters referred to in the preceding Paragraph, the public announcement shall include financial information based on which the offering price is decided and the audited opinion of the certified public accountants on the financial information. In calculation of the profitability of each share, the financial information based on which the offering price is decided shall fully reflect the dilution effect caused by the increase of issued shares. The calculation basis of information obtained from different sources of different time periods shall be consistent. |
| Article 25 | When a securities underwriter is consigned to handle matters relating to the offering, issuing, listing, and trading on over-the-counter market of securities, the assessment report and relevant information provided by it shall not have any of the following conditions:
1. Containing false statement or concealment which would mislead others;
2. Containing material omission or obvious errors which would affect investment judgment;
3. Failing to prepare work sheets or failing to keep work sheets according to regulation; adopted so that objective and reasonable evidence is not obtained;
4. The issuer violates Articles 7 and 8 of the Guidelines for Handling Offering and Issuance of Securities by Issuers and its application shall be rejected or returned; however, if the underwriter can prove that he has exercised as much care as possible, this is not applicable;
5. The underwriter fails to conduct necessary assistance and assessment on major items that require assessment, thus causing major difference between assessment conclusions and facts;
6. After the assessment report is submitted, and before the prospectus is printed and published, if the company has a condition that will materially affect shareholders' interests or the price of securities under Item 2 of Paragraph 2 of Article 36 of the Securities and Exchange Law and the underwriter does not immediately add the supplementary information to the assessment and change the report; or
7. Violating other securities laws and regulations and other relevant laws and regulations. |
| Article 26 | If any of the following events exists between a securities underwriter and an issuer, such underwriter shall not act as the lead underwriter of the said issuance:
1. Where either party and the subsidiary company in which such party holds more than 50% of the outstanding shares aggregately hold 10% or more of the total shares of the other party.
2. Where either party and the subsidiary company in which such party holds more than 50% of the outstanding shares appoint more than half of the directors of the other party.
3. Where the board chairman or president of either party is the spouse or a relative within the second degree or closer of the board chairman or president of the other party.
4. Where 20% or more of the total number of shares of either party is held by the same shareholder.
5. Where half or more of the directors or supervisors of either party are the same as the directors or supervisors of the other party; the spouses, children, and relatives within the second degree or closer of the said persons count as "the same".
6. Where the total shares held by either party and related parties exceed 50% of the total issued shares of the other party. However, where the securities underwriter is a subsidiary securities firm of a financial institution or a financial holding company, this restriction shall not apply if the total shares of the issuing company held by such subsidiary itself, the subsidiary's parent company, and all subsidiaries of the parent company do not exceed 10 percent of the total issued shares of the issuing company, and neither the director nor supervisor seats of the issuing company held by such companies exceed one-third of the director or supervisor seats, respectively.
7. Where the two parties, according to the relevant laws or regulations, must apply for combination, or has approval from the Fair Trade Commission of the Executive Yuan for combination.
8. Where, under the regulations of other laws or in actuality, either party directly or indirectly controls the personnel, financial, or business affairs of the other party.
The related parties referred to in Item 6 of the preceding Paragraph is defined as in Number 6 of the Statements of Financial Accounting Standards on the rules for Disclosure of Related Party Transactions. |
| Article 27 | The securities subscribed to by a securities firm under the first part of Paragraph 2 of Article 81 of the Law shall be re-sold within the underwriting period as prescribed in the underwriting agreement.
The provisions of Article 24 shall apply mutatis mutandis to the public announcement for the re-sale by the securities firm referred to in the preceding Paragraph.
If the securities for re-sale under Paragraph 1 above is not fully sold, the unsold portion shall be sold in accordance with Article 75 of the Law. |
| Article 28 | A securities firm shall underwrite or re-sell securities in accordance with the handling rules prescribed by the securities dealers' association.
The securities dealers' association shall submit the handling rules referred to in the preceding Paragraph to the SFC for approval.
When a securities firm underwrites or re-sells listed securities, it may conduct stabilized operation transactions when necessary. The administration rules shall be prescribed by the stock exchange and submitted to the SFC for approval. |
| Article 29 | When a securities firm underwrites securities, it shall consign a bank to establish a separate account to collect prices on its behalf unless the securities are delivered on the spot.
The prices collected under the preceding Paragraph shall not be used unless and until a certificate evidencing payment or the securities sold are delivered to the subscriber. |
| Article 30 | In trading securities for its own account or selling the securities acquired by underwriting, a securities firm shall efficiently adjust the demand and supply in the market depending on the market situation, and ensure that the formation of fair price and its sound operation are not harmed. |
| Article 31 | A securities firm trading securities for its own account on the centralized securities exchange shall, in accordance with the coordination efforts of the stock exchange, be responsible for buying or selling at least one listed stock whose trading has not reached one trading unit..
A securities firm trading securities for its own account on the over-the-counter market shall, in accordance with the coordination efforts of the OSE, be responsible for buying or selling one kind of stock.
A securities firm trading securities for its own account on the over-the-counter market shall, during the period while it is holding the securities, provide a quotation for selling such securities held by it. |
| Article 32 | A securities firm trading securities for its own account on the centralized securities exchange shall not give a quote for the sale of securities not held by it. However, this restriction shall not apply where handled in accordance with the provisions of Article 32-1.
A securities firm concurrently operated by a financial institution that uses its own fund and the trust fund to conduct cross-trades for its own account of the same kind of securities on the same day shall be subject to the provisions of Article 108 of the Banking Law and report such transactions to the SFC for recordation. |
| Article 32-1 | As needed for hedging in the issuance of put warrants, a securities firm may borrow the underlying securities from holders thereof and sell them, or sell the underlying securities short in an exchange market.
A securities firm selling securities by borrowing them as referred to in the preceding paragraph shall enter into a loan contract with the lender of the securities. The following particulars shall be specified in the loan contract:
1. Name, volume, period, and rate of the loaned securities.
2. Means of exercise of shareholders' rights of the loaned underlying securities.
3. The means of reimbursement by the securities firm of the rights/dividend value to the lender for ex-rights/ex-dividend dates of the loaned securities (including the means of calculation, whether reimbursement is to be made in cash or securities, and the reimbursement date).
4. Means stipulated between the parties for return of the securities upon expiry of the contract (including whether or not the securities may be refunded as cash).
5. Means stipulated between the parties for handling of breach and related matters of damages. |
| Article 33 | When a securities firm enters into a consignment agreement with its customer, it shall appoint its personnel to explain the contents of the contract and the relevant procedures for trading securities. |
| Article 34 | When a securities firm is consigned to trade securities, it shall establish the following information on its customers:
1. Name, domicile, and mailing address;
2. Occupation and age;
3. Assets condition;
4. Investment experience;
5. Reason of opening account; and
6. Other necessary information.
A securities firm shall keep confidential the information referred to in the preceding Paragraph unless being inquired according to law. |
| Article 35 | A securities firm consigned to trade securities shall evaluate a customer's investment ability based on the information referred to in the preceding Article and transaction conditions. If the evaluation of a customer's credit status shows that the customer's consignment is beyond his/her investment ability, unless proper security is furnished, the securities firm may refuse the consignment for trading. |
| Article 36 | When a securities broker recommends a customer to trade in a securities, it shall first evaluate the customer's investment ability and that the customer possesses reasonable information and shall not guarantee the value of the recommended securities.
When a securities broker recommends a customer to trade in a securities, if such securities should be consigned for trading on the centralized securities exchange, it shall follow the administration rules prescribed by the stock exchange; if the securities should be consigned for trading on over-the-counter market, it shall follow the administration rules prescribed by the OSE. The above-mentioned administration rules shall be reported to the SFC for approval. |
| Article 37 | Unless otherwise provided by the laws and regulations, a securities firm operating securities business shall not:
1. Provide opinion on the rise or drop of the price of securities to induce customers to trade;
2. Agree to or provide specified interest or to share losses to induce customers to trade;
3. Provide account for customers to subscribe to and/or trade securities;
4. Commit false, fraudulent, or other misleading act in providing information of securities to customers;
5. Accept general authorization from customers in connection with the type, quantity, price, and purchase or sale of securities;
6. Accept settlement of customers who use the same account for offsetting purchase against sale or offsetting sale against purchase of the same type of securities;
7. Accept settlement of customers who use different accounts for offsetting purchase against sale or offsetting sale against purchase of the same type of securities;
8. Directly or indirectly set up fixed places outside the business premises of the head office or branch office to accept consignment for securities trading;
9. Directly or indirectly set up fixed places outside the business premises of the head office or branch office to sign consignment agreement with customers or settle securities transactions; however, this restriction shall not apply where the SFC has provided otherwise;
10. Accept securities transactions of a customer who has not signed a consignment contract;
11. Accept the company's director, supervisor, or employee as an agent for others for the account opening, subscription, trade, or settlement of securities;
12. Accept from any person other than the customer himself/herself the customer's instructions for account opening; however, this is not applicable for those in accordance with other regulations set by the SFC;
13. Accept from any person other than the customer himself/herself or an agent without a power of attorney issued by the customer's instructions for subscription, trade, or settlement.;
14. Knowingly accept consignment for trading from a customer who intends to use an issuer's non-public information which may materially affect the price of its stocks or who intends to manipulate the prices of the market;
15. Use the name or account of a customer to subscribe to and/or trade securities;
16. Disclose, not in response to inquiries given in accordance with laws and regulations, the contents of consignments placed by a customer or other secrets obtained in the course of operation of business;
17. Misappropriate the securities or funds owned by a customer or temporarily kept under the custody of the securities firm in the course of business;
18. Safekeep the securities, funds, seal, or passbook under its custody for its customers;
19. Directly or indirectly provide funds or securities to customers in connection with margin purchases or short sales to effect settlement without the SFC's approval;
20. Violate settlement obligation to the securities exchange market; or
21. Conduct other acts in violation of laws and regulations governing securities or orders of the SFC on mandatory or unpermitted acts. |
| Article 38 | A securities firm consigned to trade securities shall establish a separate demand deposit account with a bank for paying and receiving settlement funds of customers. The funds in the said account shall not be used for other purposes. |
| Article 39 | A securities firm consigned to trade securities shall clear and settle transactions in the manner provided in the operation bylaws of the stock exchange or OSE's business rules for trading securities on over-the-counter markets. |
| Article 40 | A securities firm consigned to trade securities shall not place the securities deposited by the customers under its custody. It shall deliver such securities to the centralized securities depository on the same day; provided that the securities firms which are located in areas other than Taipei City and Taipei County may deliver the securities for centralized custody on the following business day.
The provisions in the preceding Paragraph shall also apply to any of the following conditions:
1. Where a customer indicates upon making consignment for purchase that he/she will withdraw the securities for his/her own custody upon making consignment for purchase and fails to do so on the day on which the securities firm is to deliver the securities;
2. Where a customer makes consignment for sale but no transaction is consummated, and the securities have been previously delivered to the securities firm but not been claimed;
3. Where a customer consigns the securities firm to deliver the securities to the centralized depository for custody; or
4. Where a customer consigns the securities firm to withdraw securities deposited in the centralized depository but fails to take delivery as scheduled. |
| Article 41 | A securities firm consigned to trade securities shall collect or deliver the funds or securities within the time limit for settlement. When receiving or delivering stocks to a customer, it shall fill in the securities delivery statement, enter the stock certificate number, and have the customer sign the said statement.
If the securities delivery statement referred to in the preceding Paragraph is for securities consigned for trading on the centralized stock exchange, an additional copy shall be delivered to the stock exchange for recordation; if the said statement is for the securities consigned for trading on the over-the-counter market, an additional copy shall be delivered to the OSE for recordation. |
| Article 42 | A securities firm consigned to trade securities shall prepare a trading report for signing/sealing by the customer after the customer executes a trade; provided that the trading report may be waived if the securities firm is concurrently operated by a financial institution, and the delivery of funds for trading the securities may be verified through the separate saving account of the customer.
If the trading report referred to in the preceding Paragraph is confirmed by an agent consigned by the customer for securities trading, a power of attorney issued by the customer shall be provided.
If the funds and securities of the customers of a securities firm consigned to trade securities are settled through book-entry transfer, or trade confirmation has been carried out and records have been kept, the signing/sealing referred to in Paragraph 1 above may be waived, and Paragraph 1 of Article 28 of the Rules Governing Book-entry Operations of securities in Centralized Custody regarding recordation on passbook shall not apply. |
| Article 43 | A securities firm trading securities on centralized stock exchange for its own account and customers' accounts shall establish separate accounts for placing orders and settlement. After placing orders, no inter-change between the accounts shall be allowed. |
| Article 44 | When a securities firm is consigned to trade securities, it shall not use information obtained from the consigned transaction to take the opposite side of the customer's order for trading in its own account; provided that this provision shall not apply if the securities firm engages in securities trading on the over-the-counter markets and based on the quotation it should sell the securities and concurrently places an order for purchase. |
| Article 45 | While operating its securities business, when a securities firm obtains information which may materially affect the price of the stocks listed on the stock exchange or traded on the over-the-counter market, it shall not trade on such stocks or provide the said information to its customers or other persons before the information becomes public. |
CHAPTER IV MERGER
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| Article 46 | For securities firms applying for merger with other securities firms, the adequacy ratio of sell owned capital for implementation of the planned merger shall reach 200% one month before the application.
For OTC listed securities firms applying for merger with other securities firms, in addition to following the regulations in the preceding paragraph, shall meet the following conditions:
1. Actions are in accordance with Article 16 of the Operation Bylaws of the Republic of China Over-the-Counter Securities Exchange for Securities Trading on the Over-the-Counter Market.
2. The adequacy ratio of self-owned capital has reached 200% or more 6 months before the merger.
3. Have not been punished under Item 2 of Article 66 of the Law or under Item 2 of Paragraph 1 of Article 100 of the Futures Trading Law within the last six months.
4. In the most recent year, the stock exchange and OSE have found, according to their inspection of the condition of internal control operations of the applicant's head office and branches to be satisfactory and meeting the standards set by the SFC.
In the case that the securities firm applying for merger does not meet the criteria in the preceding two paragraphs, the SFC may approve the application as a special case based on the goals of facilitating the healthy expansion of the securities market and increasing the competitiveness of securities firms. |
| Article 47 | Securities firms applying for merger shall provide the following documents to the SFC:
1. The application.
2. Merger plan: shall specify the content of the merger plan (including particulars such as the merger method, evaluation of economic efficiency, post-merger business regions, business items, business development plan, and financial forecasts for the next three years) and analyze the forecasted timetable, feasibility, necessity, rationality, and legality and assessment of the factors for consideration under Article 6 of the Financial Institutions Merger Law.
3. Merger contract: in addition to the particulars required under Article 8, Paragraph 2 of the Financial Institutions Merger Law, shall also include material particulars such as treatment of employee equity.
4. Minutes of the general shareholders meetings of the institutions to survive and to be extinguished.
5. Content of the merger resolutions (board of directors meeting minutes) and documentation of publication (notification) of relevant required contract content.
6. Information on prospective shareholders seeking to purchase shares.
7. Certified public accountant's opinion on the reasonableness of the share conversion ratio for the merger and valuation method.
8. A draft itemized report on the self-owned capital sufficiency ratio for the planned merger at the end of the month before the merger.
9. Balance sheets, profit and loss statements, inventories of assets, statements of changes in shareholder equity, and cash flow statements audited and certified by the certified public accountant for the record date of the merger share swap.
10. Legal opinion of an attorney at law.
11. Other documents required by the SFC.
For a securities firm to be newly created by a merger, in addition to complying with requirements of the preceding paragraph, the promoters of the securities firm to be newly created shall apply to the SFC for approval of establishment, annexing the following documents:
1. Roster of promoters.
2. Minutes of the promoters' meeting.
3. Certification of qualifications of presidents, vice presidents, and assistant vice presidents.
4. Articles of incorporation of the securities firm to be newly created.
5. Other documents required by the SFC to be submitted.
The formats of the documents required under the preceding two paragraphs shall be prescribed by the SFC.
The plan for merger referred to in Item 7 of the preceding Paragraph shall include sufficient explanations on the following items:
1. The post-merger business affairs, corporate culture integration, reorganization of human resources, readjustment of the organizational structure, estimated progress and estimated effects, and the effect of the merger on the future financial affairs, business affairs, the condition of the adequacy of capital, and estimated financial affairs for the next 3 years for the surviving securities firm.
2. The feasibility, necessity, and reasonableness of the contents of the plan.
3. The method for resolving labor disputes.
4. The legality of the plan for merger.
5. If the securities firm participating in the merger has been disciplined or punished by the SFC, the stock exchange, or the OSE within the last year, its measures taken for improvement. |
| Article 48 | Where the securities firm surviving after the merger is an OTC securities firm, the securities firm shall have the certified public accountant make a special auditing of its internal control system within six months after the merger, and after sending the report to the OSE for inspection, shall file it with the SFC for record. |
CHAPTER V INVESTMENT IN FOREIGN SECURITIES ENTERPRISES
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| Article 49 | Investment by securities firms in foreign enterprises shall be limited to investments set forth in the following subparagraphs:
1. Securities enterprises, including securities, futures, and financial business they are allowed to operate under the local laws and regulations of the country of the investment.
2. Other related enterprises in which the SFC has approved investment. |
| Article 50 | Securities firms investing in foreign enterprises, unless regulated by other laws, regulations and orders shall meet the following provisions:
1. Have not received any disciplinary warning from the SFC in the most recent 3 months
2. Have not been ordered by the SFC to relieve or replace the duties of its director, supervisor, or manager in the most recent six months.
3. Have not had business suspended as punishment from the SFC within the last year.
4. Have not had the license of branch offices or of a portion of the business invalidated by the SFC as punishment within the last 2 years.
5. Have not had trading terminated or restricted by the stock exchange, the OSE, or the Futures Exchange as punishment under each of their regulations or rules.
6. The self-owned capital adequacy ratio has not been below 200% within the most recent 3 months, and the financial structure is sound and in accordance with the rules of these Regulations.
7. Have complied with Article 4 of the Regulations Governing the Screening and Disposal of Outward Investment and Outward Technical Cooperation Projects promulgated by the Ministry of Economics.
8. The total amount invested in foreign enterprises has not exceeded 20% of the securities' firm's net value. However, when there is special need and approval as a special case has been received, this provision does not apply. |
| Article 51 | Securities firms applying for investment in a newly formed foreign enterprise shall provide the following documents to the SFC in their application:
1. The company's articles of incorporation/by laws or a document equivalent to the company's constitution/regulations.
2. The plan for investment, the contents of which shall include the following items:
(1) The plan for investment including: the purpose of investment, the estimated effect, the origin of capital, the implementation plan, the operation plan, the recapitalization plan, etc. If the type of investment is company, then its reinvestment plan shall be included as well.
(2) Guidelines for business operations including: the establishment location, amount of capital, the business to be operated, the scope/items of business, business operation strategies, etc. of the company.
(3) Structure and functions of the organization including: a chart of the organization of the company or a group organizational chart for a holding company, functions and allocation of duties of departments, etc.
(4) Personnel plan including: personnel allocation/structuring, personnel training, and regulations of personnel management, etc.
(5) Condition of the site and facilities including: site layout, the summary of important equipment/facilities, etc.
(6) Financial projection for the next 3 years including: opening costs, financial estimates and notes for financial statement for the next 3 years, etc.
3. The minutes of the board of directors' meeting, members meeting or minutes of the shareholders' meeting resolution.
4. The most recent financial report, audited and certified or approved by the certified public accountant.
5. Management/administration rules shall be set up for those invested or re-invested foreign enterprises where the investment shareholding percentage has exceeded 50%. The contents of such management/administration rules shall include the following items:
(1) the scope of management
(2) the direction and principles of management
(3) the management of financial, business, and accounting affairs.
(4) the management of assets
(5) the financial statements to be regularly prepared
(6) the method of regular auditing of internal financial and business affairs
(7) others, such as: management of personnel operations, internal control auditing of the invested enterprises, etc.
6. A list detailing the domestic and foreign invested enterprises as of the date of application.
7. Other documents required by the SFC. |
| Article 52 | Securities firms applying for investment in foreign enterprises shall provide the following documents to the SFC with the application for an approval:
1. The company's articles of incorporation/bylaws or a document equivalent to the company's constitution/regulations.
2. The plan for investment including: the purpose of investment, the estimated effect, the origin of capital, the recapitalization plan, the estimated income/expenses/profits of the invested foreign enterprise of each year for the next 3 years, etc.
3. The minutes of the board of directors' meeting, members' meeting or minutes of the shareholders' meeting resolution.
4. The most recent financial report, audited and certified or approved by the certified public accountant.
5. Management/administration rules shall be set up for those invested or re-invested foreign enterprises where the investment shareholding percentage has exceeded 50%. The contents of such management/administration rules shall include the following items:
(1) the scope of management
(2) the direction and principles of management
(3) the management of financial, business, and accounting affairs.
(4) the management of assets
(5) the financial statements to be regularly prepared
(6) the method of regular auditing of internal financial and business affairs
(7) others, such as: management of personnel operations, internal control auditing of the invested enterprises, etc.
6. A list detailing the domestic and foreign invested enterprises as of the date of application.
7. General description of the invested foreign enterprise including: a synopsis of the company, the company organization, capital and shares, scope of business, and the condition of financial status for the most recent three fiscal years, etc.
8. The investment (or joint venture) agreement.
9. Other documents required by the SFC. |
| Article 53 | If there is any change in any of the investment-related items approved by the SFC, the securities firm shall, within 10 days after the change, report the change to the SFC for record. |
| Article 54 | Where the overseas subsidiary company invested by the securities firm re-invests in other institutions or where the institution invested by the overseas subsidiary company reinvests in other institutions, if such investment has constituted the substantial controlling and subordinating relationship as regulated under the Chapter governing related enterprises of the Company Law, a prior report shall be made to the SFC for approval.
For the investment of the preceding paragraph that has been approved by SFC, within 10 days after the actual investment, the related documents shall be provided to the SFC for record.
Securities firms investing in overseas enterprises according to Paragraph 1 above, may submit the management rules for the foreign invested enterprises required under Item 5 of Article 51 and Item 5 of Article 52 along with the documents referred to in the preceding paragraph to the SFC for record within 10 days after the actual investment. |
| Article 55 | When securities firms directly or indirectly investing in foreign enterprises holding 50% or more of their shares, those foreign securities being thus invested may not further reinvest in securities-related enterprises in the ROC. |
| Article 56 | Securities firms investing in foreign enterprises are limited to the following types for putting up capital:
1. Outward remittance.
2. Net profit or other benefits obtained from outward investment.
3. Remuneration or other benefits obtained from outward technical cooperation. |
| Article 57 | Securities firms investing in foreign enterprises shall, within 3 months after the date of the SFC approval, apply as required to the Investment Committee of the Ministry of Economics for approval (record).
If the securities firm does not follow the procedure referred to in the preceding paragraph, the SFC will invalidate its original approval. |
| Article 58 | After the securities firm has been approved and invested in foreign enterprises, within 5 days after receiving documents concerning outward remittance of capital, or the registration or any change in the registration of the invested foreign securities enterprises, these documents shall be reported to the SFC for record. |
CHAPTER VI MANAGEMENT OF SELF-OWNED CAPITAL
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| Article 59 | Securities firms, except those concurrently operating financial institutions which are to be regulated by Banking Law, without SFC approval, shall maintain an appropriate ratio between their self-owned capital and the estimated operation risk amount.
The appropriate ratio referred to in the preceding paragraph is called the self-owned capital adequacy ratio and its calculation method is the qualified net amount of the self-owned capital divided by the equivalent operation risk amount.
For those foreign securities firms having Taiwan branches, if their home-country head office have already calculated their self-owned capital adequacy ratio under their local laws with the operation risk of their Taiwan branch office already entered into the calculation, and have met the standard, they may send those documents and information relating to the said self-owned capital adequacy ratio which have met the standard to the SFC to apply for a waiver of application of the provisions in this Chapter. However, unless specifically approved by the SFC, a monthly report on the head offices' self-owned capital adequacy ratio shall still be reported according to Paragraph 3 of Article 21. |
| Article 60 | The qualified net amount of self-owned capital referred to in Paragraph 2 of the preceding Article is the difference/balance amount of the added sum of the capital under following categories 1 and 2 minus the following non-liquid items shown in the balance sheet: prepaid amount, special funds, long-term share equity investment, fixed assets, intangible assets, business operation guaranty, transaction settlement funds, security deposits, deferred loans, lease-out asset, idle assets, deferred income taxed assets - illiquid, restricted assets - illiquid:
1. Category I capital: the total of capital stock (common stock, perpetual non-cumulative preferred stock), capital reserve, retained earnings or accumulated losses, unrealized losses on long-term investments in equity securities due to price decline, accumulated translation adjustment, treasury stock, net loss not recognized as pension cost, and the profit/loss of the current year up to the current month., among which the unrealized losses on long-term investments in equity securities due to price decline shall be limited to the re-investment in domestic listed and OTC companies.
2. Category II capital: the total of capital stock (perpetual cumulative preferred stock), reserve for trading losses, reserve for losses from breach of contract, net profit from valuation of securities, unrecognized net loss on valuation of operating securities, unrecognized profit from appreciation of market price of operating securities, among which net profit from valuation of securities, unrecognized net loss on valuation of operating securities, unrecognized profit from appreciation of market price of operating securities shall be calculated as follows:
(1) net profit from valuation of securities: 70% of the difference of fair value in excess of the book value of the short-term investments, operating securities - call (put) warrant, operating securities - dealing department, operating securities - underwriting department, operating securities - hedge, long-term investments, etc. on the balance sheet shall be recognized; provided that the long-term investments which have been recorded as deduction assets shall not be included, and that operating securities - hedge shall be fully recognized after deduction of the amount of loss on deferred call (put) warrants.
(2) unrecognized net loss on valuation of operating securities: limited to the difference of the fair value below the book value of the operating securities and the shortage of allowance for decline in value entered on account.
(3) unrecognized profit from appreciation of market price of operating securities: to be calculated based on the allowance for decline in value excessively recorded on the account.
Deduction amounts for deductible assets under the preceding paragraph shall be prescribed by the SFC.
Where the amount of Category I capital exceeds that of Category II capital, calculation shall be based on the amount of Category I capital. |
| Article 61 | The equivalent operation risk amount referred to in Paragraph 2 of Article 59 is the estimated operation risk amount for each category as calculated by securities firms according to the following calculation methods:
1. Market risk: refers to risks of those positions both in and outside of the balance sheet arising from pricing changes; which means the equivalent price fluctuation risk amount derived from multiplying the fair value of the above described positions by a certain risk coefficient.
2. Transaction party risk: refers to risks arising from the transaction counter party; this is calculated by referring to those transactions within the business scope of the securities firms which have possibilities that the transaction counter party will not carry out his responsibilities and by basing upon each different type of transaction parties and transaction methods. After calculating those factors separately, the total added sum is the equivalent risk amount.
3. Basic / fundamental risk: refers to risks arising from carrying out business operations; this is calculated by using the fiscal year to which the date of calculation belongs as the referenced point and according to 25% of the operation cost for the fiscal year preceding the reference points, in order to calculate the equivalent risk amount. |
| Article 62 | The risk coefficients of those positions within or outside of the balance sheet and the relevant risk coefficients of the transaction counter party and their calculation methods referred to in the preceding Article shall be handled according to the risk coefficient table used by securities firms for calculating their self-owned capital adequacy ratio.
The particulars and method of calculation of the risk coefficient table used by securities firms to calculate their self-owned capital adequacy under the preceding paragraph shall be prescribed by the SFC. |
| Article 63 | Securities firms, other than those concurrently operating financial institutions and foreign securities firms who have SFC approval for waiver of this Chapter's regulations, shall fill out the Itemized Statement of the Self-Owned Capital Adequacy of the Securities Firm monthly and before the 10th of the next month, report it according to the method prescribed in Paragraph 3 of Article 21. When necessary, the SFC shall require securities firms to file reports at any time.
The format of the Itemized Statement of the Self-Owned Capital Adequacy of the Securities Firm referred to in the preceding paragraph shall be prescribed by the SFC.
Securities firms shall disclose the most recent self-owned capital adequacy ratio information in the annual report. |
| Article 64 | When the self-owned capital adequacy ratio of a securities firm reaches 120% or more or falls below 150%, the SFC may take the following actions:
1. Postpone the securities firm's increase of business operation items and establishment of branch offices.
2. Require the securities firm to strengthen the internal control and increase the frequency of internal auditing, and within one week of filing the report, send a concrete, detailed explanation and plan of improvement to the relevant authorities according to Paragraph 3 of Article 21.
3. If there has been no improvement made on the capital adequacy ratio at the end of the month that preceded the board of directors making proposal for distribution of profits, in addition that it shall be required to deduct from its undistributed profits those items to be set aside according to regulations, it shall further set aside 20% for special reserve according to Paragraph 1 of Article 41 of the Law. |
| Article 65 | When the self-owned capital adequacy ratio of a securities firm reaches 100% or falls below 120%, the SFC, in addition to handling the matter according to Items 1 and 2 of the preceding Article, may also handle the matter in the following ways:
1. Reduce its scope of business operations.
2. Require the securities firm to fill out and report weekly a securities firm capital adequacy reporting form.
3. If there has been no improvement made on the capital adequacy ratio at the end of the month that preceded the board of directors making proposal for distribution of profits, in addition that it shall be required to deduct from its undistributed profits those items to be set aside according to regulations, it shall further set aside 40% for special reserve according to Paragraph 1 of Article 41 of the Law. |
| Article 66 | When the self-owned capital adequacy ratio of a securities firm falls below 100%, the SFC, in addition to handling the matter according to Items 1 and 2 of Article 64 and Items 1 and 2 of the preceding Article, may also handle the matter in the following ways:
1. Disapprove any of its applications for increasing the number of branch offices.
2. If there has been no improvement made on the capital adequacy ratio at the end of the month that preceded the board of directors making proposal for distribution of profits, in addition that it shall be required to deduct from its undistributed profits those items to be set aside according to regulations, it shall further set aside the total amount as special reserve according to Paragraph 1 of Article 41 of the Law. |
| Article 67 | Securities firms that have already provided special reserve various special according to Articles 64 to 66 for the previous year, when providing various special reserves as required for this year pursuant to relevant regulations, shall include it as part of the undistributed profits, and then recalculate the required special reserve to be set aside according to the actual condition of the self-owned capital adequacy ratio. |
CHAPTER VII SUPPLEMENTAL PROVISIONS |
| Article 68 | A securities firm operating securities business in violation of these Rules shall be subject to the punishment under the Law. |
| Article 69 | These Rules shall become effective as of the date of promulgation. |