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 Act (hereinafter referred to as "the Act"). |
| Article 2 | A securities firm shall, according to the Criteria Governing Internal Control Systems of Services Enterprises in the Securities and Futures Market set by the Financial Supervisory Commission, Executive Yuan (the FSC), and other securities firm internal control regulations set by the Taiwan Stock Exchange Corporation (the TWSE ), 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.
Any amendments to be made to the internal control system referred to in paragraph 1 per the notice of the FSC 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 FSC 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 person, or transfer of the entire or major part of the business or assets of the firm to another person;
5. Merger or dissolution;
6. Investment in foreign securities firms;
7. Any other matters which under the regulation of the FSC shall be reported to and approved by the FSC in advance.
Where a securities firm has entered into a contract for using the centralized securities market with the TWSE , matters to be reported and approved as referred to in the preceding paragraph shall be submitted to the TWSE for transmittal to the FSC. Where a securities firm only entered into a contract for trading securities on the GreTai Securities Market (the GTSM), the said submission shall be made to the FSC through the GTSM. Where no contract has been entered into, the submission shall be made to the FSC through a securities dealers' association. |
| Article 4 | In case any of the following events occurs, a securities firm shall report to the FSC:
1. Where the business operation is commenced, suspended, resumed or terminated;
2. Where, through operating or engaging in securities business, a securities firm, or any of its directors, supervisors, or employees becomes involved in litigation or arbitration, or is subject to compulsory execution as an obligor, or a securities firm is a bankrupt or is refused services or has a check dishonored by a bank;
3. Where any director, supervisor, or manager has any of the conditions referred to in Article 53 of the Act;
4. Where any director, supervisor, or employee has violated the order promulgated by the FSC in accordance with the Act;
5. Where there is any change in the shareholding of any director, supervisor, manager or shareholder holding more than 10 percent of the shares of the company; or
6. Where there is any matter required to be reported by the FSC.
For the matters in subparagraph 1 in the preceding paragraph, the securities firm shall report in advance; for the matters in subparagraphs 2 through 4, the securities firm shall report within 5 days from the date on which it becomes aware thereof or on which the matters occur; for matters in subparagraph 5, the securities firm shall report by the 15th day of the following month.
Where a securities firm has entered into a contract for using the centralized securities market with the TWSE , matters to be reported and approved as referred to in paragraph 1 above shall be submitted to the TWSE for transmittal to the FSC. Where a securities firm only entered into a contract for trading securities on the GTSM, the said submission shall be made to the FSC through the GTSM. Where no contract has been entered into, the submission shall be made to the FSC through a securities dealers' association.
The term "business day," as used in these Regulations, means a trading day on the domestic securities markets. |
| 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 FSC for recordation. |
| Article 6 | A securities firm shall install internal auditors to regularly or from time to time examine the company's finance and business and prepare audit reports and keep them available for audit.
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 FSC as follows:
1. securities underwriter: NT$40 million.
2. securities dealer: NT$10 million.
3. securities broker: NT$50 million.
4. Operators of two or more types of securities business: aggregate of the amounts as referred to in the preceding three subparagraphs 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 10 | A securities firm operating the business of accepting orders to trade securities on the centralized securities exchange market shall deposit a settlement/ clearing fund with the TWSE 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 value of the executed trades of securities for which it has accepted trading orders 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 FSC.
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 value of the executed trades of securities for which it accepted trading orders 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 TWSE.
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 TWSE.
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 domestic branch office, a securities firm shall pay a settlement/clearing fund of NT$3 million in a lump sum to the TWSE; 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 TWSE with input from the securities dealers' association and reported to the FSC 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 overall risk of a securities firm, notify the securities firm to pay additional settlement/clearing fund and report such to the FSC for recordation. The detailed rules for the above fund shall be drafted by the special management committee of the fund and reported to the FSC for approval. This provision shall apply to the amendment of the said rules. |
| Article 11 | (deleted) |
| Article 12 | (deleted) |
| Article 13 | Unless a securities firm is concurrently operated by a financial institution and subject to other relevant acts or regulations, its total debts to other parties shall not be more than 4 times its capital net worth. The total amount of its current liabilities shall not exceed the total amount of its current assets; provided that, unless otherwise provided by the FSC, 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 its capital net worth.
In calculating the total amount of liabilities referred to in the preceding paragraph, the 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 other relevant acts or regulations, shall set aside a 20 percent 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 percent. 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 percent 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 FSC 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 FSC under Article 66, subparagraph 1 of the Act within the past 3 months.
2. It has been sanctioned by the FSC under Article 66, subparagraph 2 of the Act within the past half year.
3. It has been sanctioned by the FSC under Article 66, subparagraph 3 of the Act within the past 1 year.
4. It has been sanctioned by the FSC under Article 66, subparagraph 4 of the Act within the past 2 years.
5. It has had its trading rights terminated or restricted by the TWSE, the GTSM, or the Taiwan Futures Exchange (the TAIFEX) pursuant to bylaws thereof within the past 1 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 FSC, the TWSE, the GTSM, or the TAIFEX. |
| Article 14-2 | Within the same fiscal year in which it receives a letter of approval or effectiveness from the FSC for a capital increase for cash or a corporate bond issue, a TWSE listed or GTSM listed securities firm may not file another filing (application) for a capital increase for cash or corporate bond issue.
A TWSE listed or GTSM listed 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 worth or conform to regulations governing the regulatory capital adequacy ratio as required for merger or to take assignment of the business or assets of another person 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 FSC. |
| 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 Regulations.
The FSC shall separately prescribe the required application forms and rules applicable to issuance of securities by securities firms that have not publicly issued stock. |
| Article 15 | A securities firm, unless concurrently operated by a financial institution and subject to other relevant acts or regulations, 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 FSC. |
| Article 16 | A securities firm, unless it is concurrently operated by a financial institution and subject to other relevant laws or regulations, may not purchase real property for non-operating purposes. However, this restriction shall not apply to a securities firm that holds real property for non-operating purposes as a result of a merger, acquisition, branch unit closure, change in or reduction of places of business, or as a result of conducting business, or as approved by the Competent Authority. 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 shall not be more than 60 percent of its total 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 paper;
2. Issuance of corporate bonds;
3. Meeting urgent capital needs of the company.
When borrowing funds to meet urgent capital needs referred to in subparagraph 3 of the preceding paragraph, a securities firm shall report to the FSC 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 other relevant acts or regulations, 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 securities in a specific ratio as approved by the FSC, or equity investment in a securities, futures, banking, finance or other related enterprise in a specific ratio as approved by the FSC; and
5. Other purposes approved by the FSC.
The total combined amount of funds utilized under subparagraphs 4 and 5 of the preceding paragraph shall not exceed 40 percent of the firm's capital net worth, and the total amount of equity investments of such funds shall not exceed 40 percent of the firm's paid-in capital, unless approved by the FSC.
When a securities firm duly merges with or acquires a financial institution and the merger or acquisition has been approved by the FSC, the aggregate amount of funds utilization and the aggregate amount of equity investment of the securities firm may be exempt from the restrictions in the preceding paragraph, but the securities firm shall, within 6 months from the merger or acquisition, make adjustments to bring the excessive portion into compliance with the provisions in the preceding paragraph. |
| Article 19 | A securities firm trading securities for its own account, unless it is concurrently operated by a financial institution and subject to other relevant acts or regulations, shall do so in accordance with the following rules:
1. The firm shall not hold more than 10 percent of the total issued shares of any domestic company. The total amount of the cost of the securities issued by any domestic company held by such securities firm shall not be more than 20 percent of the securities firm's capital net worth.
2. The firm shall not hold more than 5 percent of the total issued shares of any foreign company. The total amount of the cost of the securities issued by any foreign company held by such securities firm shall not be more than 10 percent of the securities firm's capital net worth.
3. The total amount of the investment cost of a securities firm in holdings of equity securities issued by a single related party may not exceed 5 percent of the firm's capital net worth. The total amount of the investment cost of a securities firm in holdings of equity securities issued by all related parties may not exceed 10 percent of the firm's capital net worth. However, these restrictions are exempted in the handling of exercise and hedging operations for call (put) warrants and structured instruments, and in the hedging of beneficial certificates of exchange traded funds and the underlying baskets of stock represented by such beneficial certificates.
The term "related party" in these Regulations is defined in accordance with Statements of Financial Accounting Standards No. 6, Related Party Disclosures.
A securities firm may hold shares of any single company for one, and only one, of the following purposes: proprietary trading positions, purchase of securities in accordance with the forepart of subparagraph 4, paragraph 1 of the preceding article, or an equity investment approved by the FSC.
If the aggregate of the securities acquired by a securities firm for underwriting purposes, counted in combination with those acquired under the preceding paragraph, exceeds the limit prescribed by the FSC, the portion in excess shall be sold within 1 year after its acquisition in accordance with Article 75 of the Act.
Before the amendment to these Regulations made on 9 September 2010 comes into force, if a securities firm is not in compliance with any requirement of paragraph 1, subparagraph 3, or paragraph 3, it shall make adjustments to bring itself into compliance within 1 year from the date the amendment comes into force. |
| Article 19-1 | The FSC shall prescribe the total amount limits, and methods for calculation thereof, on the positions held in foreign securities and the expenditures on derivative financial product hedging transactions of a securities firm trading foreign securities for its own account.
When a securities firm engages in the business of trading foreign securities for its own account as referred to in the preceding paragraph, if such trading is neither an investment of proprietary funds nor done to meet hedging needs, it shall obtain approval from the Central Bank, and any trading of foreign bonds for its own account shall be done in compliance with the provisions of the GTSM. |
| Article 19-2 | Exchange settlement matters for securities firms trading securities denominated in a foreign currency for their own accounts and engaging in derivative financial product hedging transactions shall be handled in accordance with the Regulations Governing the Reporting of Foreign Exchange Receipts and Disbursements or Transactions.
A securities firm may conduct hedge trading only in the capacity of a customer, through a designated bank approved by the Central Bank to conduct derivative foreign exchange product business, or through an overseas financial institution.
A securities firm trading securities denominated in a foreign currency for its own account shall open a segregated foreign exchange account in the selected foreign currency at a designated foreign exchange bank, from which it shall conduct all deposits and remittances in connection with payment and receipt of settlement money and fees. |
| Article 19-3 | A securities firm meeting the qualifying requirements listed below may operate derivative financial product trading business at its business premises, and shall do so in accordance with the provisions of the GTSM:
1. It must be an integrated securities firm that concurrently engages in brokerage, underwriting, and dealership business
2. Its long-term credit rating must meet the requirements of the FSC. If it is a securities subsidiary of a domestic financial holding company or is an ROC branch office of a foreign securities firm, it may obtain a credit rating as a group holding company, and the holding company shall provide an unconditional and irrevocable guaranty.
3. It must have reported a regulatory capital adequacy ratio meeting the requirements of the FSC for each of the most recent 6 months.
4. It must be free of any of the following circumstances:
(1) Any sanction, during the preceding 3 months, under Article 66, subparagraph 1 of the Securities and Exchange Act or Article 100, paragraph 1, subparagraph 1 of the Futures Exchange Act.
(2) Any sanction, during the preceding 6 months, equal to or greater than those under Article 66, subparagraph 2 of the Securities and Exchange Act or Article 100, paragraph 1, subparagraph 2 of the Futures Trading Act.
(3) Any sanction imposed by this FSC during the preceding year requiring a suspension of business.
(4) Any sanction imposed by this FSC during the preceding 2 years voiding approval for any part of its business.
(5) Any sanction during the preceding 1 year whereby the GTSM, the TWSE, or the Taiwan Futures Exchange Corporation (the TAIFEX), acting pursuant to its operating rules or bylaws, has suspended or restricted the firm's trading privileges.
Any securities firm in non-conformance with the conditions of subparagraph 4 of the preceding paragraph but which has effected specific improvement and has satisfied this FSC thereof shall not be subject to the restrictions of that subparagraph.
Except in trading with a qualified institutional investor, "derivative financial product trading" in paragraph 1 is limited to convertible bond asset swaps, structured instruments, equity derivatives, credit derivatives, interest rate derivatives, and bond derivatives transactions. |
| Article 19-4 | Securities firms operating derivative financial product trading business that involves foreign exchange operations shall obtain approval from the Central Bank of China.
Securities firms operating business referred to in the preceding paragraph and engaging in related hedge trades shall handle exchange settlement matters in accordance with the Regulations Governing the Reporting of Foreign Exchange Receipts and Disbursements or Transactions and related provisions.
A securities firm may, in the capacity of customer, conduct hedge trading through a designated bank approved by the Central Bank to conduct derivative foreign exchange product business, or through an overseas financial institution.
For a securities firm operating business referred to in paragraph 1, matters relating to settlement of funds, payment and receipt of fees, and payment of funds upon early rescission or expiration of contracts shall be carried out according to the following:
1. When denominated in New Taiwan Dollars, all settlement of funds and payment and receipt of fees with a customer shall be carried out in New Taiwan Dollars.
2. When denominated in a foreign currency, all settlement of funds and payment and receipt of fees with a customer shall be carried out in foreign currency. The customer's payment of funds may be carried out by transfer from its own foreign exchange deposit account. Where foreign exchange settlement is required, it shall be carried out by the customer at a designated foreign exchange bank in accordance with the Regulations Governing the Reporting of Foreign Exchange Receipts and Disbursements or Transactions.
3. Upon early rescission by the customer or expiration of the contract, the securities firm shall deposit the funds receivable by the customer in its New Taiwan Dollar or foreign exchange deposit account on the settlement date based on the currency stipulated in the contract.
A securities firm operating business referred to in paragraph 1 shall submit a monthly operations statement to the foreign exchange authority and the GTSM by the 5th day of the following month.
A securities firm operating trading business in structured instruments linked to foreign financial products shall submit a monthly operations statement on its trading business in structured instruments linked to foreign financial products to the foreign exchange authority and the GTSM by the 5th day of the following month. |
| Article 19-5 | A securities firm operating equity-linked derivative financial product trading business at its place of business may not make any use of such trading to carry out mergers or acquisitions or unlawful trades on its own behalf or in cooperation with its clients. |
| Article 19-6 | Derivative financial product trading business operated by a securities firm may not be linked to any of the below-listed underlyings, unless it is in trading with a qualified institutional investor and an application has been made under Article 19-7:
1. Securities privately placed domestically or abroad.
2. Securities issued overseas by domestic enterprises or certificates of beneficial interest issued overseas by domestic securities investment trust enterprises.
3. Any Taiwan stock index compiled by a domestic or foreign institution and related financial commodities, provided that this restriction shall not apply to an index compiled by the GTSM or the TWSE, either singly or in cooperation.
4. Any product involving or subject to the Act Governing Relations Between Peoples of the Taiwan Area and the Mainland Area or an act or regulation adopted under that Act.
5. Any foreign exchange product involving a requirement of approval by the Central Bank. |
| Article 19-7 | A securities firm that will engage with a qualified institutional investor in a derivative financial product trade involving a linked underlying set out in Article 19-6, subparagraphs 1 to 4 shall submit an application to the GTSM with the relevant documentation. The GTSM will forward the application to this FSC, and such a trade may take place only subsequent to this FSC's first issuance of an approval to a securities firm for such a trade. An application must be submitted to the Central Bank for any trade of a derivative financial product set out in Article 19-6, subparagraph 5.
The term "qualified institutional investor" as used in Article 19-3, paragraph 3, Article 19-6, and the preceding paragraph means domestic and foreign banks, insurance companies, bills finance companies, securities firms, fund management companies, government investment institutions, government funds, pension funds, mutual funds, unit trusts, securities investment trust companies, securities investment consulting companies, trust enterprises, futures commission merchants, futures service enterprises, and other institutions approved by this FSC. |
| Article 20 | Except in a case involving its equity investment in another enterprise as approved by the FSC, a securities firm, when exercising rights on any company shares that it has acquired shall do so 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.
Except where otherwise provided by law or regulation, a securities firm exercising voting rights of stock it holds in a public company shall dispatch a personnel member to attend and do so as its representative. |
| Article 21 | Within 4 months after the close of each fiscal year, a securities firm shall publicly announce and report to the FSC 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 FSC 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 TWSE or the GTSM, the provisions of Article 36, paragraph 1, subparagraphs 2 and 3 and paragraphs 2 and 3 of the Act shall be complied with.
A securities firm shall submit to the FSC its monthly accounting summary for the preceding month by the 10th day of each month.
Where a securities firm has entered into a contract for using the centralized securities market with the TWSE, submission of matters referred to in the preceding two paragraphs shall be made to the FSC through the TWSE. Where a securities firm only entered into a contract for trading securities on the GTSM, the said submission shall be made to the FSC through the GTSM. Where no has been entered into, the submission shall be made to the FSC 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. Within such amount, the total amount of firm commitment securities underwriting by overseas branch offices of the securities firm shall not be more than 5 times the balance of its current assets less current liabilities.
Where the regulatory capital adequacy ratio of a securities firm is less than 120 percent, the multiple for total firm commitment securities underwriting under the preceding paragraph may be adjusted to 10, and the multiple for total firm commitment underwriting by overseas branch offices thereof may be adjusted to 3. Where it is less than 100 percent, the total firm commitment underwriting multiple may be adjusted to 5, and overseas branch offices thereof shall not underwrite securities on a firm commitment basis. |
| 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 Act 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 Act during the most recent half year. |
| Article 24 | A securities firm that underwrites securities shall make a public announcement 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 mandated to handle matters relating to the offering, issuing, TWSE listing, or GTSM listing of securities, the assessment report, conclusion opinion 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 or Article 8 of the Regulations Governing the Offering and Issuance of Securities by Foreign Securities Issuers, and its application shall be 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 or conclusion opinion 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 Article 36, paragraph 2, subparagraph 2 of the Securities and Exchange Act and the underwriter does not immediately carry out supplementation and updating; 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 percent of the shares aggregately hold 10 percent 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 percent of the 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 percent 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 either party and related parties hold a total of 50 percent or more 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.
If an issuer issues straight corporate bonds and the bonds obtain a credit rating of a specified grade or higher from a credit rating agency approved or recognized by the FSC, the lead underwriter is exempt from the restrictions of paragraph 1. If the issuer qualifies as a securities underwriter, it may also act as the lead underwriter. |
| Article 27 | The securities subscribed to by a securities firm under the first part of paragraph 2 of Article 81 of the Act 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 Act. |
| 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 FSC for approval.
When a securities firm underwrites or re-sells listed securities, it may conduct stabilized operation transactions when necessary. Regulations governing the administration thereof shall be prescribed by the TWSE and submitted to the FSC for approval. |
| Article 29 | When a securities firm underwrites securities, it shall mandate 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 29-1 | A securities firm underwriting securities shall create and keep a file recording the sales results for the securities and the quantity of its own subscription, following the format and content set out in the handling rules prescribed by the securities dealers' association under Article 28 hereof. The FSC may require the securities firm to provide relevant materials at any time.
A securities firm shall preserve relevant materials in underwriting cases referred to in the preceding paragraph for at least 5 years after the conclusion of the underwriting period. |
| 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 30-1 | A securities firm operating derivative financial product business may not damage fair market price formation or investor rights and interests when conducting hedging operations or when calculating product gains or carrying out settlement upon cancellation or expiration. |
| Article 31 | A securities firm trading securities for its own account shall adopt a trading policy and related procedures. Except as otherwise provided by this FSC, it shall form trading decisions on the basis of analysis reports before executing trades, and shall keep records, and regularly produce review reports. It also shall establish control mechanisms, and adopt procedures for regulating changes in trading decisions.
The written materials referred to in the preceding paragraph shall be recorded in chronological order and kept in files. They shall be preserved for a period of not less than 5 years. |
| Article 31-1 | For a securities firm trading foreign securities for its own account or engaging in foreign derivative financial product hedging transactions, the scope of the foreign securities, types of foreign derivative financial products, foreign trading markets, and sovereign ratings of the places of transactions shall be determined by the FSC. |
| Article 31-2 | A securities firm trading foreign securities for its own account or engaging in foreign derivative financial product hedging transactions shall establish a dedicated unit and adopt handling procedures, which shall be implemented after approval by the board of directors, as shall any amendments thereto.
The handling procedures under the preceding paragraph shall include all the following items:
1. Trading principles and policies: shall include types of underlyings traded, trading or hedging strategies, setting of position limits.
2. Trading procedures: shall include hierarchy of responsibility, trading process, division of powers and duties of relevant departments, procedures for preservation of trading records.
3. Risk management measures: shall include risk management scope, risk management procedures, methods and frequency of position evaluation, production and review of position evaluation reports, irregularity reports and procedures for follow-up surveillance.
4. Audit procedures: shall include internal audit and self-inspection, frequency and scope of audits, audit reports and procedures for correction and follow-up of deficiencies. |
| Article 31-3 | A securities firm trading foreign securities for its own account or engaging in foreign derivative financial product hedging transactions shall not be involved in any of the following:
1. Engaging in margin transactions.
2. Engaging in trading or transactions with any overseas affiliated enterprise; provided, this restriction shall not apply where it mandates the affiliated enterprise to trade or transact on its behalf.
"Affiliated enterprise" in the preceding paragraph shall be as defined in the Affiliated Enterprises chapter of the Company Act. |
| Article 31-4 | A securities firm trading foreign securities for its own account or engaging in foreign derivative financial product hedging transactions, and whose regulatory capital adequacy ratio is lower than the requirement set by this FSC for 3 consecutive months, may only sell or close out its existing positions, and may not engage in any further trading or transactions, unless its regulatory capital adequacy ratio has already been corrected. |
| Article 32 | Unless otherwise provided by law or regulation, 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.
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 Act and report such transactions to the FSC for recordation. |
| Article 32-1 | As needed for hedging in the issuance of put warrants and the operation at its place of business of structured instruments and equity derivatives, a securities firm may borrow and sell, or sell short, the underlying securities, exempt from the restriction that the selling price of the securities borrowed or sold short may not be lower than the closing price of the previous business day.
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 brokerage 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 | A securities firm accepting orders to trade securities shall establish the following information on its customers:
1. Name, domicile, and mailing address;
2. Occupation and age;
3. Assets status;
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 accepting orders 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 order is beyond his/her investment ability, unless proper security is furnished, the securities firm may refuse the order for trading. |
| Article 35-1 | For trades of a certain dollar amount or greater, or suspected to involve money laundering, the securities firm shall keep trade documentation sufficient for a full and complete understanding of the trade, records of verification of the customer's identity, and reporting records, and shall comply with the Money Laundering Control Act. |
| Article 36 | When a securities broker recommends that a customer 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 that a customer trade in a securities, if such securities are to be traded on the centralized securities exchange, it shall follow the rules prescribed by the TWSE; if the securities are to be traded on the GTSM, it shall follow the rules prescribed by the same. The above-mentioned rules shall be reported to the FSC for approval. |
| Article 36-1 | Where a department of a securities firm that concurrently operates securities investment consulting services or futures advisory services (hereinafter, collectively, "consulting services department") produces research reports, or a department of a securities firm that concurrently operates a securities investment consulting enterprise handling discretionary investment services ("discretionary investment department") produces analysis reports or investment strategies for customers, personnel other than of those departments shall not participate in composing or reviewing the reports.
Within two hours from the time market trading hours begin after a research report provided by a consulting services department of a securities firm is publicly disclosed, other departments and personnel apart from that department may not engage in any trading of any security recommended in the research report, unless otherwise provided by this FSC.
"Market" in the preceding paragraph refers to the TWSE, the GTSM, and the TAIFEX .
The compensation or bonuses paid to personnel of a consulting services department or discretionary investment department of a securities firm shall not be directly linked to the performance of any other department. |
| Article 36-2 | When an underwriting department of a securities firm underwrites securities, during the period from the time the securities firm enters into an advisory contract with a public issuer until the termination of the advisory relationship, or from the time the securities firm enters into an underwriting contract with a TWSE listed or GTSM listed company until the deadline for payment, its consulting services department shall not recommend any trading of that security or any derivative financial product thereof; a discretionary investment department may not purchase securities for a customer without first explicitly informing the customer of any related conflicts of interest and control measures and then obtaining the customer's written consent on an instance-by-instance basis, and specifically stating the quantity of the securities that may be purchased.
When an underwriting department of a securities firm obtains securities through a firm commitment underwriting, the provisions of the preceding paragraph shall apply mutatis mutandis to the handling of those securities by the consulting services department and discretionary investment department of the securities firm until such time as all the procedures of the firm commitment underwriting have been completed in accordance with regulations. |
| 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 orders for securities trading;
9. Directly or indirectly set up fixed places outside the business premises of the head office or branch office to sign brokerage agreements with customers or settle securities transactions; however, this restriction shall not apply where the FSC has provided otherwise;
10. Accept securities transactions of a customer who has not signed a brokerage 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 FSC;
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 a trading order 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 orders 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 FSC'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 FSC on mandatory or unpermitted acts. |
| Article 38 | A securities firm accepting orders to trade securities shall establish a separate demand deposit account with a bank for paying and receiving settlement funds of the customer. The funds in the said account shall not be used for other purposes. |
| Article 39 | A securities firm accepting orders to trade securities shall clear and settle transactions in the manner provided in the Operating Rules of the TWSE or the GreTai Securities Market Rules Governing Securities Trading on the GTSM. |
| Article 40 | A securities firm accepting orders 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 New Taipei City 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 that indicates when placing a buy order that he/she will withdraw the securities for his/her own custody fails to do so on the day on which the securities firm is to deliver the securities;
2. Where a customer places a sell order but no transaction is consummated, and the securities have been previously delivered to the securities firm but not been claimed;
3. Where a customer engages the securities firm to deliver the securities to the centralized depository for custody; or
4. Where a customer engages the securities firm to withdraw securities deposited in the centralized depository but fails to take delivery as scheduled. |
| Article 41 | A securities firm accepting orders 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 to be traded on the centralized stock exchange, an additional copy shall be delivered to the TWSE for recordation; if the said statement is for the securities to be traded on the GTSM, an additional copy shall be delivered to the GTSM for recordation. |
| Article 42 | A securities firm accepting orders to trade securities shall prepare a trade report for signing/sealing by the customer after the customer executes a trade; provided that the trade 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 trade report referred to in the preceding paragraph is confirmed by an agent engaged by the customer to trade securities on its behalf, a power of attorney issued by the customer shall be provided.
If the funds and securities of the customers of a securities firm accepting orders 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 Article 28, paragraph 1 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 accepts orders to trade securities, it shall not use information obtained from a trading order 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 GTSM 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 TWSE or traded on the GTSM, 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 | Securities firms applying for merger shall meet the following conditions:
1. TWSE listed or GTSM listed securities firms applying for merger shall comply respectively with Article 51 of the Operating Rules of the Taiwan Stock Exchange Corporation or Article 16 of the GreTai Securities Market Rules Governing Securities Trading on the GTSM .
2. The regulatory capital adequacy ratio has reached 200 percent or more 6 months before the merger.
3. The pro forma consolidated regulatory capital adequacy ratio shall reach 200 percent 1 month before the application.
4. Have not been subject to a disposition under Article 66, subparagraphs 2 to 4 of the Act or under paragraph Article 100, paragraph 1, subparagraphs 2 to 4 of the Futures Trading Act or under Article 103, subparagraphs 2 to 5 of the Securities Investment Trust and consulting Act within the last 6 months.
5. In the most recent 1 year, the TWSE and GTSM 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 FSC.
In the case that the securities firm applying for merger does not meet the criteria in the preceding paragraph, the FSC 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 FSC:
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 3 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 Act.
3. Merger contract: in addition to the particulars required under Article 8, paragraph 2 of the Financial Institutions Merger Act, 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. An itemized report on the pro forma consolidated regulatory capital adequacy ratio 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 FSC.
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 FSC 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 FSC to be submitted.
The formats of the documents required under the preceding two paragraphs shall be prescribed by the FSC. |
| Article 48 | Where the securities firm surviving after the merger is a TWSE listed or GTSM listed securities firm, the securities firm shall have the certified public accountant make a special auditing of its internal control system within 6 months after the merger, and after sending the report to the TWSE or the GTSM, respectively, for inspection, shall file it with the FSC for recordation. |
Chapter V Investment In Foreign And Mainland Chinese 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 FSC has approved investment. |
| Article 49-1 | Securities firms or their overseas subsidiaries investing in securities companies in the Mainland China area, securities investment fund management companies, or futures companies shall comply with the provisions of the Regulations Governing Approval and Management of Securities and Futures Transactions and Investment Between the Taiwan Area and the Mainland Area.
Securities firms that have received approval to invest in securities companies in the Mainland China area are prohibited from doing any of the following:
1. Accepting any order to trade in Mainland China area securities.
2. Recommending that any investor in the Taiwan area invest in any securities traded on any Mainland China securities market or in any securities issued by a Mainland China area company.
A Mainland China securities company, securities investment fund management company, or futures company in which a securities firm or its overseas subsidiaries have invested may not provide services to Taiwan area individuals or enterprises. |
| 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 FSC in the most recent 3 months
2. Have not been ordered by the FSC to relieve or replace the duties of its director, supervisor, or manager in the most recent 6 months.
3. Have not had business suspended as punishment from the FSC within the last 1 year.
4. Have not had the license of branch offices or of a portion of the business invalidated by the FSC as punishment within the last 2 years.
5. Have not had trading terminated or restricted by the TWSE, the GTSM, or the TAIFEX as punishment under each of their regulations or rules.
6. The regulatory capital adequacy ratio has not been below 200 percent within the most recent 3 months, and the financial structure is sound and in accordance with the rules of these Regulations.
7. Comply with Article 6 of the Regulations Governing the Reserve for Losses on Foreign Investment Allocated by Companies promulgated by the Ministry of Economic Affairs.
8. The combined total amount invested in foreign enterprises plus the funds that a securities firm establishing an overseas branch office(s) appropriates there for local operations and the amount invested in Mainland China enterprises do not exceed 40 percent of the securities' firm's net worth. 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 FSC 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' or board of governors' 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 sub-invested foreign enterprises where the investment shareholding percentage is 50 percent or above. 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 FSC. |
| Article 52 | Securities firms applying for investment in foreign enterprises shall provide the following documents to the FSC 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' or board of governors' 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 sub-invested foreign enterprises where the investment shareholding percentage has exceeded 50 percent. 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 3 fiscal years, etc.
8. The investment (or joint venture) agreement.
9. Other documents required by the FSC. |
| Article 53 | When any of the following circumstances occurs in connection with any investment by the securities firm as approved by the FSC, the securities firm shall immediately report the reasons to the FSC along with relevant documentation:
1. Change in business items or material operating policies.
2. Change in authorized capital resulting in a change in the original shareholding ratio of the securities firm or its third-region overseas subsidiary.
3. Material equity investment in another company.
4. Dissolution or suspension of operations.
5. Change in the institution's name.
6. Merger with another financial institution, or assignment to or receipt of assignment from another of all or a major part of assets or operations.
7. Occurrence of reorganization, liquidation, or bankruptcy.
8. Occurrence or foreseeable occurrence of any instance of material loss.
9. Material violation of law or regulation or the voidance or revocation of the business permit by the overseas competent authority.
10. Any other material matter.
For any circumstance under subparagraphs 1 to 7 of the preceding paragraph, the securities firm shall report to the FSC in advance. |
| Article 53-1 | Unless otherwise provided by the FSC, a securities firm that has made an equity investment in an overseas enterprise(s) as approved by the FSC shall do the following:
1. Submit to the FSC, within 15 days after the end of each quarter, an operations report on the invested overseas subsidiary(ies), including status of operations, revenues and expenditures, and an efficiency assessment.
2. Submit a report on the operational status of the invested overseas enterprise(s) along with the monthly accounting summary.
3. Report basic company information on the invested overseas enterprise(s) through the information reporting system designated by the FSC.
4. Submit other information or documentation as required by the FSC. |
| Article 54 | Where the overseas subsidiary company invested by the securities firm invests in another institution or where the institution invested by the overseas subsidiary company sub-invests in another institution, if such investment has constituted the substantial controlling and subordinating relationship as regulated under the Chapter governing related enterprises of the Company Act, a report shall be made to the FSC for approval before proceeding with the investment.
For the investment of the preceding paragraph that has been approved by the FSC, within 10 days after the actual investment, the related documents shall be provided to the FSC for recordation.
Securities firms investing in overseas enterprises according to paragraph 1 above, may submit the management rules for the foreign invested enterprises required under subparagraph 5 of Article 51 and subparagraph 5 of Article 52 along with the documents referred to in the preceding paragraph to the FSC for recordation within 10 days after the actual investment. |
| Article 55 | A foreign enterprise in which a securities firm directly or indirectly invests and holds 50 percent or more of the shares may not further invest in any securities-related enterprise in the ROC. |
| Article 56 | The means by which a securities firm investing in a foreign enterprise may put up the capital are limited to the following:
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 | (deleted) |
| 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 FSC for recordation. |
Chapter V-1 Administration Of Overseas Branch Offices
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| Article 58-1 | If the business that an overseas branch office of a securities firm would handle under the local securities acts and regulations and customary business practices of the place surpass the business items of the head office, an application for approval, accompanied by the following documents, shall be filed with the FSC in advance:
1. Business item particulars: including the products to be handled, types of transactions, and trading counterparts and markets.
2. Local acts and regulations that must be complied with when engaging in such business.
3. Minutes of the board of directors' (board of governors') meeting.
4. Internal control and risk management plans.
5. Legal opinion by a lawyer.
6. Other documents that the FSC requires to be submitted.
If there is any change in the FSC-approved business items of an overseas branch office of a securities firm, the change shall be reported to the Commission for recordation within 10 days from the day of the change.
The overseas branch offices of a securities firm shall abide by the local securities acts and regulations of the place where they are conducting business. |
| Article 58-2 | A securities firm shall implement internal audit procedures in its overseas branch offices in accordance with the securities firm's internal control system.
A securities firm shall dispatch personnel to conduct on-site audits of its overseas branch offices at least once per year. Audit reports shall be submitted to the TWSE and forwarded by it to the Commission for recordation within 1 month from completion of the audit.
A securities firm whose overseas branch office receives an audit report from a local competent authority or auditing agency shall file the report or any deficiencies discovered in the audit with the Commission for recordation within 10 days from the day next following the receipt of the audit.
Where any material emergency or incident of malpractice, or disposition by a local competent authority, occurs with respect to an overseas branch office, a report shall be filed with the Commission within 2 days from the day next following the occurrence of the incident or receipt of the disposition notice from the local competent authority. |
| Article 58-3 | A securities firm establishing an overseas branch office shall report any matters relating to outward remittance of capital, registration, or amendment registration in accordance with Article 58. |
Chapter VI Management Of Regulatory Capital
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Section 1 General Provisions
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| Article 59 | A securities firm, unless concurrently operated by a financial institution and subject to other acts or regulations, shall maintain an appropriate ratio between its regulatory capital and its overall risk equivalent, except as approved by the Commission.
The appropriate ratio referred to in the preceding paragraph is called the regulatory capital adequacy ratio and its calculation method is the net amount of eligible regulatory capital divided by the overall risk equivalent.
For those foreign securities firms having Taiwan branches, if their home-country head office have already calculated their regulatory capital adequacy ratio under their local laws with the overall 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 regulatory capital adequacy ratio which have met the standard to the Commission to apply for a waiver of application of the provisions in this Chapter. However, unless specifically approved by the Commission, a monthly report on the head offices' regulatory capital adequacy ratio shall still be reported according to Article 21, paragraph 3. |
| Article 59-1 | The calculation of the net amount of eligible regulatory capital and the overall risk equivalent of the regulatory capital adequacy ratio as referred to in paragraph 2 of the preceding article is categorized into a simple calculation method and an advanced calculation method.
The securities firms to which the advanced calculation method for the regulatory capital adequacy ratio under the preceding paragraph applies, and the implementation date, shall be prescribed by the FSC. |
Section 2 Simple Calculation Method For The Regulatory Capital Adequacy Ratio
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| Article 60 | The net amount of eligible regulatory capital referred to in the simple calculation of the regulatory capital adequacy ratio is the balance of the sum total of the Tier 1 capital and Tier 2 capital items as set out below minus the following items on the balance sheet: financial assets reported at fair value with changes in fair value included in "profit or loss - noncurrent, available-for-sale financial assets - current and noncurrent, held-to-maturity financial assets - current and noncurrent, bond portfolios that include no active market bonds - current and noncurrent, prepayments, special funds, long-term equity investments under equity method, long-term equity investments held for disposal, fixed assets, intangible assets, operating bonds, clearing and settlement funds, refundable deposits, deferred debits, assets leased to others, idle assets, deferred income tax assets - noncurrent, restricted assets - noncurrent:
1. Tier 1 capital: the total of capital stock (common stock, perpetual non-cumulative preferred stock), capital reserve, retained earnings or accumulated losses, unrealized losses on financial products, 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.
2. Tier 2 capital: the total of capital stock (perpetual cumulative preferred stock) and unrealized gains on financial products.
Deduction amounts for deductible assets under the preceding paragraph shall be prescribed by the Commission.
Where the amount of Tier 2 capital exceeds that of Tier 1 capital, calculation shall be based on the amount of Tier I capital. |
| Article 61 | The overall risk equivalent referred to in the simple calculation of the regulatory capital adequacy ratio is the overall risk equivalent for each category as calculated by securities firms according to the following calculation methods:
1. Market risk: refers to risks of on-balance-sheet and off-balance-sheet positions arising from pricing changes; which means the equivalent price fluctuation risk amount derived by multiplying the fair value of the above described positions by certain risk coefficients.
2. Credit risk: refers to risks arising from counterparties to transactions; this is calculated by referring to those transactions within the business scope of the securities firm for which there is a possibility that counterparties will not perform their obligations, and based upon each different type of counterparty and transaction method. After calculating those factors separately, the total added sum is the risk equivalent.
3. Operational 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 percent 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 on-balance-sheet and off-balance-sheet positions and the relevant risk coefficients of credit risk 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 regulatory capital adequacy ratio.
The particulars and method of calculation of the risk coefficient table used by securities firms to calculate their regulatory capital adequacy under the preceding paragraph shall be prescribed by the Commission. |
Section 3 The Advanced Calculation Method For The Regulatory Capital Adequacy Ratio
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| Article 62-1 | Terms used in the advanced calculation method for the regulatory capital adequacy ratio are defined as follows:
1. Net amount of eligible regulatory capital: means the sum total of the Tier 1 capital, eligible Tier 2 capital, and eligible and employed Tier 3 capital.
2. Eligible Tier 2 capital: means the eligible Tier 2 capital that is available for use to cover credit risk, market risk, and operational risk.
3. Eligible and employed Tier 3 capital: means the Tier 3 capital that is actually employed to cover market risks.
4. Perpetual preferred stock: means preferred stock meeting any of the following criteria:
(1) No maturity date, and if there is any redemption clause, the redemption rights belong to the securities firm, and the stocks may not be redeemed until 5 years after the issuance date and subject to the FSC's approval.
(2) There is a stipulation for compulsory conversion into common stock.
5. Cumulative preferred stock: means preferred stock for which any missed dividend payments in a year in which the securities firm does not post a profit go into arrears and must be made up in a year when there is a profit.
6. Subordinated bonds: means bonds for which the bond holders' right to receive payment is ranked below that of investors and other ordinary creditors to whom the securities firm has settlement obligations for securities or funds deliverable or payable.
7. Overall risk equivalent: means the sum total of the credit risk equivalent, market risk equivalent, and operational risk equivalent, provided that the amount already deducted from the eligible regulatory capital is not included in the overall risk equivalent.
8. Credit risk equivalent: means the risk equivalent measuring the risk of losses to the securities firm arising from counterparty default. The measurement of such risk is expressed as the sum total of the securities firm's on-balance-sheet and off-balance-sheet transactions multiplied by the weighted risk coefficients.
9. Market risk equivalent: means the risk equivalent measuring the risk of losses on the securities firm's on-balance-sheet and off-balance-sheet transactions arising from fluctuation of market prices (interest rates, exchange rates, and stock prices).
10. Operational risk equivalent: means the risk equivalent measuring the risk of losses to the securities firm arising from inadequate or failed internal processes, people, and systems, or from external events.
11. Issue period: refers to the period from the issue date to the maturity date. If early redemption or repayment is permitted, the issue period shall be calculated based on the earliest available redemption or repayment date, provided that this rule does not apply where early redemption or repayment requires advance approval by the FSC. |
| Article 62-2 | For the advanced calculation method for the regulatory capital adequacy ratio, the scope of Tier 1 capital is the sum total of common capital stock, subscribed common capital stock, perpetual non-cumulative preferred stock, non-cumulative subordinated bonds without a maturity date, capital reserve, retained earnings or accumulated deficit, unrealized loss from financial instruments, cumulative translation adjustments, treasury stock, net loss not recognized as pension cost, and cumulative profit/loss of the current year as of the end of the current month, minus the amount that shall be deducted from Tier 1 capital as required by the FSC.
Where perpetual non-cumulative preferred stock and non-cumulative subordinated bonds without a maturity date as referred to in the preceding paragraph are listed as Tier 1 capital, their sum total thereof may not exceed 15 percent of the sum total of the following amounts; the excess portion may be included in Tier 2 capital:
1. The Tier 1 capital as calculated pursuant to the preceding paragraph.
2. The amount of investments in other businesses deducted from Tier 1 capital.
For purposes in connection with Tier 1 capital, "perpetual non-cumulative preferred stock" and "non-cumulative subordinated bonds without a maturity date" shall meet the following requirements:
1. The entire amount of any given issue must be collected in full.
2. The securities firm or its affiliate enterprises have not provided any guarantees or collateral to advance the seniority ranking of the holders.
3. The order of seniority of holders of non-cumulative subordinated bonds without maturity dates is lower than that of holders of subordinated bonds included in Tier 2 capital and that of other ordinary creditors.
4. The securities firm may not pay interest on subordinated bonds if the securities firm had no earnings during the previous fiscal year and did not issue common stock dividends, provided that this restriction does not apply if the amount of undistributed earnings exceeds the interest payment, and the payment does not alter the originally stipulated conditions for interest payment.
5. If a securities firm's regulatory capital adequacy ratio is lower than the minimum required ratio of the time of issuance, and the securities firm fails to achieve compliance with the requirement within 6 months, all non-cumulative subordinated bonds without maturity dates must thereupon be converted in full to non-cumulative perpetual preferred stock; or else it shall be stipulated that prior to achieving the aforementioned minimum ratio, the payment of principal and interest shall be deferred, and that during the course of the securities firm's rehabilitation or liquidation the seniority ranking of the holders of such bonds without maturity dates shall be the same as that of non-cumulative perpetual preferred stock shareholders.
6. Ten years after issuance, if the calculation of the securities firm's regulatory capital adequacy ratio after redemption meets the minimum ratio requirement of the time of issuance, and the FSC grants its approval, early redemption is permitted. For any not redeemed early, the securities firm may increase, one time, the stipulated interest rate thereupon. The maximum limit of this increase shall be one percentage point annual interest rate or 50 percent of the additional point margin stipulated for the interest rate in the original contract. |
| Article 62-3 | For the advanced calculation method for the regulatory capital adequacy ratio, the scope of Tier 2 capital is the sum total of perpetual cumulative preferred stock, cumulative subordinated bonds without maturity dates, 45 percent of the unrealized gains from financial instruments, convertible bonds, long-term subordinated bonds, and non-perpetual preferred stock, minus the amount that shall be deducted from Tier 2 capital as required by the FSC.
For purposes in connection with Tier 2 capital, "perpetual cumulative preferred stock," "cumulative subordinated bonds without maturity dates," and "convertible bonds" shall meet the following requirements:
1. The entire amount of any given issue must be collected in full.
2. The securities firm or its affiliate enterprises have not provided any guarantees or collateral to advance the seniority ranking of the holders.
3. When the securities firm's regulatory capital adequacy ratio is lower than the minimum ratio requirement of the time of issuance due to interest payment, the payment of dividends and interest shall be deferred, and no interest may further be accrued on the deferred dividends and interests.
4. If a securities firm's regulatory capital adequacy ratio is lower than the minimum ratio requirement of the time of issuance, and the deficit that needs to be covered exceeds the sum of legal reserve and capital reserve, and the securities firm fails to meet the requirement within a period of 6 months, all cumulative subordinated bonds without maturity dates and convertible bonds must be converted in full to cumulative perpetual preferred stock; or else it shall be stipulated that at any time when the aforementioned minimum ratio has not yet been met or the deficit to be covered still exceeds the sum of legal reserve and capital reserve, the payment of principal and interest shall be deferred, and that during the course of the securities firm's rehabilitation or liquidation, the seniority ranking of the holders of such bonds shall be the same as that of cumulative perpetual preferred stock shareholders.
5. Five years after issuance, if the calculation of the securities firm's regulatory capital adequacy ratio after redemption meets the minimum ratio requirement of the time of issuance and the FSC grants its approval, early redemption is permitted. For any not redeemed early, the securities firm may increase, once, the stipulated interest rate thereupon. The maximum limit of this increase shall be one percentage point annual interest rate or 50 percent of the additional point margin stipulated for the interest rate in the original contract.
6. The convertible bonds are subordinated bonds with an issue period of less than 10 years.
7. The convertibles bonds shall be converted to common stock or perpetual preferred stock on the maturity date, and before the maturity date may be converted only to common stock or perpetual preferred stock; any other conversion method shall require approval by the FSC.
If any long-term subordinated bonds or non-perpetual preferred stock as referred to in paragraph 1 are listed in Tier 2 capital, the sum total thereof shall not exceed 50 percent of Tier 1 capital, and shall meet the following requirements:
1. The entire amount of any given issue must be collected in full.
2. The securities firm or its affiliate enterprises have not provided any guarantees or collateral to advance the seniority ranking of the holders.
3. The issue period is 5 years or longer.
4. The amount included in the calculation of the eligible regulatory capital must decrease progressively by at least 20 percent each year during the final 5 years of the issue period. |
| Article 62-4 | For the advanced calculation method for the regulatory capital adequacy ratio, the scope of Tier 3 capital is of the sum total of short-term subordinated bonds and non-perpetual preferred stock.
For purposes in connection with Tier 3 capital, "short-term subordinated bonds" and "non-perpetual preferred stock" shall meet the following requirements:
1. The entire amount of any given issue must be collected in full.
2. The securities firm or its affiliate enterprises have not provided any guarantees or collateral to advance the seniority ranking of the holders.
3. The issue period is 2 years or longer.
4. Repayment may not be made before the stipulated repayment date, provided that this rule does not apply if the FSC has granted its approval.
5. When the securities firm's regulatory capital adequacy ratio is lower than the minimum ratio requirement of the time of issuance due to interest or principal payment, the payment of dividends, interest, and principal shall be deferred. |
| Article 62-5 | If any circumstance listed below exists in connection with common stock, preferred stock, or subordinated bonds issued by a securities firm, when calculating the regulatory capital adequacy ratio and the regulatory capital by the advanced calculation method, the securities firm shall be deemed to have not issued such capital instruments:
1. The securities firm, at the time of issuance or after issuance, provides funds to holders of such capital instruments, thus impairing the substantive benefits of using them as capital instruments, and the FSC requests that such capital instruments be deducted from the capital.
2. A subsidiary of the financial holding company to which the securities firm belongs holds such capital instruments.
If capital instruments issued by the securities firm are funded and invested by the securities firm's parent financial holding company with external capital, the securities firm shall determine the capital type based upon the lower of the capital instruments issued by the securities firm and the capital instruments issued by the parent company. |
| Article 62-6 | In the advanced calculation method for the regulatory capital adequacy ratio, the net amount of eligible regulatory capital is the sum total of Tier 1 capital, eligible Tier 2 capital, and eligible and employed Tier 3 capital, provided that the sum of eligible Tier 2 capital and eligible and employed Tier 3 capital shall not exceed Tier 1 capital.
The eligible Tier 2 capital and eligible and employed Tier 3 capital as referred to in the preceding paragraph shall meet the following requirements:
1. The capital required to cover credit risk and operational risk is limited to Tier 1 capital and Tier 2 capital only, and the Tier 2 capital employed may not exceed the Tier 1 capital used to cover credit risk and operational risk.
2. The capital used to cover market risk shall meet the following requirements:
(1) The capital used to cover market risk must include Tier 1 capital. The remainder of the Tier 2 capital after being used to cover credit risk and operational risk may be used to cover market risk.
(2) Tier 3 capital may be used only to cover market risk. When Tier 2 capital and Tier 3 capital are used to cover market risk, the sum total of these two shall not exceed 250 percent of the Tier 1 capital used to cover market risk. |
| Article 62-7 | The calculation of the credit risk, market risk, and operational risk equivalents under the advanced calculation method for the regulatory capital adequacy ratio shall be done in accordance with the calculation method for the securities firm's regulatory capital and risk equivalent.
The calculation method for the securities firm's regulatory capital and risk equivalent referred to in the preceding paragraph shall be prescribed by the FSC. |
Section 4 Reporting And Supervision
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| Article 63 | Securities firms, other than those concurrently operating financial institutions and foreign securities firms who have the FSC approval for waiver of this Chapter's regulations, shall fill out the Itemized Statement of the Regulatory Capital Adequacy of the Securities Firm monthly in accordance with the applicable calculation method, and by the 10th of the next month, report it according to the method prescribed in Article 21, paragraph 3. When necessary, the FSC shall require securities firms to file reports at any time.
The format of the Itemized Statement of the Regulatory Capital Adequacy of the Securities Firm referred to in the preceding paragraph shall be prescribed by the FSC.
In addition to disclosing capital adequacy information of the securities firm pursuant to the requirements of the FSC, the TWSE, or other relevant institutions, a securities firm shall disclose the most recent regulatory capital adequacy ratio information in the annual report. |
| Article 64 | When the regulatory capital adequacy ratio of a securities firm is at least 120 percent but is less than 150 percent, the FSC may take the following actions:
1. Postpone any additions by the securities firm to its types of operations or lines of business and any establishment of additional 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 Article 21, paragraph 3.
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 percent for special reserve according to Article 41, paragraph 1 of the Act. |
| Article 65 | When the regulatory capital adequacy ratio of a securities firm is at least 100 percent but is less than 120 percent, the FSC, in addition to handling the matter according to subparagraphs 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 percent for special reserve according to Article 41, paragraph 1 of the Act. |
| Article 66 | When the regulatory capital adequacy ratio of a securities firm falls below 100 percent, the FSC, in addition to handling the matter according to Article 64, subparagraphs 1 and 2 and Article 65, subparagraphs 1 and 2 herein, 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 Article 41, paragraph 1 of the Act. |
| Article 67 | Securities firms that have already set aside special reserve in accordance with Articles 64 to 66 for the previous year, when setting aside 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 regulatory capital adequacy ratio. |
Chapter VII Supplemental Provisions |
| Article 68 | A securities firm operating securities business in violation of these Regulations shall be subject to the punishment under the Act. |
| Article 69 | These Regulations shall become effective as of the date of promulgation. |