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Procedures for handling default:
(1) A securities broker reporting on the default of a principal in accordance with Article 91, Paragraph 1 of the Operating Rules of the Taiwan Stock Exchange Corporation shall immediately undertake settlement procedures on behalf of the principal. For handling of securities or payments received as a result of settlement, the broker shall consign other securities brokers to dispose or purchase securities on the Exchange on the first day following the principal's default. Resulting gains or losses shall b
e handled in accordance with Article 19 of the "Taiwan Stock Exchange Corporation Criteria Governing Consignment Contracts of Securities Brokers."
(2) The securities broker shall make separate reports on defaults on settlement obligations for securities purchased or sold by the same principal, and the total amount of securities or payments received through effecting settlement on behalf of the principal shall be consigned to other securities brokers for handling and may not be offset by the securities broker. However, for the same securities traded through the same account on the same reporting day, securities brokers may offset trades of the same
volume.
(3) Following handling of a default in accordance with the preceding paragraph, the securities broker shall, prior to 6:00 p.m. of the same day, enter information on the handling of the default into the computers of the TSCD and notify the principal.
(4) When the default of a principal has been reported in accordance with Article 91, Paragraph 2 of the Operating Rules of the Taiwan Stock Exchange Corporation, the securities broker shall buy back the securities in question from the Exchange in accordance with the time period stipulated under Paragraph 5 of the same Article, and thereafter seek compensation from the principal himself.
(5) Where the aggregate number of [shares represented by] the share certificates of securities received by a securities broker handling settlement on behalf of a principal under Paragraph 1 during the period of a single breach reaches 5 percent or more of the number of shares of the underlying securities already issued, and furthermore reaches or exceeds the average daily volume of the underlying securities during the 20 trading days prior to reporting of the breach, the securities broker may adopt eithe
r of the following measures to handle the breach:
1. If handling of the breach cannot be completed through reverse transactions during the three consecutive business days from the day next following the date of confirmation of the breach by the principal, the securities broker, by reaching a mutual agreement with the principal or by notice to the principal, may, depending on market conditions, in accordance with the content of the agreement or the notice, complete handling of the breach through reverse transactions within 180 days, and report the agreem
ent or notice to this Corporation via letter for recordation.
2. The securities broker may reach an agreement with the principal setting a price(s) to serve as the basis for calculating profit/loss, and submit the written agreement reached between the parties to this Corporation via letter for recordation.
(6) When a securities broker fails to handle the default in accordance with the above rules, the TSEC may, in accordance with Article 136 of the Operating Rules of the Taiwan Stock Exchange Corporation, notify the broker to take supplemental action or rectify the situation.
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