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II. Procedures for reporting default:
A principal that fails to effect settlement within the specified period is in default. Securities brokers shall report the default in accordance with the provisions below, and shall at the same time notify the principal:
1. Computer transmission:
(1) Period for computer entry:
(i) Following confirmation of default by a principal, a securities broker shall immediately enter the default information into the TWSE computer. The deadline for reporting, in the case of delivery of securities sold, is 6:00 p.m. on the first business day following the confirmation of the trade; for the prices of securities purchased, the deadline is 6:00 p.m. on the second business day following the confirmation of the trade. However, on Monday through Friday, when bank operations prevent the broker from learning of any shortfall in the deposit of securities prices until after 6:00 p.m., the information shall be entered immediately, with a deadline of 8:00 p.m., and the bank notice shall be sent with a letter of report to the TWSE for verification.
(ii) If the principal is an offshore overseas Chinese or foreign national, when the securities broker reports the principal's delayed settlement and the principal fails to perform settlement obligation on time, the input time set forth in the preceding subparagraph may not be later than 6 p.m. of the third business day after the trade date.
(iii) A securities broker that enters information in accordance with the time period specified in items (i) or (ii) may, at 8:30 a.m. the next morning, receive and review the information on the principal's contractual default and submit it for display on the TWSE public announcement information system for that afternoon.
(iv) When a natural disaster occurs such that local mayors and county magistrates announce closure of schools and public offices, electronic reporting by securities brokers within the affected region shall be undertaken in accordance with the provisions for handling of settlements due in the TWSE Measures for Market Closing or Trading During Natural Disasters.
(2) Accidental breakdowns:
When accidental breakdowns result in interruptions in the computer transmission lines, securities brokers shall inform the TWSE Trading Department by telephone, and put information required to be input into written form, and after affixing the seals of the company and responsible person, send it via facsimile to the TWSE, which will subsequently carry out supplemental input based on the information contained in the facsimile.
2. Default report letter:
In addition to the report to the TWSE referred to in the preceding paragraph, in any instance when defaults by the same principal on the same day total NT$10 million or more, the securities broker shall file a letter of report with the TWSE for its files; the same shall be true when the default violates Article 91, paragraph 2 of the TWSE Operating Rules.
(1) Report letter content:
(i) The name of the principal.
(ii) The principal's account number.
(iii) The principal's national ID number.
(iv) The principal's address.
(v) The facts of the default.
(2) Copies of documents to be attached:
(i) The front and reverse sides of the principal's national ID card.
(ii) The consignment contract (front and reverse sides).
(iii) The letter of consignment.
(iv) The trading report.
(v) The settlement receipt form.
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V. Procedures for handling default:
1. A securities broker reporting on the default of a principal in accordance with Article 91, paragraph 1 of the TWSE Operating Rules 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 be handled in accordance with Article 19 of the TWSE 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 TWSE and notify the principal.
4. When the default of a principal has been reported in accordance with Article 91, paragraph 3 of the TWSE Operating Rules, the securities broker shall buy back the securities in question from the Exchange in accordance with the time period stipulated under paragraph 6 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 either 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 agreement 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. If a securities broker fails to handle the default in accordance with the provisions above, the TWSE may, in accordance with Article 136 of the TWSE Operating Rules, notify the broker to take supplemental action or rectify the situation.
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