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Taiwan Stock Exchange Corporation Guidelines for Securities Brokers in Reporting Delayed Settlement and Default by Principals(2008.09.03) |
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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) When it has confirmed the occurrence of default by a principal, a securities broker shall immediately enter the default information into the TWSE computer no later than 11 a.m. on the second business day after the trade date. However, when bank operations prevent the broker from learning of any shortfall in the deposit of securities prices until after 11 a.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) In the case of block trades that are to be settled on the trade date, when it has confirmed the occurrence of default by a principal, a securities broker shall immediately enter the default information into the TWSE computer, no later than 2:30 p.m. on the trade date.
In the case of block trades that are to be settled on the second business day after the trade date, when it has confirmed the occurrence of default by a principal, a securities broker shall proceed in accordance with the provisions of items (i) and (ii).
(iv) A securities broker that enters information in accordance with the time period specified in items (i), (ii), or (iii) 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.
(v) 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 Responding to 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 any event of default under Article 91, paragraph 3 of the TWSE Operating Rules or in which a principal participating in bidding-to-purchase under the Taiwan Stock Exchange Corporation Regulations Governing Auction of Listed Securities by Consignment fails to perform settlement obligations on time, the securities broker shall submit to the TWSE for recordation a report by letter meeting the requirements listed below.
(1) Content of the report by letter:
(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.
3. When a securities broker receives a brokerage order to buy or sell securities through an omnibus trading account, if the principal fails to perform its settlement obligations and default occurs, the securities broker shall report the default on the basis of the principal's brokerage account.
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III. Reporting of delayed settlement and cancellation operations:
If the principal is an offshore overseas Chinese or foreign national, and the principal has failed to complete settlement on time and the securities broker has not reported default, the securities broker shall input the delayed settlement information into the TWSE computer by 11 a.m. on the second business day after the trade date; the same applies in the case of block trades to be settled on the second business day after the trade date.
The securities firm shall keep detailed records of the handling of delayed settlement under the preceding paragraph.
If it is on record that the securities broker reported delayed settlement to the TWSE as provided in the preceding paragraph, if by 6 p.m. on the third business day after the trade date, the principal performs its settlement obligations on time for its securities sold or for the price payable after netting its buy and sell trades or the securities broker reports an out-trade, the securities broker shall report to the TWSE to cancel the record of delayed settlement.
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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 funds for the price thereof, received as a result of settlement, the broker shall engage another securities broker to dispose or purchase securities on the Exchange no later than the first day following the principal's default. Resulting gains or losses shall be handled in accordance with Article 19 of the TWSE Regulations Governing Brokerage 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 funds for the price thereof, received through effecting settlement on behalf of the principal shall be entrusted to another securities broker 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 enter information on the handling of the default into the computers of the TWSE, and notify the principal, no later than 10 a.m. on the second business day after the handling of it.
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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