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Regulations Governing Applications for Issuance of Call (Put) Warrants by Issuers(2007.12.28) |
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Article 1
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These Regulations are adopted pursuant to Article 22, paragraph 1 of the Securities and Exchange Act.
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Article 2
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The issuance of call (put) warrants, except for where otherwise provided for by law or regulation, shall be governed by these Regulations.
The term "call (put) warrant" as used in these Regulations means a security which is issued by a third party other than the company issuing the underlying security, and which represents that the holder is entitled to buy from or sell to such third party the underlying security at the exercise price during the option period or on a specified maturity date, or to collect a spread by settlement in cash.
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Article 3
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The term "issuer" as used in these Regulations means a third party, other than the issuing company of the underlying security, that is concurrently engaged in the following three businesses: securities underwriting, proprietary dealing, and brokerage or intermediary services.
An issuer that is a foreign institution shall submit an approval letter or a performance undertaking from its board of directors, after which a branch unit within the territory of the Republic of China (ROC) or a branch unit established in ROC territory by a directly or indirectly wholly-owned subsidiary shall submit an application in the name of the foreign entity. The business operated by the aforementioned subsidiary or ROC-based branch unit shall comply with the provisions of the preceding paragraph.
Where a foreign institution as referred to in the preceding paragraph has established a branch office within ROC territory through its directly or indirectly wholly owned subsidiary, the branch office shall be designated to be responsible for carrying out matters related to the issuance and exercise of the warrants and disclosure of relevant information.
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Article 4
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The fact that it has received accreditation as a qualified issuer of call (put) warrants may not be cited by an issuer in its publicity either as proof of the veracity of its application particulars, or as guarantee of the value of its call (put) warrants.
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Article 5
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To issue call (put) warrants, an issuer shall first apply to the Financial Supervisory Commission (FSC), Executive Yuan for accreditation as a qualified issuer of call (put) warrants.
In order to apply to the FSC for accreditation as a qualified issuer of call (put) warrants, a domestic issuer must have a credit rating of a certain grade issued by a credit rating institution approved by the competent authority; a foreign issuer may submit application on the basis of a credit rating of a certain grade issued by a credit rating institution recognized by the competent authority.
Where an issuer engages a foreign institution to act as a risk management institution, or where an issuer is a foreign institution, it shall first obtain a consent letter from the competent authority in charge of foreign exchange.
In order to apply to the FSC for accreditation as a qualified issuer of call (put) warrants, an issuer shall submit an Application for Accreditation as a Qualified Call (Put) Warrants Issuer (see attachment) furnishing all required particulars, together with duplicate copies of all other required documents, to the Taiwan Stock Exchange Corporation (TSEC) or the GreTai Securities Market (GTSM). After the TSEC or GTSM examines and approves the application, the applicant shall file the examination opinion with the FSC for final review and approval.
In carrying out final review and approval of an application for accreditation of qualifications to issue call (put) warrants as referred to in the first paragraph of this article, the FSC shall act on the basis of a financial report duly audited and attested by a certified public accountant (CPA), a licensed attorney's opinion regarding legal and regulatory compliance, credit rating information, related documents, and an examination opinion issued by the TSEC or the GTSM.
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Article 6
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If, at any time on or after the date on which an issuer applies to the FSC for accreditation as a qualified issuer of call (put) warrants, an event occurs which has a material impact on shareholders' equity or securities prices as contemplated in Article 36, paragraph 2, subparagraph 2 of the Securities and Exchange Act, in addition to duly making a public announcement and filing with the TSEC or GTSM within two days of the date of the occurrence of the fact, the issuer shall also provide the CPA who attested to its financial report with a professional opinion from an appropriate expert, as dictated by the nature of the event, and retain the CPA to provide an opinion regarding the effect of the event upon the financial report, and shall then file the opinion with the TSEC or GTSM. The TSEC or GTSM shall then provide an opinion on how to handle the matter and file it with the FSC.
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Article 7
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When any one of the following circumstances applies to an issuer that has applied for accreditation as a qualified issuer of call (put) warrants, the FSC may deny accreditation:
1. It has made incomplete submission of required application documents, and has failed to supplement those documents by the deadline prescribed by the FSC.
2. Particulars of the application do not conform to laws and regulations, or the application contains misrepresentations or nondisclosures.
3. There is a major loss of creditworthiness which has yet to be settled, or four years have not elapsed since settlement.
4. The issuer fails to meet any of the requirements in the subparagraphs of Article 38, subparagraphs 2 to 5 of the Standards Governing the Establishment of Securities Firms; or, if the issuer is a foreign institution, a similar failure exists on the part of its head office.
5. The issuer's regulatory capital adequacy ratio for the half year preceding the application date is lower than 200 percent; or, if the issuer is a foreign institution, a similar circumstance applies to its head office.
6. The issuer lacks appropriate risk management measures.
7. The issuer has been incapable of meeting obligations in connection with a previous issue of call (put) warrants.
8. In the most recent year the issuer has failed to comply with TSEC or GTSM regulations applicable to call (put) warrants, and improvement within a specified time period was not possible.
9. The issuer fails to prepare financial reports in accordance with generally accepted accounting principles, or effective enforcement of its internal control system is not possible.
10. The issuer violates Article 6, or an assessment shows that its filed particulars might have material impact on its financial status.
11. There is a major dispute or violation with respect to rights and interests that could influence the issuer's finances or business, and there is no resolution or improvement.
12. There is factual evidence of material irregularities with the issuer's finances or business.
13. The FSC otherwise considers it necessary to deny accreditation in order to protect the public interest.
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Article 8
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The underlying securities of call (put) warrants issued by an issuer are limited to stocks, baskets of stocks, and exchange-traded funds that are listed on the TSEC or GTSM and meet conditions prescribed by the TSEC or the GTSM.
If the company that issued one of the underlying securities contemplated in the preceding paragraph is involved in a merger or acquisition, the FSC may suspend further issuance by an issuer of call (put) warrants on that underlying security, and shall suspend the issue of warrants that an issuer has received permission to issue but has not yet issued. However, call (put) warrants already issued shall remain valid.
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Article 9
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After an issuer has been accredited by the FSC as a qualified issuer of call (put) warrants, the FSC may suspend its issuance of call (put) warrants if it is discovered (or if the TSEC or GTSM informs the issuer by letter) that the circumstances set out in any of the subparagraphs under Article 7 apply to the issuer.
After an issuer has been accredited by the FSC as a qualified issuer of call (put) warrants, the FSC shall suspend its issuance of call (put) warrants if its regulatory capital adequacy ratio remains below 200 percent for three consecutive months or its credit rating falls below the required grade, and its accreditation will not be reinstated until improvement has been made. The same applies to a foreign issuer if similar circumstances obtain with respect to its head office.
When an issuer is suspended from issuance of call (put) warrants in accordance with the provisions of either of the preceding two paragraphs, it shall suspend the issue of warrants that it has received permission to issue but has not yet issued. However, call (put) warrants already issued shall remain valid.
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Article 10
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After an issuer has been accredited by the FSC as a qualified issuer of call (put) warrants, the issuer shall obtain consent from the TSEC or the GTSM for the call (put) warrants that it plans to list on an exchange or an over-the-counter market, and may not proceed with issuance and sales until the TSEC or the GTSM has consented to its issuance plan.
The issuer of the call (put) warrants referred to in the preceding paragraph shall enter into a contract with the TSEC or the GTSM for exchange listing or over-the-counter listing of call (put) warrants. The TSEC or the GTSM shall report the contract for exchange listing or over-the-counter listing to the FSC for approval.
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Article 11
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After the issuer's contract for exchange listing or over-the-counter listing has been approved by the FSC but before the call (put) warrants have begun to be bought and sold on the market, if it is discovered (or if the TSEC or GTSM informs the issuer by letter) that the circumstances set out in any of the subparagraphs under Article 7 apply to the issuer, the approval may be voided or revoked.
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Article 12
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If a contract for exchange listing or over-the-counter listing of call (put) warrants reported by the TSEC or the GTSM is not approved by the FSC, or if its approval is later voided or revoked, the issuer shall, within 10 days from the day when it receives notification from the TSEC or GTSM, refund (with statutory interest included) the price of the call (put) warrants that it has already issued.
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Article 13
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An issuer issuing call (put) warrants may contract with a securities underwriter to underwrite the call (put) warrants, or it may sell the warrants by itself. The issuer shall deliver a prospectus to subscribers.
Matters to be stated in the prospectus referred to in the preceding paragraph shall be prescribed by the TSEC or the GTSM and reported to the FSC for approval.
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Article 14
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Before issuing offshore call (put) warrants, an issuer shall first obtain accreditation as a qualified issuer of call (put) warrants from the FSC, and from the competent authority or an exchange in the place where the warrants will trade.
After obtaining accreditation as a qualified issuer of call (put) warrants from the competent authority or an exchange in the place where the warrants will trade, the issuer shall file relevant documents with the FSC for recordation.
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Article 15
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The securities exchange where offshore call (put) warrants are issued by an issuer shall meet the following conditions:
1. It must be organized as either a securities exchange or over-the-counter market subject to regulation by the local competent authority.
2. The sovereign rating of the country where the warrants are to trade shall meet one of the following conditions:
(1) Standard & Poor's Corporation has given a rating of A- or higher.
(2) Moody's Investors Service has given a rating of A3 or higher.
(3) Fitch Ratings Ltd. has given a rating of A- or higher.
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Article 16
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Where an issuer issues offshore call (put) warrants for which the underlying security is a domestic security, the underlying security shall comply with the provisions of Article 8; where the underlying security is an offshore security, the underlying security shall comply with the requirements of the competent authority or exchange where the warrants are traded. However, the following may not be among the underlying securities:
1. Securities listed on mainland China securities markets, and securities issued or managed by the government of, or a company from, mainland China.
2. Securities issued by companies whose stocks are components of the Hang Seng China-Affiliated Corporations Index.
3. Securities issued by a company in which a government or company of the mainland China area directly or indirectly holds equity of 30 percent or more, and which are traded on a securities market in the Hong Kong or Macao area.
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Article 17
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Permission from the Central Bank is required for an issuer to issue offshore call (put) warrants.
When an issuer issues offshore call (put) warrants and undertakes related hedging transactions, foreign exchange settlement matters shall be carried out in accordance with the Regulations Governing the Declaration of Foreign Exchange Receipts and Disbursements or Transactions.
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Article 18
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The total amount of offshore call (put) warrants issued by an issuer shall be the combined total of the offshore call (put) warrants and the domestic call (put) warrants that it has issued, and is governed by the applicable requirements of the TSEC or GTSM.
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Article 19
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Where an issuer issues offshore call (put) warrants for which the underlying security is a domestic security, the total amount of warrants written on a single underlying security shall be governed by the applicable requirements of the TSEC or GTSM.
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Article 20
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After it has issued offshore call (put) warrants and filed with the FSC for recordation pursuant to Article 14, but before it has applied to the competent authority or an exchange in the place where the warrants will trade, an issuer shall file the relevant documents as required by the TSEC or GTSM.
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Article 21
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An issuer that issues offshore call (put) warrants shall establish a special account for hedging operations, and shall handle it in compliance with the applicable requirements of the TSEC or GTSM.
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Article 22
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Where an issuer issues offshore call (put) warrants for which the underlying security is a domestic security, payment at exercise shall be limited to cash settlement; where the underlying security is an offshore security, payment at exercise shall comply with the requirements of the competent authority or exchange where the warrants are traded.
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Article 23
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After an issuer has issued offshore call (put) warrants and filed with the FSC for recordation pursuant to Article 14, the FSC may suspend its issuance of offshore call (put) warrants if it is discovered (or if the TSEC or GTSM informs the issuer by letter) that the circumstances set out in any of the subparagraphs under Article 7 apply to the issuer.
After an issuer that intends to issue offshore call (put) warrants has filed relevant documents with the FSC for recordation in accordance with Article 14, the FSC shall suspend its issuance of offshore call (put) warrants if its regulatory capital adequacy ratio remains below 200 percent for three consecutive months or its credit rating falls below the required grade, and its accreditation will not be reinstated until improvement has been made.
When an issuer is suspended from issuance of offshore call (put) warrants in accordance with the provisions of either of the preceding two paragraphs, it shall act in compliance with the requirements of the competent authority or exchange where the warrants are traded to suspend the issue of warrants that it has received permission to issue but has not yet issued. However, call (put) warrants already issued shall remain valid.
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Article 24
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These Regulations shall be implemented from the date of issuance.
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