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Rules Governing Securities Firms(2002.11.28) |
| Date： |
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Article 6
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A securities firm shall install internal auditors to periodically and from time to time examine the company's finance and business and prepare audit reports for inspection.
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.
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Article 14-3
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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 SFC.
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Article 14-4
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(deleted)
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Article 14-5
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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 Rules.
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Article 16
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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, unless it is concurrently operated by a financial institution and subject to the Banking Law, shall not be more than 60% of the total amount of its assets.
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Article 18
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Unless a securities firm is concurrently operated by a financial institution and subject to the Banking Law, 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 SFC-approved securities of a specific ratio, or transfer of investment in an SFC-approved securities, futures, banking, finance or other related institution of a specific ratio; the total combined amount of such investment shall not exceed 40% of the firm's net capital value, and the total amount of equity investment among such investment shall not exceed 40% of the firm's paid-in capital; and
5. Other purposes approved by the SFC.
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Article 25
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When a securities underwriter is consigned to handle matters relating to the offering, issuing, listing, and trading on over-the-counter market of securities, the assessment report 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 and its application shall be rejected or 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 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 Item 2 of Paragraph 2 of Article 36 of the Securities and Exchange Law and the underwriter does not immediately add the supplementary information to the assessment and change the report; or
7. Violating other securities laws and regulations and other relevant laws and regulations.
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Article 26
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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% of the outstanding shares aggregately hold 10% 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% of the outstanding 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% 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 the total shares held by either party and related parties exceed 50% 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.
The related parties referred to in Item 6 of the preceding Paragraph is defined as in Number 6 of the Statements of Financial Accounting Standards on the rules for Disclosure of Related Party Transactions.
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Article 32-1
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As needed for hedging in the issuance of put warrants, a securities firm may borrow the underlying securities from holders thereof and sell them, or sell the underlying securities short in an exchange market.
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.
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Article 42
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A securities firm consigned to trade securities shall prepare a trading report for signing/sealing by the customer after the customer executes a trade; provided that the trading 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 trading report referred to in the preceding Paragraph is confirmed by an agent consigned by the customer for securities trading, a power of attorney issued by the customer shall be provided.
If the funds and securities of the customers of a securities firm consigned 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 Paragraph 1 of Article 28 of the Rules Governing Book-entry Operations of securities in Centralized Custody regarding recordation on passbook shall not apply.
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Article 49
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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 SFC has approved investment.
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Article 50
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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 SFC in the most recent 3 months
2. Have not been ordered by the SFC to relieve or replace the duties of its director, supervisor, or manager in the most recent six months.
3. Have not had business suspended as punishment from the SFC within the last year.
4. Have not had the license of branch offices or of a portion of the business invalidated by the SFC as punishment within the last 2 years.
5. Have not had trading terminated or restricted by the stock exchange, the OSE, or the Futures Exchange as punishment under each of their regulations or rules.
6. The self-owned capital adequacy ratio has not been below 200% within the most recent 3 months, and the financial structure is sound and in accordance with the rules of these Regulations.
7. Have complied with Article 4 of the Regulations Governing the Screening and Disposal of Outward Investment and Outward Technical Cooperation Projects promulgated by the Ministry of Economics.
8. The total amount invested in foreign enterprises has not exceeded 20% of the securities' firm's net value. However, when there is special need and approval as a special case has been received, this provision does not apply.
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Article 51
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Securities firms applying for investment in a newly formed foreign enterprise shall provide the following documents to the SFC 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' meeting, members 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 re-invested foreign enterprises where the investment shareholding percentage has exceeded 50%. 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 SFC.
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Article 52
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Securities firms applying for investment in foreign enterprises shall provide the following documents to the SFC 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' meeting, members' 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 re-invested foreign enterprises where the investment shareholding percentage has exceeded 50%. 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 three fiscal years, etc.
8. The investment (or joint venture) agreement.
9. Other documents required by the SFC.
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Article 55
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When securities firms directly or indirectly investing in foreign enterprises holding 50% or more of their shares, those foreign securities being thus invested may not further reinvest in securities-related enterprises in the ROC.
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Article 56
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Securities firms investing in foreign enterprises are limited to the following types for putting up capital:
1. Outward remittance.
2. Net profit or other benefits obtained from outward investment.
3. Remuneration or other benefits obtained from outward technical cooperation.
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Article 57
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Securities firms investing in foreign enterprises shall, within 3 months after the date of the SFC approval, apply as required to the Investment Committee of the Ministry of Economics for approval (record).
If the securities firm does not follow the procedure referred to in the preceding paragraph, the SFC will invalidate its original approval.
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Article 58
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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 SFC for record.
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Article 60
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The qualified net amount of self-owned capital referred to in Paragraph 2 of the preceding Article is the difference/balance amount of the added sum of the capital under following categories 1 and 2 minus the following non-liquid items shown in the balance sheet: prepaid amount, special funds, long-term share equity investment, fixed assets, intangible assets, business operation guaranty, transaction settlement funds, security deposits, deferred loans, lease-out asset, idle assets, deferred income taxed assets - illiquid, restricted assets - illiquid:
1. Category I capital: the total of capital stock (common stock, perpetual non-cumulative preferred stock), capital reserve, retained earnings or accumulated losses, unrealized losses on long-term investments in equity securities due to price decline, 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., among which the unrealized losses on long-term investments in equity securities due to price decline shall be limited to the re-investment in domestic listed and OTC companies.
2. Category II capital: the total of capital stock (perpetual cumulative preferred stock), reserve for trading losses, reserve for losses from breach of contract, net profit from valuation of securities, unrecognized net loss on valuation of operating securities, unrecognized profit from appreciation of market price of operating securities, among which net profit from valuation of securities, unrecognized net loss on valuation of operating securities, unrecognized profit from appreciation of market price of operating securities shall be calculated as follows:
(1) net profit from valuation of securities: 70% of the difference of fair value in excess of the book value of the short-term investments, operating securities - call (put) warrant, operating securities - dealing department, operating securities - underwriting department, operating securities - hedge, long-term investments, etc. on the balance sheet shall be recognized; provided that the long-term investments which have been recorded as deduction assets shall not be included, and that operating securities - hedge shall be fully recognized after deduction of the amount of loss on deferred call (put) warrants.
(2) unrecognized net loss on valuation of operating securities: limited to the difference of the fair value below the book value of the operating securities and the shortage of allowance for decline in value entered on account.
(3) unrecognized profit from appreciation of market price of operating securities: to be calculated based on the allowance for decline in value excessively recorded on the account.
Deduction amounts for deductible assets under the preceding paragraph shall be prescribed by the SFC.
Where the amount of Category I capital exceeds that of Category II capital, calculation shall be based on the amount of Category I capital.
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Article 62
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The risk coefficients of those positions within or outside of the balance sheet and the relevant risk coefficients of the transaction counter party 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 self-owned capital adequacy ratio.
The particulars and method of calculation of the risk coefficient table used by securities firms to calculate their self-owned capital adequacy under the preceding paragraph shall be prescribed by the SFC.
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Article 63
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Securities firms, other than those concurrently operating financial institutions and foreign securities firms who have SFC approval for waiver of this Chapter's regulations, shall fill out the Itemized Statement of the Self-Owned Capital Adequacy of the Securities Firm monthly and before the 10th of the next month, report it according to the method prescribed in Paragraph 3 of Article 21. When necessary, the SFC shall require securities firms to file reports at any time.
The format of the Itemized Statement of the Self-Owned Capital Adequacy of the Securities Firm referred to in the preceding paragraph shall be prescribed by the SFC.
Securities firms shall disclose the most recent self-owned capital adequacy ratio information in the annual report.
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