||Regulations Governing Securities Firms(2012.01.10)
A securities firm operating the business of accepting brokerage orders to trade securities on the centralized securities exchange market shall make deposits to the TWSE settlement and clearing fund in the following manner:
A securities firm operating over-the-counter securities trading business for customers??accounts or its own account shall make deposits to the GTSM settlement and clearing fund in compliance with the applicable requirements of the GTSM.
- 1. Before commencement of business operation, the securities firm shall deposit a basic amount of NT$15 million; after commencement of business operation, it shall deposit a specified percentage of the net receipt or net payment amount of the executed trades of TWSE listed securities for which it has accepted brokerage trading orders within 10 days after the close of each quarter until the end of the then-current year. The said percentage shall be separately determined by the FSC.
- 2. From the year following the commencement of business operation, the original basic amount shall be reduced to NT$3.5 million and combined into the amount equal to the above-mentioned percentage of the net receipt or net payment amount of the executed trades of TWSE listed securities for which it accepted trading orders for the previous year on a yearly basis. At the end of January of each year, the insufficient or excess amount of the fund shall be deposited with or withdrawn from the TWSE.
Before the commencement of business operation, a securities firm trading securities for its own account on the centralized securities exchange shall make a lump sum deposit of NT$5 million to the TWSE settlement and clearing fund. After commencement of business operation and from the year following commencement of business operation, in addition to the basic amount, it shall furthermore continue to make deposits to the fund based on a specified percentage of the net receipt or net payment amount of the trades of TWSE listed securities that it has executed for its own account. The method for calculation and lodging of the deposit shall follow that set out in the preceding paragraph.
A securities firm trading securities for customers' accounts and its own account on the centralized securities exchange shall deposit an aggregate of the amounts referred to in the preceding two paragraphs.
Before commencement of business operation of each domestic branch office, a securities firm shall make a lump sum deposit of NT$3 million to the settlement and clearing fund; provided that from the year following the business operation, the original amount shall be reduced to NT$500,000.
A joint liability system shall be adopted for the settlement and clearing fund deposited by securities firms, and a special management committee of the fund shall be set up. The management rules shall be drafted by the TWSE with input from the securities dealers' association and reported to the FSC for approval. This provision shall apply to the amendment of the said rules.
The special management committee of the fund may, depending on the degree of overall risk of a securities firm, notify the securities firm to make additional deposits to the settlement and clearing fund and report such to the FSC for recordation. The detailed rules for the above fund shall be drafted by the special management committee of the fund and reported to the FSC for approval. This provision shall apply to the amendment of the said rules.
Unless a securities firm is concurrently operated by a financial institution and subject to other relevant acts or regulations, its total debts to other parties shall not be more than 4 times its net worth. The total amount of its current liabilities shall not exceed the total amount of its current assets; provided that, unless otherwise provided by the FSC, the total amount of debts to other parties of a securities firm trading securities for customers' accounts or for its own account shall not exceed its net worth.
In calculating the total amount of liabilities referred to in the preceding paragraph, the liabilities arising from trading of government bonds may be deducted.
Unless a securities firm is concurrently operated by a financial institution and subject to other relevant acts or regulations, 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:
When funds are utilized under subparagraphs 4 and 5 of the preceding paragraph, the total original acquisition cost shall not exceed 30 percent of the securities firm's net worth.
- 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 securities in a specific ratio in compliance with FSC provisions; and
- 5. Other purposes approved by the FSC.
When a securities firm makes equity investment in any securities, futures, financial, or other enterprises, the total amount of its equity investments in those enterprises may not exceed 40 percent of the securities firm? net worth, and shall comply with Article 13 of the Company Act. The FSC shall separately prescribe the scope of individual enterprises within which a securities firm may make equity investment and related provisions.
When a securities firm merges with or acquires a financial institution, if approval is obtained from the FSC, the total amount of the investment therein may be exempted from the restriction in the preceding paragraph. In that event, the amount in excess shall be brought into compliance with the restriction within 6 months after the merger or acquisition.
A securities firm that operates only securities brokerage business, when holding shares in any single company, may do so either by the method in paragraph 1, subparagraph 4 of the preceding article, or by the equity investment method in paragraph 1 herein, but not by both methods.
A securities firm trading securities for its own account, unless it is concurrently operated by a financial institution and subject to other relevant acts or regulations, shall do so in accordance with the following rules:
A securities firm, when holding shares in any single company, may do so either by the method of a proprietary trading position or by the equity investment method in paragraph 1 of the preceding article, but not by both methods.If the aggregate of the securities acquired by a securities firm for underwriting purposes, counted in combination with those acquired under the preceding paragraph, exceeds the limit prescribed by the FSC, the portion in excess shall be sold within 1 year after its acquisition in accordance with Article 75 of the Act.
- 1.The firm shall not hold more than 10 percent of the total issued shares of any domestic company. The total amount of the cost of the securities issued by any domestic company held by such securities firm shall not be more than 20 percent of the securities firm's net worth.
- 2.The firm shall not hold more than 5 percent of the total issued shares of any foreign company. The total amount of the cost of the securities issued by any foreign company held by such securities firm shall not be more than 10 percent of the securities firm's net worth.
- 3.The total amount of the investment cost of a securities firm in holdings of equity securities issued by a single related party may not exceed 5 percent of the firm's net worth. The total amount of the investment cost of a securities firm in holdings of equity securities issued by all related parties may not exceed 10 percent of the firm's net worth. However, these restrictions are exempted in the handling of exercise and hedging operations for call (put) warrants and structured instruments, and in the hedging of beneficial certificates of exchange traded funds and the underlying baskets of stock represented by such beneficial certificates.
The term "related party" in these Regulations is defined in accordance with Statements of Financial Accounting Standards No. 6, Related Party Disclosures.
Derivative financial product trading business operated by a securities firm may not be linked to any of the below-listed underlyings, unless it is in trading with a qualified institutional investor and an application has been made under Article 19-7:
- 1. Securities privately placed domestically or abroad.
- 2. Securities issued overseas by domestic enterprises or certificates of beneficial interest issued overseas by domestic securities investment trust enterprises.
- 3. Any Taiwan stock index compiled by a domestic or foreign institution and related financial commodities, provided that this restriction shall not apply to an index compiled by the GTSM or the TWSE, either singly or in cooperation.
- 4. Securities on a mainland area securities market, or securities issued or managed by the government of, or a company from, the mainland area.
- 5. Any foreign exchange product involving a requirement of approval by the Central Bank.
Within 3 months after the close of each fiscal year, a securities firm shall publicly announce and report to the FSC the annual financial reports audited and attested by certified public accounts, approved by the board of directors, and recognized by the supervisors; within 2 months after close of each half fiscal year, it shall publish and report to the FSC the financial reports audited and attested by certified public accountants, approved by the board of directors, and recognized by the supervisors. Where the stocks of such securities firm have been listed on the TWSE or the GTSM, the provisions of Article 36 of the Act shall be complied with. Auditing and attestation of the financial reports referred to in the preceding paragraph shall be performed jointly by two or more practicing certified public accountants of a joint accounting firm approved by the FSC in accordance with the Regulations Governing Approval of Certified Public Accountants to Audit and Attest to the Financial Reports of Public Companies.
A securities firm shall submit to the FSC its monthly accounting summary for the preceding month by the 10th day of each month.
Where a securities firm has entered into a contract for using the centralized securities market with the TWSE, submission of matters referred to in paragraph 1 and the preceding paragraph shall be made to the FSC through the TWSE. Where a securities firm only entered into a contract for trading securities on the GTSM, the said submission shall be made to the FSC through the GTSM. Where no has been entered into, the submission shall be made to the FSC through a securities dealers' association.
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:
If an issuer issues straight corporate bonds and the bonds obtain a credit rating of a specified grade or higher from a credit rating agency approved or recognized by the FSC, the lead underwriter is exempt from the restrictions of paragraph 1. If the issuer qualifies as a securities underwriter, it may also act as the lead underwriter.
- 1. Where either party and the subsidiary company in which such party holds more than 50 percent of the shares aggregately hold 10 percent 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 percent of the 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 percent 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 either party and related parties hold a total of 50 percent or more 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 have filed with the Fair Trade Commission of the Executive Yuan for combination and have not had the combination prohibited thereby.
- 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.
A securities firm shall underwrite securities by fair and reasonable means. Underwriting fees collected may not, by any means or under any name, be reimbursed or refunded to the issuer, or to any related party thereof, or to any person designated by the issuer or a related party thereof.
A securities firm shall underwrite or re-sell securities in accordance with the handling rules prescribed by the securities dealers' association.
The securities dealers' association shall submit the handling rules referred to in the preceding paragraph to the FSC for approval.
When a securities firm underwrites or re-sells listed securities, it may conduct stabilized operation transactions when necessary. Regulations governing the administration thereof shall be prescribed by the TWSE and submitted to the FSC for approval.
Unless otherwise provided by the laws and regulations, a securities firm operating securities business shall not:
- 1. Provide opinion on the rise or drop of the price of securities to induce customers to trade;
- 2. Agree to or provide specified interest or to share losses to induce customers to trade;
- 3. Provide account for customers to subscribe to and/or trade securities;
- 4. Commit false, fraudulent, or other misleading act in providing information of securities to customers;
- 5. Accept general authorization from customers in connection with the type, quantity, price, and purchase or sale of securities;
- 6. Accept settlement of customers who use the same account for offsetting purchase against sale or offsetting sale against purchase of the same type of securities;
- 7. Accept settlement of customers who use different accounts for offsetting purchase against sale or offsetting sale against purchase of the same type of securities;
- 8. Directly or indirectly set up fixed places outside the business premises of the head office or branch office to accept orders for securities trading;
- 9. Directly or indirectly set up fixed places outside the business premises of the head office or branch office to sign brokerage agreements with customers or settle securities transactions; however, this restriction shall not apply where the FSC has provided otherwise;
- 10. Accept securities transactions of a customer who has not signed a brokerage contract;
- 11. Accept the company's director, supervisor, or employee as an agent for others for the account opening, subscription, trade, or settlement of securities;
- 12. Accept from any person other than the customer himself/herself the customer's instructions for account opening; however, this is not applicable for those in accordance with other regulations set by the FSC;
- 13. Accept from any person other than the customer himself/herself or an agent without a power of attorney issued by the customer's instructions for subscription, trade, or settlement.;
- 14. Knowingly accept a trading order from a customer who intends to use an issuer's non-public information which may materially affect the price of its stocks or who intends to manipulate the prices of the market;
- 15. Use the name or account of a customer to subscribe to and/or trade securities;
- 16. Disclose, not in response to inquiries given in accordance with laws and regulations, the contents of orders placed by a customer or other secrets obtained in the course of operation of business;
- 17. Misappropriate the securities or funds owned by a customer or temporarily kept under the custody of the securities firm in the course of business;
- 18. Safekeep the securities, funds, seal, or passbook under its custody for its customers;
- 19. Directly or indirectly provide funds or securities to customers in connection with margin purchases or short sales to effect settlement without the FSC's approval;
- 20. Violate settlement obligation to the securities exchange market;
- 21. Use personnel other than securities firm personnel to solicit business, or pay unreasonable commission; or
- 22. Conduct other acts in violation of laws and regulations governing securities or orders of the FSC on mandatory or unpermitted acts.
Securities firms applying for merger shall meet the following conditions:
In the case that the securities firm applying for merger does not meet the criteria in the preceding paragraph, the FSC may approve the application as a special case based on the goals of facilitating the healthy expansion of the securities market and increasing the competitiveness of securities firms.
- 1. The regulatory capital adequacy ratio has reached 200 percent or more 6 months before the merger.
- 2. The pro forma consolidated regulatory capital adequacy ratio shall reach 200 percent 1 month before the application.
- 3. Have not been subject to a disposition under Article 66, subparagraphs 2 to 4 of the Act or under paragraph Article 100, paragraph 1, subparagraphs 2 to 4 of the Futures Trading Act or under Article 103, subparagraphs 2 to 5 of the Securities Investment Trust and consulting Act within the last 6 months.
- 4. In the most recent 1 year, the TWSE and GTSM have found, according to their inspection of the condition of internal control operations of the applicant's head office and branches to be satisfactory and meeting the standards set by the FSC.
Securities firms applying for merger shall provide the following documents to the FSC:
For a securities firm to be newly created by a merger, in addition to complying with requirements of the preceding paragraph, the promoters of the securities firm to be newly created shall apply to the FSC for approval of establishment, annexing the following documents:
- 1. The application.
- 2. Merger plan: shall specify the content of the merger plan (including particulars such as the merger method, evaluation of economic efficiency, post-merger business regions, business items, business development plan, and financial forecasts for the next 3 years) and analyze the forecasted timetable, feasibility, necessity, rationality, and legality and assessment of the factors for consideration under Article 6 of the Financial Institutions Merger Act.
- 3. Merger contract: in addition to the particulars required under Article 8, paragraph 2 of the Financial Institutions Merger Act, shall also include material particulars such as treatment of employee equity.
- 4. Minutes of the general shareholders meetings of the institutions to survive and to be extinguished. However, a securities firm conducting a merger under Article 18, paragraph 6, or Article 19, of the Business Mergers and Acquisitions Act may substitute the minutes of the board of directors meeting.
- 5. Content of the merger resolutions (board of directors meeting minutes) and documentation of publication (notification) of relevant required contract content.
- 6. Information on prospective shareholders seeking to purchase shares.
- 7. Certified public accountant's opinion on the reasonableness of the share conversion ratio for the merger and valuation method.
- 8. An itemized report on the pro forma consolidated regulatory capital adequacy ratio at the end of the month before the merger.
- 9. Balance sheets, profit and loss statements, inventories of assets, statements of changes in shareholder equity, and cash flow statements audited and attested by the certified public accountant for the record date of the merger share swap.
- 10. Legal opinion of an attorney at law.
- 11. Consent letter, or documentation, of compliance by the TWSE listed or GTSM listed securities firm with the merger-related provisions of the Operating Rules of the Taiwan Stock Exchange or the GreTai Securities Market Rules Governing Securities Trading on the GTSM.
- 12. Other documents required by the FSC.
The formats of the documents required under the preceding two paragraphs shall be prescribed by the FSC.
- 1. Roster of promoters.
- 2. Minutes of the promoters' meeting.
- 3. Certification of qualifications of presidents, vice presidents, and assistant vice presidents.
- 4. Articles of incorporation of the securities firm to be newly created.
- 5. Other documents required by the FSC to be submitted.
Securities firms or their overseas subsidiaries investing in the Mainland China area shall comply with the provisions of the Regulations Governing Approval and Management of Securities and Futures Transactions and Investment Between the Taiwan Area and the Mainland Area.
A Mainland China securities or futures institution in which a securities firm or its overseas subsidiaries have invested may not provide services to individuals or enterprises in the Taiwan area.
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 FSC in the most recent 3 months
- 2. Have not been ordered by the FSC to relieve or replace the duties of its director, supervisor, or manager in the most recent 6 months.
- 3. Have not had business suspended as punishment from the FSC within the last 1 year.
- 4. Have not had the license of branch offices or of a portion of the business invalidated by the FSC as punishment within the last 2 years.
- 5. Have not had trading terminated or restricted by the TWSE, the GTSM, or the TAIFEX as punishment under each of their regulations or rules.
- 6. The regulatory capital adequacy ratio has not been below 200 percent within the most recent 3 months, and the financial structure is sound and in accordance with the rules of these Regulations.
- 7. The combined total amount invested in foreign enterprises plus the funds that a securities firm establishing an overseas branch office(s) appropriates there for local operations and the amount invested in Mainland China enterprises do not exceed 40 percent of the securities' firm's net worth. However, when there is special need and approval as a special case has been received, this provision does not apply.
A securities firm, unless concurrently operated by a financial institution and subject to other acts or regulations, shall maintain an appropriate ratio between its regulatory capital and its overall risk equivalent, except as approved by the Commission.
The appropriate ratio referred to in the preceding paragraph is called the regulatory capital adequacy ratio and its calculation method is the net amount of eligible regulatory capital divided by the overall risk equivalent.
For those foreign securities firms having Taiwan branches, if their home-country head office have already calculated their regulatory capital adequacy ratio under their local laws with the overall risk of their Taiwan branch office already entered into the calculation, and have met the standard, they may send those documents and information relating to the said regulatory capital adequacy ratio which have met the standard to the Commission to apply for a waiver of application of the provisions in this Chapter. However, unless specifically approved by the Commission, a monthly report on the head offices' regulatory capital adequacy ratio shall still be reported according to Article 21, paragraph 4.
Securities firms, other than those concurrently operating financial institutions and foreign securities firms who have the FSC approval for waiver of this Chapter's regulations, shall fill out the Itemized Statement of the Regulatory Capital Adequacy of the Securities Firm monthly in accordance with the applicable calculation method, and by the 10th of the next month, report it according to the method prescribed inArticle 21, paragraph 4. When necessary, the FSC shall require securities firms to file reports at any time.
The format of the Itemized Statement of the Regulatory Capital Adequacy of the Securities Firm referred to in the preceding paragraph shall be prescribed by the FSC.
In addition to disclosing capital adequacy information of the securities firm pursuant to the requirements of the FSC, the TWSE, or other relevant institutions, a securities firm shall disclose the most recent regulatory capital adequacy ratio information in the annual report.
When the regulatory capital adequacy ratio of a securities firm is at least 120 percent but is less than 150 percent, the FSC may take the following actions:
- 1. Postpone any additions by the securities firm to its types of operations or lines of business and any establishment of additional branch offices.
- 2. Require the securities firm to strengthen the internal control and increase the frequency of internal auditing, and within one week of filing the report, send a concrete, detailed explanation and plan of improvement to the relevant authorities according to Article 21, paragraph 4.
- 3. If there has been no improvement made on the capital adequacy ratio at the end of the month that preceded the board of directors making proposal for distribution of profits, in addition that it shall be required to deduct from its undistributed profits those items to be set aside according to regulations, it shall further set aside 20 percent for special reserve according to Article 41, paragraph 1 of the Act.