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Amendments

Title:

Regulations Governing Securities Firms  CH

Amended Date: 2020.10.29 (Articles 14-6, 21, 32-1, 35-2, 68-1 amended,English version coming soon)
Current English version amended on 2020.02.03 

Title: Regulations Governing Securities Firms(2013.12.30)
Date:
Article 2     A securities firm shall, according to the Criteria Governing Internal Control Systems of Services Enterprises in the Securities and Futures Market set by the Financial Supervisory Commission (the FSC), and other securities firm internal control regulations set by the Taiwan Stock Exchange Corporation (the TWSE), and other securities-related institutions, establish its own internal control system.
    The operation of securities firm shall be in accordance with laws and regulations, articles of incorporation, and the internal control system referred to in the preceding paragraph.
    Any amendments to be made to the internal control system referred to in paragraph 1 per the notice of the FSC or a securities-related institution shall be made within the specified time limit.
Article 7     A securities firm which engages in more than two types of securities businesses shall independently operate the business based on the types thereof.
     Different departments may be established for the operation of each type of business under the preceding paragraph based on the nature of the business.
Article 14-1     Where any of the following circumstances applies to a securities firm, the FSC may reject its filing to carry out a capital increase for cash or issue corporate bonds; provided, this restriction shall not apply where the reason is a merger of securities firms, or where concrete improvement has been made, and the improvement has been recognized by the FSC:
  1. It has been sanctioned by the FSC under Article 66, subparagraph 1 of the Act within the past 3 months.
  2. It has been sanctioned by the FSC under Article 66, subparagraph 2 of the Act within the past half year.
  3. It has been sanctioned by the FSC under Article 66, subparagraph 3 of the Act within the past 1 year.
  4. It has been sanctioned by the FSC under Article 66, subparagraph 4 of the Act within the past 2 years.
  5. It has had its trading rights terminated or restricted by the TWSE, the GTSM, or the Taiwan Futures Exchange (the TAIFEX) pursuant to bylaws thereof within the past 1 year.
    Calculation of the periods in the subparagraphs of the preceding paragraph shall commence from the date of issuance of the disposition letter by the FSC, the TWSE, the GTSM, or the TAIFEX.
Article 14-2      (Deleted).
Article 14-3     Where a securities firm files for offering and issuance of securities pursuant to Article 6 of the Criteria Governing the Offering and Issuance of Securities by Securities Issuers, it may refrain from engaging a lead securities underwriter to conduct assessment if it meets the following financial and operational requirements: .
  1. None of the circumstances in Article 14-1, paragraph 1 exist.

  2. Its financial condition meets the provisions of Articles 13, 14, 16, 18, 18-1 and 19.

  3. Its regulatory capital adequacy ratio 6 months prior to the date of reporting is 200 percent or greater.

Article 16     A securities firm, unless it is concurrently operated by a financial institution and subject to other relevant laws or regulations, may not purchase real property for non-operating purposes. However, this restriction shall not apply to a securities firm that holds real property for non-operating purposes as a result of a merger, acquisition, branch unit closure, change in or reduction of places of business, or as a result of conducting business, or as approved by the FSC. The sum of the total amount of property and equipment used for operating purposes and the total amount of real property used for non-operating purposes of a securities firm shall not be more than 60 percent of its total assets.
Article 19-1     The FSC shall prescribe the total amount limits, and methods for calculation thereof, on the positions held in foreign securities and the expenditures on derivative financial product transactions of a securities firm trading foreign securities for its own account.
    When a securities firm engages in the business of trading foreign securities for its own account as referred to in the preceding paragraph, if such trading is neither an investment of proprietary funds nor done to meet hedging needs, it shall apply to the Central Bank for permission for any portion involving an inward or outward remittance of funds, and any trading of foreign bonds for its own account shall be done in compliance with the provisions of the GTSM.
Article 19-2     Exchange settlement matters for securities firms trading securities denominated in a foreign currency for their own accounts or engaging in derivative financial product trading shall be handled in accordance with the Regulations Governing the Reporting of Foreign Exchange Receipts and Disbursements or Transactions.
    A securities firm may conduct the trading referred to in the preceding paragraph only in the capacity of a customer, through a designated bank approved by the Central Bank to conduct derivative foreign exchange product business, or through an overseas financial institution.
    A securities firm trading securities denominated in a foreign currency for its own account shall open a segregated foreign exchange account in the selected foreign currency at a designated foreign exchange bank, from which it shall conduct all deposits and remittances in connection with payment and receipt of settlement money and fees.
Article 19-3     A securities firm meeting the qualifying requirements listed below may operate derivative financial product trading business at its business premises, and shall do so in accordance with the provisions of the GTSM:
  1. It must be an integrated securities firm that concurrently engages in brokerage, underwriting, and dealership business
  2. Its CPA audited or reviewed financial report for the most recent period shows no accumulated deficit, and its financial condition meets the provisions of Articles 13, 14, 16, 18, 18-1 and 19.
  3. It must have reported a regulatory capital adequacy ratio meeting the requirements of the FSC for each of the most recent 6 months.
  4. It must be free of any of the following circumstances:
    1. Any sanction, during the preceding 3 months, under Article 66, subparagraph 1 of the Act or Article 100, paragraph 1, subparagraph 1 of the Futures Exchange Act.
    2. Any sanction, during the preceding 6 months, equal to or greater than those under Article 66, subparagraph 2 of the Act or Article 100, paragraph 1, subparagraph 2 of the Futures Trading Act.
    3. Any sanction imposed by the FSC during the preceding year requiring a suspension of business.
    4. Any sanction imposed by the FSC during the preceding 2 years voiding approval for any part of its business.
    5. Any sanction during the preceding 1 year whereby the GTSM, the TWSE, or the Taiwan Futures Exchange Corporation (the TAIFEX), acting pursuant to its operating rules or bylaws, has suspended or restricted the firm's trading privileges.
    Any securities firm in non-conformance with the conditions of subparagraph 4 of the preceding paragraph but that has made concrete improvement and has satisfied the FSC thereof shall not be subject to the restrictions of that subparagraph.    Except in trading with a qualified institutional investor, "derivative financial product trading" in paragraph 1 is limited to convertible bond asset swaps, structured instruments, equity derivatives, credit derivatives, interest rate derivatives, bond derivatives, and other derivatives approved by the FSC.
Article 19-6     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. Certificates of beneficial interest that are issued overseas by domestic securities investment trust enterprises and are not listed for trading on a securities market.
  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. Any foreign exchange product involving a requirement of approval by the Central Bank.
Article 19-7     A securities firm that will engage with a qualified institutional investor in a derivative financial product trade involving a linked underlying set out in Article 19-6, subparagraphs 1 to 3 shall submit an application to the GTSM with the relevant documentation. The GTSM will forward the application to the FSC, and such a trade may take place only subsequent to the FSC's first issuance of an approval to a securities firm for such a trade. An application must be submitted to the Central Bank for any trade of a derivative financial product set out in Article 19-6, subparagraph 4.
    The term "qualified institutional investor" as used in Article 19-3, paragraph 3, Article 19-6, and the preceding paragraph means domestic and foreign banks, insurance companies, bills finance companies, securities firms, fund management companies, government investment institutions, government funds, pension funds, mutual funds, unit trusts, securities investment trust companies, securities investment consulting companies, trust enterprises, futures commission merchants, futures service enterprises, and other institutions approved by the FSC.
Article 23     A securities firm that underwrites securities on a firm commitment basis by subscribing securities before putting them for re- sale or specifying in the underwriting contract that a portion of the securities covered in the contract shall be subscribed by the securities firm for its own account in accordance with paragraph 2 of Article 71 of the Act shall meet the conditions listed below; however, if a securities firm does not meet the condition in subparagraph 2, but the period of the suspension of business has expired, and concrete improvement has been made, and the improvement has been recognized by the FSC, it may be exempted therefrom:
  1. Its financial condition meets the provisions of Articles 13, 14, 16, 18, 18-1 and 19.
  2. The securities firm has not been sanctioned by any suspension of business imposed by the FSC in accordance with Article 66 of the Act during the most recent half year due to underwriting related business.
Article 26     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 its parent company, all of the subsidiaries of its parent company, and venture capital enterprises managed by its subsidiaries, aggregately hold 10 percent or more of the total shares of the other party.
  2. Where either party and its subsidiaries 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 the subsidiary's parent company, all subsidiaries of the parent company, and venture capital enterprises managed by its subsidiaries 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 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.
    If an issuer issues straight corporate bonds and the sales target is limited to qualified institutional investors, 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.    The terms "parent company" and "subsidiaries" in these Regulations are defined as determined in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Firms.
Article 31     A securities firm trading securities for its own account shall adopt a trading policy and related procedures. Except as otherwise provided by the FSC, the operational procedures for trade analysis, decision-making, execution, change, and review shall be included in its internal control system.
    The written materials referred to in the preceding paragraph shall be recorded in chronological order and kept in files. They shall be preserved for a period of not less than 5 years.
Article 31-1     For a securities firm trading foreign securities for its own account or engaging in foreign derivative financial product transactions, the scope of the foreign securities, types of foreign derivative financial products, and foreign trading markets shall be determined by the FSC.
Article 31-2     A securities firm trading foreign securities for its own account or engaging in foreign derivative financial product transactions shall adopt handling procedures, which shall be implemented after approval by the board of directors, as shall any amendments thereto.
    The handling procedures under the preceding paragraph shall include all the following items:
  1. Trading principles and policies: shall include types of underlyings traded, trading or hedging strategies, setting of position limits.
  2. Trading procedures: shall include hierarchy of responsibility, trading process, division of powers and duties of relevant departments, procedures for preservation of trading records.
  3. Risk management measures: shall include risk management scope, risk management procedures, methods and frequency of position evaluation, production and review of position evaluation reports, irregularity reports and procedures for follow-up surveillance.
  4. Audit procedures: shall include internal audit and self-inspection, frequency and scope of audits, audit reports and procedures for correction and follow-up of deficiencies.
Article 31-3     A securities firm trading foreign securities for its own account or engaging in foreign derivative financial product transactions shall not be involved in any of the following:
  1. Engaging in margin transactions.
  2. Engaging in trading or transactions with any overseas affiliated enterprise; provided, this restriction shall not apply where it mandates the affiliated enterprise to trade or transact on its behalf.
    "Affiliated enterprise" in the preceding paragraph shall be as defined in the Affiliated Enterprises chapter of the Company Act.
Article 31-4     A securities firm trading foreign securities for its own account or engaging in foreign derivative financial product transactions, and whose regulatory capital adequacy ratio is lower than the requirement set by the FSC for 3 consecutive months, may only sell or close out its existing positions, and may not engage in any further trading or transactions, unless its regulatory capital adequacy ratio has already been corrected.
Article 32-1     As needed for hedging in the issuance of call (put) warrants and the operation at its place of business of structured instruments and equity derivatives, a securities firm may borrow and sell, or sell short, the underlying securities, exempt from the restriction that the selling price of the securities borrowed or sold short may not be lower than the closing price of the previous business day.
    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.
Article 37     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, provided that this restriction does not apply if the requirements of Article 37-1 are met;
  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.
Article 37-1      When a securities firm accepts settlement by a customer by means of mutual offsetting of an equal quantity of securities purchased and sold in securities brokerage trading in which, after execution of the cash purchase of the securities, spot securities of the same type are then sold through the same account on the same business day, it shall do so pursuant to the Operational Rules Governing Day Trades of Securities as adopted by the Taiwan Stock Exchange and the GreTai Securities Marker.
     The type and scope of the securities under the preceding paragraph shall be separately prescribed by the FSC.
Article 50     A securities firm applying to invest in a foreign enterprise, unless otherwise provided by laws or regulations, shall meet the requirements listed below; however, if a securities firm does not meet a condition in subparagraphs 1 to 5, but concrete improvement has been made, and the improvement has been recognized by the FSC, it may be exempted therefrom:
  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 its CPA audited or reviewed financial report for the most recent period shows no accumulated deficit, and its financial condition meets the provisions of Articles 13, 14, 16, 18, 18-1 and 19.
  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.
Article 69     These Regulations shall enter into force from the date of issuance, with the exception of Articles 16 and 47 as amended and issued on 11 October 2012, which shall enter into force from the fiscal year of 2013, and of Articles 37 and 37-1 as amended and issued on 30 December 2013, which shall enter into force from 6 January 2014.