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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(2015.02.04)
Date:
Article 5     A securities firm shall operate its business in a fair and reasonable manner. The operating costs, transaction risks, and reasonable profits shall be taken into consideration in determining the fees to be collected. It is not permitted to use unreasonable fees to solicit business.
    The advertisements produced and broadcasted by a securities firm shall not be exaggerated or biased.
    The self-regulatory rules governing the matters to be considered in determining the reasonable fees to be collected for the business operations of a securities firm referred to in paragraph 1, and the production and broadcasting of advertisements by securities firms referred to in the preceding paragraph, shall be prescribed by the securities dealers' association and submitted to the FSC for recordation.
Article 9     After completion of corporate registration, a securities firm shall lodge an operation bond with a bank designated by the FSC as follows:
  1. securities underwriter: NT$40 million.
  2. securities dealer: NT$10 million.
  3. securities broker: NT$50 million.
  4. Operators of two or more types of securities business: aggregate of the amounts as referred to in the preceding three subparagraphs according to the types of business being engaged in.
  5. Branch office: additional NT$5 million for each branch.
    The operation bond referred to in the preceding paragraph shall be paid in cash, government bond, or financial bond.
Article 13     Unless a securities firm has obtained special-case approval for its special needs, or 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.
Article 18     Unless a securities firm has obtained approval from the FSC or 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:
  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 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.
Article 19     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:
  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 the securities firm shall not be more than 20 percent of the securities firm's net worth; however, the total amount of the cost of such securities with equity characteristics 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.
  4. The total amount of the investment cost of a securities firm in holdings of straight corporate bonds issued by a single securities firm may not exceed 5 percent of the securities firm's net worth. The total amount of the investment cost of a securities firm in holdings of straight corporate bonds issued by all securities firms may not exceed 10 percent of the securities firm's net worth.
    The term "related party" in these Regulations is defined as determined in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Firms.
    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.
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.
    Except as otherwise provided by the Central Bank, a securities firm trading securities denominated in a foreign currency for its own account, when conducting payment of settlement funds and fees by remittance of the exchange of New Taiwan Dollars or of the original foreign currency from Taiwan to the overseas settlement account, or when having fees remitted back into Taiwan from abroad, shall do so through a segregated foreign exchange deposit account in the selected foreign currency that it has opened at a designated foreign exchange bank.
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 TPEx:
  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 TPEx, 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.
Article 19-4     Securities firms operating derivative financial product trading business that involves foreign exchange operations shall apply to the Central Bank for permission for any portion involving an inward or outward remittance of funds.
    Securities firms operating business referred to in the preceding paragraph and engaging in related hedge trades shall handle exchange settlement matters in accordance with the Regulations Governing the Reporting of Foreign Exchange Receipts and Disbursements or Transactions and related provisions.
    A securities firm may, in the capacity of customer, conduct hedge trading through a designated bank approved by the Central Bank to conduct derivative foreign exchange product business, or through an overseas financial institution.
    For a securities firm operating business referred to in paragraph 1, matters relating to settlement of funds, payment and receipt of fees, and payment of funds upon early rescission or expiration of contracts shall be carried out according to the following:
  1. When denominated in New Taiwan Dollars, all settlement of funds and payment and receipt of fees with a customer shall be carried out in New Taiwan Dollars.
  2. When denominated in a foreign currency, all settlement of funds and payment and receipt of fees with a customer shall be carried out in foreign currency. The customer's payment of funds may be carried out by transfer from its own foreign exchange deposit account. Where foreign exchange settlement is required, it shall be carried out by the customer at a designated foreign exchange bank in accordance with the Regulations Governing the Reporting of Foreign Exchange Receipts and Disbursements or Transactions.
  3. Upon early rescission by the customer or expiration of the contract, the securities firm shall deposit the funds receivable by the customer in its New Taiwan Dollar or foreign exchange deposit account on the settlement date based on the currency stipulated in the contract.
    A securities firm operating business referred to in paragraph 1 shall submit a monthly operations statement to the foreign exchange authority and the TPEx by the 5th business day after the end of each business month.
    A securities firm operating trading business in structured instruments linked to foreign financial products shall submit a monthly operations statement on its trading business in structured instruments linked to foreign financial products to the foreign exchange authority and the TPEx by the 5th business day after the end of each business month.
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, and all of the subsidiaries of its parent company, 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 aggregately by the subsidiary's parent company, and by 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 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, or financial bonds without equity characteristics, and the sales target is limited to professional institutional investors as specified in the Taipei Exchange Rules Governing Management of Foreign Currency Denominated International Bonds, 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 38     A securities firm accepting orders to trade securities shall establish a separate demand deposit account with a bank for paying and receiving settlement funds of the customer. The funds in the said account shall not be used for other purposes.
    A securities firm may, with the consent of the customer, retain the customer's settlement funds in the securities firm's settlement account. The securities firm shall set up a separate account ledger for each customer in the settlement account, and record therein on a daily basis the itemized receipts and payments of funds, and shall retain the record. The securities firm may not utilize such funds except for making payments of funds payable on behalf of the customer.
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 TPEx, 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, provided that the requirement regarding the aforementioned regulatory capital adequacy ratio does not apply if special-case approval has been obtained due to special needs.
  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 64     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, any establishment of additional branch offices, and any equity investment in any securities, futures, financial, or other enterprises.
  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.