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Chinese Securities Association Regulations Governing Underwriting and Resale of Securities by Securities Firms(2004.02.03) |
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Article 4
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In the underwriting of securities, an underwriter shall determine the offering price of the securities according to the following methods:
1. By competitive auction;
2. By book building; or
3. As resolved by negotiations between the underwriter and the issuing company, issuing institution, or holder of the securities.
The offering price referred to in the preceding paragraph shall refer to the unit price, coupon rate, conversion (exchange) premium ratio, and yield to put.
"Issuing institution" as used in these Regulations refers to an institution that issues beneficial securities or asset-backed securities under one of the following circumstances:
1. where a trustee institution or a special-purpose company accepts financial assets in trust or in transfer from the originator, and issues beneficial securities or asset-backed securities based on those assets; or
2. where a trustee institution accepts transfer from a principal of real estate or real estate-related rights, and offers real estate asset trust beneficial securities to unspecified persons.
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Article 4-1
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In the underwriting of securities on a firm commitment basis, except where prescribed by other laws and regulations (for example, the GreTai Securities Market Regulations Governing the Requirement to Engage a Recommending Securities Firm to Carry Out Underwriting and the Ratio of Subscriptions for its Own Account for Applications by Public Companies for OTC Stock Trading), an underwriter shall act as prescribed by the following provisions with respect to the proportion of securities held for its own account; provided, however, that for any shares purchased for its own account that remain unsubscribed at the closure of the underwriting period, these restrictions shall not apply:
1. In the underwriting of an initial public offering (IPO) carried out by a public company on the stock exchange or an over-the-counter (OTC) market, the underwriter shall hold for its own account between 10 percent and 25 percent of the total number of shares underwritten; provided, however, that this provision shall not apply to the underwriting of an IPO carried out by a state-owned enterprise or a technology-based enterprise as set forth under the provisions of the Taiwan Stock Exchange Corporation Criteria for Review of Securities Listings;
2. In the underwriting of cash capital increase, convertible corporate bonds, ordinary corporate bonds not by negotiated sale, financial bonds not by negotiated sales, and Taiwan Depositary Receipts for listed or OTC-traded companies, the underwriter shall hold for its own account from 5 percent to 15 percent of the total number of units underwritten;
3. In the underwriting of cash capital increase for companies that are neither listed nor OTC-traded, the underwriter may hold for its own account a proportion not to exceed 15 percent of the total number of units underwritten; and
4. In the underwriting of preferred shares, preferred shares with warrants, and corporate bonds with warrants for public companies, the underwriter may hold for its own account a proportion not to exceed 15 percent of the total number of units underwritten.
5. Where an offering of beneficial securities by a trustee institution or an offering of asset-backed securities by a special purpose company is not undertaken through negotiated sale, purchases on own account shall not exceed fifteen percent of the total amount underwritten.
6. Where an offering of real estate asset trust beneficial securities by a trustee institution is not undertaken through negotiated sale, purchases on own account shall not exceed fifteen percent of the total amount underwritten.
For issues undertaken entirely by book building, each underwriter shall hold for its own account not more than 10 percent of the total number of units underwritten.
Where a public company carrying out a cash capital increase encounters waiver of subscription rights by an existing shareholder in accordance with the provisions of Article 267, paragraph 3 of the Company Act, and the authority with jurisdiction over such existing shareholder consents to incorporation of [the corresponding units] into the public underwriting, the portion thus incorporated into the public underwriting shall be excluded when calculating the "total number of units underwritten" set out in paragraph 1, subparagraph 2.
In the underwriting of an IPO carried out by a public company on the stock exchange or an over-the-counter OTC market, where the securities underwriter offers the shares through public subscription, it shall first set aside 1,000 common shares from the offering for subscription by the Securities and Futures Investors Protection Center.
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Article 22-1
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Where either of the following types of underwriting cases are undertaken through the use of book building, the part put up for public sale shall be underwritten entirely by book building:
1. underwriting of a public offering by a company already listed on the stock exchange or an OTC market in which the offering involves a cash capital increase through the issue of new shares and the entire offering is put up for underwritten distribution;
2. underwriting of an offering of beneficial securities by a trustee institution, or underwriting of an offering of asset-backed securities by a special-purpose company; or
3. real estate asset trust beneficial securities.
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Article 27
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The maximum quantity of securities (with the exception of ordinary corporate bonds, financial bonds, real estate asset trust beneficial securities, beneficial securities offered by a trustee institution, or asset-backed securities offered by a special-purpose company) that each bidder in the book building process may be allocated shall not exceed 10 percent of the portion of the offering that is put up for public sale.
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Article 29
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After negotiating the actual offering price as prescribed by the preceding article, the lead underwriter shall (except when underwriting ordinary corporate bonds, financial bonds, real estate asset trust beneficial securities, offerings of beneficial securities by trustee institutions, or offerings of asset-backed securities by special-purpose companies) promptly request that each co-underwriter provide detailed information regarding the bidders. After appropriately adjusting the apportionment of securities among co-underwriters, the lead underwriter shall sign underwriting contracts and submit them to the Chinese Securities Association for recordation. Allocation of securities by book building shall be undertaken as prescribed by the Chinese Securities Association Regulations Governing Securities Underwriters' Allocation of Securities by Bookbuilding.
After the lead underwriter has informed each member of the underwriting syndicate of the quote based on the actual offering price, the investors shall make payment at that price, and in the agreed amount, before the deadline set by the lead underwriter.
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Article 31
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The underwriting of ordinary corporate bonds, financial bonds, real estate asset trust beneficial securities, offerings of beneficial securities by trustee institutions, or offerings of asset-backed securities or corporate bonds with warrants by special-purpose companies, may be undertaken entirely or partly by negotiated sale. The offering price shall be determined as prescribed by Article 30.
The underwriting of call (put) warrants shall be undertaken entirely by negotiated sale.
The offering of public-enterprise securities placement may be undertaken entirely or partially by negotiated sale if shares are released to the general public. The method of allocation shall be determined by negotiations between the underwriter and the government agency that regulates the government-owned enterprise in question.
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Article 32
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Except when permission is granted by the competent authority for the securities industry, an underwriter handling an offer of ordinary corporate bonds or financial bonds by negotiated sale shall not allocate more than 50 percent of the total number of securities to an individual subscriber. Not more than 20 percent of the total number of securities offered may be allocated to an individual subscriber in cases of real estate asset trust beneficial securities, offerings of beneficial securities by trustee institutions or offerings of asset-backed securities by special-purpose companies. An underwriter handling an offer of call (put) warrants, or of corporate bonds with warrants, by negotiated sale shall not allocate not more than 10 percent of the total number of securities to an individual subscriber.
If the securities referred to in the preceding paragraph are divided into different classes for issuance, the total volume of an underwritten offering shall be calculated as the total volume of a given single class of securities after the issue has been separated into different tranches.
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Article 36
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Underwriters shall refuse bids from the following parties that respond to an offering by competitive auction:
1. an equity-method investee of the issuing company (issuing institution);
2. an investor that has equity-method investments in the issuing company (issuing institution);
3. a company whose chairman or general manager is the same person as the chairman or general manager of the issuing company (issuing institution), or is the spouse thereof, or is a relative thereof within the second degree of kinship;
4. a foundation that has received one-third or more of its paid-in endowment from the issuing company (issuing institution);
5. the issuing company's (issuing institution's) directors, supervisors, general manager, vice general manager(s), assistant general managers, or any officer serving directly under the general manager;
6. the spouse of a director, a supervisor, or the general manager of the issuing company (issuing institution);
7. a relative within the second degree of kinship of a director, a supervisor, or the general manager of the issuing company (issuing institution);
8. a director, supervisor, or employee of the underwriting syndicate, a spouse thereof, or a relative thereof within the second degree of kinship; or
9. a person who meets the criteria of an interested party as defined in Article 2 of the Securities and Exchange Act Enforcement Rules.
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Article 42
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If the portion of an offering put up for public sale is underwritten partly by book building and partly by public subscription as prescribed by Articles 21 and Article 22 (excepting underwriting as prescribed by the preceding Article), after the underwriting contract has been registered with the Chinese Securities Association, the following matters shall be carried out:
1. Day One: Publicly release a book-building allocation announcement (announcement of public subscription underwriting shall be concurrently made at this time) and begin mailing subscription notifies, prospectuses, and notices of payment due (formatted per Attachment 4), or subscription forms and notices of payment due (formatted per Attachments 5, 5-1, 5-2, and 5-3, respectively), or Taiwan Depositary Receipt notices of payment due (formatted per Attachment 6); and
2. Payment period: The payment deadline shall be identical to that applying to public subscription lottery winners with respect to the forwarding of subscription payment to their bank, as set forth under Article 53 paragraph 1 subparagraph 7.
If any of the dates set forth under the preceding paragraph falls on a weekend, regular holiday, or bank holiday, it shall be moved forward by one day next following the given day, and the dates that follow shall be moved forward accordingly.
The dates specified under paragraph 1 may be changed if necessary by applying for approval with the Chinese Securities Association.
Between the time a bidder commits to the purchase of securities and the commencement of the payment period as set forth in paragraph 1 subparagraph 2, the underwriter may request that the subscriber pay a book-building bid deposit of the full amount or part of the amount of the purchase price of said securities. The payment to be made by the bidder as referred to in paragraph 1 subparagraph 2 above shall be the price of the securities subscribed less the book-building bid deposit. In the event a bidder does not fulfill his payment obligation within the allotted time, the securities underwriter may confiscate the book-building bid deposit.
When the underwriter referred to in the preceding paragraph accepts a book-building bid deposit from a subscriber, it shall follow the requirements as prescribed by Article 12 paragraph 4.
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Article 43
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The provisions of Articles 35 and 36 shall apply mutatis mutandis with respect to the types of bidders from whom an underwriter is allowed to accept bids in a book building process; provided, however, that for common corporate bonds, financial bonds not involving equity rights, and underwriting undertaken as prescribed by Article 22 subparagraph 3 or 4 or Article 22-1 subparagraph 2, the types of bidders from whom an underwriter is allowed to accept bids shall not be subject to the limitations prescribed under Article 36 subparagraphs 1 through 7.
For securities allocated by an underwriter but not paid for by the subscribers and reallocated to new subscribers by negotiated sales, the provisions in the preceding paragraph shall apply mutatis mutandis to the new subscribers.
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Article 73
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For an offering of ordinary corporate bonds, financial bonds, or corporate bonds with warrants, Articles 35 and 36 shall apply mutatis mutandis with respect to the types of persons eligible to make purchase by negotiated sale by the underwriter.
The persons eligible to make purchase by negotiated sale of call (put) warrants shall be as prescribed by the Taiwan Stock Exchange Corporation Criteria Governing Review of Call (Put) Warrant Listings.
In cases of real estate asset trust beneficial securities, offerings of beneficial securities by trustee institutions, or offerings of asset-backed securities by special-purpose companies, the counterparts in negotiated sales undertaken by a securities firm shall be governed by the mutatis mutandis application of Articles 35 and 36, provided they shall not be subject to the limitations under subparagraphs 1-7 of Article 36.
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Article 79
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For an offering through negotiated sales of ordinary corporate bonds, corporate bonds with warrants, and financial bonds in accordance with the provisions of Article 31, when the securities are distributed, subscribers shall collect their securities from the underwriter in person, or have them collected by an authorized person, by furnishing proof of payment for securities, registered seal impression, original copy of the subscriber's own national ID certificate, or photocopy of company registration certificate. Where collection is entrusted to another party, authorization letter and national ID certificate of authorized person shall also be furnished.
For issue of call (put) warrants entirely by negotiated sale, distribution shall be undertaken as prescribed by the Rules of Business Operation of the Taiwan Securities Central Depository Company.
In cases of real estate asset trust beneficial securities, offerings of beneficial securities by trustee institutions, or offerings of asset-backed securities by special-purpose companies, their distribution of securities shall be governed by the mutatis mutandis application of paragraph 1 or paragraph 2 above.
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