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3
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When applying for a listing, the issuer shall fill out an application for the listing of shares and assemble a complete set of the necessary documents listed in the attachments column; with respect to other documents to be made available for inspection, the TSEC will request them as needed for review purposes. Where the advisory period is less than nine months (including the period of emerging stock trading) the issuer shall also attach the "Evaluation of Listing Advisory Schedule Appropriateness" for reference during the review. After the TSEC management departmentAdministration Department has ascertained that all required documents are included, the application shall be submitted through the general receiving and dispatch office of the TSEC for signed acceptance, after which it will be assigned a serial number and issued to the appropriate management department for the performance of their respective reviews pursuant to procedural order.
Companies applying for securities listing pursuant to Article 5 of the TSEC's Regulations for Review of Securities Listings shall file an application with the TSEC in conformity with the Ministry of Economic Affairs Industrial Development Bureau Directions for Contracted Provision of Assessment Opinion Reports Regarding Technology Enterprises and the Successful Development and Marketability of Products. At the same time, the applicant company shall pay to the TSEC the NT$50,000 assessment fee payable to the Industrial Development Bureau and file a copy of the application and supporting documents with the Industrial Development Bureau. After receiving the documents, the management departmentAdministration Department shall submit a written request for an opinion to the Industrial Development Bureau. After the TSEC has obtained the Industrial Development Bureau's assessment opinion adopted by a resolution of the Bureau's assessment committee and has notified the applicant company of the opinion, the applicant company may file its application for securities listing.
An applicant company shall file its application within one year from the date of the assessment opinion granted by the Industrial Development Bureau of the Ministry of Economic Affairs. An applicant company that fails to file an application within this period must re-apply to the TSEC for an assessment opinion.
The TSEC shall prescribe provisions pertaining to the reporting by a lead securities underwriter, when serving as advisor for the listing of shares, of basic identifying information on the advisory client.
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4
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For initial stock listing applications, after receiving the application and supporting documents, the management departmentAdministration Department shall form a task force consisting of two or more persons (depending on the overall current status of the human resources of the department) to assess each application with the approval of the Listing Department manager. For applications by already-listed companies for issuance of new shares for capital increase, or for corporate bonds or other securities listings, the management departmentAdministration Department shall designate a person to handle such applications. After being delegated the case, the designated person shall acknowledge receipt by signing the management departmentAdministration Department's in-out log. In addition to keeping the application and supporting documents in safe custody, for initial stock listing applications, the designated person shall also submit one copy each of the prospectus and the draft underwriter assessment report to the Public Relations OfficeResearch and Development Department of the TSEC for public display.
After accepting the application for processing, the managing department shall retain an outside reviewer with field-specific expertise to give a consulting opinion on the matters provided in the Table of Consultation Matters. If questions arise relating to financial, accounting, or legal matters, the case-handling unit may also retain outside financial, accounting, and/or legal professionals to give a written opinion. Solicitation of written opinions shall be handled in accordance with the TSEC "Rules for Solicitation of Opinions in Reviews of Initial Applications for OTC Listing by Public Companies." The aforesaid Rules will be separately adopted. The above regulations in regard to outside reviewers shall not apply to cases that, pursuant to Point 7-1, are exempt from review by the Review Committee.
The consulting opinions of the outside reviewers referred to in the preceding paragraph shall be delivered to the TSEC 15 days before the Review Committee meets.
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5
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For an application for an initial listing of a company's stock, the TSEC shall review the financial statements for the two most recent fiscal years audited and attested by a certified public accountant and approved by the company's board of directors and supervisor(s). If any irregular adjustments to accounting items are found, those items shall be reviewed in the financial report of the preceding year. In cases where the financial report approved by a regular shareholders meeting does not agree with that report, the financial report approved by the regular shareholders meeting shall also be submitted. An applicant whose review period carries over into April, July, or October shall be notified additionally to submit CPA-audited financial statements for the first quarter, first half, or third quarter of the said fiscal year, for the reference of the reviewers. Where the review period carries over into the next fiscal year, the applicant company shall, within two months of the end of the fiscal year, additionally submit a CPA-audited financial report for the current year, the certified public accountant's working papers, and the updated underwriter's assessment report, as a basis for review. In addition, when the applicant company submits its application materials, the TSEC shall obtain financial forecast information for the applicant covering up through the following quarter as basis for the review. The TSEC shall further contact the applicant company each quarter prior to the end of the second month of the quarter to request submission of financial forecast information covering up through the following quarter, and shall continue to do so until it asks the Securities Listing Review Committee to review the application, provided that in cases which, pursuant to Point 7-1, are exempt from review by the Review Committee, it shall continue to do so until the time of the Administration Department's resolution. If an applicant company fails to provide the required documents within the specified periods, the TSEC shall return its application.
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6
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Review Guidelines
The provisions of this Article apply to all reviews of applications for initial stock listings. Personnel assigned to handle an application for securities listing shall, after receiving the application, review the application, the supporting documents, and all information provided by the applicant company, underwriter, or certified public accountants, and take the particulars listed below into consideration:
(1) Certified Public Accountant's Audit Report:
(i) If there has been a change in certified public accountants in the most recent three fiscal years preceding the application date, the issuing company, the original certified public accountants, and the succeeding certified public accountants shall submit a written report explaining the change of accountants, and the case handlers shall ascertain the facts and reasons underlying the change.
(ii) Where an audit report issued by a certified public accountant contains anything other than an unqualified opinion, the reviewers shall take note of the facts and reasons underlying the report, and the extent to which such report affects the financial report.
(iii) The accounting firm(s) that audited the financial reports for the most recent three years shall be an accounting partnership comprising licensed certified public accountants and approved by the competent authority.
(iv) The audit report shall state that the report is prepared in accordance with the regulations prescribed by the competent authority governing the preparation of financial reports by each enterprise and with Generally Accepted Accounting Principles.
(v) When the applicant’s financial report for the most recent accounting year or the most recent period in the year of application (including financial forecasts) reveals any of the following circumstances, its financial report must conform to the applicable regulations:
a. Fifty percent or more of the applicant’s pre-tax income is from returns on investment in a single overseas company.
b. A single overseas company in which the applicant has invested has suffered an after-tax loss of fifty percent of capital stock as listed in its financial report or 100 million New Taiwan Dollars or more for the current period.
c. Fifty percent or more of the applicant’s operating revenues, gross profits, or total purchase amounts are from a single overseas company in which the applicant has invested.
d. The output value of a single overseas company in which the applicant has invested accounts for fifty percent or more of the applicant’s gross output value (including internal production, external production, and outsourcing).
e. The original investment in a single overseas company by the applicant company cumulatively totals twenty percent or more of the applicant’s capital stock as listed in its financial report or 300 million New Taiwan Dollars or more.
The term "must conform to the applicable regulations" as used above means:
a. When the applicant company adopts the equity method for listing gains and losses on investments in a given overseas company, if the financial statements of that overseas company are audited and certified by a different CPA and the applicant company bases the listing of gains and losses or the preparation of consolidated financial statements on that overseas company's financial statements, then the certifying CPA of the applicant company must submit an auditing report with an unqualified opinion and without reference to any other accountant’s audit before the TSEC will accept its financial report. The TSEC shall also examine the materials related to the certifying CPA's assessment and verification to gain an understanding of whether those assessment and verification procedures were comprehensive and in conformance with Taiwan's Statements of Auditing Standards.
In addition, another CPA shall be engaged to perform the auditing and certification when a company applying for market listing employs the same CPA for auditing and attestation as an overseas company in which it has invested, and when, in the preceding three years, disciplinary action has been taken against that CPA by the competent authority, or a disposition against the CPA has been issued under Article 37, paragraph 3 of the Securities and Exchange Act, providing that this shall be inapplicable when the disciplinary action or disposition was a warning or a reprimand and the event that was cause for the warning or reprimand occurred five or more years prior to the date of application, or when the CPA has accumulated two or more demerits within the preceding year in accordance with the TSEC’s "Regulations Governing the Handling of Errors by Certified Public Accountants in Auditing of Initial Applications for Market Listing" and the GreTai Securities Market’s "Regulations for Handling Deficiencies in
Certified Public Accountants' Reviews of OTC Stock Listing Applications."
b. The provisions of the preceding paragraph need not be applied to an applicant company that does not use the equity method for listing gains and losses on its investments in overseas companies.
(2) Content of financial reports:
(i) Whether the kind, format, and content (including the notes and itemized statements) comply with the regulations prescribed by the competent authority governing the preparation of financial reports by each enterprise and with Generally Accepted Accounting Principles and the requirements of applicable laws and regulations.
(ii) Overall analysis of the report both on its own merit and by comparing it with those from other companies in the same industry, to ascertain emerging trends and possible irregularities in the applicant company's financial condition and its profitability.
(iii) If unusual accounting items are found in the financial report (such as dealings with competitors, dealings between shareholders, temporary transactions, start-up costs, unappropriated expenses) and a large sum of money is involved, the item in question shall be audited to ascertain its composition and categorization.
(iv) Status of adjustments or improvements required to be made to the financial statements as instructed in writing by the competent authority.
(v) If any special or irregular circumstances are found with respect to the following items, the case handler shall examine the matter in depth by reviewing the certified public accountant's working papers.
a. Transactions between major interested parties: any irregular financial arrangements or profits changing hands in large transactions between related parties.
b. Any improper or irregular transactions with respect to the categorization, transfer, or accounting treatment of financial assets. Case handlers shall further determine whether there have been any irregularities pertaining to allowances set aside by the company's important subsidiaries for bad receivables or losses on reduction of inventory to market, loans of funds to another party, or endorsements or guarantees extended on behalf of another party, and whether any financial statements must be adjusted.
c. The status of application of reserve funds to offset bad debt and the assessment of the auditing certified public accountant.
d. Method of appraisal and basis of entering into the account books of inventory: where there are large surpluses or inventory losses, the reasons shall be investigated.
e. Any irregular changes to fixed assets involving transactions among related parties.
f. The accounting treatment of capitalization of interest.
g. Leasing: The accounting treatment and categorization of business leasing or capital leasing.
h. Deferred assets: Those that should be listed as expenses or losses for the current month, such as loss of profit due to suspension of work, extraordinary losses, start-up expenses, employee benefits, etc., shall not be listed as amortization of deferred assets.
i. Monetary transactions: The interest rates, terms, and payment status on large interest-free and low interest loans obtained from affiliates, shareholders, or related parties, and high-interest loans to affiliates, shareholders or related parties.
j. Retirement rules and pension fund withholding status.
k. Accounting treatment of income tax and off-settings of assets and liabilities with respect to deferred income tax.
l. Circumstances of disclosure of contingent liabilities and status of lines of credit obtained jointly from banks by the applicant company and its affiliates.
m. Assets obtained on installment plans and accounting treatment of sales.
n. Gross profit margin on sales of inventory, inventory turnover rate, and accounts receivable turnover rate for the most recent two fiscal years.
o. Reasons for any extraordinary losses or gains, or large nonoperating income or expenditures, and the treatment and presentation of extraordinary losses and gains.
p. Whether in the most recent fiscal year there have been any irregularities in the process of capital formation, or sources or use of funds.
q. Whether the party billed for each account receivable is the party to whom the item in question was sold. If any mismatch is found, the case handler shall determine the reason and make a judgment as to whether the mismatch is legitimate.
r. If any new client taken on by the applicant in the most recent two years is a related party or ranks among the applicant's ten largest clients, the case handler shall audit the applicant's transactions with said client, ascertain whether the client is a related party, check for any differences and similarities between the terms of transaction contracts with the new client and terms offered to regular clients, and determine whether there were any major or irregular transactions around the date of the balance sheet, and whether there have been any subsequent recurring or material returns of shipments or any irregular subsequent receipt of funds, so as to verify that sums accounted for as sales revenue conform to the principle of realized revenue.
s. Whether any of the enterprise's receivables are overdue. If they are, the case handler shall determine the reason and make a judgment as to whether there is any irregularity.
(3) Financial forecast information:
(i) A case handler shall check whether financial forecast information includes at least a condensed balance sheet and a condensed income statement, whether it provides a concrete opinion regarding future prospects for the overall economy, for the industry, and for the company's main products, and whether it indicates the basis and content of important basic assumptions. In addition, as needed for review purposes, the TSEC may also request from the underwriter a more detailed assessment regarding the reasonableness of the assumptions underlying the aforementioned financial forecast information and the likelihood that the forecast will be realized, and attach the related information for reference in the review.
(ii) During the period covered by the financial forecast information, the applicant company shall conduct a monthly check of the difference between actual figures and forecast figures, and if it discovers a material difference or finds that there will in the future be a material change in the original financial forecast information, it shall promptly update (correct) the financial forecast information and submit related materials for auditing reference.
(iii) The quarterly financial forecast information that an applicant company submits on an ongoing basis before requesting a review by the Committee for Review of Stock Exchange Securities Listings, or before a resolution of the Administration Department in cases that, pursuant to Point 7-1, are exempt from review by the Review Committee, is only to be used in connection with the review of the exchange listing, and shall not be externally disclosed or revealed.
(iv) After the Committee for Review of Stock Exchange Securities Listings has approved an application for exchange listing, or before the passage of a resolution by the Administration Department in cases that, pursuant to Point 7-1, are exempt from review by the Review Committee, but before the securities have been listed and begun trading, if a case handler discovers that the financial forecast information submitted by the applicant company differs materially from the actual figures for the financial report covering the same period, and that the exchange listing is likely to be unallowable pursuant to any clause under the TSEC Regulations for Review of Securities Listings, the case handler shall determine the facts and handle the matter as quickly as possible.
(4) Internal control mechanisms and declarations thereof, and project audit reports:
(i) Ascertain the status of the prescription and implementation of internal control systems.
(ii) Inspect whether the applicant company has performed a self-inspection of the effectiveness of the design and implementation of its internal control system and produced an Internal Control System Declaration in compliance with the Regulations for the Establishment of Internal Control Systems by Public Companies, and obtained a certified public accountant's project audit report with an unqualified opinion.
(iii) Self-inspection of internal control systems and performance of project audits by CPAs shall cover the following periods: For applications submitted from February through April, the period covered shall be 1 January through 31 December of the previous year; for applications submitted from May through July, the period covered for shall be from 1 April of the previous year until 31 March of the year of application; for applications submitted from August through October, the period covered shall be from 1 July of the previous year until 30 June of the year of application; for applications submitted from November through January of the following year, the period covered shall be from 1 October of the previous year until 30 September of the year of application. Two or more practicing CPAs of a joint accounting firm shall jointly perform the inspections or audits and issue a report. The TSEC shall separately adopt "Operating Procedures for Review of Internal Control Systems Inspection Reports Issued by CPAs."
(5) During the review process, the case handlers shall note whether the certified public accountant has complied with Generally Accepted Accounting Principles, the Regulations for the Establishment of Internal Control Systems by Public Companies and all other applicable laws and regulations and shall, through scrutiny of the certified public accountant's working papers for the relevant fiscal year, fully ascertain the tests applied, scope, time frame, characteristics, whether there has been full factual disclosure, whether the accountant has omitted any procedural requirements (e.g. monitoring of remaining inventory, certification and reconciliation of bank account balances) and failed to adopt other substitute procedures. If it is determined that the auditing procedures executed by the certified public accountant are insufficient to reach the necessary conclusions, the case handlers shall request that the accountant provide supplementary explanations.
(6) The case handlers shall inspect the format and content of the underwriter's assessment report:
(i) Whether the report has been compiled in accordance with the requirements of the TSEC Directions Governing the Particulars to be Recorded in the Securities Underwriter's Assessment Report for Initial Listing of Securities and signed by the lead underwriter and sponsoring underwriter. The TSEC Directions Governing the Particulars to be Recorded in the Securities Underwriter's Assessment Report for Initial Listing of Securities shall be separately promulgated by the TSEC.
(ii) Whether working papers have been prepared in accordance with applicable regulations of the TSEC.
(iii) Whether a Declaration has been produced testifying that the assessment report is free of any misrepresentations or nondisclosures.
(7) Prospectus:
The case handlers shall examine the format and content of the prospectus to ensure that it has been compiled in accordance with the TSEC Regulations Governing the Particulars to be Recorded in Prospectuses for Initial Listing of Securities and other relevant regulations.
(8) The case handlers shall ascertain whether any of the negative criteria detailed in the subparagraphs of Paragraph 1 of Article 9 of the TSEC's Regulations for Review of Securities Listings, or any of the circumstances in Paragraph 3 of Article 18 of the same Regulations, applies to the applicant company, whether it has complied with instructions contained in official notifications by the competent authority, and whether there were significant changes in the applicant company's most recent capital increase plan or any failure to carry out those plans. Such information shall be provided in detail in the review report and working paper. If any nonconformance with regulations is found, the case handlers shall attach their opinions on treatment, and submit them for further review by higher levels.
(9) The case handlers shall visit the sites of the applicant company's offices and factories and ascertain the operational experience and philosophy of the applicant company's responsible person. If irregularities are found during the documentary review, the case handlers shall examine the working papers prepared by the certified public accountant or other documentation provided by the applicant company, the accountant, and the underwriters. If after due examination of the above, the case handlers are still unable to gain a complete picture of the applicant company's operations, an on-site inspection of the applicant company may be undertaken. If the applicant company is an investment holding company or a financial holding company, all above procedures shall be conducted for companies controlled by the applicant or for subsidiaries of such controlled companies. However, where the controlled companies or subsidiaries are located offshore, a documentary review shall suffice.
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7-1
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In cases where a company applies for listing of a stock that has already been listed with the GreTai and traded pursuant to Article 3 of the GreTai Securities Market Rules Governing Review of Securities Traded on Over-the-Counter Markets, the case will be handled by document review and exempted from review by the Review Committee. The Administration Department, however, as it deems necessary, may undertake an on-site audit and submit the case for review by the Review Committee, subject to prior signed authorization by the president of the TSEC.
If an application case is exempt from review by the Review Committee pursuant to the preceding paragraph, then except for a review of the underwriter's working papers for assessment of items under Article 9 of the Taiwan Stock Exchange Corporation Rules Governing Review of Securities Listings, the provisions of Article 5 herein, regarding additional submission of the CPA's working papers for review periods extending into the following fiscal year, and the provisions of Articles 6 and 7 herein, regarding the working papers of the CPA and the underwriter and the abstract of the underwriter's assessment report, shall not apply.
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7-2
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In cases where an application is exempt from review by the review committee pursuant to the preceding Point 7-1, and where the Administration Department has passed a resolution within one month following receipt of application documents but where exceptional circumstances are present, it may extend the review period, based either on the requirements of the review or at the request of the applicant company, subject to receiving prior signed authorization by the president of the TSEC. Any extension of a review period granted pursuant to a request by the applicant company shall be for one month only and shall not extend into the following fiscal year.
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20
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In cases where the Review Committee has resolved to approve applications or re-applications for initial stock listing, but there area dissenting opinions on is issued by the Board of Directors, the Review Committee shall carry out a re-review. Where a resolution for listing approval is still adopted following the re-review, the case shall be submitted again to the Board of Directors for consideration. Where the Board of Directors then still resolves to deny listing, the written consent of the TSEC's president shall be obtained and the application rejected.
For applications which, pursuant to Point 7-1, are exempt from review by the Review Committee and on which, following the application's submission to it for review, the Board of Directors has issued a dissenting opinion and which are then referred to the Administration Department for re-review, the provisions of the preceding paragraph shall apply mutatis mutandis. As it deems necessary, however, the Administration Department may apply the provisions of the Point 7-1 paragraph 1 proviso.
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22
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For initial stock listing application cases in which the Board of Directors resolves to approve listing, upon completion of recording of the case, the case handlers shall first notify the applicant company via mail to supplement relevant materials, and except in cases which, pursuant to Point 7-1, are exempt from review by the Review Committee, shall closely examine the reasonableness of the applicant’s responses to the securities listings Review Committee, after which it shall request the principal underwriter to supplement its assessment or request an opinion from a certified public accountant. Thereafter, the case handlers shall, pursuant to Article 141 of the Securities Exchange Act, submit the review report and the securities listing contract executed between the TSEC and the applicant company to the competent authority for examination and approval.
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25
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Initial stock listing applications that have been sent back by the competent authority for reconsideration shall be given a second review by the Review Committee. Where the Review Committee still resolves to approve listing, the application shall be re-submitted to the board of directors for ratification of the approval and reporting to the competent authority. Where the Review Committee resolves to deny the listing, the written consent of the TSEC's president shall be obtained and the application rejected.
For applications which, pursuant to Point 7-1, are exempt from review by the Review Committee and on which, following the application's submission to it for review, the Board of Directors has issued a dissenting opinion and which are then referred to the Administration Department for re-review, the provisions of the preceding paragraph shall apply mutatis mutandis. As it deems necessary, however, the Administration Department may apply the provisions of the Point 7-1 paragraph 1 proviso.
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26
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Where an initial stock listing applications has been rejected by the Review Committee, or has been rejected by a resolution of the Administration Department pursuant to Point 7-2, or where the applicant company has failed to process or supplement relevant items within the time period specified in official notices from the TSEC or in the provisions of these Procedures, the applicant company shall, upon signed approval, be notified in writing and the listing application and all relevant documents returned.
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27
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Reconsideration of Initial Stock Listing Applications
(1) In cases where the Review Committee has decided to reject the application or in cases where the application has been rejected by the Administration Department pursuant to Point 7-2, the applicant company may, within 20 days of the date of receipt of the TSEC's rejection notice, submit its reasons for requesting reconsideration and relevant materials to the TSEC for reconsideration.
(2) An applicant company's reasons for requesting reconsideration shall be limited to whether the grounds for the original rejection decision were erroneous.
(3) After the management departmentAdministration Department has rendered a specific opinion on the application for reconsideration, the application shall be resubmitted to the Review Committee for review. During the review, the management departmentAdministration Department shall compile the items discussed during the previous review's question and answer session for the reference of committee members. Following the Review Committee's review of the application for reconsideration, where there are determined to be no grounds for reconsideration or where according to relevant information the applicant is still unsuitable for listing, the signed consent of the TSEC's president shall be obtained and the application returned. Where there are determined to be grounds for reconsideration, the application shall be re-submitted to the TSEC's board of directors for ratification. In cases where the application was rejected by resolution of the Administration Department pursuant to Point 7-2, however, then except where the Administration Department deems it necessary to apply the provisions of the Point 7-1, paragraph 1 proviso, the case shall be reviewed again by the Administration Department. If it holds that there are no grounds for reconsideration of the application or that relevant materials indicate there are still circumstances making listing unsuitable, it shall reject the application subject to signed approval from the president of the TSEC. Only where it deems there are grounds for reconsideration shall it submit the application for ratification by the board of directors.
(4) Where the Review Committee or the Administration Department has resolved that there are no grounds for reconsideration or that based upon the relevant materials the applicant is still unsuitable for listing, the applicant company may not make another application for reconsideration.
(5) Where an application for reconsideration is ratified by the board of directors, the company's stock shall be approved for listing.
(6) Where an applicant company withdraws its application for reconsideration during the reconsideration process, it shall be deemed not to have applied for reconsideration.
(7) The content to be reviewed in applications for reconsideration shall be strictly limited to whether the grounds for the original rejection decision were erroneous and whether any other conditions have subsequently arisen rendering the applicant unsuitable for listing. Apart from the provisions regarding solicitation of opinions in the listing review, the provisions of these Procedures shall apply mutatis mutandis to the reconsideration process and the period for reconsideration.
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