Where any of the following conditions apply, securities brokers shall refuse to open an account for a principal:
1. The principal has either no legal capacity or limited legal capacity, and is acting without the representation of a statutory agent.
2. The principal is an officer or employee of the Taiwan Stock Exchange Corporation (TWSE) or the competent securities authority.
3. The principal has been declared bankrupt and restoration of rights has not been effected.
4. The principal has been declared by a court to be placed under guardianship or assistance where such declaration has not yet been voided.
5. The principal is opening an account for a juristic person but cannot provide evidence of authorization.
6. The principal is a securities broker that has not received approval from the competent authority or the stock exchange.
7. The principal has engaged a director, supervisor, or employee of a securities firm to act as agent in opening an account at said firm.
8. The same principal in discretionary investing opens more than one account with the same discretionary trader at the same business location of the same securities broker, provided that this restriction shall not apply when the principal is a government-sponsored fund such as a civil servants' retirement/disability fund, labor retirement fund, labor insurance fund, or postal remittance fund, and that when engaging the same discretionary trader to undertake discretionary investment, the principal opens different discretionary investment accounts at the same business location of the same securities broker so as to correspond to the different respective discretionary trading contracts employed.
Where any of the following conditions apply, securities brokers shall refuse to open an account for a principal and shall refuse to accept orders for trades or subscriptions to securities on an already-opened account:
1. When the TWSE or the GreTai Securities Market has sent a general notice to securities brokers that the principal is in default through failure to perform settlement obligations on time, and less than five years have passed while conclusion of the case is still pending.
2. An indictment has been issued against the principal by the public prosecutor for violation of the Securities and Exchange Act or for forgery or alteration of listed or OTC securities, where a judgment is still pending or where not more than five years have passed following issuance of a final and conclusive judgment by the court.
3. Where the principal is in default of its futures trading contract and less than five years have passed while conclusion of the case is still pending, or where the principal has violated regulations for management of futures trading and not more than five years have passed since the issuance of a final and conclusive criminal judgment by the judicial authorities.
A principal that does not perform price or securities settlement on time is in default, and the securities broker that accepted the order shall report the default pursuant to the Taiwan Stock Exchange Corporation Operation Directions for Securities Brokers in Reporting Delayed Settlement and Default by Principals and carry out settlement procedures on the principal's behalf and may collect a default penalty equal to not more than 7% of the transaction amount. Accounting treatment for the collected default penalty shall be handled pursuant to the Regulations Governing the Preparation of Financial Reports by Securities Firms, and a sum equal to the penalty amount shall be allocated to default reserve.
When the principal is an overseas Chinese, foreign national, or mainland area investor outside ROC territory and delay of settlement results in borrowing of securities, payments made on their behalf, or other related expenses, the principal shall return those amounts to the securities firm when completing settlement.
When a principal is in default, the securities broker that accepted the order may postpone the termination of the principal's securities trading brokerage contract and the cancellation of its brokerage account, and during the three business days beginning from the business day after it reports the default, accept transfers from the principal, for purposes of sale, of securities held by the principal, into the securities broker's special account for handling default events, in order to satisfy the principal's debts and fees incurred by the default. After the principal has satisfied its debts and fees during the aforesaid postponement period, and the securities broker has reported the default case closed, the principal may continue to use its original account for transactions. If the principal fails to settle its default debts and fees within the period, the securities broker that accepted the order shall immediately terminate its securities trading brokerage contract and cancel its brokerage trading account.
On the day the principal is determined to be in default, a securities broker shall request other securities brokers to handle the securities or funds it received through settling the transaction referred to in paragraph 1 on the centralized trading market of the securities exchange. Surplus remaining from the proceeds from such handling, after offsetting debt and fees resulting from the principal's default, may be returned to the principal. If there is a shortfall, compensation may be deducted from financial assets already received from or payable to the principal pursuant to other brokerage trades; if a shortfall remains, compensation may be sought from the principal.
Following handling of the default in accordance with paragraphs 1 and 4, the securities firm shall make a report in accordance with the Guidelines for Securities Brokers in Reporting Delayed Settlement and Default by Principals, and shall notify the principal.
Where the aggregate number of [shares represented by] the share certificates of securities received by a securities broker handling settlement on behalf of a principal under paragraph 1 during the period of a single default reaches 5 percent or more of the number of shares of the underlying securities already issued, and furthermore reaches or exceeds the average daily trading volume of the underlying securities during the 20 trading days prior to reporting of the default, the securities broker may adopt either of the following measures to handle the default:
1. If handling of the default cannot be completed through reverse transactions during the three consecutive business days from the day following the date of confirmation of the default by the principal, the securities broker, by reaching a mutual agreement with the principal or by notice to the principal, may, depending on market conditions, in accordance with the content of the agreement or the notice, complete handling of the default through reverse transactions within 180 days, and report the agreement or notice to the TWSE via letter for recordation.
2. The securities broker may reach an agreement with the principal setting a price(s) to serve as the basis for calculating profit/loss, and submit the written agreement reached between the parties to the TWSE via letter for recordation.
Where a discretionary trader handling a discretionary trading account fails to perform obligations arising out of an unauthorized trade in a timely manner, a securities broker may collect from the trader a sum equal to 2% of the transaction amount due to default. Accounting for default penalties collected shall be done in accordance with the Regulations Governing Preparation of Financial Reports by Securities Firms, with an equal amount allocated as a default reserve fund. In writing off the proceeds of amounts received, the securities broker shall return the surplus to the trader after offsetting debt and fees resulting from the trader's default; where a shortfall remains, compensation may be sought from the trader.
These Regulations are for implementation upon submission to and approval by the competent authority.
The amendments to these Regulations shall come into force from the date of their public announcement, with the exception of the amendment to Article 2, paragraph 1, subparagraph 4 announced on 20 August 2009, which shall come into force from 23 November 2009.