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Amended Article

Title:

Regulations Governing Securities Firms Accepting Orders to Trade Foreign Securities  CH

Amended Date: 2020.09.08 (Articles 2, 3-1, 4, 6-1, 6-2, 6-3, 6-4 amended,English version coming soon)
Current English version amended on 2017.10.06 
Article 3     The terms "professional investor," "professional institutional investor," "high net worth juristic person investor," and "non-professional investor" as used herein shall be defined in accordance with Article 3, paragraphs 3 and 4 of the Regulations Governing Offshore Structured Products.
    With the exception of professional institutional investors, any professional investor may apply for a change of status to non-professional investor; a non-professional investor, however, that does not yet comply with the preceding paragraph's eligibility requirements for professional investors may not apply for a change of status to professional investor.
    With respect to the eligibility requirements that shall be met by professional investors, the securities firm shall fulfill its responsibility for due diligence and shall obtain reasonable and credible supporting evidence from the principal. The securities firm shall incorporate its assessment of whether a professional investor possesses adequate professional knowledge or trading experience with respect to financial products into its know-your-customer system and shall submit it for adoption by the board of directors. In the case of a securities firm that is a foreign securities firm's branch within the Republic of China with no board of directors, it shall be submitted for approval by the responsible person within the Republic of China.
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Article 8     Securities firms accepting orders to trade foreign securities shall enter into a brokerage contract with the principal for the trading of foreign securities before it may accept orders to trade securities.
    The contract referred to in the preceding paragraph shall contain the following particulars:
  1. The procedures of executing the brokerage contract, and the period of validity of the contract.
  2. The particulars that both parties to the brokerage trading shall observe.
  3. The terms of the deposit of purchased foreign securities into a foreign depositary institution.
  4. The particulars stated on relevant documents regarding the deposit of purchased foreign securities into a foreign depositary institution.
  5. The time period for settlement of trades in foreign securities, the method of payment/acceptance of the settlement money, the currency, the exchange rate and its method of calculation, and matters agreed upon regarding the foreign exchange remittance authorization.
  6. The method of handling breach of the settlement obligation.
  7. The matters agreed to regarding the handling of dividends and exercise of shareholders rights.
  8. The reporting of changes in the basic information of the principal, and indemnity in case of non-reporting.
  9. The information and the services that shall be provided by the securities firm.
  10. The scope of damages that arise from causes attributable to the other contracting party, arbitration, and the handling of related matters.
  11. The method of handling losses not attributable to either party to the contract.
  12. Matters regarding the notification regarding amendment to the contract.
  13. Matters regarding the rescission or termination of the contract.
  14. Other particulars that must be noted that are relevant to the rights and obligations of the parties.
    Securities firms’ contracts for brokerage trading of foreign securities shall be reported to the securities dealers association for its record.
    The matters to be recorded in a contract entered into between a securities firm and a professional institutional investor or high net worth juristic person investor for brokerage trading of foreign securities shall be decided in accordance with the business needs of both parties, and paragraph 2 shall not apply.
Article 9     A securities firm that enters into a brokerage contract with a principal for the trading of foreign securities shall do so in accordance with the following provisions:
  1. When the principal is a natural person, the principal shall provide an original of his/her National Identity Card, Alien Resident Certificate, Alien Permanent Resident Certificate, or passport along with originals of other documents sufficient to verify their identity. They shall personally sign the brokerage contract and provide a photocopy of the identification document.
  2. When the principal is a minor, their statutory agent shall personally appear to execute the contract, and present the identification documents of subparagraph 1 for him or herself and for the principal, along with a photocopy, for recordation.
  3. When the principal is a juristic person, an authorized appointee shall present a photocopy of the principal's juristic person registration documents, a photocopy of the notification from the tax authority establishing its uniform ID number as a tax withholding entity (profit-seeking enterprises are exempt from the requirement to provide the abovementioned photocopy of the notification), a power of attorney, and photocopies of the national IDs of the juristic person's representative and the authorized appointee and execute the contract. These requirements do not apply when the principal has entrusted a custodian institution to open an account on its behalf or submits verification that the custodian institution is authorized to perform settlements on its behalf.
    Upon signing the brokerage contract, the principal shall prepare a chop or signature specimen card for the securities firm, and process securities trading orders, settlement and other related procedures using the identical chop or specimen.
    A securities firm may accept an account-opening application from a principal through the Internet, by letter, or by another method other than in person. In addition to verifying the identity of the principal, the securities firm shall impose limits on the amount of brokerage trading that may be conducted by the principal, and shall comply with the regulations prescribed by the securities dealers association governing relevant procedures and amounts. If an account is opened through the Internet or by another electronic means, the securities firm may keep the principal's specimen seal impression card or specimen signature card when the principal places an order in person or by facsimile.
Article 10     Unless the principal is a professional institutional investor or a high net worth juristic person investor , a securities firm accepting orders to trade foreign securities shall, at the time the principal opens the account, send an employee to explain the possible risks of various types of foreign securities and provide a copy of the risk disclosure statement to the principal. Both the employee responsible for explaining the risks involved and the principal shall sign the risk disclosure statement for record.
     If the securities firm uses electronic means to carry out the explanation of possible risks under the preceding paragraph, the procedures shall comply with the relevant administrative rules adopted by the Taiwan Securities Association.
    The risk disclosure statement of paragraph 1 shall contain the following items, and shall comply with the relevant self-regulatory rules of the securities dealers association:
  1. The possible risks of various types of foreign securities differ with the investment target and the investment exchange market. The investor shall understand the differences and risks of the stocks, warrants, beneficiary certificates, bonds, and depositary certificates to be invested in, and shall pay attention to changes in the sovereign rating of the country of the invested foreign securities market.
  2. Investing in foreign securities involves foreign securities exchange markets and hence requires following the local laws and exchange market regulations, which may differ from the Securities and Exchange Act of the Republic of China.
  3. Investing in foreign securities involves foreign currency exchange. In addition to any actual losses from the transaction, there is the risk of fluctuating exchange rates.
  4. In investing in foreign securities, the information securities firms provide to the investor according to Articles 21 and 22 of these Regulations, including research reports on the stock market or individual stocks, notification from the issuer of stock, or other information concerning the rights and benefits of the investor, are handled according to the procedures prescribed by foreign laws. The investor itself shall understand and judge accordingly.
  5. To trade foreign securities, a brokerage contract for the trading of foreign securities shall be signed. The investor shall clearly understand the content regarding the currency used, exchange rates, and other items involving calculations for the settlement/clearance fund and other costs in the contract.
  6. The warnings in the risk disclosure statement are extremely simplified and cannot convey the details of all the risks involved in investing and the factors influencing the market situation. Therefore, before the transaction, the principal, in addition to thoroughly analyzing the risk disclosure statement, must exhaustively deliberate on other possible influential factors and accurately estimate the risks involved, to prevent losses resulting from a transaction that he is unable to shoulder.
    After receiving approval for brokerage trading in a foreign securities market, a securities firm shall provide a written a risk disclosure statement in accordance with the regulations of the competent authority governing the given foreign market for reference by customers.
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Article 14      Article 36, paragraph 1 of the Regulations Governing Securities Firms shall apply mutatis mutandis to any securities firm that recommends foreign securities for which it accepts trading orders.
    When a securities firm recommends foreign securities, then except when the subject investment is an offshore fund or an offshore structured product, which shall be separately handled in accordance with relevant regulations, the securities firm shall comply with the following provisions:
  1. The prospectuses and other information provided may only be placed at specific operating counters.
  2. The securities firm may not engage in advertising, sales recommendations, or business promotions of a specific subject investment to the general public.
  3. The securities firm may engage in recommendation of a specific subject investment with a principal who has entered into a foreign securities brokerage contract by means of discussion in person, by e-mail or telephone contact, or by mailing product prospectuses. When investments are being recommended to a non-professional investor, the securities firm shall additionally abide by the following provisions:
    1. The securities firm must first obtain the investor's written consent for recommendations by the securities firm. The written consent shall be a single, independent document and may not be included as a part of other agreements. The principal may at any time terminate through written notification the consent to recommendations by the securities firm, and after having been informed in this manner, the securities firm may not continue to make such recommendations. The securities firm may obtain the aforesaid written consent by letter or electronically in a manner sufficient to confirm that the consenter is the principal him/her/itself and the principal's expression of intent.
    2. After obtaining the principal's consent as set out in the preceding item, the securities firm shall confirm that the principal has placed orders for five or more trades in foreign securities with the securities firm during the preceding year and that the principal is 70 years of age or below, and shall ask the principal when signing the consent form to confirm that he or she is a graduate of junior high school or a higher level institution and is not a holder of a National Health Insurance Major Illness/Injury Certificate.
    3. The securities firm shall have already confirmed, through the procedures under Article 11, that the specific subject investment being recommended is suitable for the given principal.
    4. The specific subject investment being recommended must meet the requirement of already being traded on a foreign securities exchange or OTC market designated by the FSC.
  4. If the specific subject investment is restricted at its overseas place of issuance to investment by professional investors only, or is a privately placed product, the securities firm may not accept investment by a non-professional investor, provided that this restriction does not apply if the principal possesses the qualifications required for an investor in the specific subject investment in question.
    The regulations governing securities firms recommending trades in foreign securities shall be prescribed by the securities dealers association.
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Article 19     A securities firm accepting orders to trade foreign securities shall prepare and submit a trade report to the principal after the transaction. Where the principal has signed a consent form, however, and it has been confirmed that the principal has been notified of the relevant trading information by telephone, e-mail, facsimile, text message, voice mail, or web page program on the confirmed transaction date, the securities firm may be exempt from the requirement for submitting a trade report to the principal.
    The trade report referred to in the preceding paragraph shall contain the following particulars:
  1. Account number and account holder name.
  2. Transaction date.
  3. Settlement date.
  4. International stock code.
  5. Type of transacted securities.
  6. Number of shares or par value thereof.
  7. Unit price and total price
  8. Service charges.
  9. Taxation.
  10. Amount of money to be received or paid.
  11. Currency of settlement.
  12. Exchange rate, applicable where settlement is made in New Taiwan Dollars.
  13. Other matters to be recorded in accordance with the regulations of the foreign securities market.
Article 21     A securities firm that operates the business of brokered trades of foreign securities shall establish an account for their settlement with its correspondent bank.
     With the consent of the principal, a securities firm may keep settlement money for purchase orders and from sale orders that the principal has designated be made in a foreign currency, or receivables yielded by foreign securities held by the principal, in a segregated foreign currency account opened with the securities firm's correspondent designated foreign exchange bank in the Republic of China (hereinafter "customer foreign currency account").
     The required qualifications, operational procedures, and related controls for a securities firm conducting the matters under the preceding paragraph will be prescribed by the FSC in consultation with the Central Bank.
    When a securities firm accepts orders to trade foreign securities, the settlement of the principal's money/securities and the receipt/payment of fees, if not done through a customer foreign currency account, may be conducted in New Taiwan Dollars or in a foreign currency agreed upon by the securities firm and the principal; further, deposit/withdrawal of the money shall be conducted through a New Taiwan Dollar account or a foreign currency deposit account opened by the principal at a designated foreign exchange bank designated by the securities firm or through a direct remittance of foreign currency to a local financial institution designated by the securities firm in the home country of the given securities market.
    The procedures for conducting the settlement money remittance referred to in the preceding paragraph, where the principal designates New Taiwan Dollars or foreign currency, are as follows:
  1. At the time of the transaction, the principal shall designate either New Taiwan Dollars or a foreign currency as the currency for conducting the settlement, provided that a foreign currency shall be designated as the currency for conducting the settlement if the principal is a foreign natural person, a foreign juristic person, or a government fund established with the approval of the government of the Republic of China, a securities investment trust fund, assets in a special ledger account for investment-linked insurance, or a discretionary investment account.
  2. After buying foreign securities, the principal shall transfer the agreed upon amount, according to the purchase transaction report, into the securities firm's settlement amount before the settlement date.
  3. After the principal sells the foreign securities, the securities firm shall transfer the agreed upon amount, according to the sales transaction report, into a New Taiwan Dollar deposit account opened by the principal at a financial institution designated by the securities firm or into the principal's foreign currency savings account at a designated foreign exchange bank designated by the securities firm. This restriction, however, shall not apply if the laws or regulations of the local market provide otherwise.
  4. When there are amounts receivable or payable because the principal, using the same account on the same day, has both buying and selling foreign securities transactions, or first sells foreign securities and then, prior to the settlement date, buys foreign securities, the securities firm may, according to the principal's instruction, combine and set off all the received (paid) money in the same currency and then transfer the net received (paid) amount into the account.
  5. Where the principal has designated that foreign currency shall be used in settlement of the settlement money and overseas fees, the receipt/payment shall be carried out in a foreign currency, and may not be carried out in New Taiwan Dollars. Any required foreign exchange settlement shall be carried out by the principal with a designated foreign exchange bank or with the same securities firm that handles spot foreign exchange trading business, in accordance with the Regulations for Receipt/Payment of Foreign Exchange or Report of Foreign Exchange Transactions, and may use the foreign currency that the principal holds outside of the Republic of China for direct remittance to the financial institution designated by the securities firms at the location of the various securities exchange markets. Where the principal remits foreign currency that the principal holds outside of the Republic of China directly to the financial institution designated by the securities firms at the location of the various securities exchange markets, and there are therefore amounts payable (including settlement money, distributable dividends, interest, funds for mandatory repurchase, and the processing fees refunded for an account change) to a principal by the securities firm, the securities firm may also remit the given amount into the principal's own designated account.
  6. Where the principal has designated that settlement payments and foreign fees are to be paid in New Taiwan Dollars, remittance shall be carried out in New Taiwan Dollars, and may not be carried out in a foreign currency. Matters involving exchange settlement shall be carried out by the securities firm with a designated foreign exchange bank or with the same securities firm that handles spot foreign exchange trading business, in accordance with the Regulations for Receipt/Payment of Foreign Exchange or Report of Foreign Exchange Transactions, and relevant regulations.
  7. When the principal designates that payment/receipt of settlement payments and foreign fees is to be done in New Taiwan Dollars, calculation of exchange rates shall be negotiated between the principal and the securities firm on the basis of prevailing market rates.
     If funds and fees that are designated by a principal to be settled in foreign currency are received and paid through a customer foreign currency account, the settlement and remittance procedures shall be handled in accordance with the following provisions:
  1. After a principal's order to buy foreign securities is executed, the principal may settle the purchase with foreign currency, or with foreign currency converted from New Taiwan Dollars through a designated foreign exchange bank or the same securities firm that handles spot foreign exchange trading business in accordance with the Regulations Governing the Declaration of Foreign Exchange Receipts and Disbursements or Transactions, that is on deposit in the customer foreign currency account. Settlement money and foreign fees shall be paid in foreign currency, and may not be paid in New Taiwan Dollars.
  2. When a principal buys foreign securities, the amount payable according to the purchase transaction report shall be paid with the principal's funds on deposit in the customer foreign currency account.
  3. When a principal sells foreign securities, the securities firm shall deposit the amount receivable according to the sales transaction report in the customer foreign currency account.
  4. When there are amounts receivable or payable because the principal, using the same account on the same day, has both buying and selling foreign securities transactions, or first sells foreign securities and then, prior to the settlement date, buys foreign securities, the securities firm may, according to the principal's instructions, combine and set off all the received (paid) money in the same currency and then transfer the net received (paid) amount into the account.
  5. Funds retained on deposit in the customer foreign currency account may, in accordance with the customer's instructions, be transferred to the customer's personal bank deposit account that is agreed upon in advance between the securities firm and the customer, to a settlement account for securities brokerage trading established by the securities firm under Article 38 of the Regulations Governing Securities Firms, or to the customer's personal ledger of a custodial account established under Article 22-4, paragraph 1, subparagraph 5 of the Offshore Banking Act. If the funds must be converted into New Taiwan Dollars, the principal shall make the conversion through a designated foreign exchange bank or the same securities firm that handles spot foreign exchange trading business in accordance with the Regulations Governing the Declaration of Foreign Exchange Receipts and Disbursements or Transactions.
     If a securities firm transfers a net received (paid) amount in accordance with subparagraph 4 of paragraph 5 or subparagraph 4 of the preceding paragraph, it shall additionally file foreign exchange receipt, disbursement, or transaction statistical information in accordance with Central Bank regulations.
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Article 24     Securities firms accepting orders to trade foreign securities shall perform settlement with the principal on schedule, and shall not breach the brokerage contract.
    Where the principal fails to settle on schedule, or fails to provide the settlement funds or settlement securities to the securities firm, such events shall be regarded as breach of contract.
    In the event the principal breaches the contract, the securities firm shall handle the matter in accordance with the provisions of the contract for brokerage trading of foreign securities regarding breach of the obligation to settle, and it may further immediately terminate the brokerage contract.
    In processing the matters referred to in the preceding paragraph, the securities firm shall notify the FSC by letter for its record, and further provide a copy of such letter to the principal.
Article 25     For a securities firm accepting orders to trade foreign securities, information or research reports on the securities market, industries, or individual securities which securities firms provide to investors shall be limited to those which it has issued or those used by securities firms with prior authorization. Such materials shall be provided in the name of the securities firm and summarily translated into Chinese in order to facilitate review by the investors, provided that summary translation of the materials is not required if the professional investor has given written consent, or the recipient of such materials is a professional institutional investor, a high net worth juristic person investor, or a foreigner, summary translation of the materials is not required.
    The information and the research report referred to in the preceding paragraph shall not contain any materials that are false, concealed, or fraudulent, or which would be in any other way sufficient to mislead others.
    A securities firm may not claim exemption from liability with regard to the materials or research reports listed in paragraph 1 based on the fact that it did not itself approve those materials for issuance.