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Article NO. Content

Title:

Taiwan Stock Exchange Corporation Regulations Governing Brokerage Contracts of Securities Brokers  CH

Amended Date: 2019.07.11 
Categories: Basic Laws and Regulations
Market Supervision > Regulation of Securities Firms
Article 19     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.
    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 3 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.
    When any default occurs out of unauthorized trading through a trading account or discretionary trading account conforming to Article 75-6 of the TWSE Operating Rules, if there is failure to close the default case within the time limit specified in paragraph 3, the securities broker that accepted the order shall terminate the brokerage contract and cancel the brokerage trading account for that account together with those for any other account opened by that principal at the same business premises. However, prior to such failure to close a default case within the time limit in paragraph 3, a non-defaulting account at the same business premises shall be handled in accordance with Article 2, paragraph 2.
     When default occurs out of unauthorized trading through a discretionary trading account or default occurs through a trust account opened by a trust enterprise, the restrictions of Article 2, paragraph 2 will not apply to other accounts in the name of the principal of the discretionary trading account, nor will they apply to trust accounts opened by the trust enterprise at other business premises of the same securities broker or at other securities brokers. However, if the trustee of the trust account through which the default occurs is not the trust enterprise, then other trust accounts in the name of that trustee shall be handled in accordance with Article 2, paragraph 2.
    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 3 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, and accounting for default penalties collected shall be done in accordance with the Regulations Governing Preparation of Financial Reports by Securities Firms. 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.