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Article NO. Content

Title:

Taiwan Stock Exchange Corporation Assessment and Auditing Procedures for Securities Underwriter Handling Initial Listing Applications  CH

Amended Date: 2021.03.31 (Articles 1, 4, 5, 6, 9, 10 amended,English version coming soon)
Current English version amended on 2020.03.02 
Categories: Primary Market > Review
4     Industrial circumstances and operational risks:
  1. Operational risks of the sector in which the issuing company runs its business:
    1. collect reports and information on the relevant industry to ascertain the current circumstances of the industry sector the issuing company belongs to;
    2. interview the operating officers of the issuing company and use the information about the internal finance and business operation of the issuing company and information about the industry collected from external sources to ascertain the cyclical demand specific to the industry or substitution products and their impact, and analyze the major factors impacting the profitability of the industry sector the issuing company belongs to, and the niche for the issuing company in various influencing factors;
    3. collect and analyze information about the businesses at the upstream, middle stream and downstream of the industry sector the issuing company belongs to.
  2. Operational risks of the issuing company:
    1. Business activities:
      1. collect local and foreign reports and information about the relevant industry to ascertain the possible changes in supply and demand in the market, and use the information to analyze favorable and unfavorable factors that may affect the future development of the issuing company and the measures in response, to evaluate its ability to respond to changes in economic cycles;
      2. collect information about the market share of its major competitors to evaluate the competitive niche of the issuing company;
      3. in the case of an application for the listing of securities in accordance with Article 4, paragraph 2 or 3, or Article 28-1, paragraph 5 or 6 of the Rules Governing Review of Securities Listings, evaluate the adequacy of disclosure of the issuing company's operation model, ability to react to operational risks and feasibility of the future development plan;
    2. Technological research and development and patents:
      1. the underwriter may obtain technological experts' assessment opinions as supporting evidence;
      2. obtain information about the history, organization, staff, education and work experiences, research accomplishments and future projects of the R&D department of the issuing company to ascertain major sources of technologies, how and how much compensations or royalties for technology are paid, and in which direction the R&D work will develop, and analyze information such as number of staff of the R&D department, the average seniority, employee turnover, and attrition rate for the current term and the most recent three fiscal years, to evaluate the operational risks of departure of the R&D staff to the issuing company;
      3. obtain major technological cooperation contracts and evaluate the operational risks of the contracts to the issuing company based on the terms and conditions thereof;
      4. for an applicant in technology-based enterprise, cultural and creative enterprise or information software enterprise, obtain information about the competitive advantage, life cycles, sustainability of the current major products and R&D projects for new products, and levels and resources of production and development technologies, to evaluate market positioning, demands and internal control and security measures for research and development;
      5. for an applicant in technology-based enterprise, cultural and creative enterprise or information software enterprise, obtain information about the background and experiences of the company's directors participating in operation and decision making, shareholders holding five percent or more of the total number of outstanding shares of the applicant company shares who have participated in business decision-making, shareholders contributing capital with patents or professional skills, and officers controlling manufacturing technologies and technical development, their shareholding ratios, share transfers by them within the most recent three fiscal years and the year of application, time actually spent on operation and how they are actually involved in operation, in order to evaluate the operational risks of the issuing company if these personnel discontinue their participation in the operation.
    3. Analysis of human resources:
    4. Obtain information about the total number of employees, number of former, laid off or retired employees, direct and indirect labor number, average age and average years of service, to evaluate changes in the attrition rate and the operational risks to the issuing company.
    5. Cost analysis of major products:
      1. obtain information about the costs of raw material, labor and manufacturing for the current term and most recent three fiscal years, and analyze the operational risks of changes in the percentage of individual cost elements to the issuing company;
      2. for applicant satisfying the requirements under Article 16 of the Rules Governing Review of Securities Listings, obtain updates on current prices of the local (neighboring) area, information about peer companies, and the price ratio of land and building available from the government authority (such as ratio of assessed present value and declared present value, or ratio of building construction price and land price, etc.), to evaluate if the allocation ratio of the issuing company and landowner is reasonable in case of a sale of building under a joint construction project, distribution of building under a joint construction project, or distribution of profit under a joint construction project;
    6. Exchange rate changes:
    7. Obtain information about the ratio of exchange gains or losses to operating profits and the ratio of domestic and export sales and domestic and overseas purchases for the current term and most recent three fiscal years, to analyze the operational risks of exchange rate changes to the issuing company and its risk aversion measures.