Taiwan Stock Exchange - Rules & Regulations Directory

Article NO. Content

Title:

Taiwan Stock Exchange Corporation Procedures for Handling Default on Settlement Obligations by Securities Firms 

Amended Date: 2005.11.10 
Categories: Market Supervision > Regulation of Securities Firms
2
    When a securities firm defaults on its settlement obligations, the Taiwan Stock Exchange Corporation ("the TSE"), the defaulting securities firm ("the suspended firm") and the authorized securities firm ("the authorized firm") shall handle matters relating to suspension of the suspended firm in accordance with the following procedures:
  1. Matters to be undertaken by the TSE:
    1. The TSE shall immediately order a temporary suspension of trading by the suspended firm in accordance with Article 142, Paragraph 1 of the Operating Rules of the Taiwan Stock Exchange Corporation, and file a letter of report with the competent authority. In addition, the TSE shall send official notice by the highest priority to the suspended firm and the relevant units, and publicly announce the suspension by means of the Market Information System (MIS).
    2. The TSE shall appoint a securities firm that has entered into a mandate agreement with the suspended firm that will allow it to undertake settlement matters on behalf of the suspended firm. The authorized firm shall handle settlement matters for the two business days prior to the suspension of trading as well as subsequent matters relating to centralized securities custody for the suspended firm's clients, including delivery and deposit, withdrawal, stock transfers, and fund transfers. The TSE may appoint other securities firms to undertake matters it deems necessary, and shall note the appointments in the letter of report regarding the suspension.
    3. TSE personnel shall immediately proceed to the suspended firm to assist with matters relating to the suspension, and shall request the Taiwan Securities Central Depository Co., Ltd. ("the TSCD") and related securities financing companies to also dispatch personnel to provide assistance.
    4. The TSE shall convene a meeting between the suspended firm and the authorized firm to coordinate matters relating to the suspension.
    5. The TSE shall assist the suspended firm in transferring settlement operations for the two business days prior to the suspension to the authorized firm, and in transferring information on the depository accounts of the suspended firm's clients to the authorized firm for handling.
    6. The TSE shall assist the suspended firm in helping clients open brokerage trading accounts at the authorized firm.
    7. The TSE shall supervise the authorized firm in opening, with all due haste, a special account at the bank where the suspended firm has its settlement account for the purpose of transferring settlement funds for the clients of the suspended firm. The TSE shall also notify the relevant units that funds for brokerage trades originally to be transferred to the suspended firm shall be transferred to the aforementioned special account of the authorized firm.
    8. The TSE shall verify that, prior to suspension, the suspended firm has completed all procedures for securities in accordance with the application for default correction under Article 109 of the Operating Rules of the Taiwan Stock Exchange Corporation, and that borrowed securities have been returned.
      If the aforesaid matters have not been completed, the TSE may designate the authorized firm to do so on behalf of the suspended firm.
    9. The TSE shall verify that the settlements of securities and funds with clients on the two business days preceding the suspension have been carried out accurately and without impediment.
    10. Beginning from the day of suspension, the TSE shall work with the authorized firm to establish files on customer accounts. When necessary, it will make timely postponements in file establishment and transmission times.
    11. The TSE shall check the assets of the suspended firm, including the volume of outstanding shares held at the Centralized Securities Depository, deposit account balances, the business guarantee bond and the settlement and clearing fund, and shall forthwith initiate statutory procedures for preservation of assets.
    12. The TSE shall notify the Securities and Futures Investors Protection Center to accept and process investor applications in connection with the Securities Investors Protection Fund.
  2. Matters to be undertaken by the suspended firm:
    1. The suspended firm shall immediately post the TSE notice of suspension on the announcement board in its trading room, and shall notify its clients of the following matters:
      1. Procedures relating to settlements of securities and funds for trades completed during the two business days prior to suspension shall be transferred to the authorized firm for handling.
      2. From the date of suspension, the authorized firm shall handle matters relating to centralized securities custody for the suspended firm's clients, including delivery and deposit, withdrawal, stock transfers, and fund transfers.
      3. Beginning on the date of suspension, clients who complete account-opening procedures at the authorized firm may, from the account-opening date, place orders with the authorized firm to undertake securities trades.
    2. The suspended firm shall assist clients in transferring funds for settlement to the special bank account for settlements provided by the authorized firm.
    3. The suspended firm shall, from the date of suspension, provide the authorized firm with a terminal for use in handling trading orders and in procedures for establishing files related to centralized securities depository accounts.
    4. When, prior to suspension, the suspended firm has applied for correction for securities in accordance with Article 109 of the Operating Rules of the Taiwan Stock Exchange Corporation, correction procedures shall be completed with all due haste. Where correction has not been effected or where borrowed securities have not been returned, the suspended firm shall notify the authorized firm to undertake those matters on its behalf.
    5. For account errors which occurred on the business day preceding the suspension, the suspended firm shall report the error to the TSE. When repurchase or resale of securities to offset the error was not effected on the day the error occurred, the suspended firm shall entrust the authorized firm with handling of the error on the date suspension begins.
    6. The suspended firm shall appoint sales agents to go to the authorized firm (where they may not enter the counter area) to assist clients with securities brokerage trading and handling of settlement matters at the authorized firm.
    7. The suspended firm shall deliver client information to the authorized firm, including basic depository account information, volumes of shares in custody and changes in volumes of shares in custody, as well as clients' seal impression cards. Beginning from the date of suspension, the authorized firm shall handle deposit and withdrawal of securities and transfers of securities and funds on behalf of the suspended firm, and the suspended firm shall dispatch clearing and settlement agents to assist the authorized firm in handling such matters.
  3. Matters to be undertaken by the authorized firm:
    1. The authorized firm shall open a special account at the bank where the suspended firm has its settlement account to allow payment and receipt of settlement funds by the suspended firm's clients.
    2. During the period of suspension, matters such as the lawful deposit, withdrawal, account transfer and transfer of title of securities shall be undertaken by the authorized firm on behalf of the suspended firm in accordance with the rules of the Taiwan Securities Central Depository Co., Ltd.
    3. The authorized firm shall assist the suspended firm's clients in opening new accounts and shall be prepared to accept trading orders from those clients on the day account-opening procedures are completed.
    4. The authorized firm shall keep good custody of the information transferred to it by the suspended firm, and return such information to the suspended firm upon its resumption of business.
Data Source:Taiwan Stock Exchange - Rules & Regulations Directory
twse-regulation.twse.com.tw