I. News and Events 　　(Chinese)
 

1. Amendment to the Guidelines for Filing Reports on Acquisition of Shares in Accordance With the Securities and Exchange Ac
   The Guidelines for Filing Reports on Acquisition of Shares in Accordance with the Securities and Exchange Act were amended and promulgated on May 19, 2006.? To comply with the interpretation No. 586 promulgated by Grand Justices Council of Judicial Yuan, the relevant rules have been revised aiming to strengthen disclosure of purchaser’s relevant information and ?material information on substantial changes of ownership structure, and protect investors’ interests, as well as boost effective governance of the acquisition of large shareholdings of public companies.
    
2. Promulgated the Regulations Governing the Scope of Material Information and Means of Its Disclosure
   According to Paragraph 4 of Article 157-1 of the Securities and Exchange Act, regulations governing the scope of material information and means of its disclosure and related matters shall be prescribed by the Competent Authority.? In accordance with the principles of “legality prescribed punishment for a specified crime” and “clarity for delinquency components”, the regulations were promulgated on May 30, 2006 in order to cope with market trend and meet the requirement of market governance.
    
3. To strengthen internal controls and internal auditing systems in securities and futures service enterprises
   The FSC promulgated on May 30, 2006 the amendment of “Regulations Governing the Establishment of Internal Control Systems by Service Enterprises in Securities and Futures Markets”.? In addition to strengthen internal control systems and promote the performance and independence of internal auditing, the FSC has added law compliance system and corporate governance related rules in order to strengthen internal controls and internal auditing systems in securities and futures service enterprises.
    
4. Narrowed the disposition scope of the past 2 year-record of sub-distributors for offshore funds
   The FSC promulgated the amendment of Article 19 of the Regulations Governing Offshore Funds which require sub-distributors of offshore funds have not within the past 2 years been subject to a disposition.? To relax the governance over the sub-distributors of offshore funds, FSC narrowed the said disposition scope. ?If the disposition event is not related to the offshore funds business, or has been improved and approved by the competent authority, the sub-distributor do not have to meet the said requirements.?
    
5. Overseas Chinese and foreign nationals allowed to invest in private securities investment trust fund placed by securities investment trust enterprises
   To encourage foreigners investing our securities market, on May 16, 2006, the FSC promulgated decree allowed overseas Chinese and foreign nationals to invest in private securities investment trust fund placed by securities investment trust enterprises.
    
6. Allowing securities brokers to accept trading consignments via Direct Market Access
   Securities brokers are allowed to accept investors’ trading consignments for securities by way of Direct Market Access, effective from June 1, 2006.
    
7. The securities firms allowed to lodge split bonds and financial bonds as an operation bond
   On May 25, 2006, the FSC promulgated the decree that the securities firms are allowed to lodge split bonds and financial bonds as an operation bond under Article 9 of the Regulations Governing Securities Firms.? The amount of aforementioned operation bond shall be calculated as 85% of par value of the split bonds at maturity.
    
8. Foreign investors will be allowed to invest funds denominated in foreign currency issued by SITEs
   The FSC is considering to allow foreign investors to invest funds denominated in foreign currency issued by the securities investment trust enterprises of the ROC.? Custodian banks shall report their portfolio to the FSC through the TSEC computer system monthly on behalf of foreign investors, as the current procedures for trading securities on stock exchange by foreign investors.? Upon TSEC completed the product filing system, the FSC will promulgate the decree allowing foreign investors to invest the said product.
   
   
    

II. Market Wrap-up


As of the end of May, 691 companies were listed on the Taiwan Stock Exchange, a decrease of two against the previous month. The total capital issued was NT$5,406.32 billion, a decrease of NT$33.46 billion over the preceding month, and the market capitalization was NT$ 16,741.87 billion, a decrease of NT$741.05 billion over the preceding month
As of the end of May, 519 companies were listed on the GreTai Securities Market, an increase of 6 against the previous month. The total capital issued was NT$ 673.57 billion, an increase of NT$16.37 billion against the preceding month, and the market capitalization was NT$ 1,527.43 billion, a decrease of NT$2.63 billion against the previous month. ?
In May, the trading value of shares on the Taiwan Stock Exchange was NT$ 2,796.01 billion, an increase of NT$441.75 billion over the previous month, while the trading volume was NT$88.99 billion, an increase of NT$ 18.92 billion shares compared with the previous month.
As of the end of May, the accumulated net inward remittance of foreign investors was US$ 121.50 billion, a decrease of US$0.05 billion over April. There are currently 142 securities firms, 23 futures commission merchants,45 securities investment trust enterprises and 197 securities investment consulting enterprises.

III. Measures related to futures trading, please refer to the website of Taiwan Future Exchange (http://www.taifex.com.tw/chinese/home.htm)

IV. Q&A

1.Investment quotas for foreign investors

Under the newly amended Regulations Governing Investment in Securities by Overseas Chinese and Foreign Investors, foreign investors are divided into two categories: foreign institutional investors (FINIs) and foreign individual investors (FIDIs). While FIDIs are subject to a US$5 million investment quota, FINIs are free of an upper limit on investment. However, in a few specific industries foreign investors are still subject to investment ceilings under relevant acts or regulations.

2.Investment scope for offshore foreign investors

The scope of investment in Taiwan securities markets open to offshore foreign investors is as follows:
 

1. Stocks, bond conversion entitlement certificates, and Taiwan Depositary Receipts issue privately placed by listed, over-the-counter (“OTC”), or emerging-stock companies.
2. Securities investment trust fund beneficiary certificates.
3. Government bonds, financial bonds, ordinary corporate bonds, convertible corporate bonds, and corporate bonds with warrants.
4. Beneficial securities placed publicly or privately by trustee institutions, or asset-backed securities placed publicly or privately by special-purpose companies.
5. Call warrants and Put warrants.
6. Other securities approved by the competent authority for the securities industry, such asunderwritten call/put warrants in IPO prior to initial listing, real estate investment trust beneficial securities and real estate asset trust beneficial securities placed publicly or privately, listed/GTSM beneficiary certificates, open-ended beneficiary certificates, underwritten stocks in IPOs prior to initial GTSM listing and underwritten GTSM stocks in rights offerings, beneficiary certificates prior to initial listing, NT dollar bonds issued in Taiwan by international financial organizations, and preferred shares issued by listed/GTSM companies and private securities trust funds placed by SITEs.
   Additionally, Funds that have been duly and timely remitted into Taiwan for the purchase of domestic securities and that have not yet been invested may be used as follows (with the total value of such use not to exceed 30 percent of the amount remitted in, except in the case of outright bond trading):
   
   1.Investment in government bonds, time deposits, and money market instruments;?? trading of NTD interest-rate derivatives on over-the-counter.
   2.Investments in NT dollar time deposits shall be limited to duration of three months, with a one-time extension of three months allowed at expiration.
   3.Investments in money market instruments, limited to bills within 90 days of expiration.
    

3.Requirements over the outward remittance of investment principal, capital gains and the other investment gains by foreign investors.
 

1. After receiving permission to invest in Taiwan, foreign investors may apply to remit investment capital and investment earnings out of the ROC. However, outward remittances of capital gains and stock dividends may be made from realized earnings only.
2. Applications for foreign exchange remittance for investment capital and earnings shall be handled in accordance with the Act for the Regulation of Foreign Exchange (under the purview of the Central Bank).
3. When a foreign investor intends to repatriate investment earnings, the investor's agent or representative shall submit documents evidencing the filing of a tax return and payment of taxes by an agent/representative approved by the tax authorities and carry out exchange settlement in accordance with the Act for the Regulation of Foreign Exchange; however, during a period when assessment of ROC income tax on capital gains from securities transactions is suspended, the agent or representative may submit a tax clearance certificate from the tax authorities and carry out exchange settlement in accordance with the Act for the Regulation of Foreign Exchange.
    

4.Exercising shareholder's rights for offshore foreign investors
 

1. The voting rights of a foreign institutional investor outside of Taiwan ("offshore foreign institutional investor") holding shares in a public company in Taiwan may be exercised as follows:
   (1)Exercise electronically or by means of a written form in accordance with Article 177-1 of the Company Act;
   
   (2)Exercise through appointment of a company conforming to Article 3, paragraph 2 of the Regulations Governing Handling of Stock Affairs by Public Companies;
   
   (3)Exercise through appointment of a domestic agent or representative to exercise voting rights at the shareholder meeting;
   
   (4)Exercise through an appointment by the domestic agent or representative, as authorized by the offshore foreign institutional investor, of a party other than the domestic agent or representative to exercise voting rights at the shareholder meeting;
    
2. An offshore foreign institutional investor that appoints a company as indicated in point 2 of the preceding paragraph or a person as indicated in points 3 and 4 therein to exercise voting rights at a shareholder meeting shall in each case clearly indicate in the letter of appointment its instructions regarding the exercise of voting rights on each proposal.
3. An offshore foreign institutional investor may not give a proxy form issued by the public company to a proxy solicitor or proxy agent. ?
   
    

5.Restrictions on investment of money market instruments for offshore foreign investors

The government's opening of Taiwan’s securities market to offshore foreign investors is primarily oriented toward drawing investment into securities on the centralized exchange market. Investing in money market instruments is purely for short-term cash management needs. The cap of 30 percent should be sufficient for this purpose. Therefore, currently there are no plans to raise the ceiling.



6.Prefunding Issues in Taiwan
 

1. Domestic financial institutions in Taiwan since 4 May 2004 have been allowed to provide intraday credit to foreign investors to assist foreign investors who, due to time differences, are unable to make timely remittance of funds to complete settlement.
2. Some Taiwan securities firms instituted their own requirement on foreign investors to provide settlement funds in advance (i.e., prefunding) when they place an order, causing inconvenience to foreign investors. A late settlement system has therefore been adopted for foreign investors to postpone settlement until 6 p.m. of the third business day after the date of the trade under certain circumstances, such as a discrepancy between holidays in different time zones, interruptions in telecommunications or natural disaster.? The deadline for securities firms to report default by foreign investors shall be expended to the third business day after the date of the trade.
3. The TSEC has amended Article 76 of the Operating Rules of the Taiwan Stock Exchange Corporation on August 1, 2005, repealing the provision that an investor may not open an account and engage in trading for a period of three years after a conclusive finding of settlement default.
4. On 20 May 2006, the FSC promulgated the decree allowed Overseas Chinese and Foreign Nationals borrowing funds from securities firms for settlement engaging in trading securities listed on TSE and Gre-Tai market.
   
    

7.Disclosure of the investment positions of foreign investors

The FSC does not disclose investment information of individual foreign investors, but foreign investors are nevertheless obligated to comply with reporting requirements.

8.Locking period of stocks

The trading of stocks held by foreign investors is not subject to a "locking period".

9.Off-exchange transactions
 

1. Article 150 of the Securities and Exchange Act provides that trading of listed securities shall be conducted on a centralized securities trading market operated by a stock exchange. However, paragraph 4 of the same Article empowers the Competent Authority to make provisions for permitting off-exchange transactions in exceptional situations. For example, a foreign investor who has received approval from the Investment Commission of the Ministry of Economic Affairs under the Act Governing Investment by Foreign Nationals to transfer assets to another foreign investor may do so through off-exchange trading. Many foreign investors have invested in Taiwan stocks through such off-exchange channels over the years.
2. Under current law, securities listed on the GreTai Securities Market (GTSM) can be traded off-market. But, in those cases of securities for which the relevant authorities have duly set a foreign investment ceiling in accordance with law, foreign investors (who must have obtained approval or registration in accordance with the Regulations Governing Securities Investment by Overseas Chinese and Foreign Investors) are required to trade such securities through the GTSM trading system. However, only a very few OTC stocks are subject to this requirement. Most GTSM stocks can also be traded by foreign investors via price negotiation at the business places of securities firms.
3. After each market close, the TSEC also provides auction and tender offer systems in which securities prices are negotiable to satisfy various investors’ demands.?
   
    

10.Foreign ownership restrictions

Taiwan lifted limits on total/individual foreign shareholding in public companies from 30 December 2000. Applicable acts and regulations may in a few instances limit the percentage of equity holdings by foreign nationals in companies in certain industries (such as public utility, telecommunications, and transportation) to meet policy needs related to national interests in the economic, social, or cultural spheres. Most developed countries have similar policies, and the practice in Taiwan is in line with developed-market standards.

11.Odd-lot trading

In the past, offshore foreign investors were permitted to sell stocks in odd lots, but not to buy them. To meet the varied trading and investment demands of foreign investors, the FSC announced on 22 July 2005 that offshore foreign investors are also permitted to buy odd lots.

12.Permission for asset transfers between offshore foreign investors with different ID numbers but where the final beneficiary is the same person
 

1. A foreign investor may open multiple depositary accounts in Taiwan, as long as each account bears the same investor registration number. Assets may be transferred freely between such accounts, without the need for a buy-sell process.
2. The FSC further announced that transferring of assets accounts involved belonging to the same final beneficiary legal entity and there is no violation of off-exchange trading rules. Moreover, the FSC has eased rules relating to signing documents by a great number of final beneficiaries.
   
    

13.Evaluation of the MSCI revision of the Limited Investability Factor

Morgan Stanley Capital International (MSCI) raised the Limited Investability Factor (LIF) applied to the MSCI Taiwan Index to 1 from the former 0.75 effective after market close on 31 May. This adjustment has raised the international standing of Taiwan's securities market and pushed Taiwan into the top spot in the MSCI Emerging Markets (EM) Index, and has helped to boost investor interest in Taiwan stocks, attract a stronger influx of foreign capital, and enliven and expand Taiwan's securities markets.

14.Reformation for FTSE
 

1. In its list of country classifications announced in September 2004, the FTSE Group upgraded Taiwan and South Korea from its Provisional Watch List for Developed Markets to its Watch List for Developed Markets. In response, the FSC formed a special working group in November 2004 to study and launch further market reforms in Taiwan, and held an overseas roadshow in Hong Kong, Singapore, London, New York, Boston, London, and Edinburgh in May 2005.
2. To support an upgrade of Taiwan's securities market to Developed Market status, the FSC has launched a series of improvements aimed at further deregulating and internationalizing the market. For example: introducing a settlement grace period mechanism for foreign investors, easing requirements for foreign investor participation in the securities borrowing and lending system, streamlining the foreign investor registration system, simplifying asset transfers between foreign investors with different ID numbers, relaxing off-exchange trading systems, as well as completely opening foreign investors to engage in futures transactions for hedging and non-hedging purposes and allowing to trade through individual accounts or omnibus accounts.