Newsletter No: 021
February 27, 2006
|I. News and Events (Chinese) |
1. Seven related securities investment trust and consulting enterprise regulations adopted
In order to allow securities investment trust enterprises (SITEs) and securities investment consulting enterprises (SICEs) to concurrently operate the business of the other, and to allow securities brokers to apply to concurrently operate securities investment consulting business and provide discretionary investment services, as well as to meet the needs of discretionary investment business operations, the FSC (Financial Supervisory Commission) on 20 January 2006 adopted the “Regulations for the Prevention of Conflicts of Interest Where a Securities Investment Trust Enterprise Concurrently Operates a Securities Investment Consulting Enterprise or Vice Versa, or a Securities Investment Trust Enterprise or Securities Investment Consulting Enterprise Concurrently Operates Another Enterprise, or is Concurrently Operated by Another Enterprise”. The FSC also amended six related regulations, including: the “Standards Governing the Establishment of Securities Investment Trust Enterprises”, “Rules Governing Securities Investment Trust Enterprises”, “Regulations Governing the Operation of Discretionary Investment Services by Securities Investment Trust Enterprises and Securities Investment Consulting Enterprises”, “Criteria Governing the Offering of Securities Investment Trust Funds by Securities Investment Trust Enterprises”, “Standards Governing the Establishment of Securities Investment Consulting Enterprises”, and the “Rules Governing Securities Investment Consulting Enterprises”.
2. Rules Governing Centralized Securities Depository Enterprises amended
The “Rules Governing Centralized Securities Depository Enterprises” was amended to benefit the management of centralized securities depository enterprises, allowing those enterprises, upon obtaining approval, to merge with short-term bills central depository and clearing houses and to concurrently engage in short-term bills central custody and clearing operations.
3. Regulations Governing the Establishment, Supervision, and Management of Urban Renewal Investment Trust Companies amended
In order to provide incentives for enterprises to offer urban renewal investment trust funds to assist in urban renewal projects, the “Regulations Governing the Establishment, Supervision, and Management of Urban Renewal Investment Trust Companies” was amended, easing the qualifications of fund management institutions to apply to act as urban renewal investment trust company promoters, and allowing SITEs to concurrently operate business of urban renewal investment trust company.
4. Approval of securities firms acting as originators to purchase the financial assets under Article 4, paragraph 1, subparagraph 2, item 5 of the Financial Asset Securitization Act solely for the purpose of securitization; allowing securities firms to act as agents for clients in utilizing surplus securities trading funds
Since 20 January 2006, the FSC has approved securities firms acting as originators to purchase the financial assets given in Article 4, paragraph 1, subparagraph 2, item 5 of the “Financial Asset Securitization Act” solely for the purpose of securitization. Besides, in order to allow securities firms concurrently to operate securities investment consulting enterprise to engage in discretionary investment business, the FSC also amended related provisions of the “Regulations Governing Securities Firms”, allowing securities firms to act as agents for clients in utilizing surplus securities trading funds since 23 January 2006.
5. Public companies without listed on TSEC/GTSM are required to announce semi-annual consolidated financial reports beginning from first half of fiscal 2006
In order to enhance transparency of financial information and keep in line with international norms, since 2005 all TSEC and GTSM listed companies must announce semi-annual consolidated financial reports, and the implementation goes smoothly so far. Besides, public companies without listed on TSEC/GTSM and emerging stock board companies shall announce semi-annual consolidated financial reports beginning from first half of fiscal 2006.
6. Regulations Governing Information to be Published in Public Offering and Issuance Prospectuses and Regulations Governing Information to be Published in Annual Reports of Public Companies amended
To strengthen responsive measures on matters of remuneration and risk with respect to directors, supervisors, general managers, and assistant general managers, to increase transparency of information disclosure on privately placed securities, and to integrate selected provisions of regulations governing securities issuers' preparation of financial statements and annual reports, while also strengthening measures regarding disclosure of compensation paid for directors, supervisors, general managers, and vice general managers, the FSC issued amendments, on 11 and 16 January 2006 respectively, to selected provisions of the “Regulations Governing Information to be Published in Public Offering and Issuance Prospectuses” and the “Regulations Governing Information to be Published in Annual Reports of Public Companies”.
7. Issuance of Amendments to “Regulations Governing the Offering and Issuance of Securities by Securities Issuers” , “Regulations Governing the Offering and Issuance of Overseas Securities by Issuers” and “Regulations Governing the Offering and Issuance of Securities by Foreign Securities Issuers” planned in the near futures
In accordance with the amendment to the “Securities and Exchange Act”, of which abolished the prior approval regime of fund raising procedures, the FSC is planning to issue the amendments of “Regulations Governing the Offering and Issuance of Securities by Securities Issuers”, “Regulations Governing the Offering and Issuance of Overseas Securities by Issuers”, and “Regulations Governing the Offering and Issuance of Securities by Foreign Securities Issuers”.
II. Market Wrap-up
As of the end of January,691 companies were listed on the Taiwan Stock Exchange, same as the previous month. The total capital issued was NT$5,416.78 billion, an increase of NT$0.82 billion over the preceding month, and the market capitalization was NT$15,610.37 billion, a decrease of NT$23.86 billion over the preceding month.
As of the end of January, 505 companies were listed on the GreTai Securities Market, an increase of two against the previous month. The total capital issued was NT$645.03 billion, an increase of NT$1.85 billion against the preceding month, and the market capitalization was NT$1,298.18 billion, an increase of NT$14.28 billion against the previous month.
In January, the trading value of shares on the Taiwan Stock Exchange was NT$2,194.03 billion, a decrease of NT$266.92 billion over the previous month, while the trading volume was NT$64.76 billion, a decrease of 11.85 billion shares compared with the previous month.
As of the end of January, the accumulated net inward remittance of foreign investors was US$112.33 billion, an increase of US$3.41 billion over December. There are currently 145 securities firms, 23 futures commission merchants, 45 securities investment trust enterprises and 210 securities investment consulting enterprises.
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 foreign investors
The scope of investment in Taiwan securities markets open to foreign investors is as follows:
1. Stocks and bond conversion entitlement certificates of listed/GTSM companies.
2. Listed/GTSM beneficiary certificates.
3. Government bonds, financial bonds (including subordinated financial bonds), straight corporate bonds, and convertible bonds.
4. Taiwan Depositary Receipts.
5. Open-ended beneficiary certificates.
6. Underwritten stocks of listed companies in secondary public offerings.
7. Underwritten stocks in IPOs prior to initial listing and underwritten stocks in rights offerings.
8. Underwritten stocks in IPOs prior to initial GTSM listing and underwritten GTSM stocks in rights offerings.
9. Beneficiary certificates prior to initial listing.
10. Call/put warrants.
11. NT dollar bonds issued in Taiwan by international financial organizations.
12. Preferred shares issued by listed/GTSM companies.
13. GTSM Emerging Stocks.
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 futures contracts and TAIEX options contracts for hedging purposes.
2. Investments in NT dollar time deposits shall be limited to a 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 foreign investors
When an offshore foreign institutional investor holds more than 300,000 shares (including 300,000 shares) in a listed or GTSM company in Taiwan, its designated domestic agent or representative, may under the authorization of the offshore foreign institutional investor, to appoint a person other than the designated domestic agent or representative to attend the shareholders meeting and exercise the voting rights; such attendance shall be viewed as attendance of itself. Offshore foreign institutional investors may not give proxies to a proxy solicitor or proxy agent.
5. Restrictions on investment of money market instruments for foreign investors
The government's opening of Taiwan’s securities market to 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. In the past, Taiwan's securities market imposed severe penalties for settlement default (a 3-year ban from trading). To avoid fail trade, some 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, under certain circumstances, to postpone settlement until 6 p.m. of the third business day after the date of the trade, and extending the deadline for securities firms to report default by foreign investors to the third business day after the date of the trade. Besides, 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.
3. The amendment of “ Securities and Exchange Act” has been promulgated so securities firms will be permitted to engage in Securities lending and borrowing operations in the future.
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 posts, telecommunications, and shipping) 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, and relaxing off-exchange trading systems.
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