Newsletter No: 029
November 1, 2006
|I. News and Events (Chinese) |
Foreign investors are allowed to be financed for settlement needs from securities finance enterprises
On September 13, 2006, the FSC allowed offshore overseas Chinese or foreign nationals to finance from a securities finance enterprise for the settlement of exchange-listed or GTSM-listed securities, exempted from the restrictions of Article 21, subparagraph 3 of the Regulations Governing Investment in Securities by Overseas Chinese and Foreign Nationals which otherwise prohibit such parties from providing collateral.
Allow margin purchase and short sale of Taiwan Depository Receipts (TDRs)
The FSC amended the Standards Governing Margin Purchase and Short Sale of Securities in order to allow margin purchase and short sale of TDRs and bond index ETFs. To enhance the international competitiveness of Taiwan's capital markets and increase foreign issuers' willingness to list in Taiwan, the FSC referred to American market and allowed TDRs to be the objectives for margin purchase and short sale. In addition, in response to GTSM trading of bond index ETFs, the FSC also allowed margin purchase and short sale of those products in order to stimulate their trading.
Futures commission merchants implement measures for "identifying the source of incoming monies"
On September 1, 2006, futures commission merchants implemented measures for "identifying the source of incoming monies" to guarantee the security of futures traders' capital. The measures were put forward by the Chinese National Futures Association, and after consulting with futures commission merchants, financial institutions, and the TAIFEX following active coordination and promotion, the measures were implemented on September 1, 2006. Key points of the measures include the following:
Incoming account transfer monies: A trader must appoint account numbers for incoming monies with the futures commission merchant in advance (three account numbers at most for any single currency). If the account number for incoming monies fails to match any number provided by the trader, the futures commission merchant will return the transferred funds.
Incoming remittances: The trader must fill out his (or her) name on the remittance form to allow the futures commission merchant to verify it against the name of the account holder. If the name does not match, the futures commission merchant will return the remittance.
These measures are expected to effectively prevent dishonest persons from using fake virtual accounts to swindle traders out of their funds, and to prevent traders from mistakenly depositing margins in others futures trading accounts, and as a result, having those deposits skimmed off by other parties; for aforesaid reasons the measures are expected to guarantee the security of futures traders' capital.
First offering and issuance of international bonds underway
In order to attract foreign enterprises to Taiwan to carry out fund raising, the FSC has undergone deliberations on liberalizing related regulations in line with international practice, and has amended and issued the Regulations Governing the Offering and Issuance of Securities by Foreign Securities Issuers and related orders (http://www.fsc.gov.tw/text/news_detail.aspx?icuitem=1880551 ). It has also reviewed the GreTai Securities Market's Rules Governing Management of foreign currency-denominated International Bonds and approved their rules and regulations (http://www.selaw.com.tw/Scripts/NewsDetail.asp?no=G0101612 ).
There is already one successful issuer of foreign currency-denominated bonds, Deutsche Bank A.G., with an issuance between US$200-500 million; offering is scheduled to be completed and GTSM trading by early November of 2006.
Information on the prosecution of major securities law violations and related judgments is provided with English and Chinese versions at the website of the Securities and Futures Bureau of the Financial Supervisory Commission, Executive Yuan: http://www.sfb.gov.tw/intro_index.asp .
II. Market Wrap-up
As of the end of September, 687 companies were listed on the Taiwan Stock Exchange, no difference against the previous month. The total capital issued was NT$ 5,543.11 billion, no difference over the preceding month, and the market capitalization was NT$16,863.26 billion, an increase of NT$664.90 billion over the preceding month.
As of the end of September, 531 companies were listed on the GreTai Securities Market, an increase of 2 against the previous month. The total capital issued was NT$ 722.65 billion, a decrease of NT$3.48 billion against the preceding month, and the market capitalization was NT$1587.15 billion, an increase of NT$51.06 billion against the previous month.
In September, the trading value of shares on the Taiwan Stock Exchange was NT$1,589.36 billion, a decrease of NT$142.62 billion over the previous month, while the trading volume was 44.25 billion shares, a decrease of3.50 billion shares compared with the previous month.
As of the end of September, the accumulated net inward remittance of foreign investors was US$ 121.87 billion, an increase of US$ 1.73 billion over August. There are currently 139 securities firms,22 futures commission merchants, 45 securities investment trust enterprises and 180 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)
Investment quotas for foreign investors
Under the 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.
Investment scope for offshore foreign investors
The scope of investment in Taiwan securities markets open to offshore foreign investors is as follows:
Stocks, bond conversion entitlement certificates, and Taiwan Depositary Receipts issue privately placed by listed, over-the-counter (“OTC”), or emerging-stock companies.
Securities investment trust fund beneficiary certificates placed publicly or privately.
Government bonds, financial bonds, ordinary corporate bonds, convertible corporate bonds, and corporate bonds with warrants.
Beneficial securities placed publicly or privately by trustee institutions, or asset-backed securities placed publicly or privately by special-purpose companies.
Call warrants and Put warrants.
Other securities approved by the competent authority for the securities industry, such as underwritten 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, foreign-currency-denominated fund issued by SITEs, 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):
Investment in government bonds, time deposits, and money market instruments;?? trading of NTD interest-rate derivatives on over-the-counter.
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.
Investments in money market instruments, limited to bills within 90 days of expiration.
Requirements over the outward remittance of investment principal, capital gains and the other investment gains by foreign investors.
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.
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).
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.
Exercising shareholder's rights for offshore foreign investors
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:
Exercise electronically or by means of a written form in accordance with Article 177-1 of the Company Act;
Exercise through appointment of a company conforming to Article 3, paragraph 2 of the Regulations Governing Handling of Stock Affairs by Public Companies;
Exercise through appointment of a domestic agent or representative to exercise voting rights at the shareholder meeting;
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;
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.
An offshore foreign institutional investor may not give a proxy form issued by the public company to a proxy solicitor or proxy agent.
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.
Prefunding Issues in Taiwan
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.
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.
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.
The FSC allowed Overseas Chinese and Foreign Nationals borrowing funds for settlement engaging in trading listed and GTSM securities from securities firms and securities finance enterprises, on June 20 and September 13, 2006, respectively.
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.
Locking period of stocks
The trading of stocks held by foreign investors is not subject to a "locking period".
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.
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.
After each market close, the TSEC also provides auction and tender offer systems in which securities prices are negotiable to satisfy various investors’ demands.
What are recently key adjustments to the Block Trading System?
In the past, block trading was traded after trading-hours with the closing price. To liven up the market and cater to investors’ needs, a new block trading system was launched on April 4, 2005, designed with reference to block trading systems employed overseas. The new system expands the applicable scope of block trading (the minimum order quantity is now 500,000 shares or NT$15 million per single stock buy or sell trade, or 5 stocks and NT$15 million per basket buy or sell trade), increases price flexibility, and allows block trading during trading hours. The securities firm pre-collects the securities and funds, reports them to the stock exchange by computer, and trades are then settled by same-day real-time gross settlement, raising the efficiency of trading.
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 postal industry, telecommunications, and shipment) 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.
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.
Permission for asset transfers between offshore foreign investors with different ID numbers but where the final beneficiary is the same person
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.
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.
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.
Reformation for FTSE
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 overseas roadshows actively.
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, allowing to trade through individual accounts or omnibus accounts and allowing to borrow funds from securities firms and securities financing enterprises for settlement needs.
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