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Newsletter No024

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Newsletter No: 024

May 15, 2006

I. News and Events   (Chinese)

1. New amendments to the Regulations Governing the Offering and Issuance of Overseas Securities by Issuers and the Regulations Governing the Offering and Issuance of Securities by Foreign Securities Issuers

Selected provisions of the Regulations Governing the Offering and Issuance of Overseas Securities by Issuers and the Regulations Governing the Offering and Issuance of Securities by Foreign Securities Issuers have been amended to harmonize the amended Article 22 of the Securities and Exchange Act. Effective registration is applied to all cases of securities public offering and issuance, abolishing the prior approval system. The amendments enhance supervision of private placements of securities and simplify review procedures for the offering and issuance of straight corporate bonds by foreign issuers, as well as enhance the disclosure of overseas information with respect to domestic and foreign issuers.

2.Streamlined information reporting procedures for securities underwriters

To simplify underwriting procedures, and in response to the 11 January 2006 abrogation of Article 78 of the Securities and Exchange Act requiring securities underwriters to file the underwriting related information with the Competent Authority for recordation, the Regulations Governing Securities Firms were amended on 14 April 2006 by the addition of Article 29-1. The new provision requires underwriters to establish permanent files stating the sales results and the number of its own subscription for reference.

3. Amendment of announcement and filing checklist for financial reports of securities firms

The amendment of Announcement and Filing Checklist for Annual, Half-Year, and Quarterly Financial Reports of Securities Firms was issued on 25 April 2006. The amended checklist requires that financial statements must include the signature or personal seal of persons as described under Article 14, paragraph 3 of the Securities and Exchange Act, and in addition, a declaration stating that the content of a financial report contains no misrepresentations or nondisclosures, with effect on the annual financial reports for the 2005 fiscal year. Except that, the other requirements will take effect on the first quarter financial report of 2006.

II. Market Wrap-up

As of the end of April, 693 companies were listed on the Taiwan Stock Exchange, an increase of two against the previous month. The total capital issued was NT$ 5,439.78 billion, an increase of NT$5.49 billion over the preceding month, and the market capitalization was NT$ 17,482.92 billion, an increase of NT$ 1,566.42 billion over the preceding month.

As of the end of April, 513 companies were listed on the GreTai Securities Market, an increase of one against the previous month. The total capital issued was NT$ 657.20 billion, an increase of NT$1.38 billion against the preceding month, and the market capitalization was NT$ 1,530.06 billion, an increase of NT$115.21 billion against the previous month.

In April, the trading value of shares on the Taiwan Stock Exchange was NT$ 2,354.26 billion, an increase of NT$ 270.83 billion over the previous month, while the trading volume was NT$70.07 billion, an increase of NT$ 18.28 billion shares compared with the previous month.

As of the end of April, the accumulated net inward remittance of foreign investors was US$ 121.55 billion, an increase of US$7.13 billion over March. There are currently 142 securities firms, 23 futures commission merchants, 45 securities investment trust enterprises and 200 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 offshore foreign investors

The scope of investment in Taiwan securities markets open to offshore 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 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. 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. On 28 April 2006, the Financial Supervisory Commission announced the draft Regulations Governing Securities Firms in Handling Securities Business Money Lending. The Regulations will allow borrowing and lending of funds by securities firms in securities business involving foreign investors; for clients using securities purchased as collateral, the financing period will extend from the second to the fifth business day after the transaction date (T+2 to T+5).

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, 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.
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