Newsletter No: 022
March 16, 2006
I. News and Events (Chinese)
1. Easing of restrictions on securities firm business:
(1) In order to enhance the competitiveness of securities firm operations, restrictions were eased on 20 February 2006 aimed at the hedging needs of securities firms that deal in structured products, allowing them to hedge by selling the underlying securities through stock borrowing or short sales.
(2) On 22 February 2006 the Commission allowed securities firms to participate as lenders in the TSEC/GreTai securities and bond lending centers.
(3) In order to expand the market scale for issuance of real estate securitization products and to enhance the functions of securities firms acting as offerors and offerees in the secondary market, the Commission on 23 February 2006 allowed securities dealers to purchase listed or GTSM-listed real estate securitization products during the offering period and promulgated related administrative regulations.
2. Domestic futures commission merchants to be allowed to continue participating in trading of MSCI Taiwan futures contracts on the Singapore Exchange via the SGX QUEST system during regular hours
On 21 February 2006, the Commission issued a letter asking the Chinese National Futures Association to notify domestic futures commission merchants that during the three-month period from 1 April to 30 June 2006, they may participate in trading of MSCI Taiwan futures contracts on the Singapore Exchange via the SGX QUEST system.
3. The 3rd Taipei Corporate Governance Forum concludes successfully
On 10 February 2006, the Commission held the 3rd Taipei Corporate Governance Forum in Taipei,
featuring distinguished speakers and panelists including Mr. William Witherell, current senior advisor
and former director of the Directorate for Financial, Fiscal, and Enterprise Affairs of the OECD; Mr.
Jeremy Cooper, Deputy Chairman of the Australian Securities and Investments Commission; Dr.
Hasung Jang, Executive Director of the Asian Institute of Corporate Governance; Mr. Rodney Ward,
Chairman of UBS Investment Bank, Asia; Dr. Stefan Mai, Head of Market Policy, Deutsche Börse AG;
Mr. Eisuke Nagatomo, Managing Director of Tokyo Stock Exchange, and Mr. Joe Longo, General
Counsel, Asia Deutsche Bank. Over 750 participants took part in the forum, including directors,
supervisors, and senior executives of local listed companies, securities firms, and financial enterprises.
The forum was a success, and made substantial contributions to strengthening corporate governance
concepts among the management of Taiwan’s listed companies, and bringing local corporate
governance more closely in line with international standards.
4. Foreign investor rules
(1) On 24 February 2006, the Commission announced that offshore overseas Chinese and foreign nationals are permitted to invest in call (put) warrants during underwriting period.
(2) On 3 February 2006, the Commission announced that an offshore foreign institutional investor that exercises its voting rights in writing or by electronic transmission in accordance with Article 177-1 of the Company Act, or that appoints a company complying with Article 3, paragraph 2, of the Regulations Governing Handling of Stock Affairs by Public Companies to exercise its voting rights, may be exempted from the requirement that it “shall appoint a ROC agent or representative to exercise the voting rights” as set out in the Regulations Governing Investment in Securities by Overseas Chinese and Foreign Nationals.
5. New systems and products beginning on March 27, 2006
Since March 27, 2006, offshore foreign investors has been allowed to trade by US dollars in the futures market. Besides, the offshore FCMs may open omnibus accounts with local FCMS and the US dollar denominated gold futures and the MSCI Taiwan Stock Index futures and options will be started to trade on the same day.
II. Market Wrap-up
As of the end of February, 691 companies were listed on the Taiwan Stock Exchange, same as the previous month. The total capital issued was NT$5,412.90 billion, a decrease of NT$3.88 billion over the preceding month, and the market capitalization was NT$15,700.55 billion, an increase of NT$90.18 billion over the preceding month.
As of the end of February, 508 companies were listed on the GreTai Securities Market, an increase of three against the previous month. The total capital issued was NT$650.55 billion, an increase of NT$5.52 billion against the preceding month, and the market capitalization was NT$1,322.79 billion, an increase of NT$24.61 billion against the previous month.
In February, the trading value of shares on the Taiwan Stock Exchange was NT$1,591.23 billion, a decrease of NT$602.80 billion over the previous month, while the trading volume was NT$45.96 billion, a decrease of NT$18.80 billion shares compared with the previous month.
As of the end of February, the accumulated net inward remittance of foreign investors was US$114.29 billion, an increase of US$1.96 billion over January. There are currently 145 securities firms, 23 futures commission merchants, 45 securities investment trust enterprises and 214 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. Since the amendment of “ Securities and Exchange Act” has been promulgated the FSC allowed securities dealers to be lenders to engage in TSEC/GreTai securities and bond lending centers on February 22, 2006.
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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