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Newsletter No033

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Newsletter No: 033

March 1, 2007

I. News and Events   (Chinese) 

1.Article 19-3 of the Regulations Governing Securities Firms was amended to add credit derivatives to the types of derivative financial products operated by securities firms 
While equity, interest-rate, and bond derivatives are included in the new financial products operated by securities firms, It is high time to develop the credit derivatives. In view of trends in international financial markets and product design by overseas investment banks, securities firms are allowed to engage in OTC trading of credit derivatives, which will further expand the business scope of securities firms as well as their capability for financial innovation and product design. 

2.FSC amends the Directions for Use of Securities Investment Trust Funds for Trading of Securities-Related Products by Securities Investment Trust Enterprises 

In order to bring regulations of domestic securities investment trust funds into conformity with regulations of offshore funds, the FSC on 22 January 2007 amended the Directions for Use of Securities Investment Trust Funds for Trading of Securities-Related Products by Securities Investment Trust Enterprises. Key amendments are as follows: 

(1) The new provisions allow funds to act as traders to engage in interest rate swaps (IRSs) and single-stock futures, along with related regulations. 

(2) In order to increase investment efficiency, netting of long and short positions of securities-related products is allowed. 

3.Issue interpretive order regarding Article 14 of the Regulations Governing the Conduct of Discretionary Investment Business by Securities Investment Trust Enterprises and Securities Investment Consulting Enterprises 

The interpretive order states that offshore funds which have not received FSC approval or effective registration are allowed to be invested by securities investment trust enterprises and securities investment consulting enterprises using discretionary assets in providing discretionary services. 

4.Exchange- and OTC-listed companies urged to adopt more reasonable rates of compensation for directors and supervisors and to strengthen information disclosure 

Amendments are being made to the "Regulations Governing Information to be Published in Annual Reports of Public Companies" and the "Regulations Governing Information to be Published in Public Offering and Issuance Prospectuses " in order to urge exchange- and OTC-listed companies to adopt reasonable compensation for directors and supervisors and to implement the joint views of the Conference on Sustaining Taiwan's Economic Development regarding continuing enhancement of information transparency. The amendments will strengthen information disclosure of compensation of directors, supervisors, general managers, and assistant general managers so as to enhance corporate governance. 

5.Strengthen supervision of Mergers and Acquisition (M&A) activities and simplify procedures for acquisition and disposal of securities 

(1) Article 24 of the Regulations Governing the Acquisition and Disposal of Assets by Public Companies has been amended to strengthen supervision over merger and acquisition activities. New provisions require exchange- or OTC-listed companies taking part in a merger or acquisition to carry out related information reporting. 

(2) Article 10 of aforesaid Regulations has been amended in order to simplify procedures for the acquisition or disposal of securities. The amended Regulations expand the range of circumstances under which a company acquiring or disposing of securities is exempted from requirements to obtain target company financial statements and to obtain an opinion from certified public accountants. 

6.Scope of discretionary orders for futures trading is broadened to include foreign currency margins trading 

In order to expand the business scope of managed futures enterprises, the FSC on 30 January 2007 issued amendments to the 28 June 2004 order of the former Securities and Futures Commission of Ministry of Finance, Order No.VII-0930128984 of SFC, and approved draft amendments to the Chinese National Futures Association Operating Rules for the Discretionary Futures Trading Services of Managed Futures Enterprises. The new measures broaden the scope of discretionary orders for futures trading by managed futures enterprises to include foreign currency margins trading. 

7.Information on the prosecution of major securities law violations and related judgments: 

Information on the prosecution of major securities law violations and related judgments, provided bilingually in Chinese and English, can be found on the website of the Securities and Futures Bureau of the Financial Supervisory Commission, Executive Yuan: 

II.Market Wrap-up 

As of the end of January, 687 companies were listed on the Taiwan Stock Exchange, a decrease of 1 against the previous month. The total capital issued was NT$ 5,499.43 billion, a decrease of NT$23.24 billion over the preceding month, and the market capitalization was NT$19,038.42billion, a decrease of NT$338.55 billion over the preceding month. 

As of the end of January, 532 companies were listed on the GreTai Securities Market, an increase of 1 against the previous month. The total capital issued was NT$ 734.62 billion, an increase of NT$8.42 billion against the preceding month, and the market capitalization was NT$1900.45 billion, an increase of NT$1 billion against the previous month. ? 

In January, the trading value of shares on the Taiwan Stock Exchange was NT$2,662.66 billion, an increase of NT$326.73 billion over the previous month, while the trading volume was 76.83billion shares, a decrease of 6.56 billion shares compared with the previous month. 

As of the end of January, the accumulated net inward remittance of foreign investors was US$131.94 billion, an increase of US$1.59 billion over December. There are currently 135securities firms, 22 futures commission merchants, 41 securities investment trust enterprises and 165 securities investment consulting enterprises. 

III.Measures related to futures trading, please refer to the website of Taiwan Future Exchange ( 


1.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. 

2.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, securities trust fund privately-placed by SITEs, private securities trust funds placed by SITEs and foreign currency-denominated securities trust fund privately-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. 
3.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. 
When a foreign investor intends to borrow from local financial institutions, the proceeds are limited for settlements of local securities transactions and are prohibited to apply for transfer. 

4.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: 
(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; 

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. 
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 
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 to borrow funds for settlement engaging in trading listed and GTSM securities from securities firms, securities finance enterprises and financial institutions on June 2, September 13 and December 15, 2006, respectively. 
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 

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.? 
10.The latest reforms on block trading system in Taiwan 

In order to encourage large-volume traders to undertake block trades so as to reduce the impact on the pricing of ordinary trades, the FSC will implement two-stage adjustments of the current block trading system. The first stage, set for implementation on 29 January 2007, the current intraday trading timeframes will be extended to 20 minutes and the trade price flexibility will be widened from 2 percent to 3.5 percent. Besides, the other measures which including mechanism of matching block trade, T+2 settlements, and elimination of pre-funding system are subject to implement on 28 May 2007. 

11. 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. 

12.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. 

13.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. 
14.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. 

15.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 December 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, allowing to borrow money from securities firms and securities financing enterprises and allowing to borrow money in NT dollar from banks. In addition, there will be adjustments to the block trading system and an adjustment or easing of the system for regulating securities firm reporting of out-trades. The aforesaid policies will facilitate the internationalization of our securities market.
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Visitor: 7292   Update: 2017-06-14