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Title: Taiwan Stock Exchange Corporation Regulations Governing Brokerage Contracts of Securities Brokers
Date: 2003.04.18 ( Announced )
Date: 2017.05.08 ( Amended )

Article Content

 
Article 1     These Regulations are adopted pursuant to the provisions of Article 158 of the Securities and Exchange Act and the Main Content of the Regulations for Brokerage Contracts of Securities Brokers promulgated by the competent authority.
Article 2     Where any of the following conditions apply, securities brokers shall refuse to open an account for a principal; if an account has already been opened, the securities broker shall refuse to accept trading orders or subscriptions for securities:
  1. The principal has either no legal capacity or limited legal capacity, and is acting without the representation of a statutory agent.
  2. The principal is an officer or employee of the competent securities authority.
  3. The principal is an employee of the Securities and Futures Bureau under the competent authority and has not submitted a letter of consent from the agency.
  4. The principal has been declared bankrupt and restoration of rights has not been effected.
  5. The principal has been declared by a court to be placed under guardianship where such declaration has not yet been voided, provided that this restriction shall not apply where the guardian disposes of the securities for the interests of the person under guardianship.
  6. The principal has been declared by a court to be placed under assistance, where such declaration has not yet been voided, provided that when a court or the person providing assistance to the person subject to the declaration grants permission, this restriction shall not apply.
  7. The principal is opening an account for a juristic person but cannot provide evidence of authorization.
  8. The principal is a securities broker that has not received approval from the competent authority or the stock exchange.
  9. The principal has engaged a director, supervisor, or employee of a securities firm to act as agent in opening an account at said firm.
  10. The principal is applying or applied to convert an account it originally opened as a discretionary investment account to a brokerage account for the principal's own trading use.
    Where any of the following conditions apply, securities brokers shall refuse to open an account for a principal and shall refuse to accept orders for trades or subscriptions to securities on an already-opened account:
  1. When the TWSE or the GreTai Securities Market has sent a general notice to securities brokers that the principal is in default through failure to perform settlement obligations on time, and less than 5 years have passed while conclusion of the case is still pending. However, after a securities broker's receipt of the notice, this provision does not apply to brokerage trades made for purposes of offsetting margin purchases or short sales that were already executed for the same principal on the same day and are of the same type and same quantity of securities, nor does it apply to opposite offsetting brokerage trades made on the same day in accordance with the Operational Rules Governing Day Trades of Securities.
  2. An indictment has been issued against the principal by the public prosecutor for violation of the Securities and Exchange Act or for forgery or alteration of listed or OTC securities, where a judgment is still pending or where not more than five years have passed following issuance of a final and conclusive judgment by the court.
  3. Where the principal is in default of its futures trading contract and less than five years have passed while conclusion of the case is still pending, or where the principal has violated regulations for management of futures trading and not more than five years have passed since the issuance of a final and conclusive criminal judgment by the judicial authorities.
Article 2-1     When an overseas Chinese or foreign national has not effected registration with the TWSE pursuant to Article 77-4 of the TWSE Operating Rules, securities brokers shall refuse to open an account for a principal.
    Where any of the circumstances under Article 11 of the Regulations Governing Investment in Securities by Overseas Chinese and Foreign Nationals apply with respect to the registration under the preceding paragraph, the TWSE will not allow registration, and where registration has already been effected, will cancel the registration, and will notify the securities broker which has already opened an account that it may not accept orders for purchase.
    The securities broker shall cancel that account after the automatic settlement of the balance in the account and announce the conclusion of the case to the TWSE.
Article 3     Securities brokers accepting orders for securities trades must first execute a brokerage contract with the principal, and shall not effect securities trades on behalf of those who have not yet executed such a contract. Securities brokers shall abide by the following provisions when executing a brokerage contract with a principal:
  1. Where the principal is a natural person, with the exception of the following circumstances, that person shall bring their National Identity Card, personally place their seal on the brokerage contract, open an account, and place a photocopy of their National Identity Card on file:
    1. Where the principal has limited or no disposing capacity, or has been declared by a court to be placed under assistance, the principal's statutory agent, guardian, or assistant shall bring his/her own and the principal's National Identity Card, open an account, personally place their seal on the brokerage contract, and place a photocopy of their own and the principal's National Identity Card on file. Where the principal has not yet obtained a National Identity Card, a household membership certificate may be used; a statutory agent acting as guardian shall also supply proof of guardianship.
    2. Where the principal is a person working overseas for a juristic person, the principal may engage an agent to open an account by personally bringing their own and the principal's National Identity Cards, a power of attorney notarized by an ROC overseas representative office or other authorized institution, and documents provided by the juristic person evidencing the fact of employment overseas.
    3. Where the principal does not open a margin trading account and handles account opening by correspondence or electronic means, the TWSE Standards Governing Principal Identification and Management of Credit Line Categorization in the Processing by Securities Firms of Account Opening will govern.
  2. When the principal is a juristic person, procedures shall be carried out by an authorized person holding copies of evidentiary documents, including a copy of the juristic person's registration, a copy of the tax authority notice for issuance of a uniform serial number and establishment of a withholding entity, a legally valid power of attorney and a copy of the authorized person's National Identity Card.
  3. If the principal is a non-juristic person organization, an account shall be opened in the name of the organization's responsible person, with the organization's name listed as part of the account holder's name; the responsible person shall append a photocopy of the registration certificate for the organization issued by the competent authority (or its establishment approval, filing for recordation, or other registration document), a photocopy of the notice from the tax authority of the establishment of a tax withholding entity and the assignment of a uniform serial number (if the organization is exempt from income tax withholding, it must also submit one copy of the "income tax withholding exemption certificate"), and a photocopy of the responsible person's national ID.
    When the principal, the principal's statutory agent, or other authorized person executes a brokerage contract, a sample signature card or seal impression card for the principal, the principal's statutory agent, or another authorized person shall be kept on file, and an identical signature or seal shall be used when appearing in person to place orders to trade or subscribe to securities, or complete settlements and related procedures, provided when the principal cancels an authorization, he/she/it may do so by correspondence or electronic means that is sufficient to identify the applicant as the principal himself/herself/itself and confirm his/her/its indication of intent.
    The principal or the principal's statutory agent shall issue a power of attorney when engaging an agent to handle on its behalf any procedures relating to brokerage trading, subscription to securities, or settlement, and a signature specimen card or seal impression card of the agent shall be kept on record for handling such matters, provided when the principal cancels an authorization, he/she/it may follow the proviso of the preceding paragraph.
    A securities broker accepting an order to cancel an account may do so by correspondence or electronic means that is sufficient to identify the applicant as the principal himself/herself/itself and confirm his/her/its indication of intent.
    The brokerage contract shall provide evidence that these Regulations, and the TWSE Operating Rules, public announcements, and circular letters as well as the regulations of the ROC Securities Dealers Association, are recognized as a part of the contract, and shall further specify the following matters:
  1. If the principal is a natural person, the contract shall specify the principal's name, gender, age, place of family origin, occupation, residential address, and national ID number. If the principal has an agent, the contract shall specify the agent's name and national ID number.
  2. If the principal is a juristic person, the contract shall specify the juristic person's appellation, address, uniform serial number, telephone number, statutory representative, and authorized representative.
    The broker shall engage in securities trading on behalf of the principal only after the principal opens a central securities depository account and a deposit account at the principal's designated financial institution.
    The requirement in the preceding paragraph concerning the opening of a deposit account shall not be applicable to those specified in the following subparagraphs:
  1. Offshore overseas Chinese or foreign nationals, securities investment trust funds, venture capital enterprises invested by the National Development Fund of the Executive Yuan, insurance enterprises, and overseas Chinese or foreign nationals converting holdings of convertible corporate bonds into stocks or overseas depository receipts into the underlying securities, on whose behalf a custodian institution has opened a deposit account, may receive or deliver the price by account transfer (remittance).
  2. A trust enterprise with depository participant status may receive or deliver the price by account transfer (remittance) through the collective investment trust fund account managed by the trust enterprise.
  3. A depository institution of overseas depository receipts, when accepting orders for redemption and sale of shares held, may receive the price by account transfer (remittance) through the deposit account at its custodian institution.
  4. A securities investment consulting enterprise (SICE) or a securities investment trust enterprise (SITE) that has been engaged by a principal to conduct discretionary trading of securities may receive or deliver the price by account transfer (remittance) through a deposit account opened with the custodian institution.
  5. A domestic bank or insurance company, if it has obtained a rating of twA- or above from Taiwan Ratings Corporation, or a rating, from a credit rating institution approved or recognized by the competent authority, that is equivalent to twA- or above from Taiwan Rating Corporation, may receive or deliver the price by account transfer (remittance) during the valid period of the above-mentioned rating.
  6. Government agencies that conduct monetary settlement of securities trades through deposit accounts of the agencies in accordance with laws and regulations, may carry out the receipt and payment of the prices by transfer (or remittance) through their accounts.
Article 4     A broker must receive an order placed by a principal or principal's agent by means of letter, telegraph, telephone, electronic trading, or placed in person, before the broker may fill out and print the trading order form prescribed under Article 87 of the Securities and Exchange Act in order to execute a trade. The term "electronic trading" means trading by use of telephone voice menu system, the Internet, dedicated line, closed dedicated network, or other electronic trading method approved by this Corporation.
    An agent must first obtain a power of attorney from the principal before trading on his behalf or signing trading documents.
    The securities broker shall not be liable for errors that occur when the principal or his agent places a trading order by telephone when such errors are not attributable to the broker.
    A securities broker is prohibited from using computer-assigned group codes to handle securities trading orders, and is required to prepare order tickets and trading records in one of following ways, depending on how the trading order is placed:
  1. Non-electronic trading methods
    1. Where a securities trading order is placed in person, it shall be done by either principal or by an agent or authorized person of the principal, who shall fill out a letter of authorization and sign or seal it.
    2. When a principal or principal's agent places a securities trading order by letter, telegraph, telephone, or other TWSE-approved method, the securities broker's personnel handling the trade shall fill out the order ticket in either written or electronic form. Where order tickets are written, they shall be signed or sealed; where order tickets are filled out using an electronic trading method, the securities broker need not print out every single order ticket if it is able to implement delegation of responsibility for the handling of trading orders, and to identify which account executives are responsible for which orders.
  2. Electronic trading methods
    1. Where a principal places an order using an electronic trading method, the securities broker need not prepare an order ticket and fill it out on the principal's behalf.
    2. The record of a trading order shall include the principal's name or account number, time of the order, type of securities, number or par value of shares, limit price, expiration time, name or code of the associated person handling the trade, and manner in which the order is placed.
    3. When the principal places a trading order over the Internet, the record of the trading order shall also include the principal's Internet Protocol (IP) address and digital signature. When a trading order is placed by phone, the broker shall make use of the telecommunications provider's caller ID service to record the caller's telephone number.
    When a securities broker receives a trading order in non-electronic form and fills out the order ticket in electronic form, or when it receives a trading order in electronic form, it shall print out records of such trading orders in chronological sequence, which shall be signed or sealed after market close by the securities broker personnel handling the trades, provided that when procedures for the storage of trading order records satisfy the following provisions, such records need not be printed out or signed or sealed:
  1. Electronic storage media are used, and preparation of the records is completed on the day of the trade's execution.
  2. The records are fully indexed, and management procedures are in place.
  3. A specific person(s) is responsible for records management, and it is possible at any time to convert the electronically stored data to hardcopy format.
    When a principal places an order using a non-electronic trading method, the securities broker may provide the execution report by electronic mail, telephone, facsimile, text message, voice message, or the Internet.
    With the exception of orders placed by telephone voice menu system, electronic signatures issued by a certification authority shall be used to identify and confirm order tickets, order confirmations, execution reports, and other such electronic documents transmitted between securities brokers and principals that place orders by an electronic trading method. This restriction shall not apply, however, under the following circumstances:
  1. When an order confirmation or transaction confirmation is delivered by telephone, facsimile, text messaging, or webpage program.
  2. When the conditions for exemption under the TWSE Operation Directions for Implementation of Direct Market Access by Securities Brokers are applicable.
    If, after an order from a principal to trade within 30 minutes prior to the commencement of market trading hours or within a certain period of time prior to the close of market trading hours as accepted by a securities broker is reported to the TWSE, there occurs a massive revocation or amendment to the report, the TWSE may request the securities broker to collect in advance from its principal, upon accepting the trading order, the funds or securities, margin for margin purchases, or margin for short sales.
Article 5     The period of validity of a brokerage contract shall be determined by the parties to the contract.
Article 6     Execution of brokerage contracts and handling of trading orders by securities brokers shall be undertaken by registered and qualified responsible persons, managerial officers, and associated persons (those acting as account executives).
Article 7     When securities brokers accept trading orders, they shall undertake the trades in accordance with the particulars of the order tickets and in the order of their serial numbers.
    A principal or principal's agent may give written notice to the securities broker to cancel the trading order or reduce the volume of the trade, except where the trade has already been confirmed.
    A principal or principal's agent shall indicate a price limit when placing a trading order, provided that it is acceptable for a juristic person or other institution to authorize a securities firm to decide on the price (within the price fluctuation range designated by the juristic person or institution) and time of order submission, and the securities firm is required to retain a record of the customer's authorization and trading order.
    When a principal or principal's agent does not state the period of validity when placing a trading order, the order shall be deemed a day order.
    For trade orders accepted by securities brokers through the Internet or other electronic means of transaction, the period of validity shall be specified; for orders made over the Internet, the period of validity shall be displayed on the electronic interface where trading order information is entered.
Article 8     Securities brokers shall not accept a trading order under any of the following conditions:
  1. Where the broker is given full authorization to select the type of security traded.
  2. Where the broker is given full authorization to decide the volume of securities traded.
  3. Where the broker is given full authorization to decide the price at which the brokerage trade takes place.
  4. Where the broker is given full authorization to decide whether to buy or sell securities.
  5. Where the trade involves securities not approved for listing or for which trading has been temporarily suspended.
  6. Where the trade involves securities no longer listed.
  7. Where the securities trade involves installment payments.
  8. Where the principal is given a guarantee of profit or profit sharing is involved in securities trading.
  9. Where a securities dealer's trading order has not been approved by the competent authority.
Article 9     At the end of each month, securities brokers shall produce reconciliation statements to be delivered to respective principals before the 10th day of the following month.
Article 10     Securities brokers are obliged to keep all the particulars of a principal's trading order in strict confidence, provided that this restriction shall not apply when responding to inquiries from the competent authority or the stock exchange.
Article 11     Except for securities which, by regulation, are sold by bidding at counters, securities brokers receiving trading orders shall enter each item of the trading order form in order into the stock exchange computer system from their computer terminals, and print the order confirmation after acceptance. After the transaction, the broker shall print an execution report, and immediately produce a trade report as stipulated under Article 86 of the Securities and Exchange Act for notification of the principal on the date of the transaction.
    A securities broker shall exercise the diligence and care of a good custodian in managing the online brokerage operations referred to in the preceding paragraph. Should the occurrence of war, natural disaster, or other force majeure events not attributable to the securities broker hinder the normal operation of online computer connections, the securities broker shall not bear liability for compensation.
Article 12     A securities broker accepting a trading order under normal settlement terms shall collect the securities sold or the purchase price of the securities from the principal when the order is transacted or prior to 10 a.m. on the second business day after the trade date.
    A securities broker shall reporting delayed settlement for an offshore overseas Chinese, foreign national, or mainland area investor to the TWSE shall comply with the Guidelines for Securities Brokers in Reporting Delayed Settlement and Default by Principals adopted by the TWSE.
    A securities broker accepting an order for margin trading shall collect the legally required margin for margin purchases or deposits for short sales from the principal before10 a.m. on the second business day after the trade date.
Article 13     A securities broker, when delivering/paying or receiving securities or prices payable to or from a principal for brokerage trading, as well as collecting the commission and securities transaction tax, shall do so by book entry through the central securities depository account opened by the principal or the principal's account at the designated financial institution, or by account transfer (or remittance) through the depository account of the custodial institution in accordance with Article 3 of these Regulations.
    A securities broker conducting the business of accepting instructions from customers to keep custody of and invest customer funds, or operating the business of acting as an agent, as instructed by customers, to invest balances of funds from the trading of securities on behalf of customers, shall comply with the regulations governing these respective kinds of business when handling operations in connection with the receipt and payment of funds for brokerage trading under the preceding paragraph.
Article 14     (Deleted)
Article 15     After a securities broker transacts a brokered trade, it shall collect the commission from the principal in accordance with Article 85, paragraph 1 of the Securities and Exchange Act. The stock exchange shall report the rate of such commissions to the competent authority for approval.
    A securities broker may not arbitrarily raise or lower its commissions, nor offer part or all of the commission as compensation to the referring person connected with the principal's trade, provided that this restriction shall not apply to any of the following circumstances:
  1. The commissions is paid under contract to a foreign financial institution registered and approved for operation of securities business by the competent authority of the country where the institution is located.
  2. The commission is paid to a subsidiary of a financial holding company in accordance with a contract entered into for purposes of cross-selling business.
    The countries of location of such foreign financial institutions as referred to in subparagraph 1 of the preceding paragraph shall be separately prescribed by the TWSE.
Article 16     A securities broker shall collect commissions from the principal according to a published fee schedule, and may not offer part or all of any commission as compensation to the referring person connected with the principal's trade.
    Securities brokers accepting trading orders or acting on behalf of others to trade securities through margin purchases or short sales shall handle such trades in accordance with the Regulations Governing Margin and Stock Loans by Securities Firms, the Rules Governing Securities Finance Enterprises, the Operating Rules for Securities Firms Dealing with Margin Purchases and Short Sales, or the Operating Rules for Securities Financing Enterprises Dealing with Margin Loans and Short Sales.
Article 17     After confirmation and settlement of a trading order, a securities broker shall immediately deliver the securities purchased to the principal, or transfer the prices of the securities sold to the depository account of the principal in the designated financial institution in accordance with Article 13, unless the client agrees to leave the settlement money in the securities firm's settelement account. For trades that are not confirmed, securities already received shall be immediately returned to the principal.
    A securities firm receiving or delivering the principal's securities or funds shall keep precise records and retain vouchers of receipt or delivery.
Article 18     A securities firm which violates the TWSE Operating Rules, or any related announced regulations in accepting trading orders shall be deemed in violation of the brokerage contract. Upon the principal (or principal's agent)'s report of such violation to the TWSE, the TWSE may investigate and handle such violation.
Article 19     A principal that does not perform price or securities settlement on time is in default, and the securities broker that accepted the order shall report the default pursuant to the Taiwan Stock Exchange Corporation Operation Directions for Securities Brokers in Reporting Delayed Settlement and Default by Principals and carry out settlement procedures on the principal's behalf and may collect a default penalty equal to not more than 7% of the transaction amount. Accounting treatment for the collected default penalty shall be handled pursuant to the Regulations Governing the Preparation of Financial Reports by Securities Firms.
    When the principal is an overseas Chinese, foreign national, or mainland area investor outside ROC territory and delay of settlement results in borrowing of securities, payments made on their behalf, or other related expenses, the principal shall return those amounts to the securities firm when completing settlement.
    When a principal is in default, the securities broker that accepted the order may postpone the termination of the principal's securities trading brokerage contract and the cancellation of its brokerage account, and during the 3 business days beginning from the business day after it reports the default, accept transfers from the principal, for purposes of sale, of securities held by the principal, into the securities broker's special account for handling default events, in order to satisfy the principal's debts and fees incurred by the default. After the principal has satisfied its debts and fees during the aforesaid postponement period, and the securities broker has reported the default case closed, the principal may continue to use its original account for transactions. If the principal fails to settle its default debts and fees within the period, the securities broker that accepted the order shall immediately terminate its securities trading brokerage contract and cancel its brokerage trading account.
    On the day the principal is determined to be in default, a securities broker shall request other securities brokers to handle the securities or funds it received through settling the transaction referred to in paragraph 1 on the centralized trading market of the securities exchange. Surplus remaining from the proceeds from such handling, after offsetting debt and fees resulting from the principal's default, may be returned to the principal. If there is a shortfall, compensation may be deducted from financial assets already received from or payable to the principal pursuant to other brokerage trades; if a shortfall remains, compensation may be sought from the principal.
    When any default occurs out of unauthorized trading through a trading account or discretionary trading account conforming to Article 75-6 of the TWSE Operating Rules, if there is failure to close the default case within the time limit specified in paragraph 3, the securities broker that accepted the order shall terminate the brokerage contract and cancel the brokerage trading account for that account together with those for any other account opened by that principal at the same business premises. However, prior to such failure to close a default case within the time limit in paragraph 3, a non-defaulting account at the same business premises shall be handled in accordance with Article 2, paragraph 2.
     When default occurs out of unauthorized trading through a discretionary trading account or default occurs through a trust account opened by a trust enterprise, the restrictions of Article 2, paragraph 2 will not apply to other accounts in the name of the principal of the discretionary trading account, nor will they apply to trust accounts opened by the trust enterprise at other business premises of the same securities broker or at other securities brokers. However, if the trustee of the trust account through which the default occurs is not the trust enterprise, then other trust accounts in the name of that trustee shall be handled in accordance with Article 2, paragraph 2.
    Following handling of the default in accordance with paragraphs 1 and 4, the securities firm shall make a report in accordance with the Guidelines for Securities Brokers in Reporting Delayed Settlement and Default by Principals, and shall notify the principal.
    Where the aggregate number of [shares represented by] the share certificates of securities received by a securities broker handling settlement on behalf of a principal under paragraph 1 during the period of a single default reaches 5 percent or more of the number of shares of the underlying securities already issued, and furthermore reaches or exceeds the average daily trading volume of the underlying securities during the 20 trading days prior to reporting of the default, the securities broker may adopt either of the following measures to handle the default:
  1. If handling of the default cannot be completed through reverse transactions during the 3 consecutive business days from the day following the date of confirmation of the default by the principal, the securities broker, by reaching a mutual agreement with the principal or by notice to the principal, may, depending on market conditions, in accordance with the content of the agreement or the notice, complete handling of the default through reverse transactions within 180 days, and report the agreement or notice to the TWSE via letter for recordation.
  2. The securities broker may reach an agreement with the principal setting a price(s) to serve as the basis for calculating profit/loss, and submit the written agreement reached between the parties to the TWSE via letter for recordation.
    Where a discretionary trader handling a discretionary trading account fails to perform obligations arising out of an unauthorized trade in a timely manner, a securities broker may collect from the trader a sum equal to 2% of the transaction amount due to default, and accounting for default penalties collected shall be done in accordance with the Regulations Governing Preparation of Financial Reports by Securities Firms. In writing off the proceeds of amounts received, the securities broker shall return the surplus to the trader after offsetting debt and fees resulting from the trader's default; where a shortfall remains, compensation may be sought from the trader.
Article 20     Any of a principal's financial assets received by the securities broker in connection with trading orders, as well as monies owed the principal arising out of such trades, shall be deemed debt generated in trading performed for the principal by the securities broker, and may be retained and refunded only after discharge of the principal's debt.
Article 21     Disputes between the principal and the securities broker arising out of trading orders may be submitted for arbitration in accordance with the Securities and Exchange Act, or application may be made for mediation by the ROC Securities Dealers Association.
     Provisions in connection with arbitration or mediation as referred to in the preceding paragraph shall be expressly stipulated in the brokerage contract.
Article 22     (Deleted)
Article 23     (Deleted)
Article 24     In the event that the stock exchange receives approval from the competent authority to draft regulations governing special trades in securities, brokers shall transact orders for special trades in accordance with the provisions of said regulations.
Article 25     These Regulations shall take effect after having been submitted to and approved by the competent authority.
    The amendments to these Regulations shall come into force from the date of their public announcement, with the exception of the amendment to Article 2, paragraph 1, subparagraph 4 announced on 20 August 2009, which shall come into force from 23 November 2009.