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Chapter 1: General Principles
Article 1     These Regulations are adopted pursuant to the provisions of Article 18-3, paragraph 2 of the Securities and Exchange Act ("the Act").
Article 2     The term "discretionary investment services" as used in these Regulations refers to services offered by securities investment consulting enterprises (SICEs) or securities investment trust enterprises (SITEs), whereby such entities, having received consigned investment assets from their customers, conduct value analyses and make investment judgments with regard to securities, securities-related products, or other items approved by the Ministry of Finance's Securities and Futures Commission (SFC), and whereby, based on such investment judgments, they execute investments or trades on behalf of such customers.
    For "a trust enterprise which manages the discretionary trust portfolio instruments referred to in the latter part of paragraph 1 of Article 18 of the Trust Enterprise Act, and which provides trust services by investing trust assets in the securities set out in Article 6 of the Act" (hereinafter, "a trust enterprise which concurrently operates a securities investment consulting business and provides discretionary investment services"), regulations governing its investment activities shall be as set forth below in Chapter 4, except as otherwise provided under the Trust Act and the Trust Enterprise Act.
    A trust enterprise which concurrently operates a securities investment consulting business and provides discretionary investment services, as defined in the preceding paragraph, need not be subject to the provisions of Chapter 4 where individual trust assets or collective trust assets are invested in the securities set forth under Article 6 of the Act are worth less than NT$10 million.
    The term "custodian institution" as used in these Regulations means a bank or trust enterprise that has received approval from the Ministry of Finance to provide custodian or trust services, and that meets or surpasses a specific credit rating, received from a credit rating institution approved by the SFC.
Chapter 2: Business Licensing
Article 3     SICEs or SITEs intending to operate discretionary investment services shall apply to the SFC for approval.
    No person may operate securities discretionary investment services without the approval referred to in the preceding paragraph.
Article 4     A SICE applying to operate discretionary investment services shall satisfy the following criteria:
  1. Has paid-in capital of at least NT$50 million,; provided, however, that where a SICE concurrently operates a futures advisory business or applies to combine the operation of discretionary investment services with concurrent operation of a futures advisory business, it shall have paid-in capital of at least NT$70 million.
  2. The net worth per share of such a firm shall not be less than the par value in the financial report for the most recent period audited and certified by a certified public accountant (CPA).
  3. Has been in operation for two years and is capable of operating discretionary investment services.
  4. Has not in the most recent two-year period been subject to any of the sanctions set forth by the Financial Supervisory Commission (FSC) in the Act under Article 66, subparagraphs 2 through 4.
  5. Has not in the most recent half-year period been subject to an FSC warning as set forth in the Act under Article 66, subparagraph 1.
  6. Meets other FSC criteria.
Article 5     A SITE applying to operate discretionary investment services shall satisfy the following criteria:
  1. Has a net worth per share of not less than the par value in the financial report for the most recent period, audited and certified by a certified public accountant (CPA).
  2. Has not in the most recent two-year period been subject to any of the SFC sanctions set forth in the Act under Article 66, subparagraph 2 through 4.
  3. Has not in the most recent half-year period been subject to an SFC warning as set forth in the Act under Article 66, subparagraph 1.
  4. Meets other SFC criteria.
Article 6     A SICE or SITE operating discretionary investment services shall establish a dedicated department for that purpose, and shall appoint an appropriate number of qualified department leaders and associated persons to carry out its undertakings.shall appoint an appropriate number of qualified managers and associated persons as required according to their scope of business, operational conditions, and internal control systems;
    In addition to the dedicated department referred to in the preceding paragraph, SICEs and SITEs shall also establish departments for investment research, finance and accounting, and internal auditing.
    The department leaders and associated persons of the dedicated department referred to in paragraph 1, and the personnel in the internal auditing department mentioned in the preceding paragraph, shall meet one of the qualifications set forth in Article 31, paragraph 1, subparagraphs 1 through 5 of the Rules Governing Securities Investment Consulting Enterprises.
Article 7     SICEs or SITEs applying to operate discretionary investment services shall prepare and submit the following documents to the Securities Investment Trust and Consulting Association of R.O.C. (SITCA), which shall review the documents and forward them to the SFC for approval:
  1. An application;
  2. Company's articles of incorporation;
  3. Corporate bylaws;
  4. Financial report from the most recent fiscal year, audited and certified by a CPA. If, at the time of application, at least six months have elapsed since the beginning of the current fiscal year, the applicant shall also submit the financial report for the first half year, audited and certified by a CPA;
  5. Minutes of board of directors meetings; and
  6. Other documents as required by the SFC.
    The corporate bylaws, as referred to in subparagraph 3 of the preceding paragraph, shall delineate the internal control systems for operation of discretionary investment services, including: operational principles; operational procedures; division of authority and responsibilities; handling of business disputes; and employee education, training, and management matters.
    When SITCA forwards the application documents as referred to in paragraph 1, it shall also submit a review statement and review opinion.
    If the application documents submitted by the SICE/SITE under the preceding paragraph are incomplete and such incompleteness can be remedied, the SFC may require the applicant to make correction within a specified period. If the applicant fails to make correction within such specified period, the SFC may reject the application.
Article 8     SICEs or SITEs shall, within three months of receiving SFC approval to operate discretionary investment services, prepare and submit the following documents to SITCA, which shall review and forward the documents to the SFC to apply for issuance of a new business license:
  1. an application;
  2. documentary proof of company registration;
  3. business license;
  4. a roster of company departments and company employees, and skills certificates for the employees (said departments and employees must satisfy the provisions of Article 6);
  5. a special auditor's report, prepared by a CPA, on the company's internal control system for discretionary investment services;
  6. a prospectus produced in accordance with the provisions of Article 17;
  7. documentation certifying the posting of an operating bond in accordance with the provisions of Article 10; and
  8. other documents as required by the SFC.
    The "CPAs" referred to in subparagraph 5 shall be restricted to CPAs who are allowed to carry out the work of auditing and certifying financial reports of public companies.
    Where a SICE or SITE fails to complete, within the time period prescribed in paragraph 1, the application procedures for the issuance of a new business license, the SFC may annul its approval; provided, that where legitimate cause exists the party in question may, before expiry of the time period, submit a written application by letter for an extension to SITCA, which shall forward it to the SFC for approval. The extension shall not exceed three months and is limited to one time.
Chapter 3: Management of Finances, Operations, and Personnel
Article 9     When a SICE or SITE accepts a customer's discretionary investment assets, those assets shall be kept separate from the self-owned property of the SICE or SITE and their custodian institutions. With regard to debts pertaining to the self-owned property of SICEs or SITEs and their custodian institutions, the creditors to whom such debts are owed shall not make any claims or exercise other rights against the customer's consigned funds, or against property purchased with those funds.
Article 10     A SICE or SITE shall, in accordance with the following provisions, deposit an operation bond with a financial institution that has received approval from the Ministry of Finance to provide custodial services, and that meets or surpasses a specific credit rating, received from a credit rating institution approved by the SFC:
  1. Those enterprises with paid-in capital of less than NT$100 million shall deposit NT$10 million.
  2. Those enterprises with paid in capital of NT$100 million or more but less than NT$200 million shall deposit NT$20 million.
  3. Those enterprises with paid-in capital of NT$200 million or more but less than NT$300 million shall deposit NT$30 million.
  4. Those enterprises with paid-in capital of NT$300 million or more shall deposit NT$50 million.
    The operation bond referred to in the preceding paragraph shall not be split up and deposited into different financial institutions. Any change of the bondholding financial institution shall be reported by letter to the SFC for prior approval.
    When increasing paid-in capital, SICEs shall increase the amount of the operating bond on deposit in the bondholding financial institution according to the provisions contained in paragraph 1 before applying for an amended business license.
    Guidelines for handling the operating bond referred to in paragraph 1 shall be drafted by SITCA and reported by letter to the SFC for approval.
Article 11     Where SICEs or SITEs operate discretionary investment services, the consigned investment assets shall be placed by the customer under the custodianship of a custodian institution or transferred to trust status at a custodian institution, and the SICEs or SITEs shall not for any reason take custody of the consigned investment assets.
    The custodian institution referred to in the preceding paragraph shall be appointed by the customer.
    Where any one of the following situations applies to the custodian institution appointed by the customer, the SICE or SITE shall be obligated to serve notice on the customer:
  1. the custodian institution holds at least 10 percent of the total number of shares issued by the SICE or SITE;
  2. the custodian institution is a director or supervisor of the SICE or SITE, or has directors or supervisors that are directors, supervisors, or managers of the SICE or SITE;
  3. the SICE or SITE holds at least 10 percent of the total number of shares issued by the custodian institution;
  4. the SICE or SITE or their representative serves as a director or supervisor of the custodian institution; or
  5. other substantive controlling interests exist between the custodian institution and the SICE or SITE.
    Where directors or supervisors are juristic persons, the provisions of subparagraph 2 of the preceding paragraph shall apply mutatis mutandis to any representative or designated representative exercising their duties.
    Where discretionary investment services are operated on a consignment basis, and the customer is a trust enterprise or another SFC-approved enterprise, said customer may keep the consigned investment assets in its own custody, and the provisions of paragraph 1 shall not apply.
Article 12     The SFC shall determine the minimum amount of consigned investment assets that may be accepted from a customer by a SICE or SITE operating discretionary investment services.
Article 13     Where a SICE operates discretionary investment services, the total amount of consigned investment assets that it accepts shall not exceed a specified multiple of the SICE's net worth, the said multiple being set by the SFC; provided, this restriction shall not apply where the paid-in capital of the SICE is at least NT$300 million.
    The net worth, as referred to in the preceding paragraph shall be based upon the financial report for the most recent period, audited and certified by a CPA, approved by the board of directors, and recognized by the supervisors.
Article 14     Where SICEs or SITEs operate discretionary investment services, except as otherwise provided by the SFC, the scope of their investment activities shall be limited to the following and shall not involve securities margin trading:
  1. listed securities traded on the Taiwan Stock Exchange;
  2. securities traded on the GreTai Securities Market;
  3. securities underwritten by the SICEs or SITEs themselves, provided that they are allowed, either by SFC approval or by effective registration, to invest in said securities.
  4. government bonds and publicly offered and issued corporate bonds;
  5. open-ended securities investment trust fund beneficiary certificates issued by a SITE.
  6. other investments approved by the SFC.
    SICEs or SITEs operating discretionary investment services and engaged in the trading of securities as referred to in subparagraph 1 and subparagraph 2 of the preceding paragraph shall, except as otherwise provided by law, engage a securities broker to conduct the trades on the centralized securities exchange market or on an over-the-counter market.
Article 15     SICEs or SITEs operating discretionary investment services shall, except as otherwise provided by the SFC, utilize the consigned investment assets in accordance with the provisions of these Regulations and the discretionary investment contracts, and shall not engage in the following acts:
  1. investment, on behalf of any given customer, of more than 20 percent of the net asset value of any given consigned investment, in the securities of any issuing company; or
  2. investment, on behalf of all customers, in more than 10 percent of the total number of shares issued by any single issuing company.
    Where the securities referred to in subparagraph 1 of the preceding paragraph are corporate bonds, such investment shall not exceed 10 percent of the net asset value of any given consigned investment.
Article 16     Where SICEs or SITEs and their directors, supervisors, managers, and associated personnel operate discretionary investment services, they shall abide by the provisions of relevant laws and regulations, and shall not engage in any of the following acts:
  1. use of information obtained in the course of performance of their duties to engage in trading of securities on either their own proprietary account or on behalf of any individual other than the customer;
  2. engaging in any trading prejudicial to the rights and interests of the customer when utilizing consigned investment assets to trade securities;
  3. signing any agreement with the customer to share the profits or losses resulting from investment in securities; provided, that this restriction shall not apply where the SFC provides otherwise with respect to performance-linked compensation;
  4. use of a customer's consigned investment assets to conduct cross trading with the company's own funds or the consigned investment assets of another customer; provided, that this restriction does not apply to unintentional cross trades that occur on the centralized securities exchange market or on an over-the counter market;
  5. use of the customer's account to trade securities on the company's own proprietary account or on behalf of any other party;
  6. outsourcing of the performance of a discretionary investment services contract, in full or in part, to another party, or assignment of such a contract to another party; provided, that this restriction shall not apply where the SFC provides otherwise;
  7. shifting executed consignment orders from a customer's discretionary investment account into the company's own proprietary account, the account of another, or another discretionary investment account; or shifting them from another account into the discretionary investment account (where such action is done without legitimate reason in the course of securities trading using the customer's consigned investment assets);
  8. formulating investment decisions not based upon an investment analysis report, or basing investment decisions on an investment analysis report that is clearly lacking in sound analytical foundation and factual grounding; provided, that this restriction shall not apply where a reasonable explanation can be given; or
  9. other acts prohibited by the regulations of the SFC.
    The provisions of the preceding paragraph shall apply mutatis mutandis to other employees of the SICE or SITE.
Article 17     Before entering into a discretionary investment services contract, a SICE or SITE shall allow the customer at least seven days to review the entire contract. During that time, the SICE or SITE shall fully acquaint itself with the customer's financial strength, investment experience, objectives, and requirements, and shall compile a reference file on the customer including a data sheet and other relevant documentation. The SICE or SITE shall also assign a dedicated personnel to explain in detail to the customer all matters regarding the discretionary investment, and shall provide the customer with a discretionary investment services prospectus that shall serve as an addendum to the discretionary investment services contract.
    The prospectus referred to in the previous paragraph shall specify the following particulars:
  1. the nature, scope, operating principles, fee schedule, and prohibitory provisions of the discretionary investment; and the legal and operational relationship between the customer; the discretionary investment enterprise, and the custodian institution.
  2. the analytical methods, information sources, and investment strategies employed in the utilization of consigned investment assets.
  3. the academic background and work experience of the department supervisors and associated persons operating discretionary investment services.
  4. the enterprise's income statements and balance sheets for the most recent two fiscal years.
  5. explanation of any litigious or non-litigious actions that have arisen in connection with the enterprise's business operations.
  6. risk caveat.
    Any amendments to the prospectus referred to in the preceding paragraph shall be reported to the SFC.
Article 18     A SICE or SITE operating discretionary investment services shall sign a contract with each customer and shall submit a copy of the contract to a custodian institution. The contract shall stipulate the discretionary investment rights and responsibilities arising from the consignment relationship between the SICE/SITE and its customer.
    The discretionary investment contracts referred to in the preceding paragraph shall be signed separately with each individual customer. Except as otherwise provided by law or SFC rules, a SICE/SITE shall not enter into a discretionary investment contract with multiple parties signing jointly. The contract shall specify the following items:
  1. the names and addresses of the parties to the contract;
  2. the conditions under which a signed contract may be terminated, and time limits upon the exercise of that right;
  3. the consigned investment assets;
  4. stipulations and changes with respect to basic investment policy and scope; stipulations regarding the scope of investment shall clearly list the type or name of the securities;
  5. authority to make investment decisions, and limitations thereupon;
  6. authority over asset utilization, and limitations thereupon;
  7. investment manager appointments and changes;
  8. custodian institution appointments and changes, and instructions regarding the means of custody and payment;
  9. appointments and changes of securities brokers;
  10. fiduciary obligations and confidentiality requirements;
  11. legal responsibilities in connection with changes in share ownership where the customer is a director, supervisor, or manager, of a public company, or shareholder in such a company holding more than 10 percent of the total outstanding shares;
  12. reporting obligations;
  13. calculation of compensation, fees, and expenses, and the means and schedule of payment;
  14. effective date and duration of contract;
  15. the manner of amendments to and termination of the contract;
  16. requirement to provide notification of critical amendments, and the manner of such notification;
  17. settlement obligations upon termination of the contractual relationship;
  18. clauses regarding the handling of breaches of contract;
  19. procedures to be followed after the enterprise has been ordered to suspend operations, or after disciplinary action has resulted in the voidance or revocation of business permission;
  20. provisions regarding dispute resolution and the court of jurisdiction; and
  21. other items as required by SFC regulations.
    The consigned investment assets referred to in subparagraph 3 of the preceding paragraph shall be deposited in their entirety with the custodian institution at the time of contract signing. The same shall apply for any increases in the amount of investment assets.
    The basic investment policy and scope referred to in paragraph 2, subparagraph 4 shall be prudently determined in consideration of the customer's financial strength, investment experience, investment objectives, and legal restrictions on investments.
    Utilization authority over discretionary investment assets referred to in paragraph 2, subparagraph 6 shall be separately determined by the SFC where it involves the utilization and scope of idle funds.
    Appointment of the securities broker as referred to in paragraph 2, subparagraph 9 shall be made by the customer. Where the customer makes no appointment, the appointment shall be made by the SICE or SITE, which shall ensure an appropriate level of diversification and avoid over-concentration. Any cross investment relationship between the SICE or SITE and the securities broker, or any controlling and subordinate relationship between such parties, shall be disclosed in the contract.
    The compensation referred to in paragraph 2, subparagraph 13 may be linked to performance in accordance with the provisions of SFC regulations.
    With respect to dispute resolution methods (referred to in paragraph 2, subparagraph 20) and contracts related to discretionary investment services, dispute mediation and handling regulations and contract templates shall be drafted by SITCA and reported to the SFC for approval.
    The discretionary investment contract referred to in paragraph 1, and information related thereto, shall be kept on file for at least five years after the discretionary investment contract ceases to have effect.
    The provision regarding "custodian institution appointments and changes" referred to in paragraph 2, subparagraph 8 shall not apply where the customer keeps the trust investment assets in its own custody in accordance with the provisions of Article 11, paragraph 5.
Article 19     A discretionary investment contract or consignment trading contract with a securities broker shall stipulate that the SICE or SITE shall be held responsible for performance of contractual obligations when consigned investment assets consigned to it are invested in securities beyond the scope of limitations set by laws and regulations or by the discretionary investment contract.
Article 20     When SICEs or SITEs operate discretionary investment services on a consignment basis, the customer shall sign a separate consignment contract or trust agreement with a custodian institution to undertake the opening of securities investment accounts, custodianship of funds and securities, closing of transactions, account servicing, and exercise of equity rights.
    The provisions of the preceding paragraph shall not apply to customers who keep the consigned investment assets in their own custody pursuant to the provisions of Article 11, paragraph 5.
    The consignment contracts and trust agreements referred to in paragraph 1 shall be signed by the custodian institution separately with each individual customer and, the custodian institution shall not, except as otherwise provided by law or SFC rules, enter into a consignment contract or trust agreement with multiple parties.
    The custodian institution shall examine and verify the scope and limitations of the provisions of the discretionary investment contract when executing the services referred to in paragraph 1.
    The content and contract template of the consignment contracts and trust agreements referred to in paragraph 1 shall be drafted by SITCA and submitted to the SFC for approval.
Article 21     SITCA shall draft operating rules for SICEs or SITEs conducting discretionary investment services. Such rules, which must be submitted to the SFC for approval, shall regulate the signing of contracts, opening of accounts, conduct of trades, closing of transactions, settling of accounts, and handling of other related matters. Any amendments to the rules shall also be submitted to the SFC for approval.
    SICEs and SITEs conducting discretionary investment services shall undertake those services according to the provisions of the rules referred to in the preceding paragraph.
Article 22     SICEs or SITEs operating discretionary investment services shall make investment decisions based upon investment analysis reports. Investment analysis reports shall state the basis and evidence for the analysis and the resultant investment recommendations. Investment decision records shall clearly state the type of securities to be traded as well as the quantity, price and timing of the trades. The execution record shall state the types of securities actually invested in as well as the quantity, price, and timing of the trades, and shall explain the reasons for any differences between planned and actual trades. Documentation for the above shall be recorded and filed chronologically, and shall be kept on file for at least five years.
    SICEs and SITEs operating discretionary investment services shall establish a separate account for each individual customer and keep daily records of trading activities as well as account balance by volume and value.
    The customer may request to examine the data referred to in the previous paragraph and the commissioned SICE or SITE shall not refuse such a request.
    When SICEs or SITEs utilizing consigned investment assets to trade securities receive discounts on brokerage fees, the discount shall be used to offset the customer's transaction costs.
Article 23     SICEs or SITEs operating discretionary investment services shall produce monthly reports detailing each customer's asset trading and current status, and shall deliver the reports to the customer.
    When losses on the net worth of the consigned investment assets of the customer reach 20 percent or more of the originally consigned investment assets, the SICE or SITE shall within two business days of the date of occurrence of the event produce the report referred to in the preceding paragraph and deliver the report to the customer. The same shall subsequently apply each time losses on net asset value reach 10 percent or more of investment assets recorded in the previous report.
Article 24     If a SICE or SITE cannot continue to provide discretionary investment services due to dissolution of the enterprise, or because of voidance or revocation of its license to conduct such operations, the discretionary investment contract shall be terminated.
    In the event a SICE or SITE has suspended operations or is obviously not being properly operated, the SFC may order the SICE or SITE to transfer the discretionary investment contract to another designated SICE or SITE; provided, that the discretionary investment contract shall instead be terminated in the event the customer does not agree to the transfer or does not indicate any opinion with respect thereto.
Article 25     SICEs or SITEs operating discretionary investment services shall prepare regularly scheduled operating statements as prescribed by SFC regulations and submit them to SITCA for recordation.
    SITCA shall determine the format for the operating statements referred to in the preceding paragraph.
Chapter 4: Trust Enterprise Providing Discretionary Investment Services in its Capacity as a Secu
Article 26     A trust enterprise which concurrently operates a securities investment consulting business and provides discretionary investment services shall employ department leaders and associated persons who are sufficient in number and sufficiently qualified to carry out its undertakings.
    The positions of department leader and associated person set forth under the preceding paragraph shall not (where the associated person in question is in charge of securities analysis, investment decisions, or execution of trades), be concurrently undertaken by a single person. Persons serving in these positions shall possess the professional knowledge and/or experience set forth under Article 24 of the Trust Enterprise Act, and shall further possess one of the qualifications set forth in the Rules Governing Securities Investment Consulting Enterprises under Article 31, paragraph 1, subparagraphs 1 through 5.
    A trust enterprise which concurrently operates a securities investment consulting business and provides discretionary investment services may keep trust assets in its own custody; provided, that it shall appoint a dedicated person to handle the custodial matters.
Article 27     Where a trust enterprise applies to provide discretionary investment services in its capacity as a securities investment consulting enterprise, it must satisfy the following requirements:
  1. the applicant's most recent CPA-audited financial report indicates that the net worth of each share is at least equal to its par value;
  2. has not in the most recent two-year period been subject to any of the SFC sanctions set forth in the Act under Article 66, paragraph 1, subparagraphs 2 through 4, and has not in the same time period been subject to sanctions by the competent authority for trust enterprises as set forth in the Trust Enterprise Act under Article 44, paragraph 1, subparagraph 2, or Article 44, paragraph 2, subparagraph 1 or 2;
  3. has not in the most recent half-year period been subject to an SFC warning as set forth in the Act under Article 66, paragraph 1, subparagraph 1, and has not in the same time period received three official reprimands (accompanied by notices requiring corrective action within a specified time period) from the competent authority for trust enterprises as set forth in the Trust Enterprise Act under Article 44, paragraph 1, subparagraph 1; and
  4. any other requirements set forth in SFC regulations.
Article 28     For a trust enterprise which concurrently operates a securities investment consulting business and provides discretionary investment services, the total value of assets accepted for trust investment shall not exceed a certain multiple of such enterprise's allocated operating capital, said multiple to be determined by the SFC; provided, this restriction shall not apply where such an enterprise has allocated operating capital of NT$300 million or greater.
Article 29     For a trust enterprise which concurrently operates a securities investment consulting business and provides discretionary investment services, the scope of investment shall be limited to the following types of securities, and such enterprise shall not engage in margin securities trading:
  1. securities listed on the Taiwan Stock Exchange;
  2. securities traded on the ROC GreTai Securities Market;
  3. underwritten securities in which the enterprise is authorized to invest (either by SFC approval or through effective registration);
  4. government bonds, and publicly offered and issued corporate bonds;
  5. open-ended securities investment trust fund beneficiary certificates issued by SITEs; or
  6. other SFC-approved securities.
    For a trust enterprise which concurrently operates a securities investment consulting business and provides discretionary investment services, investments in the securities listed in the preceding paragraph under subparagraph 1 or 2 shall, except as otherwise provided by law, be made by placing orders via a securities broker on the centralized securities exchange market or on an over-the-counter market.
Article 30     A trust enterprise providing investment services in its capacity as a securities investment consulting enterprise shall, except as otherwise provided by SFC order, refrain from the following acts:
  1. investing more than 20 percent of the net worth of the trust assets under any given discretionary investment trust agreement in securities issued by a single company; or
  2. investing the trust assets under different discretionary investment trust agreements in the stocks of a single issuing company, where the combined total of such investments exceeds 10 percent of total outstanding shares issued by the company in question.
    Where the securities referred to under subparagraph 1 of the preceding paragraph are corporate bonds, a trust enterprise shall not invest in such bonds more than 10 percent of the net worth of the trust assets under any given discretionary investment trust agreement.
Article 31     A trust enterprise which concurrently operates a securities investment consulting business and provides discretionary investment services shall abide by all applicable laws and regulations, as shall its directors, supervisors, managers, and associated persons. In addition, such parties shall not engage in any of the following acts:
  1. use of information obtained in the course of performance of their duties to engage in trading of securities on either their own proprietary account or on behalf of any individual other than the customer or beneficiary of the trust assets in question;
  2. engaging in any trading prejudicial to the rights and interests of the customer or beneficiary when utilizing trust assets to trade securities;
  3. signing any agreement with the customer or beneficiary to share the profits or losses resulting from investment in securities; provided, that this restriction shall not apply where the SFC provides otherwise with respect to performance-linked compensation;
  4. use of a customer's trust investment assets to conduct cross trading with the company's own assets or the trust assets of another customer; provided, that this restriction does not apply to unintentional cross trades that occur on the centralized securities exchange market or on an over-the counter market;
  5. shifting executed consignment orders from a customer's trust account into the company's own proprietary account, the account of another, or another trust account; or shifting them from another account into the trust account (where such action is done without legitimate reason in the course of securities trading using the customer's trust investment assets);
  6. use of the customer's trust account to trade securities on the company's own proprietary account or on behalf of any other party;
  7. making investment decisions not based upon an investment analysis report, or basing investment decisions on an investment analysis report that is clearly lacking in sound analytical foundation and factual grounding; provided, that this restriction shall not apply where a reasonable explanation can be given; or
  8. other acts prohibited by the regulations of the SFC.
    The provisions of the preceding paragraph shall apply mutatis mutandis to other employees of trust enterprises.
Article 32     A trust enterprise which concurrently operates a securities investment consulting business and provides discretionary investment services shall handle trust matters itself; provided, that a third party may handle such matters on the enterprise's behalf where the consent of the customer and beneficiary has been obtained.
    Third parties allowed to handle discretionary investment matters on behalf of a trustee in accordance with the provisions of the preceding paragraph shall be limited to trust enterprises approved by the SFC to provide discretionary investment services in their capacity as a securities investment consulting enterprise, and to SITEs and SICEs authorized to operate discretionary investment services.
Article 33     In addition to containing the items listed under Article 19, paragraph 1 of the Trust Enterprise Act, trust agreements entered into between trust enterprises and their customers that involve the trust enterprise providing discretionary investment services in its capacity as a securities investment consulting enterprise shall further include the following stipulations:
  1. procedures for handling appointments and changes of securities broker;
  2. requirement to provide notification of important changes, and provisions regarding the manner of such notification;
  3. breach provisions;
  4. provisions regarding method of dispute resolution and the court of jurisdiction; and
  5. other items as required by SFC regulations.
    Trust agreements and related documents shall be kept on file for at least five years after termination of the trust period.
    The compensation collected in accordance with a trust agreement may be linked to performance in accordance with the provisions of SFC regulations.
    The securities broker appointment referred to under paragraph 1, subparagraph 1 shall be made by the trust enterprise except as otherwise stipulated in the trust deed. However, care must be taken to ensure diversity and avoid excessive concentration. Where the appointer has cross-investments with the securities firm in question, or a relationship of control and subordination exists between the appointer and such securities firm, such relationship shall also be disclosed in the trust agreement, and a trust enterprise shall not engage in any of the acts listed under Article 27 of the Trust Enterprise Act without the written consent of the beneficiaries.
    To determine the method of dispute resolution referred to under paragraph 1, subparagraph 4, SITCA shall prescribe dispute mediation regulations in consultation with the Trust Association of ROC ("Trust Association") and submit them to the SFC for review and approval. SFC approval is also required whenever said regulations are amended.
Article 34     Operating rules for trust enterprises providing discretionary investment services in their capacity as a securities investment consulting enterprise shall be prescribed by SITCA in consultation with the Trust Association of ROC. Such operating rules, which must be submitted to the SFC for approval, shall regulate the signing of contracts, opening of accounts, conduct of trades, closing of transactions, settling of accounts, and handling of other matters related to trust asset management and utilization. SFC approval is also required whenever said rules are amended.
    A trust enterprise which concurrently operates a securities investment consulting business and provides discretionary investment services shall conduct such business in compliance with the operating rules referred to in the preceding paragraph.
Article 35     A trust enterprise which concurrently operates a securities investment consulting business and provides discretionary investment services shall base its investment decisions on investment analysis reports. Investment analysis reports shall contain the basis and evidence of analysis and offer investment recommendations. Investment decision records shall list the types, quantities, and timing of securities trades to be made. Execution records shall list the types, quantities, prices and timing of securities trades actually carried out, and shall explain any differences between planned and actual trades. The aforementioned records shall be recorded in time sequence and be kept on file for a period of not less than five years.
    A trust enterprise which concurrently operates a securities investment consulting business and provides discretionary investment services shall keep a special account for each trust agreement, and shall keep daily records of trust asset trades as well as the balance of consigned assets by volume and value.
    When a trust enterprise utilizing trust assets to trade in securities receives a discount on brokerage fees, the discount shall be used to offset the cost of trust asset utilization
Article 36     Discretionary trust agreements and consignment trading contracts entered into by securities brokers shall stipulate that where a trust enterprise which concurrently operates a securities investment consulting business and provides discretionary investment services utilizes consigned investment assets to engage in securities trading beyond the limits imposed by law or trust agreement, the trust enterprise shall be liable for performance.
    Where a customer or beneficiary incurs a loss that is due to legal or contractual violations by a trust enterprise which concurrently operates a securities investment consulting business and provides discretionary investment services, or is otherwise attributable to the fault of the trust enterprise, said enterprise shall be liable for damages in accordance with Article 35 of the Trust Enterprise Act.
Article 37     The provisions of Article 2; Article 17; the first part of paragraph 2 and paragraphs 3 through 5 of Article 18; paragraph 3 of Article 20; paragraph 3 of Article 22; and Articles 23 through 25, shall apply mutatis mutandis to a trust enterprise which concurrently operates a securities investment consulting business and provides discretionary investment services; provided, that where otherwise stipulated between the trust enterprise and the customer, paragraphs 3 and 5 of Article 18 and paragraph 2 of Article 23 shall not apply.
Chapter 5: Supplementary Provisions
Article 38     Violators of the provisions of these Regulations shall be punished according to the provisions of the Act and other applicable laws.
Article 39     These Regulations shall take force upon the date of their promulgation.