Chapter III Securities Firms
Section I General Provisions
(Approval for Business and Approval for Establishment of a Branch Unit)
The approval and certificate of license from the Competent Authority are required for the operation of securities business by a securities firm; the operation of securities business by persons other than securities firms shall be prohibited.
Approval from the Competent Authority shall be required for the establishment of branch units by a securities firm.
The establishment of branch units by a foreign securities firm within the territory of the Republic of China shall be prohibited without the approval and a certificate of license from the Competent Authority.
Standards for establishment of securities firms governing matters including the conditions for establishment of securities firms and their branch units, the types of business in which they may engage, application procedures and documents to be attached, and regulations governing their finances, operations and other matters for compliance shall be prescribed by the Competent Authority.
The Competent Authority shall consult with the Central Bank of China when it adopts or amends provisions of the regulations referred to in the preceding paragraph regarding foreign exchange business.
(Exemption From the Act Within Periods and Scopes as Approved to Facilitate Innovation in Financial Technologies and Promote the Financial Regulatory Sandbox)
To facilitate the development of financial inclusion and financial technologies, applicants, not limited to securities firms and securities finance enterprises, may apply to conduct innovative experimentation in securities business pursuant to the Financial Technology Development and Innovative Experimentation Act.
An innovative experiment under the preceding paragraph may be exempted from application of the provisions of this Act within the period and scope approved by the Competent Authority.
The Competent Authority shall take into reference the results of implementation of the innovative experimentation under paragraph 1, and review the appropriateness of this Act and relevant financial laws and regulations in light thereof.
(Restrictions on Concurrent Operations and Investment)
A securities firm shall operate within the business categories as authorized under Article 16, and may not operate securities business beyond the authorized scope, provided that with the approval of the Competent Authority, this restriction shall not apply.
A securities firm shall not be operated concurrently by other businesses; however, a financial institution with approval from the Competent Authority shall be allowed to concurrently operate securities business.
A securities firm shall not invest in another securities firm except with the approval of the Competent Authority.
(Distinguishing Between Concurrently Operated Types of Trading)
A securities firm concurrently operating the business of a securities dealer and a securities broker pursuant to the proviso of paragraph 1 of the preceding Article shall indicate on written documents for every transaction whether such transaction is made for its own account or for its customers.
(Qualification of a Securities Firm)
A securities firm shall be a company duly organized under the law; however, a financial institution which is concurrently engaged in securities business in accordance with the proviso of paragraph 2 of Article 45 shall be exempted from this restriction.
(Minimum Capital Requirement for a Securities Firm)
The minimum capital requirement of securities firms shall be prescribed by the Competent Authority in consideration of the business the securities firm is permitted to operate.
The capital referred to in the preceding paragraph shall mean the total monetary amount of outstanding shares.
(Limit on Aggregate Liabilities of a Securities Firm)
The aggregate liabilities of a securities firm shall not exceed a prescribed multiple of its capital net worth; the aggregate current liabilities shall not exceed a prescribed percentage of its aggregate current assets.
The foregoing multiple and percentage shall be prescribed by the Competent Authority.
(Company Nomenclature of Securities Firms)
The name of a securities firm shall indicate clearly the word "securities." A financial institution which operates securities business under the proviso of paragraph 2 of Article 45 shall be exempted from this requirement.
No persons other than securities firms may use names similar to "securities."
(Restrictions on Concurrent Service of Directors, Supervisors, and Managerial Officers)
A director, supervisor, or manager of a securities firm shall not serve concurrently in any position at another securities firm, provided that when there is an investment relationship, a director, supervisor, or managerial officer may serve concurrently as the director or supervisor of the invested securities firm with the approval of the Competent Authority.
(Disqualifications and Discharge of Directors, Supervisors, or Managerial Officers)
No person who falls within any of the following categories shall serve as the director, supervisor, or managerial officer of a securities firm; those appointed and currently serving in any of these capacities shall be discharged; the Competent Authority shall also make written request to the Ministry of Economic Affairs to void the registration of such person as a director, supervisor, or managerial officer:
1. Any person specified in any subparagraph of Article 30 of the Company Act.
2. Any person who served as the director, supervisor, managerial officer or other equivalent position in a juristic person at the time when it was adjudged bankrupt, and that three years have not elapsed since the finalization of the bankruptcy, or that the reconciliation has not yet been fulfilled.
3. Any person with whom in the last three years a financial institution has refused to transact, or who has a bad credit record.
4. Any person who has been sentenced under this Act to a criminal penalty of severity equal to or greater than the imposition of a criminal fine, and three years have not elapsed since the completion of sentence execution, the expiration of suspension of sentence, or the pardon of such punishment.
5. Any person who has violated the provision of Article 51 hereof.
6. Any person who was discharged from his position under Article 56 or subparagraph 2 of Article 66 hereof within the last three years.
(Disqualifications of Associated Persons)
Associated persons employed by securities firms whose duties relate to the securities business shall have reached the age of majority and possess the qualifications required by relevant acts and regulations, and shall not fall within one of the following categories:
1. Having been adjudged bankrupt and not reinstated, or having been declared by a court to be under guardianship or assistance and that declaration has not been voided.
2. Concurrently holding a position with another securities firm, provided that this restriction shall not apply when there is an investment relationship and the Competent Authority has granted approval allowing concurrent holding of the position of director or supervisor at the invested securities firm.
3. Having been sentenced to a criminal penalty of severity equal to or greater than a term of imprisonment for fraud, breach of trust, or violation of laws governing business and industry, and three years have not elapsed since the date of completion of the sentence execution, the expiration of suspension of sentence, or the pardon of such punishment.
4. Falling under any of the situations specified in either subparagraphs 2 through 4 or subparagraph 6 of the preceding Article.
5. Having violated orders issued by the competent Authority in accordance with this Act.
The job title of the associated persons referred to in the preceding paragraph shall be prescribed by the Competent Authority.
Following the incorporation and registration process, a securities firm shall, in accordance with the regulation prescribed by the Competent Authority, deposit an operation bond.
Creditors whose claims arise from the specially approved business of a securities firm shall have preferential right of payment from the deposited operation bond referred to in the preceding paragraph.
(Sanctions for Legal Violations of Securities Firms)
If any director, supervisor, or employee of a securities firm is found to have committed any act which violates this Act or another related act or regulation, and if such violation may affect the normal operation of the said securities firm, the Competent Authority, in addition to ordering the said securities firm to suspend business operation of such person for not more than one year or discharge such person at any time, may also impose sanctions in accordance with Article 66 depending on the severity of the violation.
(Voidance of Approval)
The approval to operate the securities business, or the approval to establish branch units by a securities firm may be voided should the said securities firm be found by the Competent Authority to have violated an act or regulation or supplied false information.
(Filing of Commencement or Suspension of Business by a Securities Firm)
A securities dealer shall register the commencement or suspension of its business or that of its branch units with the Competent Authority for reference.
(Voidance of Approval)
The approval to operate the securities business or the approval to establish branch unit may be voided should the Competent Authority finds that the securities firm has failed to commence business within three months following the approval was granted to operate the securities business; or that the operation of securities business has been commenced but was subsequently voluntarily suspended for a period of more than three consecutive months.
Where there are just reasons, the securities firm may apply to the Competent Authority for extending the term referred to in the preceding paragraph.
(Conduct Prohibited by Securities Firms)
Except with the approval of the Competent Authority, a securities firm may not engage in the following types of business:
1. Providing margin purchases or short sales for securities transactions.
2. Acting as an agent in margin purchases or short sales for securities transactions.
3. Borrowing or lending securities, or acting as an agent or intermediary in the borrowing or lending of securities.
4. Borrowing or lending money in connection with securities business, or acting as an agent or intermediary for such borrowing or lending of money.
5. In connection with securities business, accepting a commission from a client to act as depository or invest the client's funds.
Regulations governing the qualifications, personnel, operations, and risk management of a securities firm applying for approval to engage in related business in accordance with the preceding paragraph shall be prescribed by the Competent Authority.
(Limits and Margin Requirements for Margin Purchases and Short Sales of Securities)
The permissible amount, terms, financing ratio, and the margin percentage required for margin purchases and short sales for securities transactions shall be prescribed by the Competent Authority after consultation with and consent from the Central Bank of China. The eligibility criteria of securities for margin purchases and short sales shall be prescribed by the Competent Authority.
(Restrictions on Over-the-Counter Trading)
Without the approval from the Competent Authority, the trading of securities by securities brokers or dealers in an over-the-counter market, on the account of its customers, or on its own account, shall be prohibited.
Regulations governing trading in the over-the-counter market referred to in the preceding paragraph shall be prescribed by the Competent Authority.
The provisions of Article 156 and 157 shall apply mutatis mutandis to the transaction referred to in paragraph 1 hereof.
(Mutatis Mutandis Application of Article 36)
The provisions of Article 36 regarding the preparation, submission and publication of financial reports shall apply mutatis mutandis to securities firms.
At any time whenever it is required for protecting the public interests or the interest of investors, the Competent Authority may order a securities firm to provide financial or business reports and information, or examine the business operations, assets, books and records, documents or other relevant objects. The Competent Authority may seal or take possession of relevant documents should it find that there is substantial likelihood of violation of an act or regulation.
(Corrective Order and Correction of Non-Compliance)
Upon its examination of the business or financial conditions of a securities firm, should the Competent Authority find that there are matters not in compliance with the related regulations, the Competent Authority may at any time issue a corrective order, and require the securities firm to correct the non-compliance within a prescribed period.
(Sanctions for Legal Violations by Securities Firms)
Where a securities firm has violated this Act or any order issued hereunder, in addition to being subject to the punishment provided under this Act, the Competent Authority may, depending on the severity of the offense, impose any of the following sanctions, and furthermore may order the securities firm to correct the violation within a prescribed period:
2. ordering the securities firm to remove its directors, supervisors, or managerial officers from their office.
3. suspending the business, in whole or in part, of the company or its branch for a period of not more than six months.
4. voiding or revoking the business license of the company or its branch.
5. other necessary measures.
(Winding Up of Business)
A securities firm whose license has been voided, or whose business has been suspended shall settle any transactions in securities or any other matters that have been entrusted to it before the voidance of its license or the suspension of its business.
(Constructive Provision for Continued Qualification for Operations)
A securities firm whose business license has been voided shall be deemed as a securities firm to the extent and within the scope of winding up and settling the transactions or any other matters entrusted to it in the preceding paragraph; a securities firm ordered to suspend operation shall be deemed to be in operation to the extent and within the scope of winding up and settling the transactions or any other matters entrusted prior to the suspension of securities business.
(Filing for Registration of Dissolution or Partial Business Cessation)
Where a securities firm dissolves or partially ceases a part of its business, its board of directors shall file a registration statement with the Competent Authority explaining the reasons.
The provisions of Article 67 and 68 shall apply mutatis mutandis to matters referred to in the preceding paragraph.
(Regulations Governing Responsible Persons and Associated Persons of Securities Firms)
The rules governing matters regarding the responsible persons and associated persons of securities firms shall be prescribed by the Competent Authority.
Section II Securities Underwriting
(Firm Commitment Underwriting of Securities)
A securities underwriter which underwrites securities on a firm commitment basis shall, at the end of the period of underwriting specified in the underwriting agreement, subscribe the unsold portion of securities for its own account.
The securities underwriter which underwrites securities on a firm commitment basis may subscribe to such securities before placing them for sale or it may specify in the underwriting agreement that a portion of the securities covered in the agreement shall be reserved for subscription by the underwriter for his own account.
The qualifications required for an underwriter to undertake firm commitment underwriting shall be prescribed by the Competent Authority.
(Best Efforts Underwriting of Securities)
A securities underwriter which underwrites securities on a best efforts basis may, at the end of the underwriting period specified in the underwriting agreement, return the unsold portion of securities to the issuer.
(Prohibition Against Underwriter Acquiring Shares Underwritten by It)
Unless acting pursuant to Article 71, an underwriter shall not during the underwriting period acquire for its own account securities which it has underwritten either on a firm commitment or a best efforts basis.
(Regulations Governing Sale of Shares Subscribed by Underwriter)
The regulations for sale of securities acquired by a securities underwriter in accordance with Article 71 shall be prescribed by the Competent Authority.
(Delivery of the Prospectus by the Underwriter)
An underwriter shall be required to deliver on the behalf of the issuer a prospectus in compliance with paragraph 1 of Article 31 when selling the securities it underwrites.
(Restrictions on the Total Amount of Firm Commitment Underwriting of Underwriters)
An underwriter's total amount of a firm commitment underwriting shall not exceed a certain multiple of the balance of its current assets less its current liabilities; standards for such multiple shall be prescribed by the Competent Authority.
The preceding paragraph shall apply to the calculation of the amount of firm commitment underwriting by each participating underwriter in the underwriting syndicate.
(Standards for Compensation for Firm Commitment Underwriting and Commission for Best Efforts Underwriting)
The standards governing the maximum compensation for firm commitment underwriting or the maximum commission for best efforts underwriting shall be prescribed by the Competent Authority.
Section III Securities Dealers
(Capacities of a Securities Dealer)
A securities dealer shall be allowed to subscribe to stocks and corporate bonds.
(Restrictions on Those Currently Conducting Underwriting Business)
A securities dealer which concurrently conducts the business of an underwriter shall be governed by the restrictions specified in Article 74.
Section 4 Securities Brokers
(Approval of the Rate for Commission)
The standards on the commission to be charged to a principal by a securities broker engaged to buy or to sell securities on a centralized securities exchange market shall be registered by the stock exchange to the Competent Authority for its approval.
The standards on the commission to be charged to principals by a securities broker engaged to buy or to sell securities on markets other than a centralized securities exchange market shall be registered by the securities dealers association to the Competent Authority for its approval.
(Report and Reconciliation Statement)
A securities broker engaged by its principal to trade securities shall, in addition to preparing and delivering a trade report to its principal after completion of the transaction, also send a reconciliation statement to each of its principals at the end of each month.
The particulars to be included in the trade report and the reconciliation statement referred to in the preceding paragraph shall be prescribed by the Competent Authority.
Securities brokers shall provide a blank order form to their principals for the purpose of buying and selling securities.
The particulars to be included in the order form referred to in the preceding paragraph shall be prescribed by the Competent Authority.
(Retention of Documents)
The documents referred to in paragraph 1 of Article 86, and paragraph 1 of Article 87 shall be kept at the business offices of the securities broker.