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Chapter III Management of Finances, Operations, and Personnel
Article 8
A SITE or a SICE that provides discretionary investment services shall establish a specialized department for that purpose, which shall be staffed with a sufficient number of competent supervisors and associated persons.
In addition to the specialized department referred to in the preceding paragraph, a SITE or a SICE shall at a minimum also establish investment research, financial accounting, and internal audit departments.
Unless the requirements of paragraph 4 or 5 are met, the supervisors and associated persons of the specialized department of paragraph 1 may not engage in any business other than that of the specialized department, nor may the duties of the supervisor and associated persons be undertaken on a concurrent basis by any person not registered as a department supervisor or associated person of the specialized department.
When a SITE or a SICE conducts discretionary investment business, the associated persons engaged in investment or trading decision-making for that business may serve concurrently as personnel engaged in investment or trading decision-making with respect to private placement of securities investment trust funds, offering of futures trust funds to persons meeting certain eligibility requirements, or discretionary futures trading.
When a SITE or a SICE conducting discretionary investment business meets the following requirements, the associated persons engaged in investment or trading decision-making for that business may serve concurrently as personnel engaged in investment or trading decision-making with respect to the offering of securities investment trust funds or as personnel engaged in securities investment analysis in connection with the conduct of securities investment consulting business, and vice versa:
1. The customers of the discretionary investment business or securities investment consulting business are qualified institutional investors as specified in Article 4, paragraph 2 of the Financial Consumer Protection Act.
2. The scope of investments or trading for the discretionary investment account, and the scope of analysis, opinions, or recommendations for securities investment by the concurrently operated securities investment consulting business shall be limited to the major investment targets and region of the fund that it manages, and the investment strategy shall uniformly be active management strategy or passive management strategy.
3. The internal control system of the enterprise has already adopted operational principles for effective prevention of conflict of interests in order to ensure fair treatment of all clients.
An associated person of the specialized department of paragraph 1 that carries out research and analysis and makes investment or trading decisions may not concurrently serve as an associated person that executes transactions, and an associated person that makes investment or trading decisions [in discretionary trading] may not concurrently serve as an associated person that makes investment or trading decisions in collective trust fund business, the offering of securities investment trust funds, the business of offering futures investment trust funds to unspecified persons, proprietary securities trading business, proprietary futures business, or trading or investment carried out with the enterprise's own funds.
The department supervisor and associated persons of the specialized department referred to in paragraph 1 and the internal audit department referred to in paragraph 2, with the exception of a supervisor of an internal audit department of a SITE or a SICE concurrently operated by an enterprise in another line of business, shall possess the qualifications set out in the Regulations Governing Responsible Persons and Associated Persons of Securities Investment Consulting Enterprises.
A SITE or a SICE concurrently operated by an enterprise in another line of business shall establish the specialized department referred to in paragraph 1, provided that this requirement shall not apply if the SITE or SICE has already established an independent, specialized department to handled discretionary futures trading business.
Article 8-1
If a SITE or a SICE offers discretionary investment services but fails to enter into any discretionary investment services agreements with customers within two years after receiving FSC approval for such business and reissuance of its business license, its approval for the operation of discretionary investment services business will be revoked.
Prior to the issuance of these amended Regulations, when a SITE or SICE that offers discretionary investment services has received FSC approval for such business and a reissued business license but fails to enter into any discretionary investment services agreements with customers within two years after the issuance date of these amended Regulations, its approval for the operation of discretionary investment services business will be revoked.
Article 9
Discretionary investment assets that a SITE or a SICE receives from a customer shall be segregated from the proprietary assets of the SITE, the SICE, or the custodian of the discretionary investment assets. No creditor in respect of a liability against the proprietary assets of the SITE, the SICE, or the custodian may make any claim or exercise any other right against the discretionary investment assets of the customer.
Article 10
A SITE or a SICE shall, in accordance with the provisions below, lodge an operating bond with a financial institution that is a qualified custodian, and that meets the conditions prescribed by the FSC:
1. Where the paid-in capital of the SITE or SICE is less than NT$100 million, the bond shall be NT$10 million.
2. Where the paid-in capital of the SITE or SICE is NT$100 million or more but less than NT$200 million, the bond shall be NT$15 million.
3. Where the paid-in capital of the SITE or SICE is NT$200 million or more but less than NT$300 million, the bond shall be NT$20 million.
4. Where the paid-in capital of the SITE or SICE is NT$300 million or more, the bond shall be NT$25 million.
The operating bond referred to in the preceding paragraph may be lodged in the form of cash, bank deposits, government bonds, or financial bonds. Such assets may not be pledged or provided in any manner as collateral, and the bond may not be lodged in separate parts with different financial institutions. The FSC shall be notified by letter for its approval prior to any withdrawal of the bond or change in the institution at which the bond is deposited.
When there is an increase in the paid-in capital of a SICE, the SICE shall increase the amount of the operating bond lodged with the financial institution, following the prescriptions of paragraph 1.
Directions regarding provision of the operating bond of paragraph 1 shall be adopted by the SITCA and reported to the FSC by letter for approval; the same shall apply to any amendment thereto.
When a SITE or a SICE is concurrently operated by a non-industry enterprise, with the exception of a futures trust enterprise, its operating capital, rather than paid-in capital, shall be used in calculating the amounts under paragraphs 1 and 3.
Article 11
Where a SITE or SICE provides mandate-type discretionary investment services, the customer shall place the discretionary investment assets in the custody of the discretionary investment custodian or transfer them to the custodian by trust.
The SITE or the SICE may not for any reason keep the customer's discretionary investment assets in its own custody.
The custodian of the discretionary investment assets referred to in the preceding paragraph shall be personally designated by the customer.
The SITE or the SICE has the obligation to inform the customer when any of the following types of controlling relationship exist between itself and the custodian of the discretionary investment assets designated by the customer:
1. The custodian of the discretionary investment assets has investment holdings of 10 percent or more of the total outstanding shares of the SITE or the SICE.
2. The custodian of the discretionary investment assets serves as a director or supervisor of the SITE or the SICE, or a director or supervisor of the custodian of the discretionary investment assets serves as a director, supervisor, or managerial officer of the SITE or the SICE.
3. The SITE or the SICE has investment holdings of 10 percent or more of the total outstanding shares of the custodian of the discretionary investment assets.
4. The SITE, the SICE, or a representative thereof serves as a director or supervisor of the custodian of the discretionary investment assets.
5. Any other substantive controlling relationship exists between the custodian of the discretionary investment assets and the SITE or the SICE.
The provisions of subparagraph 2 of the preceding paragraph apply mutatis mutandis to the representative or designated representative of a director or supervisor that is a juristic person.
If a discretionary investment services customer is a trust enterprise or another enterprise approved by the FSC, the customer may keep the discretionary investment assets in its own custody without regard for the provisions of paragraph 1.
If a discretionary investment business customer meets one of the conditions listed below and furthermore has designated a custodian for the discretionary investment assets, the SITE or SICE and the customer may agree between themselves on the custody of the discretionary investment assets, and are exempted from application of the provisions of paragraph 1 that the customer place the discretionary investment assets in the custody of a discretionary investment custodian or transfer them to the custodian by trust:
1. Is a qualified institutional investor as set forth in paragraph 2, Article 4 of the Financial Consumer Protection Act.
2. Simultaneously meets the conditions set out in all the items of subparagraph 2, paragraph 3, Article 3 of the Regulations Governing Offshore Structured Products, and furthermore has applied in writing to the SITE or SICE for the status of a high net worth corporate investor.
Article 12
The amount of discretionary investment assets that a SITE or a SICE accepts from any single customer in providing discretionary investment services may not be less than NT$5 million. This restriction shall not apply, however, when the discretionary investment assets are assets in a special ledger account for investment-linked insurance or Labor Pension Act annuity insurance.
Article 13
The total amount accepted for investment purposes by a SICE providing discretionary investment services may not exceed 20 times its net worth, provided that this restriction shall not apply to a SICE with paid-in capital of NT$300 million or more.
When a SICE concurrently provides both mandate-type and trust-type discretionary investment services, the total amount accepted for investment purposes as referred to in the preceding paragraph shall be calculated on the basis of the combined amounts of the two types.
"Net worth" under paragraph 1 is the net worth stated in the financial report for the most recent period, audited and certified by a CPA, passed by the board of directors, and recognized by the supervisors.
When a SICE is concurrently operated by an enterprise in another line of business, with the exception of a futures trust enterprise, its allocated operating capital, rather than its net worth or paid-in capital, shall be used for the calculations under paragraph 1.
Article 14
Except where the FSC provides otherwise, a SITE or a SICE providing discretionary investment services shall observe the following provisions:
1. The SITE or SICE may not invest in securities other than those named in Article 6 of the Securities and Exchange Act.
2. The SITE or SICE may trade only securities-related products.
3. The SITE or SICE may not provide loans.
4. The SITE or SICE may not engage in trading of securities or securities-related products between any of the funds, collective trust funds, other discretionary investment or futures trading accounts, or proprietary securities trading or proprietary futures trading accounts under its own management. This restriction shall not apply, however, to cross trades that unintentionally result from orders placed and transacted through a centralized exchange market or a securities firm's place of business.
5. The SITE or SICE may not invest in any stocks, corporate bonds, or financial bonds issued by the SITE or SICE itself.
6. The SITE or SICE may not engage in any of the following activities, except by express written consent or contractual agreement with the customer:
A. Investing in call (put) warrants issued by the SITE or SICE itself.
B. Investing in any stocks, corporate bonds, or financial bonds issued by a company having an interest relationship with the SITE or SICE.
C. Investing in securities underwritten by a securities underwriter having an interest relationship with the SITE or SICE.
D. Engaging in margin trading.
E. Lending or borrowing securities.
7. The SITE or SICE may not invest in securities underwritten by the SITE or SICE itself except when it has clearly informed the customer of related conflicts of interest and control measures and obtained written consent from the customer for each subsequent investment, in which the amount of investment permitted shall be explicitly stated.
8. Investments in foreign securities may not violate the scope or the types of investment prescribed by the FSC.
9. The SITE or SICE may not engage in conduct prohibited by any other law or regulation or any regulation of the FSC.
The meaning of "any of the funds" in subparagraph 4 of the preceding paragraph includes publicly or privately offered securities investment trust funds and futures trust funds.
The term "securities underwritten" in subparagraphs 6 and 7 of paragraph 1 includes securities obtained but not yet disposed of by a securities underwriter as a result of firm-commitment underwriting.
Except where otherwise provided by law or regulation, when a SITE or a SICE providing discretionary investment services invests in exchange-listed or OTC-listed securities, it shall place an order with a securities broker to perform the transaction on a centralized securities market or at a securities firm's place of business.
Article 14-1
The term "company or securities underwriter having an interest relationship with the SITE or SICE" in paragraph 1, subparagraph 6 of the preceding article refers to one of the following circumstances:
1. Having the relationship with the enterprise defined in Chapter 6-1 of the Company Act.
2. A director or supervisor of the enterprise or a shareholder with total combined shareholdings of five percent or more of the enterprise.
3. Any person of the preceding subparagraph or a managerial officer of the enterprise is the same person as, or has a spousal relationship with, a director, supervisor, or a managerial officer of the company or a shareholder who holds ten percent or more of the company's shares.
The term "total combined shareholdings" in subparagraph 2 of the preceding paragraph means the total shareholdings of an enterprise in the SITE or SICE, plus the shareholdings of that enterprise's directors, supervisors, and managerial officers in the SITE or SICE, plus any shares of the SITE or SICE held by a third enterprise that is directly or indirectly controlled by the first enterprise.
The provisions of paragraph 1 apply mutatis mutandis to the representative or designated representative of a juristic person director or supervisor performing duties on its behalf.
Article 15
(deleted)
Article 16
The range of securities-related products which a SITE or SICE may trade using discretionary investment assets shall be limited to the following:
1. Trading orders that futures commission merchants are allowed to handle per FSC announcements made in accordance with Article 5 of the Futures Trading Act, and trading in securities-related futures contracts, option contracts, and futures option contracts.
2. FSC-approved off-exchange trading in financial products derived from currencies, securities, interest rates, or securities indices.
A SITE or SICE trading securities-related products using discretionary investment assets may, with the approval of the FSC, be exempted from the restriction under subparagraph 1 of the preceding paragraph when necessitated by the basic investment or trading policies of the discretionary trading account.
The ratios, methods of calculating risk exposure, and related regulations regarding the use of discretionary investment assets by a SITE or a SICE in trading securities-related products pursuant to the preceding two paragraphs shall be separately adopted by the FSC.
When a SITE or a SICE has received FSC approval for concurrent operation of a managed futures enterprise, it may apply for approval by the FSC of exemption from the limiting ratios of the preceding paragraph with respect to its utilization of discretionary investment assets in trading securities-related products. Its risk exposure may not then exceed 100 percent of the net asset value of the discretionary investment account.
Article 17
A SITE or a SICE shall diversify investments made using discretionary investment assets. Except where the FSC provides otherwise, the ratios at which a SITE or SICE distributes discretionary investment assets among different investment instruments shall be governed by the following provisions:
1. The aggregate amount invested on behalf of any single discretionary investment account in the stocks, corporate bonds, financial bonds, and call warrants of any single company may not exceed 20 percent of the net asset value of that account; the aggregate amount invested in corporate bonds or financial bonds issued by any single company may not exceed 10 percent of the total net asset value of the discretionary investment account.
2. The aggregate investment on behalf of all discretionary investment accounts in the shares of stock of any single company may not exceed 10 percent of the total number of shares issued by that company.
3. Neither the aggregate amount invested on behalf of any single discretionary investment account in the beneficial securities, REIT beneficial securities, or REAT beneficial securities offered or privately placed by any single trustee institution nor the aggregate amount invested in the asset-backed securities offered or privately placed by any single special-purpose company may exceed 20 percent of the total net asset value of the discretionary investment account.
When a SITE or a SICE uses discretionary investment assets for investment in depositary receipts, it shall calculate the shares it holds in the issuer of those depositary receipts together with the depositary receipts to produced an aggregate number or monetary amount that shall be used in calculating the ceiling on investment. The number of depositary receipts shall be calculated at the number of shares they represent.
When a SITE or a SICE uses discretionary investment assets for investment in call warrants, the number of underlying stocks represented by those warrants shall be calculated together with its holdings of other stocks issued by the issuer of the underlying stocks to produce an aggregate total that shall be used in calculating the ceiling on investment.
The provisions of paragraph 1, subparagraphs 1 and 3 shall not apply when the SITE or SICE has made other stipulations with the customer in the discretionary investment services contract, except with regard to the subjects of investment named in Article 14, paragraph 1, subparagraph 6, item 1, and Article 14, subparagraph 7.
Article 17-1
When a SITE or a SICE using discretionary investment assets for overseas investment receives approval from the customer to authorize either a foreign investment consulting services company or a member of its own group that provides central market trading services to place a trading order on the customer's behalf with a foreign securities firm, futures commission merchant, or any other trading counterparty, the SITE or SICE shall adopt risk monitoring and management measures for such transactions as a part of its internal control system, including the standards by which the company providing foreign investment consulting services is selected, and shall submit the measures to the board of directors for approval.
The term "member of its own group" in the preceding paragraph shall mean a holding company to which the SITE or SICE belongs and whose shareholdings in the SITE or SICE are in excess of 50 percent, or a subsidiary in which the SITE or SICE has shareholdings in excess of 50 percent, or a subsidiary under the same holding company in which the holding company's shareholdings exceed 50 percent.
Article 18
A SITE or a SICE conducting discretionary investments in foreign securities shall obtain the approval of the Central Bank, and shall make outward and inward remittances in accordance with the Regulations Governing the Declaration of Foreign Exchange Receipts and Disbursements or Transactions and other applicable regulations of the Central Bank.
Article 19
In addition to abiding by applicable laws and regulations, a SITE or SICE and its directors, supervisors, managerial officers, associated persons, and employees may not commit any of the following acts in providing discretionary investment services:
1. Using information gained in the course of professional duties to engage in trading of securities or securities-related products for their own account or for any party other than the customer.
2. Undertaking a trade damaging to the rights and interests of the customer when using the customer's discretionary investment assets to trade securities or securities-related products.
3. Signing any agreement with the customer to share proceeds or losses resulting from investment in securities or securities-related products, provided that this restriction does not apply where the FSC has otherwise made provision for performance compensation.
4. Purchasing or selling securities for the benefit of themselves or any other person when using the customer’s discretionary investment assets to trade securities or securities-related products.
5. Investing the discretionary investment assets of a customer in a cross trade involving the enterprise's own funds or the discretionary investment assets of another customer, provided that this restriction does not apply to unintentional cross trades that occur on a centralized securities exchange market or at a securities firm's place of business.
6. Using a customer's account to trade securities or securities-related products on the enterprise's own account or the account of another party.
7. Outsourcing the whole or a part of the discretionary investment services contract to another party to perform, or assigning such a contract to another party, provided that this restriction does not apply if the FSC provides otherwise.
8. Using the customer's discretionary investment assets to trade securities or securities-related products and, without legitimate reason, changing an executed order on the customer's discretionary investment account into an order on the enterprise's own account, the account of another party, or another discretionary investment account, or changing an order on another account into an order on the customer's discretionary investment account.
9. Making an investment decision not based on an investment analysis report, or based on an investment analysis report lacking a reasonable analytical basis or source data, provided that this restriction does not apply when a reasonable basis for the decision can be furnished.
10. Any other act prejudicial to the operation of the enterprise or the rights and interests of the customer.
Article 19-1
Except where the FSC provides otherwise, the supervisor of a department dedicated to discretionary investment business and the discretionary investment manager at a SITE or a SICE and that person's spouse, minor children, and other persons in whose name that person makes transactions may not engage in trading of a given company's shares and equity-type derivative products from the time that the SITE or SICE decides to utilize discretionary investment assets to engage in trading of the given company's shares or equity-type derivative financial products until such time as the given company's shares or equity-type derivative financial products are no longer held as part of the discretionary assets.
Article 20
A SITE or a SICE providing discretionary investment services that collects performance compensation shall abide by the following provisions:
1. The performance compensation shall be appropriate and reasonable.
2. The performance compensation shall be jointly stipulated by the SITE or SICE and the customer, with terms defining the investment instrument, conditions for collection, fee type, and method of calculation; those terms shall be a part of the discretionary investment services contract.
3. No performance compensation may be assessed or collected when the net asset value of the discretionary investment assets is lower than the amount of the assets originally provided.
4. Contractual provisions regarding performance compensation may not require their assessment and collection on a profit sharing basis, and a definite ceiling shall be imposed; performance compensation as a specified ratio or amount may only be allocated when real operational performance exceeds a prior stipulated performance metric.
5. The two parties may stipulate reduced compensation when real operational performance fails to meet a prior stipulated performance metric, but compensation may not be reduced to zero, nor may it be stipulated that the SITE or SICE bear a specified proportion of any loss.
Article 21
A SITE or a SICE entering into a discretionary investment services contract with a customer shall give the customer a seven-day period to review the contract in its entirety before signing. It shall also seek a thorough understanding of the customer's financial strength, investment experience, objectives, and requirements, and produce a customer information form to be retained for reference along with other related documents. It shall also assign a specific individual to explain in detail to the customer matters related to discretionary investment, and give the customer a discretionary investment prospectus, which shall be made an appendix to the discretionary investment services contract.
The prospectus referred to in the preceding paragraph shall set out the following matters:
1. The nature of the discretionary investment, its scope, management principles, fee collection methods, contractual prohibitions, the legal relationship between the customer, discretionary investment enterprise and custodian of the discretionary investment assets, and method of operation.
2. The method of analysis, sources of data, and investment strategies for utilization of discretionary investment assets.
3. The educational and professional backgrounds of the department supervisor and associated persons of the department operating discretionary investment services, and the status of any dispositions received by those persons in the preceding two years pursuant to Article 104 of the SITC Act, Article 101 of the Futures Trading Act, or Article 56 of the Securities and Exchange Act.
4. The comprehensive income statement and balance sheet for the two preceding fiscal years.
5. A description of any litigated or non-litigated matters resulting from conduct of the business.
6. The status of any dispositions received by the enterprise or its responsible person pursuant to Articles 103 or 104 of the SITC Act, Articles 100 or 101 of the Futures Trading Act, Article 56 or 66 of the Securities and Exchange Act, or Article 44 of the Trust Enterprise Act.
7. Cautionary language regarding the risks of investment or trading, the special characteristics of the instruments to be traded or invested in, and any possible associated risks or legal restrictions.
Any change in the prospectus referred to in the paragraph 1 with a material influence on customer rights and interests shall be reported to the FSC for recordation.
If a discretionary investment business customer meets the conditions set out in Article 11, paragraph 6, the SITE or SICE and the customer may agree between themselves on the matters required to be done before signing of the discretionary investment services contract, and are exempted from application of the provisions of the preceding three paragraphs.
Article 22
A SITE or a SICE that provides discretionary investment services shall enter into a discretionary investment services contract with the customer, clearly stipulating all discretionary investment rights and obligations between the SITE or SICE and the customer that derive from the mandate or trust relationship. A copy of the contract shall be sent to the custodian of the discretionary investment assets.
The discretionary investment services contract of the preceding paragraph shall be separately executed with each customer by the SITE or SICE, and except where law, regulation, or the FSC provides otherwise, no collective mandate or collective trust may be accepted thereunder. The discretionary investment services contract shall set out the following matters, and where establishes is a trust relationship, it shall additionally set out the particulars of each subparagraph of Article 19, paragraph 1 of the Trust Enterprise Act:
1. The names and addresses of the parties to the contract.
2. The reasons and time limits for any rescission of the contract subsequent to signing.
3. The discretionary investment assets initially placed for investment.
4. Stipulations regarding basic investment and trading policies, scope of investment and trading, and any changes thereto. Types and names of securities or products shall be clearly listed as part of the scope of investment and trading.
5. The granting of authorization for investment or trading decisions and any restrictions thereon.
6. The granting of authorization to direct utilization of assets and any restrictions thereon.
7. Designation of the investment manager and any change in that designation.
8. Designation of the custodian of the discretionary investment assets and any change in that designation, and directions regarding the method of custody and the method of collection and delivery.
9. Designation of the securities broker or futures broker, and any change in that designation.
10. Confidentiality obligations, and the obligation to exercise the due care of a good administrator.
11. The legal obligations associated with a change in equity holdings when the customer is a director, supervisor, or managerial officer or a public company, or shareholder in such a company holding more than 10 percent of the company's shares.
12. Reporting obligations.
13. The method of calculating compensation and fees for the commissioned services, and the manner and time of payment.
14. The effective date and duration of the contract.
15. Provisions for amendment or termination of the contract.
16. The obligation to give notice of any material change, and the means of notice.
17. Provisions regarding settlement obligations after termination of the contractual relationship.
18. Provisions for handling breach of contract.
19. Provisions for handling matters following bankruptcy, dissolution, cessation of business, suspension of business or voidance or revocation of the business permission.
20. A method for resolution of disputes, and the court of jurisdiction.
21. Other matters as may be prescribed by the FSC.
The discretionary investment assets initially placed for investment, as referred to in subparagraph 3 of the preceding paragraph, shall be deposited in their entirety with the custodian of the discretionary investment assets at the time the discretionary investment services contract is signed; the same applies to any increase in those assets. This restriction shall not apply, however, when the discretionary assets are assets in a special ledger account for investment-linked insurance or Labor Pension Act annuity insurance and a separate stipulation in respect of those assets has been included in the discretionary investment services contract.
The basic investment and trading policies and the scope of investment and trading referred to in paragraph 2, subparagraph 4 shall be carefully negotiated on the basis of the customer's financial strength, investment or trading experience, and investment objectives, as well as the applicable restrictions of law or regulations.
The "designation of the securities broker or futures broker" referred to in paragraph 2, subparagraph 9 shall be made at the customer's own discretion. When the customer only designates a single securities broker or futures broker, the customer shall be clearly informed of the associated risks.
When, in accordance with the preceding paragraph, the customer at its own discretion designates the enterprise in another line of business as the securities broker or futures broker, the customer shall first be clearly informed of the associated risks, conflicts of interest, and related control measures, and separate written consent shall be obtained from the customer in addition to the discretionary investment services contract.
Where the customer makes no designation of a securities broker or futures broker, the SITE or SICE shall designate the broker, giving due attention to appropriate diversification and avoiding overconcentration. When the SITE or SICE is concurrently operated by an enterprise in another line of business, that enterprise may not be designated as the securities broker, and when that enterprise and the designated securities broker or futures broker are mutually invested or have a relationship of control and subordination, that fact shall be disclosed in the discretionary investment services contract. When the circumstances under Article 27 of the Trust Enterprise Act are present, they shall be stipulated in the trust agreement or advance notice shall be given and prior written consent obtained from the beneficial owner.
The compensation referred to in paragraph 2, subparagraph 13 may include collection of the performance compensation provided for in Article 20.
SITCA shall draft contract templates for discretionary investment business and adopt regulations governing mediation procedures in regard to the method of dispute resolution referred to in paragraph 2, subparagraph 20, which it shall submit to the FSC by letter for approval; the same shall apply to any amendment thereto.
The discretionary investment services contract of paragraph 1 and related materials shall be retained on file for a period of not less than five years after the contract ceases to have effect.
Designation or change in designation of the custodian of the discretionary investment assets as referred to in paragraph 2, subparagraph 8 shall not apply when the customer keeps the discretionary investment assets in its own custody as provided for in Article 11, paragraph 5 or when the SITE or SICE and the customer agree between themselves on the custody of the discretionary investment assets as provided for in Article 11, paragraph 6.
Article 22-1
In any discretionary investment case reaching or exceeding a specified monetary amount or suspected to involve money laundering, a SITE or SICE shall maintain transaction documents sufficient to fully reconstruct transactions and records verifying the customer's identity and transaction orders, and shall comply with the requirements of the Money Laundering Control Act.
Article 23
The types and scope of use of idle discretionary investment assets by a SITE or a SICE providing discretionary investment services shall be as follows:
1. Cash.
2. Deposits with a financial institution.
3. Short term bills purchased from bills houses.
4. Repo transactions in short-term bills and bonds.
5. Money market collective trust fund beneficial securities issued by a domestic trust enterprise.
6. Other uses prescribed by the FSC.
The "idle discretionary investment assets" of the preceding paragraph refers to liquid assets other than those discretionary investment assets that are invested in the securities named in Article 6 of the Securities and Exchange Act or used for trading securities-related products.
The financial institution of paragraph 1, subparagraph 2 and the trading counterparties of the repo transactions in short-term bills and bonds of subparagraph 4 shall meet the conditions prescribed by the FSC; the short-term bills of paragraph 1, subparagraph 3 shall have a credit rating at or above a prescribed level issued by an FSC-recognized credit rating agency.
Article 24
When the scope of trading or investment allowed a SITE or a SICE in the conduct of discretionary investment business is increased due to a change of law or regulation, the SITE or SICE shall adopt relevant additional measures for accounting and for risk monitoring and management as part of its internal control system and submit the additional measures to the board of directors for approval.
When the scope of trading or investment allowed by a SITE or a SICE in the conduct of discretionary investment business is increased due to a change of law or regulation subsequent to the signing of a discretionary investment services contract, such new trading or investment may be undertaken only after amendment of the discretionary investment services contract.
Article 25
Discretionary investment services contracts and the brokerage contracts of securities and futures brokers shall clearly stipulate that the SITE or SICE will be liable for performance of any obligation arising from use of the discretionary investment assets for investment in securities or for trading of securities-related products that exceeds the scope provided by law, regulation, or the discretionary investment services contract.
Article 26
When a SITE or a SICE conducts discretionary investment business, the customer shall separately enter into a mandate agreement or a trust agreement with the custodian of the discretionary investment assets to govern the handling of matters relating to investments in securities or trading in securities-related products. Such matters include account opening, custody of funds and certificates, deposit of margins and premiums, trade settlement, account servicing, and exercise of equity rights.
The provisions of the preceding paragraph do not apply when the customer keeps the discretionary investment assets in its own custody as provided for in Article 11, paragraph 5 or when the SITE or SICE and the customer agree between themselves on the custody of the discretionary investment assets as provided for in Article 11, paragraph 6.
The custodian of the discretionary investment assets shall enter into mandate or trust agreements of the type specified in paragraph 1 separately with each individual customer, and except where law, regulation, or the FSC provide otherwise, may not accept any collective mandate or collective trust.
Prior to implementing the matters referred to in paragraph 1, the custodian of the discretionary investment assets shall first review the scope and the restrictions set out in the mandate contract.
The content and scope of the mandate agreement or trust agreement referred to in paragraph 1 and the related contract templates shall be drafted by SITCA and submitted by letter to the FSC for approval.
Article 27
A SITE or a SICE that conducts discretionary investment business shall do so in accordance with operating rules.
The operating rules of the preceding paragraph regarding contract signing, account opening, trading, settlement, clearing, investment and trading matters (e.g. analysis reports, decisions, execution records, review reports), and other matters shall be drafted by the SITCA and approved by the FSC; the same shall apply to any amendment thereto.
Article 28
In utilizing discretionary investment assets to invest or trade, a SITE or SICE shall base its decisions on its analysis; it shall keep records of its execution thereof, and shall also submit a review on a monthly basis. Its analysis and decisions shall be founded on reasonable grounds and bases.
The SITE or SICE shall include the analysis, decisions, execution, and review referred to in the preceding paragraph in the internal control system, and faithfully implement the system.
The SITE or SICE shall keep records of the control activities under the preceding paragraph, and shall preserve them for not less than 5 years.
When a SITE or a SICE conducts discretionary investment business, it shall establish an account for each individual customer in which it records daily the status of trading of customer assets and the customer's balance by volume and value.
A customer may request to examine the data referred to in the preceding paragraph and the appointed SITE or SICE may not refuse such a request.
A SITE or SICE using discretionary investment assets to trade securities, securities-related products, or any other instrument in which investment or transaction is permitted by the FSC, shall apply any transaction fees returned or other benefits paid by securities brokers, futures commission merchants, or other trading counterparties to offsetting the customer's transaction costs.
If a discretionary investment business customer meets the conditions set out in Article 11, paragraph 6, the SITE or SICE and the customer may agree between themselves on the treatment of service fees returned or other benefits paid by trading counterparties, and are exempted from application of the provisions of the preceding paragraph.
Article 29
A SITE or a SICE that conducts discretionary investment business shall compile for each customer a regular monthly record of trading on the customer's assets and a report on the current status of those assets, to be delivered to the customer.
At any time impairment of the net asset value of a customer's discretionary investment assets equals 20 percent or more of the value of the original discretionary investment assets, the SITE or SICE shall produce the report referred to in the preceding paragraph and deliver it to the customer within two business days from the date of the event. The same shall apply in each subsequent case of impairment equaling 20 percent or more of the net asset value stated in a previous report.
When a customer's discretionary investment assets are the assets of a special ledger account for investment-linked insurance or Labor Pension Act annuity insurance, then at any time impairment of its discretionary investment account assets equals 5 percent or more of their per-unit value on the previous business day, the SITE or SICE shall produce the report referred to in the paragraph 1 and deliver it to the customer within two business days from the date of the event, without regard for the provisions of the preceding paragraph.
The percentage given in the preceding paragraph may be adjusted with the customer's consent or by stipulation in the discretionary investment services contract, but may not exceed 10 percent.
If a discretionary investment business customer meets the conditions set out in Article 11, paragraph 6, the SITE or SICE and the customer may agree between themselves on the treatment of reporting obligations, and are exempted from application of the provisions of paragraphs 1 and 2.
Article 30
If a SITE or SICE is unable to continue providing discretionary investment services because of dissolution of the enterprise or because of voidance or revocation of its business permission, its discretionary investment services contracts shall be terminated.
When a SITE or SICE is the subject of suspension or cessation of business or obvious mismanagement, the FSC may order it to transfer its discretionary investment services contracts to another FSC-designated SITE or SICE for management.
Under the circumstances in the preceding paragraph, the SITE or SICE shall solicit the opinion of the customer; the discretionary investment services contract of any customer who does not consent or who expresses no opinion shall be deemed terminated.
Article 31
A SITE or a SICE that conducts discretionary investment business shall submit a summary of operating statistics to the FSC on a regular basis in accordance with FSC regulations.
The format of the summary of operating statistics referred to in the preceding paragraph shall be prescribed by the SITCA.
Article 31-1
A SITE or a SICE that provides trust-type discretionary investment services shall establish a department dedicated to trust business and staff it with a sufficient number of competent managers and associated persons. The dedicated trust business department may be combined with the dedicated department of Article 8, paragraph 1, but after combination, persons in the dedicated department responsible for deciding the disposition of trust assets may not concurrently operate any other business outside the scope of the dedicated department.
The supervisor and associated persons of the dedicated department of the preceding paragraph may not handle business beyond the scope of the dedicated department, nor may their functions be performed by any person not registered as supervisor or associated person of the dedicated department.
The associated persons of the dedicated department of paragraph 1 who carry out research and analysis and make investment or trading decisions may not concurrently serve as, or have their positions concurrently filled by, associated persons who execute trades.
The responsible person of a SITE or SICE that offers trust-type discretionary investment services and the associated persons that operate and manage trusts shall possess the qualifications or the specialized knowledge or experience prescribed by the Regulations Governing the Concurrent Operation of Trust Business by Securities Investment Trust Enterprises, Securities Investment Consulting Enterprises, and Securities Firms, and shall also possess the qualifications prescribed by the Regulations Governing Responsible Persons and Associated Persons of Securities Investment Consulting Enterprises.
Article 31-2
A SITE or a SICE that offers trust-type discretionary investment services shall lodge a compensation reserve in accordance with Article 34 of the Trust Enterprise Act and related provisions.
Article 31-3
A SITE or a SICE that offers trust-type discretionary investment services shall place the trust assets delivered by the customer in custody with a custodian of discretionary investment assets.
Under any of the following circumstances, an institution may not serve as a custodian of discretionary investment assets:
1. The institution is a fund custodian, has received an FSC disposition pursuant to Article 115 of the SITC Act, and the period of the disposition has not yet concluded.
2. The institution does not meet the conditions prescribed by the FSC.
3. Where any of the circumstances under Article 11, paragraph 3, subparagraphs 1 through 5 or paragraph 4 are present, except where approved by the FSC.
The SITE or SICE shall enter into a custody agreement with the custodian of the discretionary investment assets for implementing matters such as account opening for securities investment or trading of securities-related products, custody of funds and securities, payment of margins and premiums, settlement of transactions, account servicing, and exercise of equity rights.
Individual custody agreements of the type set out in the preceding paragraph shall be signed between the SITE or SICE and the custodian of the discretionary investment assets with respect to each individual customer, and except where law and regulation or the FSC provide otherwise, customers' discretionary assets may not be delivered to the custodian under a joint mandate.
Prior to implementing the matters under paragraph 3, the custodian of the discretionary investment assets shall first review the stipulated scope of the discretionary investment services contract and the restrictions it sets out.
The content and a template for the custody agreement of paragraph 3 shall be drafted by the SITCA and submitted to the FSC for approval.
Article 32
The provisions of Article 8-1, Article 9, Article 13 through Article 14-1, Article 16 through Article 21, Article 22, paragraph 1 through paragraph 10, Article 22-1 through Article 25, Article 27 through Article 31, Article 36, and Article 40 shall apply to a SITE or a SICE that provides trust-type discretionary investment services.