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These Directions are adopted in accordance with Article 4-1 of the Taiwan Securities Association Regulations Governing Underwriting and Resale of Securities by Securities Firms.
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Except in cases of an OTC-listed company transferring its listing to the Stock Exchange or as otherwise provided by law or regulation, an underwriter advising an issuer in a case of an initial listing of common stock on the Stock Exchange or OTC market (hereinafter, "initial exchange-listing or OTC-listing case"), before filing the application for initial exchange-listing or OTC-listing with the Taiwan Stock Exchange Corporation (TSEC) or the GreTai Securities Market (GTSM), shall sign an agreement with the issuer. The agreement shall contain at least all of the following provisions:
- The lead underwriter shall require the issuer to coordinate its shareholders to make available to the lead underwriter an over-allotment (aka "green shoe") option for issued common stock in the amount of 15 percent of the number of shares required to be sold through securities firms in the current underwritten public offering in accordance with TSEC or GTSM regulations; provided, the lead underwriter may determine the over-allotment amount at its discretion based on market demand.
- If the lead underwriter exercises the over-allotment option, and the number of shares actually paid in exceeds the number of shares required to be sold through securities firms in the current underwritten public offering in accordance with TSEC or GTSM regulations, the proceeds from the over-allotment sale shall be retained in full in the segregated account for underwriting proceeds opened by the lead underwriter, and may not be drawn on except in the event of a stock buyback conducted in accordance with Point 7 or upon settlement with the issuer for the over-allotment portion in accordance with Point 8.
- In addition to those shares required by regulations to be placed in compulsory central custody, the lead underwriter shall require the issuer to assist in obtaining promises from the following persons to voluntarily deposit their shareholdings of issued common stock in the Taiwan Securities Central Depository Company (TSCDC) and not to sell them for a specific period from the listing date (not less than three months nor more than six months): spouses and relatives within the second degree of kinship of the issuer company's directors, supervisors, and shareholders with 10 percent or greater shareholding; officers of the issuer company themselves and their spouses and relatives within the second degree of kinship, and other shareholders.
- If the over-allotment option is exercised, the issuer shall, before the lead underwriter carries out book-entry allocation of the securities, provide to the Taiwan Securities Central Depository Company (TSCDC) information including the names, ID numbers, numbers of shares, and central depository account numbers of the shareholders who have provided issued common stock for purposes of over-allotment; the same rule shall also be applied at the time a lead underwriter carries out procedures for returning stocks in accordance with Point 8 to support such procedures.
- If the over-allotment option is exercised, during the period that price stabilization operations are implemented from the underwriting period through five trading days after listing, the issuer may not go ex-dividend or ex-rights.
The content of the agreement referred to in the preceding paragraph may be implemented only after it has first been passed by a resolution of the issuer's board of directors.
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If the lead underwriter handling an initial exchange-listing or OTC-listing case exercises the over-allotment option, the over-allotment amount shall be determined by the following methods:
- Where the book building method is used:
- Preliminary over-allotment amount: the preliminary over-allotment amount is determined on the basis of the over-allotment amount exercised by the lead underwriter when the underwriting syndicate actually conducts the placement, and shall be disclosed in the underwriting notice.
- Actual over-allotment amount: after payment procedures have concluded, the actual over-allotment amount is determined as the amount within the quantity placed by the lead underwriter and actually paid-up that is greater than the number of shares required to be sold through securities firms in the current underwritten public offering in accordance with TSEC or GTSM regulations; the lead underwriter is prohibited from subscribing any remaining portion of unpaid shares for its own account.
- Where the competitive auction method is used:
- Preliminary over-allotment amount: this is the over-allotment amount that the lead underwriter decides to place by negotiated sale, with respect to the outcome of the competitive auction for the number of shares required to be sold through securities firms in the current underwritten public offering in accordance with TSEC or GTSM regulations, and shall be disclosed in the underwriting notice.
- Actual over-allotment amount: after payment procedures have concluded, the amount actually paid-up for the shares placed by the lead underwriter through over-allotment is determined to be the actual over-allotment amount; the lead underwriter is prohibited from subscribing any remaining portion of unpaid shares for its own account.
- Where a public enterprise or a party acting in accordance with the provisions of Articles 6 and 6-1 of the TSEC Regulations Governing Review of Securities Listings or in accordance with the provisions of the GTSM Supplemental Directions for Applications by Private Institutions Participating in Public Infrastructure Projects for Over-the-Counter Listing conducts an initial offering of shares on a stock exchange or an OTC market, where the entire amount of said shares are allocated through public subscription:
- Preliminary over-allotment amount: If the shares allocated via over-allotment are incorporated into the public subscription, the preliminary over-allotment amount is determined by the amount incorporated into the public subscription, and shall be disclosed in the underwriting notice; if they are allocated by negotiated sale, it is determined by the amount of the over-allotment that the lead underwriter decides to allocate via negotiated sale, and shall be disclosed in the underwriting notice.
- Actual over-allotment amount: If the shares allocated via over-allotment are incorporated into the public subscription, after payment procedures have concluded, the lead underwriter determines the actual over-allotment as the amount actually paid-up that is greater than the number of shares required to be sold through securities firms in the current underwritten public offering in accordance with TSEC or GTSM regulations; the lead underwriter is prohibited from subscribing any remaining portion of unpaid shares for its own account.
After determining the actual over-allotment amount, the lead underwriter shall report to the Taiwan Securities Association information including the actual over-allotment amount in accordance with the preceding paragraph, and the proceeds obtained from the over-allotment, and shall disclose them on the Taiwan Securities Association website, and shall publish them on the TSEC and GTSM websites via computer link. The lead underwriter shall guide the issuer in publishing related matters on the Market Observation Post System.
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To stabilize the offering price of an initial exchange-listing or OTC-listing case, during the five trading days from the listing date, shares may not be sold, at a price lower than the offering price, out of the lead underwriter's or a co-underwriter's proprietary trading account or a "segregated account for sale of securities obtained by an underwriter" opened in accordance with the Regulations Governing Sale of Securities Obtained by Securities Underwriters on a Firm Commitment Basis promulgated by the competent authority.
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Where the over-allotment option is exercised in an initial exchange-listing or OTC-listing case, operations implemented to stabilize post-listing prices (price stabilization operations) shall be conducted as provided below:
- The lead underwriter shall engage another securities firm to open a segregated account to be used to implement price stabilization operations. That segregated account shall be named "_______ Securities Company Segregated Price Stabilization Operations Account."
- The lead and co-underwriters shall, at least three business days before the initial exchange-listing or OTC-listing for trading of the common stock, report to the TSEC (or GTSM) and the Taiwan Securities association the following information, to be compiled by the lead underwriter:
- The name and account number of the lead underwriter's "_______ Securities Company Segregated Price Stabilization Operations Account" (hereinafter, "Price Stabilization Account").
- The names and account numbers of the proprietary trading accounts and "segregated accounts for sale of securities obtained by an underwriter" of the lead and co-underwriters.
- The names and code numbers of the stocks in the initial exchange-listing or OTC-listing.
- The actual over-allotment amount and the proceeds from the over-allotment.
- The price stabilization operations period.
- The offering price.
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If the over-allotment option is not exercised in an initial exchange-listing or OTC-listing case, the lead and co-underwriters shall nevertheless, at least three business days before the initial exchange-listing or OTC-listing for trading of the common stock, report to the TSEC (or GTSM) and the Taiwan Securities association the following information, to be compiled by the lead underwriter:
- The names and account numbers of the proprietary trading accounts and "segregated accounts for sale of securities obtained by an underwriter" of the lead and the co-underwriters.
- The names and code numbers of the stocks in the initial exchange-listing or OTC-listing.
- The period of the five trading days beginning from the listing date.
- The offering price.
The TSEC or GTSM shall, after market close on the fifth trading day beginning from the listing date, notify the Taiwan Securities Association of the details of trades made through the proprietary trading accounts and "segregated accounts for sale of securities obtained by an underwriter" of the lead and co-underwriters.
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Where the over-allocation option is exercised in an initial exchange-listing or OTC-listing case, if during the five trading days beginning from the listing date, the trading price of the stock falls below the offering price and the lead underwriter implements price stabilization operations, it is advisable, before buying that stock through its proprietary trading account, to preferentially draw on the proceeds obtained from the over-allotment and buy that stock from the trading market through the Price Stabilization Account; after buying it, however, it may not be sold during that period.
During the period when the lead underwriter implements price stabilization operations, the TSEC or GTSM shall disclose on a daily basis the details of trading through the Price Stabilization Account, and the proprietary trading accounts and "segregated accounts for sale of securities obtained by an underwriter" of the lead and co-underwriters. After market close on the fifth trading day, the TSEC or GTSM shall also notify the Taiwan Securities Association of the details of price stabilization operations implemented through the Price Stabilization Account, and the details of trades made through the proprietary trading accounts and "segregated accounts for sale of securities obtained by an underwriter" of the lead and co-underwriters.
On the seventh business day from the listing date, the lead underwriter shall report the results of the price stabilization operations to the Taiwan Securities Association and disclose them on the website of the Taiwan Securities Association, and shall publish them on the TSEC and GTSM websites via computer link. The lead underwriter shall guide the issuer in publishing related matters on the Market Observation Post System.
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On the seventh business day from the listing date, the lead underwriter shall, in accordance with the results of the price stabilization operations, carry out settlement of the actual over-allotment amount with the issuer in accordance with the following provisions:
- Where price stabilization operations have been conducted, the securities obtained in implementing price stabilization operations shall be returned, and settlement shall be limited to the actual over-allotment amount.
- Where price stabilization operations have not been conducted, the offering proceeds shall be calculated and paid based on the offering price.
When carrying out the return of the stock under the preceding paragraph, the lead underwriter shall follow the relevant book-entry procedures provided in TSCDC rules.
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If an underwriter violates these Directions, measures will be taken in accordance with the Taiwan Securities Association Regulations for Handling Deficiencies in Underwriting Business Conducted by Underwriters.
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These Directions, and any amendments hereto, shall be implemented after passage by the Board of Directors and ratification by the Financial Supervisory Commission, Executive Yuan.
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