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Title Regulations Governing the Conduct of Discretionary Investment Business by Securities Investment Trust Enterprises and Securities Investment Consulting Enterprises of Securities Investment Trust and Consulting Association of the ROC CH
Date 2007.02.05 ( AMENDMENT )

Article Content

Chapter 1 General Principles
Article 1     These Regulations are adopted pursuant to Article 57, paragraph 2 of the Securities Investment Trust and Consulting Act (“SITC Act”) and Article 27, paragraph 2 of Regulations Governing the Conduct of Discretionary Investment Business by Securities Investment Trust Enterprises and Securities Investment Consulting Enterprises (“DIB Regulations”).
Article 2     A securities investment trust enterprise (“SITE”) or a securities investment consulting enterprise (“SICE”) (hereinafter the “Mandatory”) conducting discretionary investment business shall proceed in accordance with SITC Act, laws and regulations governing securities transactions and future transactions, DIB Regulations, these Regulations and articles of incorporation of the Securities Investment Trust and Consulting Association of the ROC (“SITCA”), self-regulatory agreements, regulations, guidelines and other relevant rules and regulations.
    Where a securities broker concurrently conducting SICE business conducts discretionary investment business, the provisions of these Regulations shall apply unless otherwise provided by DIB Regulations or other relevant laws.
    Where a trust enterprise concurrently conducts mandate-type discretionary investment business, the provisions of these Regulations shall apply unless otherwise provided by DIB Regulations or other relevant laws.
Article 3     The Mandatory applying for the conduct of discretionary investment business, unless otherwise provided by the Financial Supervisory Commission of Executive Yuan (the “FSC”), shall fill out application forms and submit them to SITCA with the attached documents required by the FSC for SITCA’s review, after which the SITCA shall issue its comments thereon and forward the application and to the FSC for its approval. When the Mandatory applies for issuance of a new business license, it shall also fill out the application forms and submit them to SITCA with the attached documents required by the FSC for SITCA’s review, after which SITCA shall issue its comments thereon and forward the application to the FSC.
    SITCA shall propose review guidelines governing the review that shall be conducted by SITCA prescribed in the preceding paragraph, and such guidelines shall be implemented after reported to the FSC for its recordation.
Article 4     The Mandatory conducting discretionary investment business shall comply with Article 52 of SITC Act, Article 10 of DIB Regulations and “Directions Governing Operating Bonds for Discretionary Investment Business” of SITCA and shall deposit a certain amount of operating bonds.
    The provisions prescribed in the preceding paragraph shall apply to enterprises, other than SITEs or SICEs, concurrently conducting discretionary investment business, and the operating bonds to be deposited shall be calculated based on the allocated operating capital.
Article 5     The Mandatory shall, in addition to establishing a specialized department staffed with a sufficient number of competent supervisory personnel and associated persons to conduct discretionary investment business in accordance with Article 8 of the DIB Regulations, establish investment research, financial accounting and internal audit departments.
    A department supervisor and an associated person of the specialized department prescribed in the preceding paragraph, except that associated person that makes investment or trading decisions may concurrently serve as an associated person that make investment or trading decisions for privately placed securities investment trust fund, may not handle businesses beyond the scope of said specialized department, or have their functions concurrently performed by other non-registered department supervisors or associated persons of the specialized department.
    An associated person of paragraph 1 that carries out research and analysis and makes investment or trading decisions may not currently serve as an associated person that executes transactions, and an associated person that makes investment or trading decision may not currently serve as a person that makes investment or trading decisions in collective trust fund business, securities investment trust fund business, or trading of securities for its own account or of its own fund.
    With regard to the department supervisor and the associated person of the specialized department and the internal audit department referred to in the paragraph 1, except otherwise provided by DIB Regulations or other relevant laws and regulations, the Mandatory shall submit documentary proof that such person satisfies the qualification set forth in the Regulations Governing Responsible Persons and Associated Persons of Securities Investment Consulting Enterprises to SITCA for registration within five (5) business days after such person takes office. Such personnel may not conduct business prior to the completion of said registration. Any changes or amendment thereof shall be reported to SITCA within five (5) business days starting from the next date of such change or amendment.
Chapter 2 Business Solicitation and Promotional Activities
Article 6     To promote discretionary investment business, the Mandatory may engage in business solicitation and promotional activities, which include interview with potential customers or customers with whom the Mandatory has already signed a discretionary investment services contract, or contact by telephone, telegram, facsimile, other electronic communication or all kinds of written communication, or advertisements, road shows or other business activities.
Article 7     The Mandatory engaging in business solicitation and promotional activities for discretionary investment business shall comply with relevant laws and regulations as well as self-regulatory agreements of SITCA, and may not engage in the following activities:
  1. Using FSC approval for conducting discretionary investment business as a verification of the application content or a guarantee of the value of discretionary investment asset for promotion;

  2. Misleading people to believe that the security of principal or profitability is guaranteed;

  3. Making representations that it will bear the losses;

  4. Soliciting or promoting inappropriately by providing gifts or any other benefits;

  5. Making exaggerated advertisements on past operational performance or carrying out advertisements to attack other market players;

  6. Engaging in misrepresentative, fraudulent, or other misleading actions;

  7. Making exaggerated promotion by misrepresentation, untrue material or selective information with respect to the investment, trading or operational performance offered by it of the securities, securities-related products or other items approved by the FSC;

  8. The content of the solicitation or promotion is in violation of laws and rules, or the discretionary investment services contract;

  9. Other conducts in violation of the securities and futures laws and rules or prohibited by FSC.
Article 8     Information produced by the Mandatory for solicitation and promotional activities for discretionary investment business shall be internally reviewed to confirm the content of which does not contain any improper or untrue statement or other matters in violation of law before use. Materials for advertisement, public information meetings and other business promotional activities shall be reported to SITCA within ten (10) days after the occurrence of such facts and shall be kept for at least two (2) years. In the event SITCA finds any violation of the provision stipulated in the preceding Article, such violation shall be handled in accordance with agreements related to self-regulation of SITCA.
Article 9     To facilitate its associated persons to provide correct and complete information to its customers for reference when conducting solicitation and promotional activities for discretionary investment business, the Mandatory shall have the content of introduction or statement related to its service items, qualification, operational performance, or the experience of its responsible persons, associated persons and employees consistent.
Chapter 3 Acceptance of Application, Execution of Agreement and Account Opening Procedures for Discretionary Investment
Article 10     The Mandatory shall establish the procedures for the conduct of discretionary investment business, which shall include execution of discretionary investment services contracts, account opening, procedure for examination of application cases and responsible items by each level of departments or personnel. The personnel shall actually follow said procedures when performing its duties.
Article 11     When the Mandatory accepts the customer’s application for discretionary investment, the Mandatory shall request the customer to fill out the application form (sample is attached as Exhibit 1 and 2) and customer information sheet (sample is attached as Exhibit 3 and 4) with relevant documentary proof attached and to proceed in accordance with the following provisions before signing a discretionary investment services contract:
  1. Where a customer is a natural person, he shall present his original ID, sign and seal for the application. However, where said customer is a minor or an interdicted person, the original ID, signature and seal of his guardian is required.

  2. Where a customer mandates an agent to proceed application procedure for him, said agent shall present the original ID of the customer and his and the power of attorney signed and sealed by such customer in person.

  3. Where a customer is a juristic person or other institution, the application shall be handled by the authorized person who shall present the power of attorney issued by said customer, original ID of the authorized person, copy of ID of the representative and copy of certificate of corporation. The above copies of ID and certificate of corporation and the original power of attorney shall be kept. Copies of the documents shall be stamped with chops of “It has been checked and confirmed that the application is made by the principal or the authorized person in person and the copies of the documents are the same as the original.”
    Where a customer is a government agent or a public enterprise, if its procedure for public solicitation of trustee, guideline for the application and the content of operation plan proposal etc. are sufficient to cover the items prescribed in the preceding paragraph, said provisions may not be applicable.
    Where a customer consigns the trust assets managed by it to the Mandatory for discretionary investment, he shall fill out the form with relevant information in accordance with the paragraph 1 for each type of assets consigned and add the wording which could sufficiently present that said assets are trust assets.
    Where the prior approval from other relevant authorities is required for the customer’s application, such approval letter and other documentary proof required by SITCA shall be attached with the application before the execution of a discretionary investment services contract.
    When the Mandatory accepts the customer’s application for discretionary investment, the Mandatory shall request the customer to fill out the application form (sample is attached as Exhibit 1 and 2) and customer information sheet (sample is attached as Exhibit 3 and 4) with relevant documentary proof attached and to proceed in accordance with the following provisions before signing a discretionary investment services contract:
  1. Where a customer is a natural person, he shall present his original ID, sign and seal for the application. However, where said customer is a minor or an interdicted person, the original ID, signature and seal of his guardian is required.

  2. Where a customer mandates an agent to proceed application procedure for him, said agent shall present the original ID of the customer and his and the power of attorney signed and sealed by such customer in person.

  3. Where a customer is a juristic person or other institution, the application shall be handled by the authorized person who shall present the power of attorney issued by said customer, original ID of the authorized person, copy of ID of the representative and copy of certificate of corporation. The above copies of ID and certificate of corporation and the original power of attorney shall be kept. Copies of the documents shall be stamped with chops of “It has been checked and confirmed that the application is made by the principal or the authorized person in person and the copies of the documents are the same as the original.”
    Where a customer is a government agent or a public enterprise, if its procedure for public solicitation of trustee, guideline for the application and the content of operation plan proposal etc. are sufficient to cover the items prescribed in the preceding paragraph, said provisions may not be applicable.
    Where a customer consigns the trust assets managed by it to the Mandatory for discretionary investment, he shall fill out the form with relevant information in accordance with the paragraph 1 for each type of assets consigned and add the wording which could sufficiently present that said assets are trust assets.
    Where the prior approval from other relevant authorities is required for the customer’s application, such approval letter and other documentary proof required by SITCA shall be attached with the application before the execution of a discretionary investment services contract.
Article 12     In the event the Mandatory finds any of the following on the part of the customer, it shall refuse to sign the discretionary investment services contract with such customer:
  1. the customer is a minor who acts without his guardian to act as his agent for him;

  2. the customer is pronounced bankrupt and his rights have not been restored;

  3. the customer is pronounced interdicted but acts without his guardian to act as his agent for him;

  4. the customer is a juristic person or other institution but fails to provide proof of authorization issued by said juristic person or institution;

  5. the customer is a responsible person, associated person or employee of the Securities and Future Bureau of the FSC or of the Mandatory; or

  6. the customer is a securities dealer without the approval of FSC.
Article 13     Before entering into a discretionary investment services contract with a customer, the Mandatory shall give the customer at least seven (7) days to review the entire agreement. It shall also appoint a person dedicated to discuss with the customer the matters the customer required to fill out in the customer information sheet to have a thorough understanding of customer’s financial capacity, investment or trading experience, purpose and requirements of investment or trading, and restrictions stipulated in relevant laws and regulations, to explain in details to the customer matters related to discretionary investment and to provide the customer with a discretionary investment prospectus. If the Mandatory intends to trade in securities-related products, it shall provide the customer with “disclosure of trading risk of discretionary investment in futures and options” (sample is attached as Exhibit 5), and inform the customer of the trading characteristics of securities-related products, possible risks or legal restrictions associated with it, based on which the Mandatory and the customer may negotiate and determine discretionary investment assets, basic guideline and the scope of investment or trading.
    The personnel prescribed in the preceding paragraph shall indicate the result of said interview and his opinions thereof in the customer information sheet, which shall be reviewed by other personnel or supervisor and, together with relevant documentary proof and discretionary investment prospectus, be used as the basis for the execution of a discretionary investment services contract. The above documents shall also be saved for recordation.
    The Mandatory bears the obligation of notification to remind the customers of the restrictions stipulated in relevant laws and regulations referred to in paragraph 1 before entering into a discretionary investment services contract.
    Investment managers shall truly and thoroughly understand the financial capacity, experience and purpose of investment and trading of the customer, restrictions stipulated in relevant laws and the risk-bearing capacity of the customer to propose investment or trading strategies which fit the requirements of the customer.
    Before entering into a discretionary investment services contract with a customer, the Mandatory shall give the customer at least seven (7) days to review the entire agreement. It shall also appoint a person dedicated to discuss with the customer the matters the customer required to fill out in the customer information sheet to have a thorough understanding of customer’s financial capacity, investment or trading experience, purpose and requirements of investment or trading, and restrictions stipulated in relevant laws and regulations, to explain in details to the customer matters related to discretionary investment and to provide the customer with a discretionary investment prospectus. If the Mandatory intends to trade in securities-related products, it shall provide the customer with “disclosure of trading risk of discretionary investment in futures and options” (sample is attached as Exhibit 5), and inform the customer of the trading characteristics of securities-related products, possible risks or legal restrictions associated with it, based on which the Mandatory and the customer may negotiate and determine discretionary investment assets, basic guideline and the scope of investment or trading.
    The personnel prescribed in the preceding paragraph shall indicate the result of said interview and his opinions thereof in the customer information sheet, which shall be reviewed by other personnel or supervisor and, together with relevant documentary proof and discretionary investment prospectus, be used as the basis for the execution of a discretionary investment services contract. The above documents shall also be saved for recordation.
    The Mandatory bears the obligation of notification to remind the customers of the restrictions stipulated in relevant laws and regulations referred to in paragraph 1 before entering into a discretionary investment services contract.
    Investment managers shall truly and thoroughly understand the financial capacity, experience and purpose of investment and trading of the customer, restrictions stipulated in relevant laws and the risk-bearing capacity of the customer to propose investment or trading strategies which fit the requirements of the customer.
Article 14     The discretionary investment prospectus referred to in the preceding Article shall set forth the matters prescribed in paragraph 2 of Article 21 of the DIB Regulations. Any changes in matters stated in the prospectus with a material influence on customer’s rights and interests shall be reported to the FSC.
    The front cover of discretionary investment prospectus shall be marked cautionary language regarding the risks of investment or trading in a conspicuous font, and the content thereof shall be as follows:
  1. Discretionary investment is not risk-free. The past operational performance of this company does not guarantee a minimum return for discretionary investment assets. Except for acting with the care of a prudent administrator, this company will not be responsible for the profit or loss of discretionary investment assets, nor guarantee a minimum return. Customers should read through this prospectus carefully before signing the agreement.

  2. In the event the content of this prospectus contains any false information or omission, this company and its responsible persons as well as those who have signed and affixed their seals on this prospectus shall be held liable according to the laws.
Article 15     The discretionary investment prospectus referred to in the preceding Article shall set forth the matters prescribed in paragraph 2 of Article 21 of the DIB Regulations. Any changes in matters stated in the prospectus with a material influence on customer’s rights and interests shall be reported to the FSC.
Article 16     Designation of the investment manager and his deputy shall be determined by the customer and the Mandatory together before the execution of a discretionary investment services contract.
    The customer may designate another investment manager pursuant to provisions of the discretionary investment services contract during the term thereof. In the event that the designated investment manager leaves office or is unable to perform his duties for reasons, the Mandatory shall immediately inform the customer of the same and designate another investment manager with the agreement with the customer.
    The Mandatory shall prepare materials related to the academic background and experience of each investment manager it retains to the customer for his reference.
Article 17     After reviewing the application documents prepared and submitted by the customer which is found consistent with relevant rules and proceeding in accordance with Article 13 hereof, the Mandatory shall process the execution of the following agreements and account opening:
  1. To execute a discretionary investment services contract with the customer.

  2. To inform the customer to enter into a mandate or trust agreement with the custodian institution for discretionary investment assets, and to open an investment custody account or a trust account for the custody of discretionary investment assets at the custodian institution. In the event the scope of investment covers foreign securities; the custodian institution for discretionary investment assets may appoint a foreign financial institution as the foreign fiduciary custodian institution of this account with the consent of the customer. Offshore assets of this account may be handled in accordance with laws and regulations of the place where such assets are located or the agreement between the custodian institution for discretionary investment assets and the foreign fiduciary custodian institution. Unless otherwise provided in the custodian agreement by the customer and the custodian institution for discretionary investment assets, the custodian institution for discretionary investment assets shall be responsible for the intentional or negligent acts of the foreign fiduciary custodian institution to the same extent as he is responsible for his own intentional or negligent acts. If the above intentional or negligent acts cause damage to the assets of this account, the custodian institution for discretionary investment assets shall be responsible for the compensation of damage caused.

  3. To execute a tripartite agreement of discretionary investment with the customer and the custodian institution for discretionary investment assets.

  4. To inform the custodian institution for discretionary investment assets to sign an account opening and brokerage agreement with securities firms or futures firms on behalf of the customer according to the mandate agreement and to open other investment trading accounts at other trading counterparty pursuant to relevant regulations. Provided, however, in the event the custodian institution for discretionary investment assets holds the discretionary investment assets based on the trust relationship, the account shall be opened in the name that the custodian institution is entrusted with the trust assets. For the investments in foreign securities, with the assistance of the custodian institution for discretionary investment assets, the Mandatory shall execute an account opening and brokerage agreement relevant trading counterparties in accordance with discretionary investment services contract and laws or market practices of the place of investment.
    Where a customer of the discretionary investment business is a trust enterprise or other enterprise approved by the FSC, such customer may keep the discretionary investment assets under its own custody and sign an account opening and brokerage agreement with securities firms or futures firms. Where the customer is a trust enterprise, consigns the trust assets managed by it to the Mandatory for discretionary investment and keeps such assets under his own custody, the provisions in subparagraphs 2 to 4 of the paragraph 1 shall not apply.
    After the completion of agreement execution and account opening stipulated in the subparagraphs of paragraph 1 and paragraph 2, the Mandatory may then start processing investment or trading for discretionary investment.
    It shall be specified in the mandate or trust agreement referred to in the subparagraph 2 of paragraph 1 hereof and the tripartite agreement of discretionary investment referred to in the subparagraph 3 of paragraph 1 hereof that the custodian institution for discretionary investment assets shall comply with relevant regulations by FSC, the DIB Regulations and these Regulations.
    Samples of agreements referred to in the subparagraphs 1 to 3 of paragraph 1 will be proposed by SITCA to be approved by FSC. Samples of account opening and brokerage agreement referred to in the subparagraph 4 of paragraph 1 and paragraph 2 shall be made in accordance with relevant laws and regulations of Taiwan Securities Association, Taiwan Stock Exchange Corporation (“TSEC”), GreTai Securities Market, Taiwan Futures Exchange, Chinese National Futures Association and other relevant laws and regulations.
    Where the customer of discretionary investment business agrees that the Mandatory may conduct securities trading via the omnibus account at the securities firm, matters related to the execution of agreement, the opening of account, the trading and the settlement etc. shall be handled in accordance with the regulations of SITCA, TSEC and other relevant laws and regulations.
    After reviewing the application documents prepared and submitted by the customer which is found consistent with relevant rules and proceeding in accordance with Article 13 hereof, the Mandatory shall process the execution of the following agreements and account opening:
  1. To execute a discretionary investment services contract with the customer.

  2. To inform the customer to enter into a mandate or trust agreement with the custodian institution for discretionary investment assets, and to open an investment custody account or a trust account for the custody of discretionary investment assets at the custodian institution. In the event the scope of investment covers foreign securities; the custodian institution for discretionary investment assets may appoint a foreign financial institution as the foreign fiduciary custodian institution of this account with the consent of the customer. Offshore assets of this account may be handled in accordance with laws and regulations of the place where such assets are located or the agreement between the custodian institution for discretionary investment assets and the foreign fiduciary custodian institution. Unless otherwise provided in the custodian agreement by the customer and the custodian institution for discretionary investment assets, the custodian institution for discretionary investment assets shall be responsible for the intentional or negligent acts of the foreign fiduciary custodian institution to the same extent as he is responsible for his own intentional or negligent acts. If the above intentional or negligent acts cause damage to the assets of this account, the custodian institution for discretionary investment assets shall be responsible for the compensation of damage caused.

  3. To execute a tripartite agreement of discretionary investment with the customer and the custodian institution for discretionary investment assets.

  4. To inform the custodian institution for discretionary investment assets to sign an account opening and brokerage agreement with securities firms or futures firms on behalf of the customer according to the mandate agreement and to open other investment trading accounts at other trading counterparty pursuant to relevant regulations. Provided, however, in the event the custodian institution for discretionary investment assets holds the discretionary investment assets based on the trust relationship, the account shall be opened in the name that the custodian institution is entrusted with the trust assets. For the investments in foreign securities, with the assistance of the custodian institution for discretionary investment assets, the Mandatory shall execute an account opening and brokerage agreement relevant trading counterparties in accordance with discretionary investment services contract and laws or market practices of the place of investment.
    Where a customer of the discretionary investment business is a trust enterprise or other enterprise approved by the FSC, such customer may keep the discretionary investment assets under its own custody and sign an account opening and brokerage agreement with securities firms or futures firms. Where the customer is a trust enterprise, consigns the trust assets managed by it to the Mandatory for discretionary investment and keeps such assets under his own custody, the provisions in subparagraphs 2 to 4 of the paragraph 1 shall not apply.
    After the completion of agreement execution and account opening stipulated in the subparagraphs of paragraph 1 and paragraph 2, the Mandatory may then start processing investment or trading for discretionary investment.
    It shall be specified in the mandate or trust agreement referred to in the subparagraph 2 of paragraph 1 hereof and the tripartite agreement of discretionary investment referred to in the subparagraph 3 of paragraph 1 hereof that the custodian institution for
Article 18     The Mandatory shall enter into a discretionary investment services contract with each customer respectively, unless otherwise provided by laws or the FSC, the Mandatory may not accept joint mandate or trust.
Article 19     The agreement entered into by and between a customer and the Mandatory or the custodian institution for discretionary investment assets shall not have any of the following circumstances if the provisions of said agreement differ from the sample referred to in Article 17:
  1. in violation of provisions of laws or against the public policy or morals.

  2. cause unfair competition between enterprises of the same industry.

  3. has different provisions in each individual agreement, which causes conflicts of interests among customers.
Article 20     During the term of the discretionary investment services contract, the Mandatory shall wind up relevant rights and obligations in accordance with the agreement upon the receipt of a written request from the customer for the termination of the agreement. The expenses, taxes, compensation for commissioned service or performance that shall be borne by the customer differs based on the date said request is submitted and is stipulated as follows:
  1. In the event said request is submitted within seven (7) days after the execution of the agreement, the customer shall bear transaction fee, taxes and relevant expenses incurred during the period of discretionary investment, provided that compensation for commissioned service or performance is not charged.

  2. In the event said request is submitted after the period prescribed in the preceding paragraph, the customer shall bear the compensation for commissioned service or performance, transaction fee, taxes, relevant expenses incurred during the period of discretionary investment and the damages or penalties to be paid according to the discretionary investment services contract.
Article 21     The minimum amount of assets of an individual customer for discretionary investment initially accepted by the Mandatory shall follow the regulations of the FSC. The same shall apply where a customer mandates the same Mandatory again after terminating the discretionary investment services contract with the Mandatory.
    Where the discretionary investment assets consigned by a customer are the securities recognized by the FSC, the appraisal thereof shall be specified in the discretionary investment services contract and shall proceed in accordance with the “Standards for Calculation of Discretionary Investment Assets Value” adopted by SITCA.
    The preceding paragraph shall apply mutatis mutandis to the calculation of net value of discretionary investment assets.
Article 22     Compensation for the commissioned services collected by the Mandatory from its customer shall be calculated at a certain percentage based on discretionary investment assets, net value of discretionary investment assets or other basis provided by other laws and regulations.
    A Mandatory 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 Mandatory 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 Mandatory bears a specified proportion of any loss.
Article 23     After the Mandatory enters into a discretionary investment services contract with a customer, a copy of said agreement shall be delivered to the custodian institution for discretionary investment assets designated by the customer. The Mandatory shall also inform the customer to sign a mandate or trust agreement with the custodian institution for discretionary investment assets. The above agreement shall be separately signed between the custodian institution for discretionary investment assets and each individual customer. Except where law, regulation, or the FSC provides otherwise, no collective mandate or collective trust may be accepted.
    The Mandatory may not keep the discretionary investment assets in its own custody for any reason.
    The discretionary investment assets initially placed for investment shall be placed under the custody of the custodian institution for discretionary investment assets or be transferred to the custodian institution by trust in its entirety at the time the discretionary investment services contract is signed; the same applies to any increase in those assets. Provided, however, such restrictions shall not apply where the discretionary investment assets are assets in investment link insurance special account or assets in annuity insurance special account required by Labor Pension Act and the agreement provides otherwise.
    Where the discretionary investment assets prescribed in the preceding paragraph are securities, unless otherwise provided in laws, such discretionary investment assets shall be placed under the custody of the local centralized securities depository enterprises mandated by the custodian institution for discretionary investment assets or mandated by the foreign fiduciary custodian institution.
    The custodian institution for discretionary investment assets shall be designated by the customer. If the custodian institution and the Mandatory have the relationship as stipulated in paragraph 3 of Article 11 of the DIB Regulations, the Mandatory shall inform the customer of such fact before signing the agreement.
    The provisions of paragraphs 1 to 5 hereof shall not apply where the customer keeps the discretionary investment assets under its own custody.
Article 24     After the execution of the tripartite agreement of discretionary investment by the Mandatory, the customer and the custodian institution for discretionary investment assets, the Mandatory shall advise the custodian institution to open investment trading account or futures trading account on behalf of the customer pursuant to the mandate agreement. But where the custodian institution for discretionary investment assets holds discretionary investment assets based on trust relationship, such discretionary custodian institution shall open accounts in the name that the custodian institution is entrusted with trust assets. The Mandatory shall cooperate in the relevant account opening procedures in accordance with these Regulations. For investment in foreign securities, with the assistance of the custodian institution for discretionary investment assets, the Mandatory will shall enter into an account opening and broker agreement with relevant trading counterparts pursuant to discretionary investment services contract and laws or market practices of the place of investment. The Securities firm, futures commission merchant or other trading counterparty who accepts account opening shall be designated by the customer, and shall not be limited to one. Where the customer makes no designation and the Mandatory make the designation, the Mandatory shall assess the financial ability, business and credit conditions of the designee, and giving due attention to appropriate diversification and avoidance of over-concentration when making the designation. Where the discretionary investment is concurrently conducted by an enterprise, other than a SITE or a SICE, such enterprise may not designate itself as the securities broker. In the event such enterprise and the designated securities broker are mutually invested or have a relationship of control and subordination, such fact shall be disclosed in the agreement.
    In the event the customer designates the enterprise conducting discretionary investment as the securities broker or designate only one securities broker pursuant to the preceding paragraph, such enterprise shall obtain the written consent of the customer in addition to the agreement after clearly informing the customer of relevant risks, conflicts of interests, and control measures.
    Where the Mandate and securities brokers, futures commission merchants or other trading counterparties are mutually invested or have a relationship of control and subordination, such fact shall be disclosed in the discretionary investment services contract.
    The customer, who keeps the discretionary investment assets under its own custody, may designate the securities firm, futures commission merchant or other trading counterparty for account opening at its own discretion, and open investment trading account and futures trading accounts in its own name, and the Mandatory shall cooperate in the relevant account opening procedures.
Article 25     Where a customer enters into a mandate agreement with a custodian institution for discretionary investment assets, the investment trading account and futures trading account shall be opened in the name of the customer. The account shall specify the names of the customer and the Mandatory and the name of the account. Where a customer enters into a trust agreement with a custodian institution for discretionary investment assets, the investment trading account and futures trading account shall be opened in the name of the custodian institution. The account shall specify names of the customer, the custodian institution for discretionary investment assets and the Mandatory, the name of the account as well as the purpose thereof as for discretionary investment and trust. However, with regard to the investment in foreign securities, the same shall be handled according to local laws and regulations or market practice.
    It shall be stipulated in the mandate agreement or the trust agreement referred to in the preceding paragraph that the settlement of securities or funds shall be conducted by the custodian institution for discretionary investment assets, and that the custodian institution shall act as the agent for the payment and receipt of margins and premiums as well as clearing and settlement of trading.
    The centralized settlement of securities shall be processed in the name of the investment trading account of the customer or the custodian institution for discretionary investment assets and via the centralized securities depository account and deposit account opened by said custodian institution. The payment and receipt of margins and premiums and clearing and settlement of securities-related products shall be processed in the name of futures trading account of the customer or the custodian institution for discretionary investment assets and through the investment custody account opened by the custodian institution. Upon the completion of account opening procedures, the custodian institution for discretionary investment assets shall advise the same to the customer. Where the scope of investment covers foreign securities, the same shall proceed in accordance with laws and regulations of the place where assets are located or the agreement between the custodian institution for discretionary investment assets and the foreign fiduciary custodian institution.
    In the event the customer keeps the discretionary investment assets under its own custody, the investment trading account and futures trading account shall specify the names of the customer, the Mandatory, and name of the account. Where the customer consigns the trust assets managed by it, it shall be specified that the account is for discretionary investment and trust.
    The settlement of funds and securities for the investment trading account referred to in the preceding paragraph shall be handled by the customer. The centralized settlement of securities shall be processed in the name of the investment trading account and through the centralized securities depository account and deposit account opened by the customer. However, where the customer is a central custody participant, the same shall be processed through the centralized securities depository account and deposit account opened by the customer at the centralized securities depositary enterprise. With respect to the futures trading account, the payment and receipt of margins and premiums and the clearing and settlement shall be conducted by the customers. When handling payment and receipt of margins and premiums and the clearing and settlement for securities-related products, it shall proceed in the name of the futures trading account and through the account opened by the customer according to paragraph 2 of Article 17.
    Where a customer mandates a same Mandatory to conduct discretionary investment, no more than one investment trading account and futures trading account of discretionary investment at same business office of same securities firm, futures commission merchant or other trading counterparty may be opened, except for the following conditions:
  1. Where the customer is Civil Servant Pension Fund, Labor Pension Fund, Labor Insurance Fund or Postal Saving Fund, when it mandates a same Mandatory to conduct discretionary investment, an investment trading account and a futures trading account of discretionary investment may be opened respectively at the same business office of the same securities firm, futures commission merchant or other trading counterparty for each mandate agreement.

  2. Where a customer consigns the trust assets managed by it to the Mandatory for discretionary investment, an investment trading account and a futures trading account may be opened respectively at the same business office of the same securities firm, futures commission merchant or other trading counterparty for each trust agreement.

    Where there are different Mandatories, an investment trading account and a futures trading account may be opened respectively at the same business office of the same securities firm, futures commission merchant or other trading counterparty for each mandate office of and a futures trading account eposit account opened by the custodian institution for or damage inc.
Article 26     During the term of discretionary investment services contract, a customer may inform the Mandatory and the custodian institution for discretionary investment assets of the change in the securities firm, futures commission merchant or other trading counterparty in written. The custodian institution for discretionary investment assets shall re-open the investment trading account and futures trading account according to the written instruction of the customer, and shall notify the customer upon the completion thereof.
    A customer, who keeps discretionary investment assets under its own custody, may notify the Mandatory in writing of the change of the securities firm, futures commission merchant or other trading counterparty.
Article 27     When a customer places the assets under the custody of a custodian institution for discretionary investment assets, such customer shall open an investment custody account at the custodian institution, which shall specify names of the customer, the Mandatory, the name of the account and the identification code. But investment in foreign securities shall be handled in accordance with local laws and regulations or market practices.
    When a customer entrusts its assets to a custodian institution for discretionary investment assets, the custodian institution shall set up accounts for each customer and manage the assets accordingly. When a customer mandates different Mandatories to conduct discretionary investment for trust assets of the customer under the same custodian institution, such custodian institution shall set up different accounts for different Mandatories and manage the assets accordingly.
    Custodian institution for discretionary investment assets for each discretionary investment account shall be limited to one.
    With respect to a discretionary investment account allowed to invest in foreign securities, the custodian institution for discretionary investment assets for it may, depending on actual needs, commission other financial institution at different investment regions to handle the custody of discretionary investment assets, and the preceding paragraph shall not apply.
Article 28     A customer may change the custodian institution for discretionary investment assets during the term of the discretionary investment services contract, but it shall notify the original custodian institution and the Mandatory in writing. In case of change, the customer shall terminate the original mandate or trust agreement with the original custodian institution, in addition, it shall sign a new mandate or trust agreement with a new custodian institution for discretionary investment assets. The original custodian institution for discretionary investment assets shall transfer the assets under its custody to the new custodian institution discretionary investment assets.
    The new custodian institution for discretionary institution assets shall advise the Mandatory to sign a tripartite agreement of discretionary investment with the customer jointly; advise the securities firm, futures commission merchant or other trading counterparty to re-confirm the contracts related to investment trading account and futures trading account with the Mandatory.
    The preceding two paragraphs shall not apply where a customer keeps discretionary investment assets under its own custody.
Article 29     During the term of the discretionary investment services contract, the Mandatory shall have frequent contacts with the customer, pay attention to and know the changes in the financial conditions and risk-bearing capability of the customer well anytime, and conduct an interview with the customer at least once every year to modify or supplement the customer information sheet as reference for future investment or trading decisions, and save the same for recordation.
Article 30     The Mandatory shall set up files for each customer to save the application form for discretionary investment accepted by it and the relevant agreements executed. Such files shall be saved for at least five (5) years after the expiration of the individual agreement.
Article 31     Prior to the 10th business day of each month, the Mandatory shall report the statistic information regarding the newly-opened, modified, cancelled, rescinded and terminated discretionary investment services contracts of last month to SITCA by means of electronic file.
    Content of the reporting of the preceding paragraph shall be separately listed for each discretionary investment account, including the name or title of the customer, discretionary investment assets, net value of the assets, investment manager, type of discretionary investment services contracts, period of mandate, custodian institution for discretionary investment assets, designated securities firm, futures commission merchant or other trading counterparty and other statistic information. The abovementioned names or titles of the customers may be expressed by code, but they shall be classified by natural person, juristic person or other institution. The reporting format of the electronic files will be stipulated by SITCA.
    In the event that there is any false or untrue material contained in the discretionary investment documents reported to SITCA by the Mandatory according to this Article and Article 32, in addition to the penalties imposed pursuant to relevant laws and regulations, such fraud will be made public on the official website of SITCA for three months due to the violation of the principle of good faith.
Article 32     The Mandatory shall, prior to the 10th business day of each month, report to SITCA the important content of the securities-related trading in which it applies the discretionary investment assets of the customer to the investment. Formats of relevant reporting will be stipulated by SITCA.
Chapter 4 Investment or Trading Decision for Discretionary Investment and Account Operation
Article 33     Investment or trading decision made by the Mandatory for the discretionary investment shall be carried out in the following four procedures in order: investment or trading analysis, investment or trading decision, execution of investment or trading and review of investment or trading. The Mandatory shall also decide the personnel in charge of each procedure and the contents of duties thereof by each level and establish the deputy system.
Article 34     Investment or trading analysis of discretionary investment is a basis for investment or trading decision. The Mandatory shall draft a written report on investment or trading analysis which divides into macro market analysis and individual security investment analysis or securities-related products analysis. Said report shall also set forth the analysis basis, grounds and investment or trading suggestions.
    The investment or trading analysis report referred to in the preceding paragraph will be updated by the Mandatory on an irregular basis depending on the circumstances of the market.
Article 35     Investment or trading decision for discretionary investment will be fairly and objectively incorporated into an investment or trading decision letter for each customer respectively by the investment manager based on investment or trading analysis report referred to in the preceding paragraph and upon consideration of the terms of mandate of the customer. The associated person will be advised to execute trading thereafter. analysis report and decision shall be made based on reasonable basis and grounds.
    When an investment manager advises an associated person to execute trading, an investment or trading decision letter shall be delivered, rather than by oral instruction only, in order to avoid misunderstanding or trading without reasonable basis.
    Investment or trading decision letter shall indicate the type, amount and price of the trade target and the timing of trading.
Article 36     Before advising the associated person to execute discretionary investment trading, the investment manager shall scrutinize whether the methods and content of the application of the discretionary investment assets stated in the most updated investment or trading decision letter produced by him for each customer exceeds the scope restricted by relevant laws and regulations or the discretionary investment services contract and shall compare it with the current status of the discretionary investment assets consigned by the customer to make sure there is no violation of the authorized scope provided in the laws and regulations or the discretionary investment services contract.
Article 37     The investment or trading of the discretionary investment will be executed by the associated person in accordance with investment or trading decision letter issued by the investment manager, and the associated person shall make investment or trading execution record based on the execution result for each customer on the day of trading or the trade confirmation day.
    Investment or trading execution record shall indicate types, amount, price of trading target actually traded, the time of trading and the types of orders, and shall explain the reasons for the difference between the content of the trading actually carried out and the same of the trading or investment decision.
    The associated persons may not execute trading based on the oral instruction of the investment manager.
Article 38     The associated persons that carry out discretionary investment trading shall, based on investment or trading decision letter issued by the investment manager, place orders of trading to the business office of the designated securities firm, futures commission merchant or other trading counterparty in order.
    The notification of trading referred to in the preceding paragraph shall be made respectively for the customer’s investment trading account and futures trading account of discretionary investment. Trading to be made of different accounts may not be combined into the same powers of attorney.
Article 38-1     Where a SITE or a SICE uses discretionary investment assets to trade in foreign securities, upon the approval of the customer, it may mandate a company providing foreign investment consulting service or the group enterprise of such SITE or SICE to provide syndicated service to indirectly mandate foreign securities firms to trade. Such SITE or SICE shall set forth risk control and management measures for conducting the above mandated trading in its internal control policies and propose the selection criteria of foreign investment consulting service company to be submitted to the Board for approval.
    The term “group enterprise” referred to in the preceding paragraph shall mean a holding company which owns more than 50 percent of the shares of the SITE or the SICE; a subsidiary in which the SITE or the SICE has shareholdings in excess of 50 percent; or a subsidiary which is owned more than 50 percent by the holding company by which the SITE or the SICE is controlled.
Article 39     The Mandatory shall check over the information of each transaction confirmation from the securities firm or other trading counterparty on the date of completion of transaction of discretionary investment account. When the information is confirmed as correct, the Mandatory shall produce a settlement instruction letter and sent it to the custodian institution for discretionary investment assets or the customer who keeps discretionary investment assets under its own custody to proceed settlement and clearing, and shall make the trading record for each discretionary investment account for each customer.
    When conducting transaction of securities-related products, the Mandatory shall, prior to the deposit or withdraw of the margins or premium, produce an instruction letter with regard to the collection and payment thereof and deliver it to the custodian institution for discretionary investment assets or the customer who keeps discretionary investment assets under its own custody to conduct the collection and payment of margins and premium, clearing and settlement. On the date of the completion of transaction of each discretionary investment account, the Mandatory shall check over the information of each transaction confirmation from the futures commission merchant. After verifying said information as correct, the Mandatory shall make transaction recordation for each investment discretionary account of each customer.
Article 40     Different discretionary investment accounts of the same customer, when conducting trading settlement, collection and payment of margins and premium or clearing and settlement, may not be used to proceed transfer of funds and securities, cash or open positions with each other.
    The preceding paragraph shall not apply where the discretionary investment services contract provides otherwise.
Article 41     To instruct the custodian institution for discretionary investment assets to conduct settlement and clearing, and the collection and payment of margins and premium for the discretionary investment account, the Mandatory shall advise the custodian institution of the names of the securities firm, futures commission merchant and other trading counterparty for the custodian institution to establish and collect the following basic information:
  1. Bank account number of the securities firm, futures commission merchant and other trading counterparty or account number of special account for margins of the customer, the name of the account, trading account numbers and identification information of clearing and settlement personnel.

  2. Samples of trading targets, including government bonds, financial bonds, corporate bonds and other securities.

  3. Signature cards of the authorized persons of bond bankbook issuing institution, short-term notes and bills certification institution and bank issuing certificates of deposit.

  4. Sample of signature and seal or (and) password of the authorized person of the Mandatory.
    The establishment and collection of the information as referred to in the subparagraphs 2 and 3 of the preceding paragraph may be flexibly adjusted depending on the practical operation, provided that such adjustment shall not hinder the proceeding and safety of settlement and the reasons for the adjustment shall be stated clearly for recordation.
    The identification information of the clearing and settlement personnel referred to in subparagraph 1 of paragraph 1 and the provisions of subparagraphs 2 and 3 of paragraph 1 shall not apply to the settlement of book-entry securities.
    The preceding three paragraphs governing the custodian institution for discretionary investment assets shall apply mutatis mutandis to the customer who keeps discretionary investment assets under his/her own custody.
Article 42     The settlement instruction letter, collection and payment instruction letter or list of futures trading of the discretionary investment account produced by the Mandatory shall be sent to the custodian institution for discretionary investment immediately. Relevant content, method of delivery and the recordation to be saved thereof shall follow the provisions as follows:
  1. Settlement instruction letter shall indicate trading counterparty, target, date of transaction, date of settlement, method, terms and amount and numbers of funds and securities to be settled.

  2. Collection and payment instruction letter shall specify the account number and name of futures trading account, account number of special account for margins of the customer, trading counterparty, date of collection and payment or amount receivable or payable, depending on the nature of the payment to be paid or collected. List of futures trading shall include the trading counterparty, type, target, quantity, date of settlement and amount etc.

  3. The Mandatory may give an individual and valid instruction to the custodian institution for discretionary investment assets via one of the following methods to instruct the custodian institution to proceed the settlement, the receipt and payment of margins and premium, and the clearing and settlement based on it:

    1. Written instruction, which shall be signed and sealed by the authorized person of the Mandatory.

    2. Facsimile instruction, which shall be made in a way consistent with the prior written agreement by and between the Mandatory and the custodian institution that such instruction shall be easily identified as sent by the Mandatory and signed and sealed by authorized person of the Mandatory.

    3. Electronic transmission: the passwords exchanged between parties are verified.

  4. If method prescribed in subparagraph 2 or 3 of the preceding paragraph is adopted without prior written agreement or exchange of passwords, an original written instruction shall be issued within 3 days after the instruction is made.

  5. Instruction letters in all different types shall be numbered in order, and shall be saved for recordation.
    In the event the custodian institution for discretionary investment assets considers that the content of the settlement instruction letter referred to in the preceding paragraph exceeds the restriction provided in the laws and regulations or the agreement (the “Ultra Vires Transaction”), it shall, for the ultra vires part, immediately issue an Ultra Vires Transaction notice before 11:00 am of the next business day after the transaction date in accordance with provisions of the mandate or trust agreement. Such notice shall specify the Ultra Vires Transaction and the details thereof and shall be sent to the customer, the Mandatory, the securities firm or other trading counterparty and SITCA respectively and shall proceed in accordance with Chapter 6.
    In the event the custodian institution for discretionary investment assets considers that the content of the futures trading list prescribed in paragraph 1 contains Ultra Vires Transaction, it shall, for the ultra vires part, immediately issue an Ultra Vires Transaction notice in accordance with the mandate or trust agreement. Such notice shall specify the Ultra Vires Transaction and the details thereof and shall be sent to the customer, the Mandatory, the futures commission merchant and SITCA and shall proceed in accordance with Chapter 6.
    Where the customer keeps the discretionary investment assets under his/her own custody, the settlement instruction letter or the payment and collection instruction letter by the Mandatory shall be delivered to the customer and provisions of the preceding three paragraphs shall apply mutatis mutandis.
    The settlement instruction letter, collection and payment instruction letter or list of futures trading of the discretionary investment account produced by the Mandatory shall be sent to the custodian institution for discretionary investment immediately. Relevant content, method of delivery and the recordation to be saved thereof shall follow the provisions as follows:
  1. Settlement instruction letter shall indicate trading counterparty, target, date of transaction, date of settlement, method, terms and amount and numbers of funds and securities to be settled.

  2. Collection and payment instruction letter shall specify the account number and name of futures trading account, account number of special account for margins of the customer, trading counterparty, date of collection and payment or amount receivable or payable, depending on the nature of the payment to be paid or collected. List of futures trading shall include the trading counterparty, type, target, quantity, date of settlement and amount etc.

  3. The Mandatory may give an individual and valid instruction to the custodian institution for discretionary investment assets via one of the following methods to instruct the custodian institution to proceed the settlement, the receipt and payment of margins and premium, and the clearing and settlement based on it:

    1. Written instruction, which shall be signed and sealed by the authorized person of the Mandatory.

    2. Facsimile instruction, which shall be made in a way consistent with the prior written agreement by and between the Mandatory and the custodian institution that such instruction shall be easily identified as sent by the Mandatory and signed and sealed by authorized person of the Mandatory.

    3. Electronic transmission: the passwords exchanged between parties are verified.

  4. If method prescribed in subparagraph 2 or 3 of the preceding paragraph is adopted without prior written agreement or exchange of passwords, an original written instruction shall be issued within 3 days after the instruction is made.

  5. Instruction letters in all different types shall be numbered in order, and shall be saved for recordation.
    In the event the custodian institution for discretionary investment assets considers that the content of the settlement instruction letter referred to in the preceding paragraph exceeds the restriction provided in the laws and regulations or the agreement (the “Ultra Vires Transaction”), it shall, for the ultra vires part, immediately issue an Ultra Vires Transaction notice before 11:00 am of the next business day after the transaction date in accordance with provisions of the mandate or trust agreement. Such notice shall specify the Ultra Vires Transaction and the details thereof and shall be sent to the customer, the Mandatory, the securities firm or other trading counterparty and SITCA respectively and shall proceed in accordance with Chapter 6.
    In the event the custodian institution for discretionary investment assets considers that the content of the futures trading list prescribed in paragraph 1 contains Ultra Vires Transaction, it shall, for the ultra vires part, immediately issue an Ultra Vires Transaction notice in accordance with the mandate or trust agreement. Such notice shall specify the Ultra Vires Transaction and the details thereof and shall be sent to the customer, the Mandatory, the futures commission merchant and SITCA and shall proceed in accordance with Chapter 6.
    Where the customer keeps the discretionary investment assets under his/her own custody, the settlement instruction letter or the payment and collection instruction letter by the Mandatory shall be delivered to the customer and provisions of the preceding three paragraphs shall apply mutatis mutandis.
Article 43     The Mandatory shall establish an accounting system for discretionary investment or trading account, including summary, bookkeeping organization chart, account titles, vouchers, account book and accounting statements.
    The account book referred to in the preceding paragraph shall include the chronological book (general journal) and ledgers (general ledger, list of securities, list of open position of securities-related products and other subsidiary ledger); accounting statement shall include monthly report and annual report.
    The Mandatory shall journalize for each discretionary investment account according to the accounting system referred to in paragraph 1 on a daily basis, and the certificates or vouchers related to investment or trading decision and payment collected or paid shall also be filed for recordation, and shall be kept for a period no less than five (5) years.
    Format for the accounting statement as referred to in paragraph 2 will be stipulated by SITCA separately.
Article 44     The Mandatory conducting discretionary investment business, in the event the scope of investment or trading allowed is expanded due to the changes in law, shall add provisions related to risk monitoring and management measures and accounting operation in its internal control system, and shall submit them to the board of directors for approval.
    When the scope of investment or trading allowed for a Mandatory in the conduct of discretionary investment business is expanded due to a change of law or regulation subsequent to the execution of a discretionary investment contract, such new trading or investment may be undertaken only after the completion of amendments to the discretionary investment contract.
Article 44-1     When the Mandatory conducting discretionary investment business engages in securities margin transactions and securities lending and borrowing, it shall proceed in accordance with DIB Regulations, these Regulations and other relevant laws and regulations.
Article 45     Any service charges refunded or other interests paid by securities firms, futures commission merchants or other transaction counterparties that the Mandatory receives when using discretionary investment assets to trade securities and relevant products shall be applied to offset the customer's transaction costs. Except that the customer declares in the discretionary investment services contract that he will negotiate the service charges with the securities firm, futures commission merchant or other trading counterparty by himself, the Mandatory shall negotiate the service charges with the securities firm, futures commission merchant or other trading counterparty for the customer based on principles of fairness and faithfulness.
    The Mandatory shall disclose the service charges refunded or other interests paid by securities firms, futures commission merchants or other transaction counterparties in the discretionary investment account of the customer by an individual account title in the relevant accounting statements of the discretionary investment assets of the customer.
Article 46     When a customer intends to inquire about the transaction status of discretionary investment assets, numbers of discretionary investment assets in stock, the value thereof and the open position of securities-related products, such inquiry shall be made in writing or other manner agreed upon by and between the Mandatory and the customer. When the customer makes a written request, the Mandatory may reply or provide relevant information to the customer after the receipt and confirmation of such written request, and shall produce customer inquiry record for recordation.
Article 47     The monthly report compiled by the Mandatory for each discretionary investment account shall be delivered to the customer in the agreed manner within seven (7) business days after the end of the month. The compiled annual report shall be delivered to the customer in the agreed manner within fifteen (15) days after the end of the month.
    The Mandatory shall check the changes of net assets value of each customer’s discretionary investment assets every day. Upon the discovery that the impairment of the net asset value of the discretionary investment assets of a customer reaches 20 percent or more of the original discretionary investment assets, the Mandatory shall, within two business days after the occurrence of the event, produce an assets transaction record and a current status report, and deliver them to the customer in the agreed manner. The same shall apply where the impairment of the net asset value of discretionary investment assets reaches10 percent or more of the net asset value recorded in the last impairment report.
    When the discretionary investment assets of a customer are assets in investment link insurance special account or assets in annuity insurance special account required by Labor Pension Act, in the event the impairment of the net asset value of each unit of said investment account reaches 5% or more of the same of the preceding business day, the SITE or SICE shall, within two business days after the occurrence of the event, produce an assets transaction record and a current status report and deliver them to the customer in the agreed manner. The preceding paragraph shall not apply herein.
    The percentage prescribed in the preceding paragraph may be adjusted with the consent of the customer or by agreement provided that it shall be no more than 10%.
    The format of monthly report prescribed in paragraph 2 of Article 43 applies mutatis mutandis to the content of the assets transaction record and current status report.
    The monthly report compiled by the Mandatory for each discretionary investment account shall be delivered to the customer in the agreed manner within seven (7) business days after the end of the month. The compiled annual report shall be delivered to the customer in the agreed manner within fifteen (15) days after the end of the month.
    The Mandatory shall check the changes of net assets value of each customer’s discretionary investment assets every day. Upon the discovery that the impairment of the net asset value of the discretionary investment assets of a customer reaches 20 percent or more of the original discretionary investment assets, the Mandatory shall, within two business days after the occurrence of the event, produce an assets transaction record and a current status report, and deliver them to the customer in the agreed manner. The same shall apply where the impairment of the net asset value of discretionary investment assets reaches10 percent or more of the net asset value recorded in the last impairment report.
    When the discretionary investment assets of a customer are assets in investment link insurance special account or assets in annuity insurance special account required by Labor Pension Act, in the event the impairment of the net asset value of each unit of said investment account reaches 5% or more of the same of the preceding business day, the SITE or SICE shall, within two business days after the occurrence of the event, produce an assets transaction record and a current status report and deliver them to the customer in the agreed manner. The preceding paragraph shall not apply herein.
    The percentage prescribed in the preceding paragraph may be adjusted with the consent of the customer or by agreement provided that it shall be no more than 10%.
    The format of monthly report prescribed in paragraph 2 of Article 43 applies mutatis mutandis to the content of the assets transaction record and current status report.
Article 48     With respect to the review on investment or trading of discretionary investment assets, the Mandatory shall conduct the review on decision-making procedure, content and performance of investment or trading of each discretionary investment account at least once every month and the investment managers of each discretionary investment account shall produce investment or trading review report.
    The Mandatory shall designate its supervisory personnel to review and confirm the legality and reasonableness of the content of the investment or trading review report made by the investment managers.
Article 49     Proceeds and profits from the discretionary investment assets shall be handled by the Mandatory in accordance with the discretionary investment services contract and the mandate or trust agreement.
Article 50     Proceeds, dividends and free stocks or other benefits arisen from securities in discretionary investment account shall be distributed to each discretionary investment account of the customers by the issuer or the centralized securities depository enterprise according to provisions of law. Rights related to securities subscription with consideration or to securities conversion shall be handled by the Mandatory according to relevant laws and regulations and discretionary investment services contract.
    Any expenses incurred in connection with distribution of profits or exercise of rights referred to in the preceding paragraph will be stipulated in relevant discretionary investment services contracts.
Chapter 5 Conflict of Interest and Prevention of Insider Trading
Article 51     In order to maintain independence of investment or trading decision for discretionary investment and the confidentiality of the business, prevent improper communication about the business secrets among different departments or staff of different positions, or prevent the same from communicating business secrets with the shareholders or affiliated enterprises, the Mandatory shall set up a business segregation system according to the following principles:
  1. Establish a specialized department to handle discretionary investment business. A department supervisor and an associated person, except that an associated person that makes investment or trading decisions may concurrently serve as a person that makes investment or trading decisions for privately placed securities investment trust funds, may not handle businesses beyond the scope of said specialized department, or have their functions concurrently performed by other non-registered supervisor or associated persons of the specialized department. An associated person 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 decision may not concurrently serve as a person that makes investment or trading decisions in collective trust fund business, securities investment trust fund business, or trading of securities for its own account or of its own fund; in addition, he may not communicate the business secret regarding the utilization status of discretionary investment assets of the customer to irrelevant associated persons, shareholders or affiliated enterprises.

  2. Where the shareholder or affiliated enterprise of the Mandatory is a securities firm, investment decision-making persons of a securities dealer and its decision information, or information related to pricing decision of securities underwritten by the securities underwriter, or introduction made by the securities broker for its customer shall be segregated from discretionary investment business.

  3. Where the shareholder or affiliated enterprise of the Mandatory is a futures commission merchant, decision-making persons of the futures dealer and its decision-making information, or research and analysis opinions rendered by futures broker operating futures consulting business or persons who make the suggestions and relevant information shall be segregated from discretionary investment business.

  4. Where the shareholder or affiliated enterprise of the Mandatory is a bank, an insurance company, a trust investment company or other financial institution, persons of its investment or trust department participating in the decision-making of securities investment or securities-related products trading and the decision-making information shall be segregated from discretionary investment business.
Article 52     The Mandatory shall sign a written agreement with the directors, supervisors, managers, associated persons and employees who participate in discretionary investment or trading decision-making or other relevant business. Said agreement shall stipulate that in the event the above persons trade listed or over-the-counter securities or equity derivatives for his own account, unless otherwise provided in laws, they shall comply with the following provisions:
  1. Within 10 days after assuming office, the above persons shall report to the Mandatory the name and the number of stocks or equity derivatives held in its own account; during the tenure of office, he shall report each transaction made on a monthly basis, including the name, number, amount and date of transaction of the stocks or the equity derivatives.

  2. Approval shall be obtained from the Mandatory by written request prior to the transaction.

  3. In the event the proposed transaction of certain stocks or equity derivatives to be conducted and completed by the Mandatory for the discretionary investment account is known to the above persons, such persons may not trade the same during the seven days period prior to or after the proposed transaction. Provided, however, that if the written approval is obtained from the supervisory personnel or other person designated by high level management in advance, the above persons may proceed the transaction two days prior to or after the proposed transaction.

  4. The above persons may not re-sell or re-purchase certain stocks or equity derivatives within 30 days after the above persons have purchased or sold such stocks or equity derivatives for their own accounts provided that such persons have legitimate reasons and obtain the permission from the Mandatory by written request in advance.

  5. In the event the above persons serve as the directors, supervisors, managers of the company issuing shares, or hold 5% or more of the issued shares of the company in his own account, they may not participate in the trading decision-making of the discretionary investment account to purchase or sell the shares issued by said issuing company.
    The preceding paragraph shall not apply to the director, supervisor, manager, associated person and employee of the Mandatory who is unable to participate in the decision-making or has no chance to learn the non-public information regarding investment trading behavior or is unable to provide investment suggestions due to the business nature of his position.
    The first subparagraph of the preceding paragraph shall not apply to persons referred to in the first paragraph who promise not to trade any listed or over-the-counter securities or equity derivatives during tenure of his office except for offsetting the position of equity derivatives held by him before assuming office.
    Paragraph 3 of Article 22-2 of the Securities and Exchange Law shall apply mutatis mutandis to the accounts owned by the persons referred to in paragraph 1.
Article 53     In order to execute the provisions stipulated in the preceding Article, the Mandatory shall establish audit and management procedure, dispatch dedicated personnel to handle the matters thereof, and manage the transactions of the accounts owned by its director, supervisor, manager, associated person and employee who participates in investment or trading decision-making or other relevant business of the discretionary investment according to the following principles:
  1. Check transaction status reported by such persons of their own accounts on a monthly basis and request them to provide materials related to the trading when necessary.

  2. Make an arrangement with said persons which stipulates that necessary measures may be taken in the event that the completed or ongoing transaction is found to be in violation of relevant laws or the prohibition provided in the preceding Article.

    Trading of stocks or equity derivatives of the account owned by the dedicated person referred to in the preceding paragraph shall be examined separately by other designated personnel.
Article 54     The Mandatory shall avoid any unfairness or conflicts of interests between itself and the customer or among different customers when making decisions for all customers of the application of discretionary investment assets. The principle for handling such issues is as follows:
  1. In the event there is any information that have influence on the application of discretionary investment assets of the customer and is necessary to be informed to the customer, the Mandatory shall treat each customer fairly and reasonably.

  2. When an investment manager conducts opposite trading of the same type of stocks or securities-related products for different customers at the same time or on the same day, said investment manager shall provide legitimate reasons in written for doing so, based on which he firmly believes that such transaction fits the benefits of each said customer, and shall conduct such transaction at the open market with current fair market price.

  3. Associated persons participating in discretionary investment business shall not accept any money, improper gift, entertainment or obtain other benefits from customers, companies issuing securities, securities firms, futures commission merchants, other trading counterparties or other entities having conflict of interests.

  4. When subscribing underwritten securities for different customers, the Mandatory shall do it based on the principle of fairness for each customer and shall ensure that the types, numbers and price of the securities subscribed are impartial. The Mandatory may not subscribe the securities issued by interested companies of the Mandatory and underwritten by securities underwriter or securities underwritten by a securities underwriter who is an interested party of the Mandatory without written consent of the customer or special provisions of the agreement.

  5. When applying discretionary investment assets to conduct trading with securities firms, futures commission merchants, banks, insurance companies, trust enterprises or other financial institutions, who are interested parties of the Mandatory, such transaction may not be made via price negotiation without written consent of the customer or special provisions of the agreement.

  6. The Mandatory shall dispatch dedicated persons to examine the application of asset in each customer’s discretionary investment account on a monthly basis to ensure that the transaction made for each customer is handled fairly.

    Paragraphs 3 and 4 of Article 11 of the DIB Regulations shall apply mutatis mutandis to the interested party referred to in subparagraphs 4 and 5 of the preceding paragraph.
    The Mandatory shall avoid any unfairness or conflicts of interests between itself and the customer or among different customers when making decisions for all customers of the application of discretionary investment assets. The principle for handling such issues is as follows:
  1. In the event there is any information that have influence on the application of discretionary investment assets of the customer and is necessary to be informed to the customer, the Mandatory shall treat each customer fairly and reasonably.

  2. When an investment manager conducts opposite trading of the same type of stocks or securities-related products for different customers at the same time or on the same day, said investment manager shall provide legitimate reasons in written for doing so, based on which he firmly believes that such transaction fits the benefits of each said customer, and shall conduct such transaction at the open market with current fair market price.

  3. Associated persons participating in discretionary investment business shall not accept any money, improper gift, entertainment or obtain other benefits from customers, companies issuing securities, securities firms, futures commission merchants, other trading counterparties or other entities having conflict of interests.

  4. When subscribing underwritten securities for different customers, the Mandatory shall do it based on the principle of fairness for each customer and shall ensure that the types, numbers and price of the securities subscribed are impartial. The Mandatory may not subscribe the securities issued by interested companies of the Mandatory and underwritten by securities underwriter or securities underwritten by a securities underwriter who is an interested party of the Mandatory without written consent of the customer or special provisions of the agreement.

  5. When applying discretionary investment assets to conduct trading with securities firms, futures commission merchants, banks, insurance companies, trust enterprises or other financial institutions, who are interested parties of the Mandatory, such transaction may not be made via price negotiation without written consent of the customer or special provisions of the agreement.

  6. The Mandatory shall dispatch dedicated persons to examine the application of asset in each customer’s discretionary investment account on a monthly basis to ensure that the transaction made for each customer is handled fairly.

    Paragraphs 3 and 4 of Article 11 of the DIB Regulations shall apply mutatis mutandis to the interested party referred to in subparagraphs 4 and 5 of the preceding paragraph.
Article 55     Where the Mandatory signs a discretionary investment services contract with a customer, it shall be indicated in the agreement that if such customer is a director, supervisor, manager or shareholder holding more than 10% of issued shares of a public company (the “Insider”), such customer shall comply with provisions regarding the change in shareholding stipulated in Article 22-2, paragraphs 2 and 4 of Article 25, paragraph 6 of Article 28-2, paragraph 1of Article 43-1, Article 157 and Article 157-1 of the Securities and Exchange Law.
    When the Mandatory learns that the customer is an Insider, it shall act in accordance with relevant laws and regulations with regard to the application of assets at the discretionary investment account consigned by said Insider.
    Paragraph 3 of Article 22-2 of the Securities and Exchange Law shall apply mutatis mutandis to the Insider referred to in the first paragraph.
Article 56     The Mandatory shall set up files for the matters agreed upon in the discretionary investment services contract, attached documents thereof, materials, charts and reports related to investment or trading decisions, information related to the exercise of shareholders’ right for every customer and keep the same carefully. In addition, viewing procedure shall be established to prevent information leakage.
Article 57     Upon learning any undisclosed material information of the securities issuing company or that would have an impact on the price of the securities-related products, the Mandatory, its responsible persons, associated persons and employees shall immediately produce a written report and submit it to the dedicated persons to keep it confidential. Prior to the public disclosure of such information, such person may not disclose such information to any third party and may not trade the securities issued by said company or relevant securities-related products for discretionary investment assets, for his own account or cause others to trade the same.
    If the person learning the information could not ascertain whether such information is the material information referred to in the preceding paragraph, he/she shall produce a written report on the information learned in a confidential manner and submit it to the dedicated person to make the determination. If such information is confirmed as material, the preceding paragraph shall apply. If not, such information shall be kept in a non-confidential way for recordation.
    Where the discretionary investment is concurrently conducted by a trust enterprise, which is a bank, except for the directors and supervisors thereof, the preceding two paragraphs shall not apply to the personnel who do not conduct trust business.
Chapter 6 Exercise of Shareholder’s Right, Ultra Vires Transaction and Procedures in the Event of Default
Article 58     The right to attend the shareholders’ meeting and to vote of the shares issued by domestic issuing companies and held by the Mandatory due to the discretionary investment shall be exercised by the customer of the Mandatory. Provided, however, that if said customer executes a trust agreement with the custodian institution for discretionary investment assets, such right shall be exercised by the custodian institution and both parties shall agree on the manner for the custodian institution to exercise such right in the agreement. The right to attend shareholders’ meeting and to vote of the shares issued by foreign companies, which the customer mandate the Mandatory to exercise in the agreement, may be exercised by the custodian institution for discretionary investment assets after the consent of the Mandatory is obtained or be exercised by the foreign custodian institution instructed.
    When the custodian institution for discretionary investment assets and its responsible persons, associated persons or employees exercise the voting rights pursuant to the preceding paragraph, they shall not accept money or other benefits in return for the transfer of shareholder proxy forms or the exercise of voting rights. Unless otherwise provided by the trust agreement, the custodian institution shall designate a representative to attend the shareholders’ meeting and to exercise the voting rights and may mandate others to exercise said rights for him.
    When a custodian institution of discretionary investment assets receives a notice or minutes of shareholders’ meeting of a domestic company issuing shares which are held by the discretionary investment account, such custodian institution shall deliver the notice or minutes to the customer within the period prescribed in the mandate or trust agreement after its receipt. When the scope of investment covers foreign securities, it shall be handled pursuant to the laws of the place where assets are located or the agreement entered into by and between the custodian institution for discretionary investment assets and the foreign custodian institution.
    The preceding paragraph shall not apply to the customer who keeps the discretionary investment assets under his/her own custody.
    The right to attend the shareholders’ meeting and to vote of the shares issued by domestic issuing companies and held by the Mandatory due to the discretionary investment shall be exercised by the customer of the Mandatory. Provided, however, that if said customer executes a trust agreement with the custodian institution for discretionary investment assets, such right shall be exercised by the custodian institution and both parties shall agree on the manner for the custodian institution to exercise such right in the agreement. The right to attend shareholders’ meeting and to vote of the shares issued by foreign companies, which the customer mandate the Mandatory to exercise in the agreement, may be exercised by the custodian institution for discretionary investment assets after the consent of the Mandatory is obtained or be exercised by the foreign custodian institution instructed.
    When the custodian institution for discretionary investment assets and its responsible persons, associated persons or employees exercise the voting rights pursuant to the preceding paragraph, they shall not accept money or other benefits in return for the transfer of shareholder proxy forms or the exercise of voting rights. Unless otherwise provided by the trust agreement, the custodian institution shall designate a representative to attend the shareholders’ meeting and to exercise the voting rights and may mandate others to exercise said rights for him.
    When a custodian institution of discretionary investment assets receives a notice or minutes of shareholders’ meeting of a domestic company issuing shares which are held by the discretionary investment account, such custodian institution shall deliver the notice or minutes to the customer within the period prescribed in the mandate or trust agreement after its receipt. When the scope of investment covers foreign securities, it shall be handled pursuant to the laws of the place where assets are located or the agreement entered into by and between the custodian institution for discretionary investment assets and the foreign custodian institution.
    The preceding paragraph shall not apply to the customer who keeps the discretionary investment assets under his/her own custody.
Article 59     After the Mandatory makes the investment in securities or other items approved by the FSC for each individual discretionary investment account, in the event the custodian institution for discretionary investment assets issues an Ultra Vires Transaction notice pursuant to paragraph 2 of Article 42, except that the customer issues a written consent of the settlement, the content of which is then reviewed and confirmed by said custodian institution as consistent with relevant laws, the Mandatory shall be responsible to perform the obligations thereof and allocate funds and securities of said the transaction determined as ultra vires by the custodian institution into the investment custodial account of the customer prior to the settlement date, where there is a trust agreement entered into by and between the customer and the custodian institution, the same shall be allocated into the account for settlement by the custodian institution, for the custodian institution to process the settlement.
    In the event a customer who keeps discretionary investment assets under his own custody, after the Mandatory conducts investment for the individual discretionary investment account, issues an Ultra Vires Transaction notice according to paragraph 4 of Article 42 hereof, said Mandatory shall be responsible for the performance of obligations thereof. The Mandatory shall allocate the funds and securities of transaction determined as ultra vires by the customer into the customer’s account for settlement opened at the securities firm for brokerage prior to the settlement date, if the customer is a centralized custody participant, the same shall be allocated into the customer’s securities centralized custody account and relevant deposit account opened at centralized securities depository company, for the customer to process settlement.
    The securities borrowing procedure required by the Mandatory for the performance of securities allocation and payment duties referred to in the preceding two paragraphs shall be processed by the Mandatory in accordance with relevant laws and regulations. Collateral and fees required shall be provided and paid by the Mandatory.
    After the Mandatory conducts transaction of securities-related products for each individual discretionary investment account, in the event the custodian institution for discretionary investment assets issues an Ultra Vires Transaction notice pursuant to paragraph 3 of Article 42, except that the customer issues a written consent of settlement, the content of which is then reviewed and confirmed by said custodian institution as consistent with relevant laws, the Mandatory shall be responsible to perform the obligations thereof and shall allocate funds and securities to be paid for the transaction determined as ultra vires into the investment custodial account of the customer prior to the settlement date, where there is a trust agreement entered into by and between the customer and the custodian institution, the same shall be allocated into the trust account established by the custodian institution for each customer, for the custodian institution to process the follow-up payment of margins or clearing and settlement.
    Where a customer who keeps discretionary investment assets under his/her own custody, after the Mandatory conducts securities-related transaction for the individual discretionary investment account, issues an Ultra Vires Transaction notice according to paragraph 4 of Article 42 hereof, said Mandatory shall be responsible for the performance of obligations thereof. The Mandatory shall allocate funds to be paid for the transaction determined as ultra vires into the account opened by the customer pursuant to paragraph 2 of Article 17.
    Where there is a dispute among the customer, the Mandatory or the custodian institution for discretionary investment assets with regard to the Ultra Vires Transaction, said parties shall still act in accordance with the contents of the Ultra Vires Transaction notice and the preceding five (5) articles, as applicable. If it is confirmed or recognized by a final and definite arbitration award or judgment that the Ultra Vires Transaction is resulted from the mistake of the Mandatory, the custodian institution or the customer or other events that could be obviously attributable to the Mandatory, the custodian institution or the customer, the same shall return the profits obtained therefrom plus interest to the person who suffers damage, and shall be responsible for compensation for damage, if any.
    After the Mandatory makes the investment in securities or other items approved by the FSC for each individual discretionary investment account, in the event the custodian institution for discretionary investment assets issues an Ultra Vires Transaction notice pursuant to paragraph 2 of Article 42, except that the customer issues a written consent of the settlement, the content of which is then reviewed and confirmed by said custodian institution as consistent with relevant laws, the Mandatory shall be responsible to perform the obligations thereof and allocate funds and securities of said the transaction determined as ultra vires by the custodian institution into the investment custodial account of the customer prior to the settlement date, where there is a trust agreement entered into by and between the customer and the custodian institution, the same shall be allocated into the account for settlement by the custodian institution, for the custodian institution to process the settlement.
    In the event a customer who keeps discretionary investment assets under his own custody, after the Mandatory conducts investment for the individual discretionary investment account, issues an Ultra Vires Transaction notice according to paragraph 4 of Article 42 hereof, said Mandatory shall be responsible for the performance of obligations thereof. The Mandatory shall allocate the funds and securities of transaction determined as ultra vires by the customer into the customer’s account for settlement opened at the securities firm for brokerage prior to the settlement date, if the customer is a centralized custody participant, the same shall be allocated into the customer’s securities centralized custody account and relevant deposit account opened at centralized securities depository company, for the customer to process settlement.
    The securities borrowing procedure required by the Mandatory for the performance of securities allocation and payment duties referred to in the preceding two paragraphs shall be processed by the Mandatory in accordance with relevant laws and regulations. Collateral and fees required shall be provided and paid by the Mandatory.
    After the Mandatory conducts transaction of securities-related products for each individual discretionary investment account, in the event the custodian institution for discretionary investment assets issues an Ultra Vires Transaction notice pursuant to paragraph 3 of Article 42, except that the customer issues a written consent of settlement, the content of which is then reviewed and confirmed by said custodian institution as consistent with relevant laws, the Mandatory shall be responsible to perform the obligations thereof and shall allocate funds and securities to be paid for the transaction determined as ultra vires into the investment custodial account of the customer prior to the settlement date, where there is a trust agreement entered into by and between the customer and the custodian institution, the same shall be allocated into the trust account established by the custodian institution for each customer, for the custodian institution to process the follow-up payment of margins or clearing and settlement.
    Where a customer who keeps discretionary investment assets under his/her own custody, after the Mandatory conducts securities-related transaction for the individual discretionary investment account, issues an Ultra Vires Transaction notice according to paragraph 4 of Article 42 hereof, said Mandatory shall be responsible for the performance of obligations thereof. The Mandatory shall allocate funds to be paid for the transaction determined as ultra vires into the account opened by the customer pursuant to paragraph 2 of Article 17.
    Where there is a dispute among the customer, the Mandatory or the custodian institution for discretionary investment assets with regard to the Ultra Vires Transaction, s
Article 60     Upon the receipt of the Ultra Vires Transaction notice, the Mandatory shall conduct opposite purchase or sale of the securities and securities-related products to offset the same purchased or sold in Ultra Vires Transaction in accordance with the following provisions, and shall calculate the profits and losses thereof:
  1. In the event the total amount of the securities purchased exceeds the amount of discretionary investment assets or the disposable amount thereof, the Mandatory shall sell out all securities purchased by such exceeding amount for offset. The calculation of securities to be sold out for offset and the profit or loss arisen therefrom shall be based on Last-in First-out. The purchased securities matched last on the date of Ultra Vires Transaction shall be sold first in such order until fully offset. Any loss and tax and expenses incurred therefrom shall be borne by the Mandatory, and any profit after deduction of taxes and expenses shall belong to the customer and shall be deducted from the payment received from said offset. The balance after such deduction shall be returned to the Mandatory after the completion of the settlement and the offset of the Ultra Vires Transaction. Any deficiency shall be made up by the Mandatory.

  2. In the event that certain securities are oversold or overbought, all the overbought or oversold securities shall be offset. The provisions of the preceding subparagraph shall apply to the calculation of loss and profit, allocation, tax and expense bearing and the return of balance of payment received.

  3. In the event of Ultra Vires Transaction in securities-related products, the trading targets of such transaction shall be all offset oppositely. Provisions of subparagraph 1 shall apply for the calculation of loss and profit, allocation, tax and expense bearing and the return of balance of payment received.

    If the Mandatory fails to make up the loss, tax and expenses after the offset in accordance with the preceding paragraph, the custodian institution for discretionary investment assets may claim the compensation against the Mandatory on behalf of the customer or in its own name. Where a customer keeping discretionary investment assets under his own custody, he may claim the compensation against the Mandatory by himself.
Article 61     In the event the Mandatory fails to handle the Ultra Vires Transaction in accordance with Article 59, which therefore causes the failure of the custodian institution for discretionary investment assets to complete settlement, follow-up payment of margins, or clearing and settlement, the liability arisen therefrom shall be borne by the Mandatory to the securities firm, futures commission merchant or other trading counterparty according to relevant agreements.
Article 62     The relevant agreements executed by the custodian institution for discretionary investment assets with the securities firm, futures commission merchant or other trading counterparty on behalf of its customer or in his won name shall clearly state that the Mandatory shall be responsible for the settlement, performance, follow-up payment of margins, clearing and settlement and liability of breach of agreement with respect to the Ultra Vires Transaction referred to in the preceding three (3) Articles and the customer or the custodian institution for discretionary investment assets bears no responsibility thereof.
    The Mandatory shall, upon the execution of the agreement prescribed in the preceding Article, indicate in said agreement or other written documents issued to the securities firm, futures commission merchant or other trading counterparty its undertaking to take the responsibilities in accordance with the preceding paragraph.
    The preceding two paragraphs shall apply to the customer who keeps the discretionary investment assets under his/her own custody.
Article 63     The Mandatory shall not violate the discretionary investment services contract with the customer when applying discretionary investment assets. When a customer finds a violation of said agreement by the Mandatory, it may notify SITCA. When the custodian institution for discretionary investment assets finds a violation of said agreement by the Mandatory, it shall immediately notify SITCA and the customer. Upon receiving the above notice and confirming it as true after investigation, SITCA, in addition to handle it actively, shall produce a written report to the FSC when necessary.
    With regard to the breach of agreement by the Mandatory referred to in the preceding paragraph, the customer may, in addition to terminate the agreement in accordance the provisions thereof, claim compensation for damage incurred therefrom against the Mandatory.
Article 64     In the event that discretionary investment assets or beneficiary rights of the beneficiary of the customer are attached, compulsorily enforced by the court order or that the court judgment determines that the trust is invalid or cancels the trust, the custodian institution for discretionary investment assets shall immediately notify the customer and Mandatory of the same upon learning such information, and the re-commissioned custodian institution shall notify the custodian institution. Except for circumstances that attributable to the Mandatory, the customer shall perform relevant duties by himself.
    If a customer is a trust enterprise who places discretionary investment assets under his own custody, he shall immediately notify the Mandatory upon the acknowledgement of the event described in the preceding paragraph. Except for the circumstances attributable to the Mandatory, such customer shall perform relevant duties by himself.
Chapter 7 Amendment or Termination of Agreement, Suspension, Dissolution or Revocation of License, and Dispute Resolution
Article 65     The effective date and the term of the discretionary investment services contract shall follow the provisions of said agreement. The amendment or termination of said agreement, unless otherwise provided by the laws, shall follow the provisions of said agreement.
    The preceding paragraph shall apply mutatis mutandis to the agreements referred to in subparagraphs 2 and 3 of paragraph 1 of Article 17 hereof.
Article 66     When the Mandatory is unable to continue conducting discretionary investment business due to its dissolution, revocation or abolishment of license, the discretionary investment services contract shall be terminated as well. The Mandatory shall notify the customer and the custodian institution for discretionary investment assets, and request the securities firm, futures commission merchant and other trading counterparty to cease brokerage and relevant trading.
    When the FSC orders the Mandatory to transfer the discretionary investment agreement to other Mandatory designated by the FSC to manage said agreement due to the cessation or suspension of business or bad operation of the original Mandatory, the customer may decide whether to mandate the new Mandatory designated by the FSC to continue to apply its discretionary investment assets within ten days after receipt of the notice from the Mandatory. If the customer decides to make the new mandate, in addition to terminating the original discretionary investment services contract, the customer shall execute a new discretionary investment services contract based on which the new Mandatory may start to use the discretionary investment assets. If a customer does not agree or fails to express its intention within 10 days after the receipt of the notice, the original discretionary investment services contract is deemed to be terminated.
    The investment assets consigned by the customer due to the new mandate referred to in the preceding paragraph may be the balance of assets at the original discretionary investment account of the customer and not subject to the minimum restriction stipulated in Article 21, and the valuation date for the determination of value of said assets shall be the date prior to the execution of said agreement.
Article 67     When a discretionary investment services contract cease to exist due to the expiration of term, revocation, rescission, termination, or the reasons prescribed in the first paragraph of the preceding Article, the Mandatory shall immediately wind up all pending business and notify the custodian institution for discretionary investment assets, securities firm, futures commission merchant and other trading counterparty.
    When a mandate or trust agreement signed by and between a customer and a custodian institution for discretionary investment assets cease to exist due to the expiration of the term, revocation, rescission, termination or other reasons, the custodian institution shall return or transfer discretionary investment assets to the customer or other designated custodian institution pursuant to the agreement.
    The preceding paragraph shall not apply where a customer places the discretionary investment assets under his own custody.
Article 68     When a custodian institution for discretionary investment assets could not be mandated to provide custody service of the discretionary investment assets due to the suspension of business, dissolution, revocation or abolishment of license, it shall immediately notify the customer, the Mandatory, securities firm, futures commission merchant and other trading counterparty.
Article 69     Disputes incurred when the Mandatory conducts discretionary investment business shall be handled in accordance with the procedures provided in the articles of business operation of the Mandatory and the regulations governing dispute mediation stipulated by SITCA.
Chapter 8 Supplementary Provisions
Article 70     In the event that the Mandatory and its responsible person, associated person and employee violates provisions of these Regulations, SITCA may, depending on the circumstances, handle such matter according to articles of incorporation, self-regulatory agreements, regulations, guidelines and other relevant rules and regulation of SITCA, or report it to the FSC.
Article 71     These Regulations shall be implemented after adopted by the Board and approved by the FSC. The same applies to the amendment thereto.
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