| Article 1 |
The Taipei Exchange (TPEx), in order to make appropriate advance preparations for operational crises that may occur at TPEx listed companies during ordinary times and reduce the extent of their impact through ensuring timely disclosures of relevant information, and to create the capacity to handle the occurrence of extraordinary events in a flexible and effective manner, so as to reduce the impact on the rights and interests of general investors, adopts these Handling Procedures in accordance with Article 2 of the Contract for TPEx Trading of Securities signed between the TPEx and TPEx listed companies, Article 2 of the TPEx Primary Stock Listing Agreement for Foreign Issuers, Article 2 of the Contract for TPEx Trading of Taiwan Depositary Receipts, and Article 8 of the Taipei Exchange Rules Governing Securities Trading on the TPEx (the "Trading Rules"). These Handling Procedures are not applicable to TPEx listed companies that are financial enterprises or to TPEx-managed stock companies.
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| Article 2 |
TPEx regulation of the financial and business affairs of TPEx listed companies, except where law or regulation provide otherwise, is to be carried out in accordance with these Handling Procedures. However, regulation of the financial and business affairs of companies with TPEx primary listings is handled in accordance with Articles 12 to 14 herein. In the event of a change in any provision on which these Handling Procedures are based, the new provisions apply.
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| Article 3 |
The TPEx regulates the financial and business affairs of TPEx listed companies by means of either routine regulation or regulation by exception.
In these Handling Procedures, "routine regulation" means regularly scheduled special audits conducted pursuant to these Handling Procedures, or financial and business regulation conducted pursuant to securities-related laws and regulations or TPEx bylaws and announcements.
In these Handling Procedures, "regulation by exception" means financial and business regulation and special audits of a TPEx listed company conducted by the TPEx when a material event under Article 7 occurs to the company.
Review procedures for the filing (or application) forms for TPEx listed companies that file (or apply) for the offering and issuance of securities will be separately adopted by the TPEx.
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| Article 4 |
The TPEx will select, for the regularly scheduled special audits for routine regulation of TPEx listed companies, at least 10 percent of the companies to be audited based on their annual financial reports; at least 3 percent based on their Q1 financial reports; and at least 5 percent based on the Q2 and Q3 financial reports. Each TPEx listed company must be selected as an audited company at least once every 5 years.
After selecting the companies subject to audit, within 20 days after the deadline for the submission of financial reports, the TPEx shall submit to the Financial Supervisory Commission ("the competent authority") for recordation the names of the companies selected for audit, along with the reasons for the selection. The TPEx shall subsequently complete special reports within 45 days thereafter, and then submit the reports to the competent authority for recordation. If more time is required for complex audit cases, the TPEx may file with the competent authority for an extension of the audit period, which shall not exceed 1 month.
The TPEx will select audited companies based on the following criteria.
- Selection criteria:
- Financial criteria:
- A relatively large change in operating revenues, operating income, or net profit before tax compared to the same period of the preceding year.
- The share of the losses of associates and joint ventures accounted for using the equity method reaches a certain amount or a certain percentage of the company's current operating income, or total holdings of the parent's equity by a subsidiary reaches a certain percentage of the parent's equity.
- The total amount of purchases from (or sales to) related parties for the current period reaches 20 percent or more of the total amount of combined purchases (or sales), or shows an increase of 50 percent or more from the same period of the preceding year and reaches 3 percent or more of equity.
- A period-end balance of amounts receivable from related parties and advance payments to related parties reaches 10 percent or more of equity, or a period-end balance increases by 50 percent or more in the current quarter and reaches 3 percent of equity.
- Cumulative asset transactions (excluding purchase and sale transactions) with related parties in the current period reach 3 percent or more of total assets at the end of the period.
- An increase in endorsements and guarantees in the current quarter reaches 10 percent or more of equity, or cumulative endorsements and guarantees at the end of the period reach 30 percent or more of equity.
- An increase in funds lent to other parties in the current quarter reaches 3 percent or more of equity, or funds lent to other parties reach 10 percent or more of equity at the end of the period.
- Poor financial ratios.
- Non-current equity investment accounts for a relatively high proportion of equity.
- Low net worth per share.
- The amount of increase or decrease in non-current equity investment in the current period accounts for a relatively high proportion of equity.
- Non-financial criteria:
- Resignation of the chief financial officer.
- Resignation of the chief accounting officer.
- Resignation of the internal audit officer.
- Resignation of the research and development officer.
- A change of certified public accountants (other than internal accounting firm reassignments).
- A change in director or supervisor shareholdings (including shares held by their spouses and minor children and shares held under the names of other parties).
- A change of director or supervisor (including independent directors), or resignation of the chairperson or general manager.
- Unreasonable director and supervisor compensation, based on screening criteria, at companies where the board of directors is authorized to pay director and supervisor compensation based on industry standards.
- According to information filed in the most recent month, pledging of shares by directors and supervisors that reaches 50 percent or more of the combined total shareholding of all directors and supervisors or pledging of shares by the chairperson or general manager that reaches 50 percent or more of the actual shareholding thereof (including pledging of shares held by their spouses and minor children and shares held under the names of other parties).
- Litigation during the preceding year that materially affects company finance or business.
- A financial officer or accounting officer related within the second degree of kinship to any director or supervisor.
A company selected for audit in the previous quarter pursuant to the aforementioned criteria may be exempted from selection in the current quarter.
- A company that meets the criteria below must be subject to audit, but may be exempted if analysis determines that the audit is unnecessary:
- Irregularities are found at the company based on the formal review of its financial reports.
- There has been a change in managerial control of the company.
- There has been a material change in the company's scope of business.
- The normal trading method is reinstated for the company's TPEx listed securities because it has satisfied applicable requirements set forth in the Taipei Exchange Rules Governing Securities Trading on the TPEx after the trading of the securities was suspended or placed under an altered trading method due to a change in its managerial control and a material change to its business scope.
- Any of the criteria under sub-items c, d, and h of item A of the preceding subparagraph apply, while the sum in question is also large, and the company has not undergone a special audit in the previous quarter.
- The company has had consecutive deficits for the 3 preceding years, and the incremental amount of current pre-tax income as compared to the same period of the preceding fiscal year reaches 30 percent or more of the share capital stated in the financial report; however, if the company's shares have no par value, or a par value other than NT$10, for the calculation of the above-mentioned 30 percent of share capital, 15 percent of equity shall be substituted.
- The incremental amount of net loss before tax as compared to that in the same period of the preceding fiscal year reaches 30 percent or more of the share capital stated in its financial report; however, if the company's shares have no par value, or a par value other than NT$10, for the calculation of the above-mentioned 30 percent of share capital, 15 percent of equity shall be substituted.
- The company's ability to repay its corporate bonds at maturity is uncertain.
- Cash and cash equivalents account for too high a percentage of share capital stated in the financial report, and there is no capital expenditure plan.
- The amount or percentage of change in prepayments is material or unusual.
- Current period unrealized losses in derivatives trades reach NT$100 million and account for 3 percent or more of equity, or current period open interest for trading purposes accounts for 40 percent or more of the share capital stated in the financial reports; however, if the company's shares have no par value, or a par value other than NT$10, for the calculation of the above-mentioned 40 percent of share capital, 20 percent of equity shall be substituted.
- The CPA, in the annual financial report, with respect to equity investment in another enterprise, uses and gives too much weight to audit work of other CPAs. The interim financial report, with respect to equity investment in another enterprise, uses and gives too much weight to review work of other CPAs or to material that has not been reviewed by a CPA.
- The company is newly listed on the current-quarter Key Financial and Trading Information Section [of the Market Observation Post System].
- A company whose financial report indicates a change in accounting policy or accounting estimates.
- Receivables or amount of inventory accounts for a relatively high proportion of equity.
- The receivables past due for 1 year or more reach a certain monetary amount or reach a certain percentage of equity.
- The increase or decrease in current intangible assets reaches NT$100 million or more, and accounts for 20 percent of the total assets or more.
- The discrepancy between the published operating revenue and the figure as audited (or reviewed) by the CPA reaches 5 percent or more.
- The audit committee or the remuneration committee cannot be convened due to the dismissal of independent directors.
- Audit is required by the TPEx for other reasons.
- When selecting companies for audit, the TPEx additionally chooses random companies for audit based on the following criteria:
- Companies that have not undergone routine regulation, regulation by exception, or substantive review in the previous 3 fiscal years.
- Companies whose securities, during the most recent quarter, have been announced by the TPEx as being under dispositive measures.
- Other criteria for random selection.
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| Article 5 |
(deleted)
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| Article 6 |
Prior to conducting regularly scheduled special audits, the TPEx shall formulate audit procedures and the principal items to be audited, and after concluding the audit shall produce a report on the regularly scheduled special audits, the content of which shall include the following items:
- The principal items audited and their effect on the company, and an explanation of the company's response measures.
- When necessary, a CPA opinion on related matters.
- Any violation of securities-related laws or regulations discovered during the audit.
- Measures adopted by the TPEx and its comprehensive analysis opinion and recommendations.
Attention shall be given to the following matters in the audit:
- Whether investments in derivatives products have been duly disclosed.
- Whether there are any irregularities in related party transactions.
- Whether or not funds were loaned to another party for any reason other than margin loans necessary for company business transactions.
- Whether there are any irregularities in the purchase or sale of block assets.
- Whether any endorsement or guarantee was made for others for any reason other than as necessary for company business transactions.
- Whether board of directors operations comply with regulations.
- The follow-up review of any irregularities listed in the previous review.
After it issues the special audit reports for the selected companies, the TPEx shall continue to monitor those companies to ascertain any change in their operations status, and shall list them as priority companies subject to test audit each quarter for verification of their material information.
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| Article 7 |
If the TPEx discovers that any one of the following circumstances exists at a TPEx listed company, it shall handle the impact of that material event on company operations or the market pursuant to Article 8 of these Handling Procedures:
- Financial affairs:
- The current-period financial report shows serious losses, with a resulting net worth lower than the value of the share capital stated in its financial report; however, if the company's shares have no par value, or a par value other than NT$10, the share capital shall be calculated as the sum of the share capital plus capital reserves minus the original issue premium.
- The CPA issues an audit report with other than an unqualified opinion or a review report with other than an unqualified conclusion, and the circumstances are serious.
- The company and its parent company or subsidiary have had a negotiable instrument dishonored due to insufficient funds or other instance of default.
- A principal debtor of the company has had a negotiable instrument dishonored, applied for bankruptcy, or other similar circumstance, or a principal debtor with whom the company has established an endorsement or guarantee is unable to settle a matured negotiable instrument, loan, or other outstanding obligation.
- It is discovered, from financial data forwarded by the listed company in accordance with Article 36 of the Securities and Exchange Act, that the company has provided any endorsement or guarantee for a company with which it has no business transactions, or has provided company assets as collateral for the borrowings of another party.
- There is delayed progress or a material change in any previous, uncompleted plan for a cash capital increase or issuance of corporate bonds, or a failure (or delay) in inputting the relevant information into the Internet reporting system.
- Assets (excluding any domestic stocks or open-ended bond funds) acquired or disposed by a TPEx listed company or its subsidiary equal 20 percent or more of the share capital stated in the company's financial report, or NT$300 million or more; however, if the company's shares have no par value, or a par value other than NT$10, for the calculation of the above-mentioned 20 percent of share capital, 10 percent of net worth shall be substituted.
- The amount of current-month open interest in derivatives products for trading purposes shows a month-on-month increase equal to 10 percent or more of the share capital stated in the financial report, or cumulative realized and unrealized losses show a month-on-month increase of NT$100 million or more; however, if the company's shares have no par value, or a par value other than NT$10, for the calculation of the above-mentioned 10 percent of share capital, 5 percent of net worth shall be substituted.
- The month-on-month or year-on-year rate of increase or decline in operating revenue for the current month is high, or the year-on-year rate of increase or decline in cumulative operating revenue as of the current month is high, and no reasonable cause is seen for the change; or in the current month there is a material revision of the operating revenue of the current period or any previous period.
- The year-on-year rate of increase or decline in cumulative operating revenue for a certain period is high, and moved in a direction opposite to that of the industry to which the company belongs.
- Business:
- The current-period financial report shows a serious reduction in production or a complete or partial work stoppage, causing severe deficits, and estimates show improvement in the short term is not possible.
- Plants or major facilities are loaned out, or all or a major part of the company's assets are pledged, or any of the circumstances specified in the subparagraphs of Article 185, paragraph 1 of the Company Act exist.
- The company's financial operations are adversely affected due to entering into an important contract, important changes in its business plan, completion of new product development, becoming subject to a public tender offer by another person, acquisition of another enterprise, or signing or canceling a cooperation plan with another company.
- Any instance of major disaster, protest, strike, or environmental pollution where it is estimated that business operations cannot be resumed in the short term, or estimated losses exceed either 20 percent of the share capital stated in the company's financial report or NT$100 million; however, if the company's shares have no par value, or a par value other than NT$10, for the calculation of the above-mentioned 20 percent of share capital, 10 percent of net worth shall be substituted.
- A change in managerial control or a material change in the scope of business.
- Other:
- A dispute occurs over managerial control, re-election of directors/supervisors cannot take place on schedule, or one-half or more of the originally elected directors/supervisors are unable to exercise their powers.
- The shareholding percentage of directors or supervisors (including their own shareholding and the shareholding of the representatives of any judicial-person directors or supervisors) is below that required by the competent authority for 3 consecutive months or more.
- There is a serious deficiency in shareholder services operations (such as fraud by company insiders), affecting the market order.
- A report is made by the Market Surveillance Department of the TPEx in accordance with the Procedures for Trading Index Early Warning Notification for TPEx Listed Companies.
- The discovery of any material irregularity in a transaction between the company and an affiliated party.
- Any matter involving litigious or non-litigious proceedings, an administrative disposition, or administrative proceeding, with a material effect on the company's financial or business operations.
- Reorganization or bankruptcy proceedings by the TPEx listed company, its parent company, or subsidiary, and any events that occur in the course of such proceedings, including any petition made by the company, or any petition made by an interested party and known to the company, or any notification or ruling made by a court, or any other matters related to reorganization or bankruptcy proceedings duly conducted in accordance with laws and regulations.
- The company announces a material event through the TPEx-designated information reporting website or the media that has an effect on company operations.
- The company makes a major correction to the content of required material information previously input into the TPEx-designated information reporting website, and there is a difference of 14 percent or more in the average stock price for the 3 days following the correction relative to the average for the day of input and the 2 previous days.
- Change of a financial officer, accounting officer, internal audit officer, R&D officer, or CPA of the company.
- An audit of the TPEx listed company's internal control system finds a material irregularity.
- A TPEx listed company applies for listing on the stock exchange and subsequently withdraws its application on its own initiative because it did not meet listing requirements, or the Taiwan Stock Exchange Corporation (TWSE) rejects its application.
- The competent authority or the TPEx deems it necessary for other reasons.
If the TPEx finds any of the following circumstances at a company that applied for TPEx listing after 25 February 2002 or at a TPEx listed company that has instated independent directors by order of the competent authority, it may list that company as subject to regulation by exception and proceed in accordance with Article 8 of these Handling Procedures.
- Independent directors have not been instated pursuant to regulations.
- There has been any change in an independent director but no disclosure of that material information has been made pursuant to the Procedures for the Verification and Disclosure of Material Information of Companies with TPEx Listed Securities.
- An independent director resigns for any reason other than a force majeure event such as severe illness, such that there are less than two sitting independent directors.
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| Article 8 |
When any material event set forth in the preceding article occurs at a TPEx listed company, the TPEx will conduct verification and disclosure pursuant to the Taipei Exchange Procedures for Verification and Disclosure of Material Information of Companies with TPEx Listed Securities, and in addition, shall analyze the material event that occurred at the company, collect relevant data, and thoroughly ascertain the circumstances. When necessary, the TPEx shall complete an analysis report, and unless no irregularity is discovered, in which case no audit is required, the TPEx shall visit the company to carry out an on-site audit. After such audit is completed the TPEx shall prepare a special audit report on the material event, which shall include the following items:
- The company's basic financial and business information.
- The reason for occurrence of the material event at the company, an explanation of its impact on company and the group to which it belongs and to the industry and the market, and the company's response measures.
- When necessary, an opinion on relevant matters issued by a CPA.
- Key audit items and audit results.
- Matters in violation of securities-related laws and regulations discovered during the on-site audit.
- Measures adopted by the TPEx, its overall analysis and opinions, and its recommendations.
If the TPEx finds any material irregularities when it carries out the on-site audit of the preceding paragraph, it shall report on the circumstances to the competent authority by telephone or facsimile, and after the completion of the audit, complete the special audit report on the material event as soon as possible. If irregularities are found in the special audit, it shall be submitted to higher levels for review, and submitted to the competent authority for handling if the case so requires.
The TPEx will separately adopt standard audit procedures for the material financial and business matters of TPEx listed companies.
The TPEx shall monitor and ascertain the status of material information disclosures for any company listed as an audited company due to a material event, and such companies shall remain listed as subject to test audits for the verification of material information for a period of 1 year.
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| Article 9 |
In carrying out an audit, the TPEx may require a TPEx listed company to submit a review report, and when necessary may also request that company to submit the audit report from the CPA's special audit of its internal control system.
The report referred to in the preceding paragraph shall be affixed with the signature/seal of the TPEx listed company's responsible person and the supervisors of its finance, business, and audit departments, be submitted together with the relevant documents and statements, and explain the following matters:
- The facts, a cause analysis, an assessment of the impact on the company's finances and business, and estimates of the impact in monetary terms with respect to the occurrence of key audit items specified in Article 4 or 7.
- Improvement and issue-resolution plans.
- Personnel with custody of, and the location of, account books and objects of property.
- Other matters specified by the competent authority or the TPEx.
For the purposes of conducting routine regulation or regulation by exception, when necessary, the TPEx may designate attorneys, CPAs, or professional institutions to conduct audits.
The expense for attorneys, CPAs, or professional institutions engaged under paragraph 1 and the preceding paragraph shall be borne by the audited company.
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| Article 10 |
A company subject to audit shall refer to the applicable laws, regulations, and bylaws regarding any deficiency found in the TPEx audit, formulate concrete improvement or resolution measures, and file them with the TPEx in writing for recordation. The TPEx may also reinvestigate the effectiveness and progress of its implementation at any time. The TPEx may also request any company that was subject to audit and found to have material deficiencies to send personnel to attend education classes held by an organization designated by the competent authority, and copy that organization. If the company fails to send employees to attend, the TPEx may, depending on the nature of the deficiency, give the company priority listing for substantive review of subsequent financial reports, routine regulation or regulation by exception, or internal control system audits.
If the audit referred to in the preceding paragraph finds the existence of any of the following circumstances, such circumstances shall be handled immediately:
- If a material irregularity or violation of securities-related laws and regulations is discovered, the TPEx immediately files a report with the competent authority for handling, or at its own discretion refers the matter to the judicial authorities to investigate and handle.
- If a material deficiency is found in the internal control system, the TPEx immediately files a report with the competent authority and requests that the audited company engage a CPA to conduct a special audit of its internal control system and issue a review report.
- Violations of the TPEx bylaws shall be immediately disposed according to regulations.
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| Article 11 |
When the TPEx or a TPEx-designated attorney, CPA, or professional institution conducts an audit in accordance with these Handling Procedures, the audited company shall cooperate with the audit, and may not evade or refuse the audit. If any of the following circumstances occurs, it will be deemed evasion or refusal of the audit:
- Refusing, impeding, or evading an inspection undertaken by the TPEx or a TPEx-designated attorney, CPA, or professional institution.
- Failure to submit account books, forms/statements, documents, or other reference or report materials within the specified deadline to the TPEx or TPEx-designated attorney, CPA, or professional institution.
If company subject to an audit evades or refuses the audit, the TPEx may impose a penalty of NT$30,000. If the cumulative number of penalties within the past year has reached two or more (inclusive of the current penalty), or if the circumstances in an individual case are due to intent or material negligence, the TPEx may, depending on the circumstances, impose a penalty of not less than NT$50,000 and not more than NT$5 million for each instance, and additionally may place the company's securities under an altered trading method or suspend the TPEx trading of its securities pursuant to Article 12 and Article 12-1 of the Trading Rules.
A TPEx listed company on which a penalty is imposed shall pay the penalty to the TPEx Administration Department within 5 days from receiving notice from the TPEx.
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| Article 12 |
When one of the following material events occurs at a company with a TPEx primary listing, the TPEx will undertake verification and public disclosure in accordance with the Taipei Exchange Procedures for Verification and Disclosure of Material Information of Companies with TPEx Listed Securities, and in addition, will collect relevant information for analysis of the material event and when necessary will produce an analysis report:
- A circumstance under any subparagraph of paragraph 1 of Article 7 of these Handling Procedures.
- The number of the company's board members with a household registration in Taiwan fails to meet the requirements set out in the forepart of paragraph 2 of Article 14 of the Operation Directions for the Administration of TPEx primary Listed Companies, or an independent director duly instated by the company resigns for reasons other than a force majeure event such as serious illness, resulting in an insufficient number of independent directors, or the number of the company's independent directors with a household registration in Taiwan fails to meet the requirements set out in the latter part of paragraph 2 of Article 14 of the Operation Directions for the Administration of TPEx primary Listed Companies.
- The company has no litigious and non-litigious agent residing or registered in Taiwan.
The TPEx may request a company with a TPEx primary listing or its CPA, lead recommending securities firm, lead securities underwriter, litigious and non-litigious agent in Taiwan, or independent directors to present any explanations relevant to the material event, and as it deems necessary under the circumstances, may also request that such a company post the explanatory information on the TPEx-designated information reporting website or convene a press conference for the purpose of explanation.
When the TPEx deems necessary, a TPEx primary listed company shall cooperate with the TPEx or a lawyer, CPA, or professional organization designated by the TPEx to conduct an audit within a scope designated by the TPEx. The costs to engage the above-mentioned professionals or organizations, and the expenditures by the TPEx or the above-mentioned professionals or organizations shall be borne by the TPEx primary listed company.
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| Article 13 |
The TPEx may adopt the following measures in relation to a violation of TPEx rules discovered during a review of the financial reports of a company with a TPEx primary listing or during regulation by exception:
- Issuing a letter requesting the TPEx primary listed company, its CPA, lead recommending securities firm, and lead securities underwriter to submit concrete measures for improvement or solution of the problem made with reference to the relevant laws, regulations, and inform the TPEx of the measures by letter.
- Referring the case to the competent authority for handling in accordance with the law.
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| Article 14 |
The provisions of Article 11 apply mutatis mutandis to audits of companies with TPEx primary listings carried out by the TPEx or attorneys, CPAs, or professional institutions appointed by the TPEx.
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| Article 15 |
(Deleted)
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| Article 16 |
(Deleted)
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| Article 17 |
(Deleted)
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| Article 18 |
These Handling Procedures, and any amendments hereto, shall come into force after submission to the competent authority for ratification.
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