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Securities brokers, when conducting procedures to report delayed settlement by customers and handle settlement default, shall comply with Articles 47 and 87 of the Taipei Exchange Rules Governing Securities Trading on the TPEx ("the Securities Trading Rules"), Points 5 and 7 of the Account Opening Agreement for TPEx Listed Securities, Point 6 of the Taipei Exchange Directions Governing Clearing and Settlement Operations for Securities Traded on the TPEx, and the provisions of these Directions.
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Procedures for reporting a default:
- Computer-based reporting:
A customer who transacts through the TPEx automated trade matching system but fails to perform settlement obligations on time will be deemed in default. The securities broker shall submit a report to the TPEx in accordance with the following rules and notify the customer of the same:
- When a securities broker has confirmed that a customer is in default, the broker shall immediately input the information on the default by the customer or its agent step-by-step as instructed through the TPEx-designated computer interface no later than 11 a.m. on the second business day after the trade date. If the securities broker is unaware of a customer's lack of payment until after 11 a.m. due to banking operations, then the entry must be made immediately upon being notified and by not later than 8 p.m. Documentary proof from the bank shall be submitted by letter to the TPEx the following day.
- If the customer is an offshore overseas Chinese, foreign national, or a mainland area investor, when a securities broker reports that the customer has delayed settlement and has also failed to perform settlement obligations on time, then the data entry described above must be made by no later than 6 p.m. on the third business day after the trade date.
- When a securities broker has confirmed the occurrence of default by the principal of a block trade, the securities broker shall proceed in accordance with the provisions of items A and B.
- If the securities broker has confirmed that the default has resulted from the customer's failure to pay a price difference or fees incurred in connection with failure to complete an opposite purchase to close out a day trade after selling securities on the spot market, it shall enter the default information no later than 6 p.m. of the next business day after the forced repurchase for the return of borrowed securities.
- If an accidental breakdown interrupts computer transmission lines, the securities broker shall inform the TPEx Trading Department by telephone, make a written copy of the required information, add the seals of the company and responsible person, and fax it to the TPEx. The TPEx will then input the information based on the faxed content.
- When a principal fails to perform settlement and defaults on a transaction placed through a securities broker's omnibus trading account, the broker shall report the default under the principal's own trading account.
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Delayed settlement reports and their cancellation:
- If a principal is an offshore overseas Chinese, foreign national, or mainland area investor and has failed to complete settlement on time but the securities broker does not report it as a default, the securities broker shall input information on the delayed settlement into the TPEx designated computer system by 11 a.m. on the second business day after the trade date.
- Securities brokers are required to maintain detailed records of the handling of all delayed settlements under the preceding paragraph.
- When a securities broker's report to the TPEx of delayed settlement is on record, but by 6 p.m. on the third business day after the trade date, the principal performs its settlement obligations for a sell trade or for the price payable after the netting of buy and sell trades, or the securities broker reports the trade as an out-trade, then the securities broker shall immediately file a report with the TPEx to cancel the record of delayed settlement.
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Procedures for the handling of delayed settlements:
- When a securities broker reports delayed settlement by a customer, it shall notify the customer or its custodian institution and undertake settlement procedures on the customer's behalf. When the customer has performed its settlement obligation, the securities broker shall use any securities or transaction payments it received due to carrying out settlement on the customer's behalf to return any securities that were borrowed, or to offset any price that was paid, at the time it carried out settlement on the customer's behalf.
- Any securities borrowed, funds paid on the principal's behalf, and costs incurred by the securities broker due to a customer's delayed settlement shall be collected from the customer at the time it performs its settlement obligations.
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Procedures for handling default:
- A securities broker that reports a customer default in accordance with Point 2 shall immediately carry out settlement procedures on the customer's behalf. The securities broker shall engage other securities brokers to handle any securities or transaction payments it receives as a result of handling the customer's settlement no later than the first business day after the customer's default.
- If a customer fails to perform settlement obligations on both a buy and a sell order at the same time, the securities broker shall report them as separate defaults. The full amount of all securities and payments received from settlements on behalf of the customer shall be entrusted to the handling of other securities firms, and may not be used for offsetting. However, when the same securities are traded through the same account on the same reporting day, the securities broker may offset portions of opposing trades that are equal in amount. When handling a settlement default involving a day trade, offset day trade positions already reported do not need to be cancelled for the purpose of making a default report.
- When the securities broker, in accordance with paragraph 1, engages another securities broker to handle the funds or securities received, and during the period of their handling the customer repays the securities broker the debt and any related fees owed for the default, the reverse transactions may be discontinued. In such a case, any remaining balances not yet handled, or reverse transactions not yet completed, may be returned according to the procedures outlined in Point 8.
- Following handling of a default in accordance with paragraph 2, the securities broker, by no later than 10 a.m. on the second business day following its handling of the default, shall enter the related information into the computer system designated by the TPEx and notify the customer.
- After a securities broker has reported a customer's default in accordance with Article 87, paragraph 3 of the Securities Trading Rules, the broker shall repurchase the relevant securities through the TPEx automated trade matching system or through price negotiation at the places of business of other securities firms within the timeframe specified in paragraph 5 of the same Article, and then seek later recovery from the customer on that basis.
- If the securities received by the securities broker due to completing settlement on behalf of the customer pursuant to paragraph 1 are such that the total number of shares during the same default period reaches 5 percent or more of the total number of issued shares of that security or their total face value, and also reaches the average daily trading volume of those securities during the 20 trading days preceding the report of the default, the securities broker may adopt one of the following measures to handle the default:
- If the full amount of the securities cannot be disposed through reverse transactions during three consecutive business days starting from the first business day following the date of confirmation of the customer's default, the securities broker, following mutual agreement with or notification to the customer, may complete disposition of the securities through reverse transactions within 180 days, in accordance with the content of the agreement or the notice, as market conditions allow, and provide a written report of matters under the agreement or notification to the TPEx for recordation.
- The securities broker may reach an agreement with the customer that sets a price which will serve as the basis for calculation of profit and loss, and submit the agreement reached between the two parties to the TPEx by letter for recordation.
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Procedures for notification of default
- When the TPEx has received a default report from a securities broker, it will forward the reported details to all other securities brokers. Securities brokers shall proceed as follows:
- Securities brokers shall on their own initiative make an inquiry and download the default report for the current day at 11:30 am, and proceed according to Article 47, paragraph 2 of the Securities Trading Rules by no later than 12 noon.
- Securities brokers shall on their own initiative make an inquiry and download the default report for the previous day at 8:30 am, and immediately proceed according to Article 47, paragraph 2 of the Securities Trading Rules.
- In a case of default under either of the following circumstances, the TPEx will immediately inform all securities brokers of the relevant default information for their control and management of risks, and include it within the time frame for notification of default under subparagraph 1 of the preceding paragraph.
- The aggregate amount of defaults on purchases and sales of the same type of security through all securities brokers reaches NTD10,000,000 or more. The same shall apply when the sum of the default amounts of a TPEx traded ETF beneficial certificate plus the default amounts, as converted into NT dollars, of its corresponding additional-currency beneficial certificate reach the above threshold.The conversion of the aforementioned foreign currency into NT dollars shall be based on the exchange rate announced by the TPEx on the day of reporting.
- The default occurs on an order placed by a customer through an agent.
- Responsibility for any damage to customer rights and interests or for any dispute that arises due to a default report under paragraph 1 shall be borne by the securities broker reporting the default.
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Cancellation of default reports:
- If any of the following circumstances exists in a case of customer default, the securities broker shall immediately take responsibility for verification and for cancelation of the default through a written report to the TPEx with substantiating documentation:
- Negligence in banking operations rendered the customer unable to deliver the settlement price on time.
- Negligence in the broker's operations has resulted in the broker mistakenly issuing a report of default.
- An arbitration decision, a final court judgment, or an official document of the same effect as a court judgment confirms that the customer did not default.
- The customer, after the fact, submits evidentiary documentation showing that the default occurred in the customer's discretionary investment account and was caused by the discretionary investment manager's failure to perform obligations on a transaction that exceeded the authorized discretionary scope.
- Any other circumstances sufficient to show that the cause is not attributable to the customer.
- The TPEx will not accept a brokers' request for cancellation of default when the broker has not fully verified the matter or attached substantiating documentation, or when the attached documents or the stated reasons, in view of formal requirements, cannot prove that the default is not attributable to the fault of the customer. In such a case, the securities broker making the default report shall bear full responsibility for any damage to the rights and interests of the customer and any disputes arising from the report.
- When a securities broker has requested cancellation of a case of default and the TPEx has approved, the case will be closed and relevant records retained for future reference. If the fact of default has already been reported to other securities brokers, the TPEx will publicly announce cancellation of the default the following day.
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Procedures for announcing conclusion of a case:
A securities firm shall report immediately to the TPEx the closure of any case of a customer breach of the account opening agreement. The TPEx will then forward that information to other securities firms.
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Supplemental provisions
- A securities broker that violates these Directions shall be penalized according to the Securities Trading Rules.
- When a securities broker mistakenly reports a customer default, the TPEx, in view of the severity, may handle the matter in accordance with Article 100 of the Securities Trading Rules.
- These Directions, and any amendments hereto, shall be publicly announced and implemented following submission to and approval by the competent authority.
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