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These Directions are adopted pursuant to Article 7, paragraph 2 of the Taipei Exchange (TPEx) Rules Governing the Trading of Emerging Stocks on the TPEx.
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Before engaging in trading of Emerging Stocks through price negotiation, a recommending securities firm of Emerging Stocks shall adopt internal operating rules for the trading of Emerging Stocks through price negotiation to guide its trading of Emerging Stocks through price negotiation.
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A recommending securities firm's internal operating rules for the trading of Emerging Stocks through price negotiation shall at least cover the following matters:
- Principle of advance collection of funds and securities.
- Principles and processes with respect to buys and sells the securities firm is obligated to execute, namely, handling principles and processes with respect to its trading with customers through price negotiation for its own account and to its trading with other securities firms through price negotiation via the Emerging Stock Computerized Price Negotiation and Click System (the "Click System"). Relevant trade execution priority principles shall also be included to address the circumstances in which two or more buy/sell quotes of the same price are available for trading through price negotiation.
- Quote determination basis:
- Quote approval authority and relevant personnel.
- Method for determining reasonable inventory positions.
- Basis for determining the price for the first quote each business day for a recommended Emerging Stock and for determining the prices for subsequent quotes that day:
- Conditions of buy/sell orders on the exchange market.
- Correlation between the first quote provided each business day and the average trade price of the preceding business day and between that quote and the securities firm's last quote.
- Use as reference of financial and operational indicators of Emerging Stock companies.
- Use as reference of macroeconomic indicators and industry prospects.
- Other factors taken into consideration.
- With respect to the first day that an Emerging Stock begins TPEx trading, in addition to the matters set out in the sub-items of item C, also include the following:
- Basis for determining the price for the first quote and the correlation between that price and the stock's subscription/purchase price.
- When the difference between the price for the first quote and the subscription/purchase price exceeds a certain ratio, the size of the quotes required to be made.
- When the difference between the quoted sell price and the first trade price in the market reaches a certain ratio, the ratio or quantity of the inventory position required to be released.
- Maximum percentage limit for quote adjustment as well as the approval level and handling procedures for addressing the circumstances in which a quote adjustment exceeds the maximum limit, with the requirement that relevant written documentation shall be retained for future verification.
- When a quote differs from the stock's offering price on the TPEx or TWSE by 30 percent or more, the reasonableness of the quote and the corresponding measures taken shall be assessed after market close that day, and a written report shall be produced and, after approval by the general manager of the securities firm, retained for future verification. If on any subsequent business day the aforesaid price quote difference again reaches 30 percent or more, the general manager may, depending on the specific circumstances in the individual case, authorize the deputy general manager or the most senior officer for the relevant business to handle such approvals, and the relevant documentation shall likewise be retained for future verification.
- Mechanisms with respect to trading through price negotiation:
- Execution and control methods with respect to spreads between buy and sell quotes.
- Execution and control methods with respect to continuous quotes.
- No differential treatment is permitted for quotes provided for trading through price negotiation by customers, securities brokers, or other securities dealers.
- Operational procedures for addressing the circumstances in which the securities firm, via the Click System, clicks on trading orders not meeting the prices quoted.
- Execution and control methods with respect to buys or sells the securities firm is obligated to execute when a certain reasonable spread exists between buy and sell orders. It shall also be specified that the ratio of "a certain reasonable spread" is a ratio calculated as the buy order price minus the sell order price and then divided by the buy order price.
- Causes for execution and control methods with respect to execution of trades by the securities firm with customers through price negotiation for its own account at its place of business ("off-system price negotiation"), with the requirement that relevant documentation shall be retained for future verification.
- Causes and approval procedures for conducting off-system price negotiations for a recommended stock with any other recommending securities firms of the stock.
- Handling procedures for reporting to the TPEx for account changes.
- Procedures for comparing trade information (including information on trades conducted using the method of net settlement of balances and those using real-time gross settlement).
- Handling of irregularities:
- Handling of connection failures with respect to the trading system.
- Handling of errors identified when comparing information.
- Handling of defaults by customers and securities firms.
- Staffing and division of duties with respect to operational officers and operational personnel for the conduct of trading of Emerging Stocks through price negotiation, and emergency contact number of each relevant personnel member.
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These Directions, and any amendments hereto, shall be publicly announced and implemented after approval by the President of the TPEx.
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