Article 9 |
When a SICE or SITE accepts a customer's discretionary investment assets, those assets shall be kept separate from the self-owned property of the SICE or SITE and their custodian institutions. With regard to debts pertaining to the self-owned property of SICEs or SITEs and their custodian institutions, the creditors to whom such debts are owed shall not make any claims or exercise other rights against the customer's consigned funds, or against property purchased with those funds.
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Article 10 |
A SICE or SITE shall, in accordance with the following provisions, deposit an operation bond with a financial institution that has received approval from the Ministry of Finance to provide custodial services, and that meets or surpasses a specific credit rating, received from a credit rating institution approved by the SFC:
- Those enterprises with paid-in capital of less than NT$100 million shall deposit NT$10 million.
- Those enterprises with paid in capital of NT$100 million or more but less than NT$200 million shall deposit NT$20 million.
- Those enterprises with paid-in capital of NT$200 million or more but less than NT$300 million shall deposit NT$30 million.
- Those enterprises with paid-in capital of NT$300 million or more shall deposit NT$50 million.
The operation bond referred to in the preceding paragraph shall not be split up and deposited into different financial institutions. Any change of the bondholding financial institution shall be reported by letter to the SFC for prior approval.
When increasing paid-in capital, SICEs shall increase the amount of the operating bond on deposit in the bondholding financial institution according to the provisions contained in paragraph 1 before applying for an amended business license.
Guidelines for handling the operating bond referred to in paragraph 1 shall be drafted by SITCA and reported by letter to the SFC for approval. |
Article 11 |
Where SICEs or SITEs operate discretionary investment services, the consigned investment assets shall be placed by the customer under the custodianship of a custodian institution or transferred to trust status at a custodian institution, and the SICEs or SITEs shall not for any reason take custody of the consigned investment assets.
The custodian institution referred to in the preceding paragraph shall be appointed by the customer.
Where any one of the following situations applies to the custodian institution appointed by the customer, the SICE or SITE shall be obligated to serve notice on the customer:
- the custodian institution holds at least 10 percent of the total number of shares issued by the SICE or SITE;
- the custodian institution is a director or supervisor of the SICE or SITE, or has directors or supervisors that are directors, supervisors, or managers of the SICE or SITE;
- the SICE or SITE holds at least 10 percent of the total number of shares issued by the custodian institution;
- the SICE or SITE or their representative serves as a director or supervisor of the custodian institution; or
- other substantive controlling interests exist between the custodian institution and the SICE or SITE.
Where directors or supervisors are juristic persons, the provisions of subparagraph 2 of the preceding paragraph shall apply mutatis mutandis to any representative or designated representative exercising their duties.
Where discretionary investment services are operated on a consignment basis, and the customer is a trust enterprise or another SFC-approved enterprise, said customer may keep the consigned investment assets in its own custody, and the provisions of paragraph 1 shall not apply. |
Article 12 |
The SFC shall determine the minimum amount of consigned investment assets that may be accepted from a customer by a SICE or SITE operating discretionary investment services.
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Article 13 |
Where a SICE operates discretionary investment services, the total amount of consigned investment assets that it accepts shall not exceed a specified multiple of the SICE's net worth, the said multiple being set by the SFC; provided, this restriction shall not apply where the paid-in capital of the SICE is at least NT$300 million.
The net worth, as referred to in the preceding paragraph shall be based upon the financial report for the most recent period, audited and certified by a CPA, approved by the board of directors, and recognized by the supervisors.
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Article 14 |
Where SICEs or SITEs operate discretionary investment services, except as otherwise provided by the SFC, the scope of their investment activities shall be limited to the following and shall not involve securities margin trading:
- listed securities traded on the Taiwan Stock Exchange;
- securities traded on the GreTai Securities Market;
- securities underwritten by the SICEs or SITEs themselves, provided that they are allowed, either by SFC approval or by effective registration, to invest in said securities.
- government bonds and publicly offered and issued corporate bonds;
- open-ended securities investment trust fund beneficiary certificates issued by a SITE.
- other investments approved by the SFC.
SICEs or SITEs operating discretionary investment services and engaged in the trading of securities as referred to in subparagraph 1 and subparagraph 2 of the preceding paragraph shall, except as otherwise provided by law, engage a securities broker to conduct the trades on the centralized securities exchange market or on an over-the-counter market.
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Article 15 |
SICEs or SITEs operating discretionary investment services shall, except as otherwise provided by the SFC, utilize the consigned investment assets in accordance with the provisions of these Regulations and the discretionary investment contracts, and shall not engage in the following acts:
- investment, on behalf of any given customer, of more than 20 percent of the net asset value of any given consigned investment, in the securities of any issuing company; or
- investment, on behalf of all customers, in more than 10 percent of the total number of shares issued by any single issuing company.
Where the securities referred to in subparagraph 1 of the preceding paragraph are corporate bonds, such investment shall not exceed 10 percent of the net asset value of any given consigned investment.
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Article 16 |
Where SICEs or SITEs and their directors, supervisors, managers, and associated personnel operate discretionary investment services, they shall abide by the provisions of relevant laws and regulations, and shall not engage in any of the following acts:
- use of information obtained in the course of performance of their duties to engage in trading of securities on either their own proprietary account or on behalf of any individual other than the customer;
- engaging in any trading prejudicial to the rights and interests of the customer when utilizing consigned investment assets to trade securities;
- signing any agreement with the customer to share the profits or losses resulting from investment in securities; provided, that this restriction shall not apply where the SFC provides otherwise with respect to performance-linked compensation;
- use of a customer's consigned investment assets to conduct cross trading with the company's own funds or the consigned investment assets of another customer; provided, that this restriction does not apply to unintentional cross trades that occur on the centralized securities exchange market or on an over-the counter market;
- use of the customer's account to trade securities on the company's own proprietary account or on behalf of any other party;
- outsourcing of the performance of a discretionary investment services contract, in full or in part, to another party, or assignment of such a contract to another party; provided, that this restriction shall not apply where the SFC provides otherwise;
- shifting executed consignment orders from a customer's discretionary investment account into the company's own proprietary account, the account of another, or another discretionary investment account; or shifting them from another account into the discretionary investment account (where such action is done without legitimate reason in the course of securities trading using the customer's consigned investment assets);
- formulating investment decisions not based upon an investment analysis report, or basing investment decisions on an investment analysis report that is clearly lacking in sound analytical foundation and factual grounding; provided, that this restriction shall not apply where a reasonable explanation can be given; or
- other acts prohibited by the regulations of the SFC.
The provisions of the preceding paragraph shall apply mutatis mutandis to other employees of the SICE or SITE.
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Article 17 |
Before entering into a discretionary investment services contract, a SICE or SITE shall allow the customer at least seven days to review the entire contract. During that time, the SICE or SITE shall fully acquaint itself with the customer's financial strength, investment experience, objectives, and requirements, and shall compile a reference file on the customer including a data sheet and other relevant documentation. The SICE or SITE shall also assign a dedicated personnel to explain in detail to the customer all matters regarding the discretionary investment, and shall provide the customer with a discretionary investment services prospectus that shall serve as an addendum to the discretionary investment services contract.
The prospectus referred to in the previous paragraph shall specify the following particulars:
- the nature, scope, operating principles, fee schedule, and prohibitory provisions of the discretionary investment; and the legal and operational relationship between the customer; the discretionary investment enterprise, and the custodian institution.
- the analytical methods, information sources, and investment strategies employed in the utilization of consigned investment assets.
- the academic background and work experience of the department supervisors and associated persons operating discretionary investment services.
- the enterprise's income statements and balance sheets for the most recent two fiscal years.
- explanation of any litigious or non-litigious actions that have arisen in connection with the enterprise's business operations.
- risk caveat.
Any amendments to the prospectus referred to in the preceding paragraph shall be reported to the SFC.
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Article 18 |
A SICE or SITE operating discretionary investment services shall sign a contract with each customer and shall submit a copy of the contract to a custodian institution. The contract shall stipulate the discretionary investment rights and responsibilities arising from the consignment relationship between the SICE/SITE and its customer.
The discretionary investment contracts referred to in the preceding paragraph shall be signed separately with each individual customer. Except as otherwise provided by law or SFC rules, a SICE/SITE shall not enter into a discretionary investment contract with multiple parties signing jointly. The contract shall specify the following items:
- the names and addresses of the parties to the contract;
- the conditions under which a signed contract may be terminated, and time limits upon the exercise of that right;
- the consigned investment assets;
- stipulations and changes with respect to basic investment policy and scope; stipulations regarding the scope of investment shall clearly list the type or name of the securities;
- authority to make investment decisions, and limitations thereupon;
- authority over asset utilization, and limitations thereupon;
- investment manager appointments and changes;
- custodian institution appointments and changes, and instructions regarding the means of custody and payment;
- appointments and changes of securities brokers;
- fiduciary obligations and confidentiality requirements;
- legal responsibilities in connection with changes in share ownership where the customer is a director, supervisor, or manager, of a public company, or shareholder in such a company holding more than 10 percent of the total outstanding shares;
- reporting obligations;
- calculation of compensation, fees, and expenses, and the means and schedule of payment;
- effective date and duration of contract;
- the manner of amendments to and termination of the contract;
- requirement to provide notification of critical amendments, and the manner of such notification;
- settlement obligations upon termination of the contractual relationship;
- clauses regarding the handling of breaches of contract;
- procedures to be followed after the enterprise has been ordered to suspend operations, or after disciplinary action has resulted in the voidance or revocation of business permission;
- provisions regarding dispute resolution and the court of jurisdiction; and
- other items as required by SFC regulations.
The consigned investment assets referred to in subparagraph 3 of the preceding paragraph shall be deposited in their entirety with the custodian institution at the time of contract signing. The same shall apply for any increases in the amount of investment assets.
The basic investment policy and scope referred to in paragraph 2, subparagraph 4 shall be prudently determined in consideration of the customer's financial strength, investment experience, investment objectives, and legal restrictions on investments.
Utilization authority over discretionary investment assets referred to in paragraph 2, subparagraph 6 shall be separately determined by the SFC where it involves the utilization and scope of idle funds.
Appointment of the securities broker as referred to in paragraph 2, subparagraph 9 shall be made by the customer. Where the customer makes no appointment, the appointment shall be made by the SICE or SITE, which shall ensure an appropriate level of diversification and avoid over-concentration. Any cross investment relationship between the SICE or SITE and the securities broker, or any controlling and subordinate relationship between such parties, shall be disclosed in the contract.
The compensation referred to in paragraph 2, subparagraph 13 may be linked to performance in accordance with the provisions of SFC regulations.
With respect to dispute resolution methods (referred to in paragraph 2, subparagraph 20) and contracts related to discretionary investment services, dispute mediation and handling regulations and contract templates shall be drafted by SITCA and reported to the SFC for approval.
The discretionary investment contract referred to in paragraph 1, and information related thereto, shall be kept on file for at least five years after the discretionary investment contract ceases to have effect.
The provision regarding "custodian institution appointments and changes" referred to in paragraph 2, subparagraph 8 shall not apply where the customer keeps the trust investment assets in its own custody in accordance with the provisions of Article 11, paragraph 5. |
Article 19 |
A discretionary investment contract or consignment trading contract with a securities broker shall stipulate that the SICE or SITE shall be held responsible for performance of contractual obligations when consigned investment assets consigned to it are invested in securities beyond the scope of limitations set by laws and regulations or by the discretionary investment contract.
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Article 20 |
When SICEs or SITEs operate discretionary investment services on a consignment basis, the customer shall sign a separate consignment contract or trust agreement with a custodian institution to undertake the opening of securities investment accounts, custodianship of funds and securities, closing of transactions, account servicing, and exercise of equity rights.
The provisions of the preceding paragraph shall not apply to customers who keep the consigned investment assets in their own custody pursuant to the provisions of Article 11, paragraph 5.
The consignment contracts and trust agreements referred to in paragraph 1 shall be signed by the custodian institution separately with each individual customer and, the custodian institution shall not, except as otherwise provided by law or SFC rules, enter into a consignment contract or trust agreement with multiple parties.
The custodian institution shall examine and verify the scope and limitations of the provisions of the discretionary investment contract when executing the services referred to in paragraph 1.
The content and contract template of the consignment contracts and trust agreements referred to in paragraph 1 shall be drafted by SITCA and submitted to the SFC for approval.
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Article 21 |
SITCA shall draft operating rules for SICEs or SITEs conducting discretionary investment services. Such rules, which must be submitted to the SFC for approval, shall regulate the signing of contracts, opening of accounts, conduct of trades, closing of transactions, settling of accounts, and handling of other related matters. Any amendments to the rules shall also be submitted to the SFC for approval.
SICEs and SITEs conducting discretionary investment services shall undertake those services according to the provisions of the rules referred to in the preceding paragraph.
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Article 22 |
SICEs or SITEs operating discretionary investment services shall make investment decisions based upon investment analysis reports. Investment analysis reports shall state the basis and evidence for the analysis and the resultant investment recommendations. Investment decision records shall clearly state the type of securities to be traded as well as the quantity, price and timing of the trades. The execution record shall state the types of securities actually invested in as well as the quantity, price, and timing of the trades, and shall explain the reasons for any differences between planned and actual trades. Documentation for the above shall be recorded and filed chronologically, and shall be kept on file for at least five years.
SICEs and SITEs operating discretionary investment services shall establish a separate account for each individual customer and keep daily records of trading activities as well as account balance by volume and value.
The customer may request to examine the data referred to in the previous paragraph and the commissioned SICE or SITE shall not refuse such a request.
When SICEs or SITEs utilizing consigned investment assets to trade securities receive discounts on brokerage fees, the discount shall be used to offset the customer's transaction costs.
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Article 23 |
SICEs or SITEs operating discretionary investment services shall produce monthly reports detailing each customer's asset trading and current status, and shall deliver the reports to the customer.
When losses on the net worth of the consigned investment assets of the customer reach 20 percent or more of the originally consigned investment assets, the SICE or SITE shall within two business days of the date of occurrence of the event produce the report referred to in the preceding paragraph and deliver the report to the customer. The same shall subsequently apply each time losses on net asset value reach 10 percent or more of investment assets recorded in the previous report.
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Article 24 |
If a SICE or SITE cannot continue to provide discretionary investment services due to dissolution of the enterprise, or because of voidance or revocation of its license to conduct such operations, the discretionary investment contract shall be terminated.
In the event a SICE or SITE has suspended operations or is obviously not being properly operated, the SFC may order the SICE or SITE to transfer the discretionary investment contract to another designated SICE or SITE; provided, that the discretionary investment contract shall instead be terminated in the event the customer does not agree to the transfer or does not indicate any opinion with respect thereto.
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Article 25 |
SICEs or SITEs operating discretionary investment services shall prepare regularly scheduled operating statements as prescribed by SFC regulations and submit them to SITCA for recordation.
SITCA shall determine the format for the operating statements referred to in the preceding paragraph.
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