| Article 1 |
These Directions have been promulgated in accordance with Paragraph 4, Article 10 of the Rules Governing Offshore Funds.
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| Article 2 |
A general agent or a sales agent, when subscribing for offshore funds in their own names in favor of investors, must observe the rules specified in the Directions with regard to the depositing, withdrawal and replacement of operating bonds for offshore funds, unless investments are made under non-discretionary monetary trust agreements or contracts for consigned trading of foreign securities.
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| Article 3 |
A general agent must deposit the sum of the operating bond as provided below with a financial institution that may engage in the custody business and ranked above a certain rating by a credit rating agency recognized by the Financial Supervisory Commission (the "FSC"):
- When acting as the general agent of funds managed by one Offshore Fund Institution, it shall deposit NT$30 million.
- When acting as the general agent of funds managed by two Offshore Fund Institutions, it shall deposit NT$50 million.
- When acting as the general agent of funds managed by three or more Offshore Fund Institutions, it shall deposit NT$70 million.
A sales agent is required to deposit an operating bond of twenty million New Taiwan Dollars (NTD20,000,000) in a financial institution meeting the requirements mentioned in the preceding paragraph.
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| Article 4 |
The operating bonds for offshore funds must be deposited in the form of cash, bank deposits, government bonds or financial bonds.
The operating bonds mentioned in the preceding paragraph must not be pledged or guaranteed by any means, nor deposited separately in different financial institutions.
If the property under custody provided by a general agent or sales agent is in the form of time deposit receipts, such receipts must be those issued by the financial institution where they are deposited. Exceptions will be granted to the time deposit receipt against which a letter of undertaking, guaranteeing the integrity of rights pertaining to the deposit receipt, has been issued by the entrusted financial institutions.
The letter of undertaking must clearly state the details of the time deposit receipt under custody and the following language:
"The entrusted financial institution hereby undertakes that the time deposit receipt(s) issued by other financial institution(s) own(s) integrity of rights. Any conduct to secure the integrity of rights of the afore-mentioned time deposit receipt(s) must be made for the purpose of taking custody over the operating bonds for offshore funds as entrusted by XXXX Company. Such conduct must by no means infringe on the rights or benefits of operating bonds in the form of the above-mentioned time deposit receipts that creditors are entitled to according to the laws."
Should a general agent or a sales agent choose to provide book entry government bonds as operating bonds, it must follow the relevant regulations stipulated under the "Directions for the Operation of Book-Entry Central Government Securities." Special accounts for the book-entry central government securities should be opened by the custodians of the operating bonds, in the name of "Special Account for the Operating Bonds for Offshore Funds Provided by XXXX Company and designated for Custody by XXXX Company." The account should be used exclusively for the custody of operating bonds provided in the form of book-entry government bonds by the general agent or sales agent. The custodians must establish sub-accounts for each general agent and sales agent respectively so that the book-entry government bonds deposited can be clearly segregated. Upon the repayment of principals of the book-entry government bonds, the general agent or sales agent must make up the insufficient amount by depositing new book-entry government bonds or other subject matters to ensure the adequacy of the operating bonds, failing which the repaid principals will be retained by the custodian as operating bonds.
The "Financial Bonds" stipulated in Paragraph 1 above does not include subordinate financial bonds.
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| Article 5 |
Any withdrawal of operating bonds by a general agent or a sales agent must be reported to this Association in advance, which will in turn report to the FSC for approval. In the case that the general agent or sales agent intends to change the entrusted financial institution it must deposit sufficient operating bonds with the financial institutions it intends to deposit in advance and report to this Association by enclosing the relevant supporting documents certifying the adequate deposit of the operating bonds. This Association will in turn report to the FSC for its approval. The operating bonds deposited with the original financial institution should not be withdrawn until the approval has been granted by the FSC.
In the event that a general agent or a sales agent would like to change the subjects of the operating bonds, it must deposit sufficient operating bonds in advance and apply for approval of this Association by enclosing the relevant supporting documents certifying the adequate deposit of the bonds. The operating bonds originally deposited with the financial institution can only be withdrawn when the approval has been granted by this Association. Should the operating bonds be provided in the form of deposit, no application will be required in advance in the case of deposit renewal or extension of custodian agreements without change in terms and conditions. However, a report of such changes along with the renewed deposit receipt or extended agreement must be submitted to this Association within three (3) days after such changes were made.
In the event that an entrusted financial institution is subject to compulsory enforcement (such as an injunction order from court) or other action which is likely to result in a decrease in the amount of the operating bonds, the entrusted financial institution and the general agent or sales agent are required to report to this Association immediately in writing which will in turn report to the FSC accordingly.
In the event that the amount of operating bonds becomes lower than the threshold required under the relevant regulations as a result of fulfilling obligations specified in the preceding paragraph, the general agent or sales agent must make up the sum required within three (3) days and report to this Association accordingly.
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| Article 6 |
When a general agent or a sales agent becomes aware of orders for compulsory enforcement, such as an injunction, it must report to this Association in writing within three (3) days detailing the reason for the compulsory enforcement, amount of debt, actions taken, status, etc.
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| Article 7 |
Custodian agreements for operating bonds between an entrusted financial institution and a general agent or a sales agent must state matters detailed in Article 5. Except in the cases specified in the last part of Paragraph 2, Article 5 above, the entrusted financial institution may only allow the withdrawal or replacement of the operating bonds after the prior approval as required under Article 5 is obtained.
When applying for offering and sale of offshore funds, a general agent must submit (1) copies of the custodian agreements specified in the preceding paragraph; and (2) documents certifying the qualification of the entrusted financial institution as specified in Paragraph 1, Article 3 above or other supporting documents to this Association which would in turn report to the FSC. The general agent must submit the same documents to the FSC and Association when reporting for offering or sale of offshore funds.
A sales agent subscribing offshore funds through a general agent in its own name on behalf of investors must submit to this Association (1) copies of the custodian agreements specified in paragraph 1 above; and (2) documents certifying the qualification of the financial institution receiving the deposits of operating bonds, as specified in Paragraph 2, Article 3 above, or other supporting documents.
In the event that any changes have taken place to the contents of the custodian agreements specified in the preceding two paragraphs, copies of the revised agreement or other relevant documents must be submitted to this Association accordingly.
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| Article 8 |
In the event that a general agent or a sales agent needs to withdraw the operating bonds because of the revocation or invalidation of approval, dissolution or suspension of business, reduction in the number of offshore fund institutions being represented, or termination of subscribing funds from the general agent in its own name, it must arrange public announcements to urge creditors to exercise their rights against the debts arising from the offering or sale of offshore funds. After 30 days from the date of the public announcement, the general agent or sales agent may submit the public announcement related documents to this Association which would in turn report to the FSC. The operating bonds may be withdrawn only when a formal approval has been granted by the FSC.
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| Article 9 |
The Directions will be implemented after they have been agreed by the board of directors of this Association and approved by the FSC. Any amendments thereafter must be handled in the same manner.
(The English translation has been provided by courtesy of Lexcel Partners, Attorneys-at-Law at the engagement by the Securities Investment Trust and Consulting Association.)
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