| Article 1 |
The GreTai Securities Market (GTSM), in order to make appropriate advance preparations for operational crises that may occur at GTSM 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 GTSM Trading of Securities signed between the GTSM and GTSM listed companies, Article 2 of the GTSM Primary Stock Listing Agreement for Foreign Issuers, Article 2 of the Contract for GTSM Trading of Taiwan Depositary Receipts, and Article 8 of the GreTai Securities Market Rules Governing Securities Trading on the GTSM.
These Handling Procedures are not applicable to GTSM listed companies that are financial enterprises, securities enterprises, insurance enterprises, or managed stock companies. |
| Article 2 |
GTSM regulation of the financial and business affairs of GTSM 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 GTSM primary listings is handled in accordance with Articles 12 to 14 herein; regulation of the financial and business affairs of companies with GTSM secondary listings that issue Taiwan depositary receipts is handled in accordance with Articles 15 to 17 herein. In the event of a change in any provision on which these Handling Procedures are based, the new provisions apply. |
| Article 3 |
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| Article 4 |
The GTSM will select, from among those GTSM listed companies ("audited companies") with paid-in capital of NT$80 million or more and from those with paid-in capital of less than NT$80 million, each respectively, 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 GTSM 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 GTSM 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 GTSM 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 GTSM may file with the competent authority for an extension of the audit period, which shall not exceed 1 month.
The GTSM will select audited companies based on the following criteria.
1.Selection criteria:
A.Financial criteria:
a.A significant decline in operating revenues, operating income, or net profit before tax compared to the same period of the preceding year.
b.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.
c.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.
d.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.
e.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.
f.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.
g.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.
h.Poor financial ratios.
i.Non-current equity investment reaches 60 percent or more of equity.
j.Low net worth per share.
B.Non-financial criteria:
a.Resignation of the chief financial officer.
b.Resignation of the chief accounting officer.
c.Resignation of the internal audit officer.
d.Resignation of the research and development officer.
e.A change of certified public accountants (other than internal accounting firm reassignments).
f.A change in director or supervisor shareholdings.
g.A change of director or supervisor (including independent directors), or resignation of the chairperson or general manager.
h.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.
i.Pledges of shares by directors and supervisors, according to information filed in the most recent month, that equal 50 percent or more of the combined total shareholdings of all directors and supervisors.
j.Litigation during the preceding year that materially affects company finance or business.
k.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.
2.A company that meets the criteria below must be subject to audit, but may be exempted if analysis determines that the audit is unnecessary:
A.Irregularities are found at the company based on the formal review of its financial reports.
B.There has been a change in managerial control of the company.
C.There has been a material change in the company's scope of business.
D.The normal trading method is reinstated for the company's GTSM listed securities because it has satisfied applicable requirements set forth in the GreTai Securities Market Rules Governing Securities Trading on the GTSM 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.
E.Any of the criteria under item 1, sub-items 3, 4, and 8 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.
F.The company has had consecutive deficits for the 3 preceding years, or its accumulated deficit equals 50 percent or more of the capital stock stated in its financial report.
G.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 capital stock stated in its financial report.
H.The company's ability to repay its corporate bonds at maturity is uncertain.
I.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.
J.The amount or percentage of change in prepayments is material or unusual.
K.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 capital stock stated in the financial reports.
L.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.
M.The company is newly listed on the Key Financials Section [of the Market Observation Post System].
N.A company whose financial report indicates a change in accounting policy or accounting estimates.
O.Receivables or amount of inventory accounts for a relatively high proportion of equity.
P.The receivables past due for 1 year or more reach a certain monetary amount or reach a certain percentage of equity.
Q.Audit is required by the GTSM for other reasons.
3.When selecting companies for audit, the GTSM additionally chooses random companies for audit based on the following criteria:
A.Companies that have not undergone routine regulation, regulation by exception, or substantive review in the previous 3 fiscal years.
B.Other criteria for random selection. |
| Article 5 |
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| Article 6 |
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| Article 7 |
If the GTSM discovers that any one of the following circumstances exist at a GTSM listed company, it shall handle the impact of that material matter on company operations or the market pursuant to Article 8 of these Handling Procedures:
1.Financial affairs:
A.The current-period financial report shows serious losses, with a resulting net worth lower than the value of share capital stated in its financial report.
B.The CPA issues an audit or review report with other than an unqualified opinion, or a non-standard audit or review report, and the circumstances are serious.
C.The company and its parent company or subsidiary have had a negotiable instrument dishonored due to insufficient funds or other instance of default.
D.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.
E.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.
F.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.
G.Assets (excluding any domestic stocks or open-ended bond funds) acquired or disposed by a GTSM 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.
H.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.
I.The 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.
J.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.
2.Business:
A.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.
B.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.
C.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, acquisition of another enterprise, or signing or canceling a cooperation plan with another company.
D.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.
3.Other:
A.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.
B.The shareholding percentage of directors or supervisors is below that required by the competent authority for 3 consecutive months or more.
C.There is a serious deficiency in shareholder services operations (such as fraud by company insiders), affecting the market order.
D.A material default in connection with the company's stock.
E.A large fluctuation in the company's stock price in the most recent month, where the GTSM Trading Department has issued two or more dispositive measures and the combined number of shares in the central depository that are pledged as loan collateral plus the balance of shares purchased on margin reaches for 50 percent or more of the company's GTSM listed shares.
F.An unusual rise in the stock price after the GTSM listed company's initial GTSM listing.
G.The discovery of any material irregularity in a transaction between the company and an affiliated enterprise.
H.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.
I.Reorganization or bankruptcy proceedings by the GTSM 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.
J.The company announces a material event through the GTSM-designated information reporting website or the media that has an effect on company operations.
K.The company makes a major correction to the content of required material information previously input into the GTSM-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.
L.The managerial officers of a GTSM listed company sell a combined 50 percent of their shareholdings within a 1-month period, where the number of shares sold exceeds 1,000 trading units.
M.Insiders report numerous transfers of shares in volumes of 500 lots, giving as reason the sale by a pledgee (bank liquidation of pledges).
N.In the current month, the cumulative number of shares pledged by all company insiders equals 50 percent or more of their total cumulative shareholdings, or the reduction in shareholding by all company insiders is 50 percent or more of their total cumulative shareholdings.
O.Change of a financial officer, accounting officer, internal audit officer, R&D officer, or CPA of the company.
P.An audit of the GTSM listed company's internal control system finds a material irregularity.
Q.A GTSM 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.
R.The competent authority or the GTSM deems it necessary for other reasons.
If the GTSM finds any of the following circumstances at a company that applied for GTSM listing after 25 February 2002 or at a GTSM 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.
1.Independent directors have not been instated pursuant to regulations.
2.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 GTSM Listed Securities.
3.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. |
| Article 8 |
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| Article 9 |
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| Article 10 |
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| Article 11 |
Any of the following circumstances discovered at an audited company during a special audit undertaken by the GTSM or a GTSM-designated attorney, CPA, or professional institution will be deemed evasion or refusal of the audit, and depending on the severity of the circumstances, the GTSM may impose a penalty against the company for breach, place its securities under an altered trading method, or after reporting to the competent authority for recordation in accordance with relevant laws and regulations, suspend the GTSM trading of its securities:
1.Refusing, impeding, or evading an inspection undertaken by the GTSM or a GTSM-designated attorney, CPA, or professional institution.
2.Failure to submit account books, forms/statements, documents, or other reference or report materials within the specified deadline to the GTSM or GTSM-designated attorney, CPA, or professional institution.
Article 9 of the GreTai Securities Market Procedures for Verification and Disclosure of Material Information of Companies with GTSM Listed Securities applies mutatis mutandis to the imposition of a penalty for breach under the preceding paragraph. |
| Article 12 |
When one of the following material events occurs at a company with a GTSM primary listing, the GTSM will undertake verification and public disclosure in accordance with the GreTai Securities Market Procedures for Verification and Disclosure of Material Information of Companies with GTSM Listed Securities, and in addition, will collect relevant information for analysis of the material event and produce an analysis report:
1.A circumstance under any subparagraph of paragraph 1 of Article 7 of these Handling Procedures; however, in the case of stock that has no par value or a par value per share other than NT$10, the selection criteria or ratios below shall be used:
A.The share capital in Article 7, paragraph 1, subparagraph 1, item 1 shall be calculated as the sum of the share capital plus capital reserves minus the original issue premium.
B.For the calculation of the 20 percent of share capital in Article 7, paragraph 1, subparagraph 1, item 7 and subparagraph 2, item 4, 10 percent of net worth shall be substituted.
C.For the calculation of the 10 percent of share capital in Article 7, paragraph 1, subparagraph 1, item 8, 5 percent of net worth shall be substituted.
2.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 in the company having no independent directors with domiciles in Taiwan.
3.The company has no litigious and non-litigious agent residing or registered in Taiwan.
The GTSM may request a company with a GTSM primary listing or its CPA, lead recommending securities firm, 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 GTSM-designated information reporting website or convene a press conference for the purpose of explanation.
When it deems necessary, the GTSM may require a company with a GTSM primary listing to engage a lawyer, CPA, or professional organization designated by the GTSM to conduct a special audit within a scope designated by the GTSM and deliver the results of the audit to the GTSM, with the relevant costs borne by the audited company.
The GTSM Operations Flow Chart for Handling Material Events of GTSM Primary Listed Companies is given in Appendix 6. |
| Article 13 |
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| Article 14 |
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| Article 15 |
If any of the following circumstances applies to the financial reports of a GTSM secondary listed company or the ROC CPA's review report, the GTSM may contact the GTSM secondary listed company for an explanation. If, after analysis, the GTSM finds that the explanation is obviously unreasonable or contains material irregularities, the GTSM may require the GTSM secondary listed company to hire a CPA of the place of its original listing to provide an opinion on the GTSM's inquiries, or to conduct a special audit and prepare a report. However, with good cause and with the approval of the GTSM, the GTSM secondary listed company may engage another CPA to perform the above-mentioned matters.
1.The GTSM secondary listed company does not publicly announce and file financial reports as required.
2.The CPA of the place of the original listing issues other than an unqualified opinion on the audit or review report.
3.The ROC CPA that performed the review issues a non-standard report, or there is a material difference between the financial reports before and after reconciliation.
4.There is a material change in the company's financial or operating condition.
5.The competent authority or the GTSM deems it necessary for other reasons.
A GTSM secondary listed company shall submit to the GTSM, within the time limit prescribed by it, the opinions or special audit reports of the preceding paragraph and other related information. |
| Article 16 |
When the GTSM reviews the financial reports of a GTSM secondary listed company and the ROC CPA's review report, the GTSM secondary listed company shall cooperate with the GTSM, and with GTSM-designated attorneys, CPAs, or other professionals or institutions, in conducting special audits within or outside the territory of the Republic of China as the GTSM deems necessary. The fees for hiring the aforementioned professionals or institutions, and all expenses incurred by the GTSM or by the aforementioned professionals or institutions, shall be borne by the given GTSM secondary listed company.
When the GTSM or GTSM-designated professionals or institutions perform audits on a GTSM secondary listed company pursuant to the preceding paragraph, the GTSM secondary listed company may not refuse, impede, or evade any examinations performed, and shall provide account books, statements, documents, and any other required materials to the GTSM or the aforementioned professionals or institutions within the designated time limit.
The GTSM-designated professionals or institutions conducting a special audit under the preceding paragraph shall prepare a special audit report and submit it to the GTSM along with the related materials set out in the preceding paragraph, and the GTSM, after undertaking an analysis, will report to the competent authority. |
| Article 17 |
When any of the following circumstances applies to a GTSM secondary listed company, the GTSM may notify it by letter to make supplementation or correction within a prescribed deadline:
1.The financial report publicly announced and filed, after formal review, is found not to have been filed in accordance with the requirements of laws and regulations.
2.The company fails to provide a reasonable explanation pursuant to Article 15 or fails to provide an explanation within the deadline.
3.The company fails to engage a CPA pursuant to Article 15, or the engaged CPA fails to provide an opinion or issue a special audit report, or material irregularities are found through the opinion or the special audit.
4.The company fails to cooperate with the GTSM or the GTSM-designated professionals or institutions in conducting a special audit pursuant to Article 16, or material irregularities are found through the special audit. |
| Article 18 |
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