Taiwan Legislative Yuan Passed Amendments to the Securities and Exchange Act to Strengthen Cross-Border Supervision and International Cooperation.

Taiwan Legislative Yuan approved revisions of the Securities and Exchange Act.  The key points of the amendment to the Securities and Exchange Act (hereinafter “SEA”) are detailed as follows. 

(1)  Enhancing cross-border supervision and international cooperation

In order to facilitate the international cooperation between Taiwan’s competent financial authorities and the counterparts in foreign countries and other international institutions and also to bring Taiwan in line with the status as a IOSCO MMOU signatory (International Organization of Securities Commission, Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information), the amendment authorizes the competent authority to require the related institutions, juristic persons, groups, or natural persons to provide information to foreign governments, institutions, or international organizations in accordance with relevant signed cooperative treaty or agreement, and to require institutions, juristic persons, groups, or natural persons related to the securities trading to present relevant account books or documents or to appear at its offices to give explanations.  Also, the aforementioned institutions, juristic persons, groups, or natural persons shall not evade, impede, or refuse the above-mentioned requests by the competent authority, and the competent authority has power to enforce this provision by administrative penalty pursuant to Article 178 of the SEA.  (Article 21-1 and Article 178 of the amendment) 

(2)  Shortening the time limit for disclosure of financial reports

To effectively implement information disclosure, the amendment revises the deadline of public disclosure and registration of financial reports by providing that TSE-listed and OTC-listed companies shall disclose and register their annual financial reports with the competent authority within three (3) months after close of the fiscal years, and removing the provision that copies of the financial reports of TSE-listed companies should be sent to the Securities Dealers Association.  For OTC-listed companies, they are required in the amendment to send copies of their financial reports to the institution designated by the competent authority, for the public’s review.  For shortening the disclosure deadline of annual financial reports, the amendment provides TSE-listed and OTC-listed companies with a grace period for adjusting the time of preparing annual financial reports.  That is to say, TSE-listed and OTC-listed companies should comply with the above-mentioned revisions when publicly disclosing and registering their 2011 financial reports (i.e. disclosure and registration completed before the end of March 2012).  (Article 36 and Article 183 of the amendment). 

(3)  Improving shareholder meeting’s procedures

The amendment requires that all TSE-listed and OTC-listed companies and companies listed on emerging stock market should hold their regular meetings of shareholders within six (6) months after the end of their fiscal years, and no delay on other reasons is allowed.  Companies fail to do so shall be punished with an administrative fine of not less than NT$240,000 and not more than NT$2.4 million and the competent authority may impose additional administrative fines of not less than NT$480,000 and not more than NT$4.8 million for each successive failure to comply until corrective action has been taken.  The amendment also proposes that the competent authority may ex officio set a deadline for holding a regular meeting of shareholders where the terms of the directors and supervisors of a TSE-listed and OTC-listed company and company listed on emerging stock market expire and the boards of directors thereof do not convene the regular meeting of shareholders to elect directors and supervisors for the new term pursuant to the regulations.  If the meeting for reelection is still not convened by the deadline, the entire body of directors and supervisors shall be dismissed from the time of expiration of the deadline.  (Article 36 and Article 178 of the amendment)

(4)  Clarifying insider trading and improving governing guidelines

The revisions on insider trading indicate a necessity of extending a “lockup period” to eighteen (18) hours for the precise disclosure of material information in consideration of a fact that companies may release material information at night and investors will not have leeway to access to the information and to properly react before the market opens the next day.  In addition, the trading of non-equity-type corporate bonds is also covered in the amendment to avoid a situation that would impair the trading fairness where any related insiders of a TSE-listed and OTC-listed company, who upon actually learning of any information with respect to a company’s ability to pay principal or interest of corporate bonds, sell such non-equity-type corporate bonds to avoid loss before the public disclosure of such information or within eighteen (18) hours after its public disclosure.  The amendment authorizes the competent authority to establish and prescribe the scope and way of disclosure of such information that will have a material impact on a company’s ability to pay principal or interest, and related matters. 

Moreover, to provide more specific guidelines on what constitutes insider trading, the amendment revises the wording of “learn of” as “actually become aware of” relevant information, and adds a description “after the information is precise” to the requirements of “prior to the public disclosure of such information or within 18 hours after its public disclosure”.  Also, punishment for violation of the second paragraph of Article 157 in regard to the trading of non-equity-type corporate bonds is provided and added in Article 171 of the amendment.  (Article 157-1 and Article 171 of the amendment)  (2010.05) 
/CCS