Taipei Exchange

Securities Firms

In order to help investors make long-term investments in stock markets, and allow securities firms to strengthen their assistance in customers’ asset allocation, thereby realizing the purpose of stimulating stock markets and expanding the business scope of securities firms, TPEx promotes customers’ subscriptions for TPEx-listed stocks and ETFs on a fixed-term, fixed-amount basis offered by securities firms based on the existing fund subscriptions by investors on a fixed-term, fixed-amount basis.

I. Required Documents

Securities Firms should prepare the Board of Directors’ meeting agenda, which specifies data such as the trading start date, how trading will be conducted, and reconciliation account and trust property account, and submit a letter to Taiwan Stock Exchange with a copy to TPEx for reference before the start date.

II. Underlyings

For purpose of conducting the fixed-term, fixed-amount trading, a securities firm shall follow the principle of purchasing and selling securities for mid- and long-term investment, and the securities trading shall be limited to shares and exchange-traded fund (ETF) beneficiary certificates. The securities firm shall establish the criteria for selecting underlying investments.

The underlying investments in the preceding paragraph shall exclude leveraged and inverse ETF Securities Investment Trust Fund (SITF) beneficiary certificates and leveraged and inverse ETF Futures Trust Fund (FTF) beneficiary certificates.

When selected underlying investments are announced by the Securities Exchange or TPEx to be traded in a different way or listed as alerted securities pursuant to the applicable policies, the securities firm shall suspend its purchase of the securities on the day of the fixed-term, fixed-amount trading.

III. Trading procedures

(I) The securities firm may open a reconciliation account at the head office: The number of shares bought by the securities firm for fixed-term, fixed-amount trading may fail to reach a trading unit. If a report of buying odd lots fails to meet the quantity of fixed-term, fixed-amount trading for reasons of inactive transaction, the securities firm may allocate the excess of securities amount bought on a fixed-term, fixed-amount basis through the opened reconciliation account to the omnibus trading account.

(II) Securities firms may adopt the following two methods to conduct trading in securities on a fixed-term, fixed-amount basis:

1. Brokerage business: The investor may make investments on a fixed-term, fixed-amount basis immediately after signing an investment contract with the securities firm. The securities firm must report the buying of securities from TPEx through the omnibus trading account for fixed-term, fixed-amount trading and allocate them to the investor’s account and securities firm’s reconciliation account after transactions. After securities are allocated to the investor’s account, the investor shall sell them out through the account at own discretion.
2. Wealth management business: When the securities firm carries out investments on a fixed-term, fixed-amount basis on behalf of investors through the non-discretionary individual management trust method, and reports securities transactions by using the trust property account to engage in fixed-term, fixed-amount trading, the rules set out in Explanation 5 of Letter No. Securities-TPEx-Trading-1030028495 dated October 17, 2014 and issued by TPEx shall not be applicable the account opening procedures. However, the securities firm must maintain the ledger accounts for each investor in the trust property account on its own. The securities firm may report the buying and selling of securities on TPEx through the trust property account; and may report the buying of securities through the omnibus trading account for fixed-term, fixed-amount trading and allocate them to the trust property account and reconciliation account after settlement. For the selling of securities, the investor may choose to withdraw trust assets in cash, and so securities from the securities firm’s trust property account will be sold; or withdraw trust assets in the form of securities, and so securities will be allocated to the investor’s account for sales.

IV. Required content of the investment contract

(I) Amount of fixed-term, fixed-amount trading: The amount may be monetary value or quantity of securities, and depends on the contract entered into by the securities firm and investor.

(II) Actions to be taken by the securities firm in case of failure to purchase a sufficient quantity of shares: The securities firm shall specify the handling method(s) for failure to buy a sufficient quantity of shares in accordance with the contract.

(III) Advance payments or reserved funds as prepayment: Fixed-term, fixed-amount trading must always be carried out by means of advance payments or reserved funds as prepayment. After the securities firm collects advance payments or reserved funds as prepayment, it may place orders on behalf of the customer. It shall explicitly state the scheduled deduction date, deduction method and investor’s debit account in the investment contract, and the investor may choose to have payments deducted for investments on a fixed-term, fixed-amount basis from the settlement account or the ledger account of the securities firm’s settlement account.

(IV) Transaction price: The securities firm shall state in the contract the calculation method for price of securities on the trading day, and explicitly state the timing for purchases exercised on behalf of the customer in its internal rules and regulations.

V. Trading systems and order types

(I) Trading systems: Only limited to normal trading, odd-lot trading, or after-market fixed-price trading; no block trades, auctions and tender offers are allowed.

(II) Order types: Only limited to spot trading of securities; no day trades, margin transactions or sales of borrowed securities are allowed.

VI. Operational framework

(I) Omnibus trading account for fixed-term, fixed-amount trading

1. When the securities firm carries out fixed-term, fixed-amount trading, it may open an omnibus trading account for fixed-term, fixed-amount trading at its head office (847777 + inspection code for investors who are domestic clients; 947777 + inspection code for investors who are foreign clients). The securities firm may only buy securities and allocate them to investors’ securities trading accounts at the head office or branches, trust property accounts or reconciliations accounts through the omnibus trading account for fixed-term, fixed-amount trading, but it may not report the selling through the omnibus trading account for fixed-term, fixed-amount trading.
2. Except for the following rules, the reporting for the omnibus trading account for fixed-term, fixed-amount trading shall be carried out in accordance with regular rules for omnibus transactions:

   (1) The securities firm must complete the reporting of settlement allocation details before 6:00 P.M. on the trading day. Those who fail to complete reporting before 6:00 P.M. on the trading day will be imposed with a delinquency fine in accordance with Article 46-7 and Article 94-1 of the Taipei Exchange Rules Governing Securities Trading on the TPEx.

   (2) After the reporting of settlement allocation details is completed on the trading day, no part of allocation details or all reconciliations and allocations may be reported.

   (3) Details of reporting exemption for individual clients and service providers

3. For transactions through omnibus trading account for fixed-term, fixed-amount trading, neither the transactions after allocation nor the transactions with an updated account number after allocation may be offset, their category may not be changed, and they may not be transferred to general omnibus trading accounts.
4. Omnibus trading accounts for fixed-term, fixed-amount trading may not engage in inbound and outbound operations.

   (1) Securities that are not traded through omnibus trading accounts for fixed-term, fixed-amount trading may not be combined with the total trading amount and total number of securities traded for each client in the omnibus trading accounts for fixed-term, fixed-amount trading for reporting of allocations.

   (2) Securities a securities firm trades in through omnibus trading account for fixed-term, fixed-amount trading shall not be reported to different account numbers, i.e., the account number of omnibus trading accounts for fixed-term, fixed-amount trading may not be changed to an omnibus trading account other than the omnibus trading account for fixed-term, fixed-amount trading before being reported for allocation details.

(II) Reconciliation account

1. Securities firms engaging in fixed-term, fixed-amount trading may use their own funds to open a reconciliation account at their head office (account number of domestic securities firm’s head office is 9899XX + inspection code; account number of foreign securities firm’s branch in Taiwan is 99899X + inspection code). Securities firms engaging in the brokerage business and wealth management business may open two reconciliation accounts. Reconciliation accounts are set for securities firms to conduct standard-lot transactions during regular trading sessions and divide these among trustors making investments on a fixed-term, fixed-amount basis, while securities firms undertake the residual odd lots. Securities firms may use reconciliation accounts to allocate excess securities after buying securities through an omnibus trading account for fixed-term, fixed-amount trading.
2. After purchasing securities through omnibus trading account for fixed-term, fixed-amount trading, a securities firm may only allocate odd lots of securities of the same type to the reconciliation account. If the amount exceeds 1 trade unit (e.g., 1,000 shares), securities firms shall resell the excess amount within 2 business days subsequent to the trading day by using such reconciliation account. The same type of securities kept in the reconciliation account may exceed 1,000 shares as a result of accumulation of odd lots allocated on each trading day.
3. The reconciliation account may only conduct distribution and open a buy position after transactions are completed through the omnibus trading account for fixed-term, fixed-amount trading. The position after allocation shall be sold by the securities firm at own discretion through the reconciliation account, but may not be allocated to investors on another day by the same means.

VII. Brokerage business

(I) When a securities firm and an investor sign an investment agreement for fixed-term, fixed-amount trading, the securities firm buys securities through the omnibus trading account for fixed-term, fixed-amount trading and allocates them to the investor’s account. Settlement of securities is then conducted through the investor’s account. The investor may sell these securities at own discretion afterwards.
After the securities firm buys shares and ETFs on behalf of the customer on a fixed-term, fixed-amount basis, the said shares and ETFs may be handled by the customer using existing selling procedures, i.e., they may be sold by using general trading accounts or general omnibus trading accounts, but shall not be sold by using omnibus trading accounts for fixed-term, fixed-amount trading.

(II) Because advance payments and reserved funds as prepayment are collected for fixed-term, fixed-amount trading, the amount bought on a fixed-term, fixed-amount basis shall not be counted toward the investor’s daily trading limit.

VIII. Wealth management

(I) Whereas securities firms engage in fixed-term, fixed-amount trading in the form of wealth management business, the type of trust business is limited to non-discretionary individual management. Furthermore, the trading of securities shall be reported through trust property accounts, and account opening operations shall not be subject to rules set out in Explanation 5 of the Letter No. Securities-TPEx-Trading-1030028495 dated October 17, 2014 and issued by TPEx. Securities firms may trade securities as agents through trust property accounts, and trustors may be exempted from opening additional accounts.

(II) Securities firms shall maintain ledger accounts for each customer and therein record details on a daily basis. In order to strengthen the management of trust property accounts, securities firms shall submit relevant data of the previous month to TPEx within 5 business days after the end of each month.

(III) Securities firms may report the buying of securities through omnibus trading accounts for fixed-term, fixed-amount trading and allocate them to trust property accounts and reconciliation accounts.

(IV) Securities firms shall remind the investors that if they are in the capacity of an insider of a TWSE/TPEx-listed company, they shall accurately file reports in accordance with Articles 22-2 and 25 of the Securities and Exchange Act.

IX. Fixed-term, fixed-amount trading consists in fixed-term transactions for which underlying investments and terms are determined at the trustor’s discretion. In order to avoid recommendation of particular underlying investments for fixed-term, fixed-amount trading amid research reports used by securities firms to recommend trades to the customer, and to increase securities firms’ difficulty for engaging trustors in trading on a fixed-term, fixed-amount basis, Paragraph 2, Article 5 of the Taipei Exchange Rules Governing Securities Firms Recommending Trades in Securities to Customers is rendered inapplicable to the trading of securities on a fixed-term, fixed-amount basis. Nevertheless, securities firms may not use the brokered trading of securities on a fixed-term, fixed-amount basis as an excuse to intentionally avoid matters set out in Paragraph 2, Article 5 of the Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers.

Investors

In order to enhance the convenience of small investments and diversify investment risks, investors may invest in TPEx-listed stocks and ETFs on a fixed-term, fixed-amount basis by contacting securities firms starting from January 16, 2017.

(I) When securities firms perform fixed-term, fixed-amount trading in the form of brokerage business, the following are the investor’s trading procedures and relevant matters requiring attention:

(II) When securities firms engage in fixed-term, fixed-amount trading in the form of wealth management business, investors’ trading procedures and relevant matters requiring attention are as below:

Note: The above documents have been translated by the Linguitronics Co., Ltd. The English translation is for reference only. In case of any discrepancy between the English version and the Chinese version, the Chinese version shall prevail.