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Taiwan Stock Exchange - Rules & Regulations Directory
time：2017/08/13 03:15
Article NO. Content
Directions Concerning Securities Market Regulatory Matters for TWSE
Title： Listed Companies and Their Directors, Supervisors, and Major
Shareholders
Amended Date： 2012.07.00
4
IV.Exercise of the right of disgorgement against directors, supervisors, officers
and Major Shareholders, and ban of insider trading
To prevent insiders such as directors, supervisors, officers and major shareholders
holding more than 10% of the shares in the company from endeavoring to exploit
insider information thus becoming less intent on operating the company, and also to
prevent investors of the securities market from experiencing a loss of confidence
which may gravely affect the fairness and function of the securities market, major
countries around the world, such as the U.S., U.K., Japan etc., all prohibit insider
trading expressly in laws. To make up any deficiency in insider trading regulations
and achieve the purpose of banning such trading, the right of disgorgement is
designed to grant benefits derived from short-term trading to the company concerned.
1. Disgorgement - short-swing trading by insiders
A stock issuing company shall claim for the disgorgement of any profit
realized by an insider of such company from short-swing trading in the
company's TWSE- or GTSM (Gre Tai Securities Market)-listed stock or other
securities with the nature of equity (Securities and Exchange Act §157).
A. Persons whose profits shall be allocated to the company:
These persons refer to insiders of a publicly held company, including
its directors, supervisors, officers, and shareholders with more than
10% of its shares. In calculating the shareholding of an insider, shares
held by its spouse and minors and those held in another person's name
(Securities and Exchange Act Enforcement Rules §2) shall all be
included.
B. Securities traded by insiders in short-swing trading:
Pursuant to Article 157, Paragraph 6 of the Securities and Exchange Act
and Article 11, Paragraph 1 of the Securities and Exchange Act
Enforcement Rules, these securities shall include common shares and
preferred shares listed on the TWSE and GTSM, convertible corporate
bonds, corporate bonds with warrants, stock warrants, call (put)
warrants, certificates of payment for shares, stock warrant
certificates, certificates of entitlement to new shares, bond conversion
entitlement certificates, Taiwan depositary receipts, and other equitytype securities.
C. Forms of short-swing trading:
Short-swing trading means the sale by a company insider of the company's
TWSE- or GTSM-listed stocks or other securities with the nature of
equity as held by it within six months after acquisition or the
repurchase of such securities within six months after their sale, in
which event the company may claim disgorgement against the insider of
any profit realized from the price difference.
Short-swing trading is not necessarily insider trading, but provisions
governing insider trading and disgorgement apply if the insider makes
use of unpublished material information to engage in the short-swing
trading.
D. Persons entitled to claim of disgorgement against insiders:
When an insider engaging in short-swing trading gains a profit, the
board or a supervisor shall exercise the right of disgorgement against
it on the company's behalf and allocate the profit to the company. If
the board of directors or the supervisor fails to exercise the right of
claim for disgorgement on behalf of the company, its shareholders may
request the directors or the supervisors to so exercise within 30 days;
if the directors or supervisors still fail to do so upon the expiration
of such period, the requesting shareholders shall have the right to
claim for disgorgement against the insider on behalf of the company
(Securities and Exchange Act §157II).
The directors or supervisors shall be jointly and severally liable for
damages suffered by the company as a result of their failure to exercise
the claim for disgorgement on the company's behalf (Securities and
Exchange Act §157III).
E. Time limit for exercising the right of disgorgement against an insider
Disgorgement may be claimed against an insider within two years after
the date the insider realizes a profit and is no longer claimable after
the two-year time limit if not exercised within said period (Securities
and Exchange Act §157IV).
F. Calculation of profit to be disgorged: the highest selling price minus
the lowest purchasing price (Securities and Exchange Act Enforcement
Rules §11II):
a. The price difference shall be calculated in a manner that the
highest selling price matches the lowest purchasing price, the
second highest selling price matches the second lowest purchasing
price, and so on; losses are not included.
b. The dividends received by the traded stocks shall be included
into the price difference calculation in Subparagraph A.
c. A 5% legally mandated interest under Article 203 of the Civil
Code shall be added into the price difference. Such interest
shall be calculated based on the date of last trading until the
date of disgorgement to the company, in the case of Subparagraph
A, and the date cash dividends are received until the date of
disgorgement to the company in the case of Subparagraph B.
d. The commissions charged by securities firms and the securities
transaction tax arising from such trading shall be deducted from
the profit in calculating the profit differential in Subparagraph
A.
2. Insider trading:
An insider of a stock issuing company or any person who has learned, by reason
of an occupational or controlling relationship, information that will have a
material impact on the stock price of the issuing company, is deemed to engage
in trading with insider information, or insider trading, if it purchases or
sells shares of the company that are listed on an exchange or an over-thecounter market or any other equity-type security of the company prior to the
public disclosure of such information or within 18 hours after its public
disclosure (Securities and Exchange Act §157-1).
A. Persons not allowed to engage in insider trading:
a. Insiders:
Insiders include directors, supervisors, officers, natural
persons designated as proxy to exercise the duties of a
shareholder in its behalf pursuant to Article 27, Paragraph 1 of
the Company Act, and shareholders with more than 10% of the
shares of a stock issuing company. In calculating the
shareholding of an insider, shares held by its spouse and minors
and those held in another person's name (Securities and Exchange
Act Enforcement Rules §2) shall all be included.
b. Persons learning information by reason of an occupational or
controlling relationship:
Examples are securities firms, investment consultants, securities
analysts, journalists, persons hired by an issuer to handle
business, lawyers, accountants etc., and police and investigation
and judicial officers learning insider information in the course
of their performance of duties in the investigation of Securities
and Exchange Act cases.
c. To prevent malpractice, persons losing the status in
Subparagraphs A and B within the last six months are still
governed by this article.
d. Persons learning the information from any of the persons named in
the preceding three subparagraphs.
B. Information that has a material impact on the stock price of the company
As authorized by Article 157-1 of the Securities and Exchange Act on May
30, 2006, and in the Regulations Governing the Scope of Material
Information and the Means of its Public Disclosure Under Article 157-1,
Paragraphs 5 and 6 of the Securities and Exchange Act amended December
22, 2010 ("Material Information Regulations"), the FSC divides
information with a material impact on the stock price of a company into
two types. The first type of material information concerns the company's
finance and business that has a material impact on the stock price of
the company or on the investment decisions of a reasonably prudent
investor, including the following information according to Article 2 of
the Material Information Regulations:
a. A matter provided in Article 7 of the Securities and Exchange Act
Enforcement Rule.
b. The company carries out any material transaction of public
offering and issuance or private placement of equity-type
securities, capital reduction, corporate merger, acquisition, or
split, share exchange, conversion, or transfer of shares from
others, direct or indirect investment project, or there is any
material change in any of the above matters.
c. The company is in proceedings for reorganization, bankruptcy,
dissolution, or application for stock delisting or termination of
OTC securities trading, or there is any material change in any of
the above matters.
d. A member of the company's board of directors is subject to a
provisional injunction ruling suspending his or her exercise of
powers, making it impossible for the board of directors to
exercise its powers, or all independent directors of the company
are removed from office.
e. Occurrence of a disaster, group protest, strike, or environmental
pollution, or any other material event, where the company incurs
a material loss, or where a relevant authority orders suspension
of work, suspension of business, or termination of business, or
revokes or voids a relevant permit.
f. Dishonor of a negotiable instrument, filing for bankruptcy or
reorganization, or any other similar event of a material nature,
with respect to a related party of the company or to a principal
debtor or a joint and several guarantor of a principal debtor; or
inability by a principal obligor, in favor of whom the company
has made an endorsement or guarantee, to settle a matured
negotiable instrument, loan, or other obligation.
g. Occurrence of a significant event of internal control-related
malpractice, non arms-length transaction, or defalcation of
company assets.
h. Suspension of part or all of business transactions between the
company and a principal client or supplier.
i. Upon occurrence of any of the following with respect to a
financial report of the company:
I.
Failure to make a public announcement or a filing in a
manner consistent with the requirements of Article 36 of
the Act.
II.
An error or omission in a financial report prepared by the
company, with respect to which Article 6 of the
Enforcement Rules to the Act requires a correction to and
further a restatement of the financial report.
III.
A certified public accountant issues an audit or review
report containing an opinion other than an unqualified or
modified unqualified opinion. The same does not apply,
however, in cases where the certified public accountant
issues a qualified audit or review report for the reason
of annual amortization of losses, as permitted by law, or
for the reason that an amount of long-term equity
investment and profit/loss thereupon presented in the
first-quarter, third-quarter, or semiannual financial
report is calculated on the basis of financial statements
of the investee company that have not been audited or
reviewed by a certified public accountant.
IV.
A certified public accountant issues an audit or review
report indicating substantial doubt about the goingconcern assumption.
j. A significant discrepancy between financial forecasts already
publicly disclosed and actual figures or between updated (or
corrected) financial forecasts and original forecasts.
k. The company's operating income or income before tax shows a
significant change from the same period of the previous year, or
shows a significant change compared with the previous period and
the change is not caused by seasonal factors.
l. When any of the following accounting events occurs to the
company, and the event, although it does not affect the
profit/loss of the current period, has resulted in a material
change in the net worth of the current period:
I.
II.
III.
IV.
Revaluation of assets.
Valuation of financial instruments.
Foreign currency translation adjustments.
Financial instruments accounted for using hedge
accounting.
V.
Net losses not recognized as retirement fund costs
m. The fundraising plan for corporate bond redemption cannot be
carried out.
n. The company buys back its own shares.
o. The company makes or suspends a public tender offer to acquire
securities issued by a public company.
p. The company acquirers or disposes of a major asset.
q. If the company has issued securities overseas, occurrence of a
material event that requires prompt public announcement or
filing, as provided in the government laws and regulations, or
securities exchange market rules and regulations, of the country
where the securities are listed.
r. Other matters relating to the finances or businesses of the
company that would have a material impact on its stock price or
on the investment decisions of a reasonably prudent investor.
Pursuant to Article 3 of the Material Information Regulations, the
second type of material information refers to information relating to
the market supply and demand of such securities that would have a
material impact on the company's stock price or on the investment
decisions of a reasonably prudent investor, referring to any of the
following:
s. The company's securities traded on the centralized securities
exchange market or the OTC securities market are subject to a
public tender offer or suspension of a public tender offer.
t. Any material change in the shareholding of the company or its
controlling company.
u. The company's securities traded on the centralized securities
exchange market or the OTC securities market are subject to an
event of bidding, auctioning, material default in settlement,
change of the original method of trading, or suspension,
limitation, or termination of trading, or there is any
circumstance that may lead to any such event.
v. Persons duly charged with exercising searches under the law
conduct a search of the company, its controlling company, or any
of its major subsidiaries as defined in Article 2-1, Paragraph 2
of the Regulations Governing Auditing and Attestation of
Financial Statements by Certified Public Accountants.
w. Any other matter relating to the market supply and demand of such
securities that would have a material impact on the company's
stock price or on the investment decisions of a reasonably
prudent investor.
C. Information that will have a material impact on the ability of the
company to pay principal or interest
This refers to any of the following information save in the event of
companies issuing corporate bonds under a bank guarantee:
a. Any matter set out in Article 7, subparagraphs 1 to 3 of the
Securities and Exchange Act Enforcement Rules.
b. Any matter set out in Subparagraphs E to H, Subparagraph I, Item
d, and Subparagraph M, of Article 2.
c. The company is in proceedings for reorganization, bankruptcy, or
dissolution.
d. The company suffers a material loss, and the loss is likely to
result in financial difficulty, suspension of business, or
termination of business.
e. The amount of the company's current assets, with inventory and
prepaid expenses deducted and net cash inflows generated before
the maturity date of corporate bonds added, is insufficient to
cover the principal or interest due in the near future for the
most recent period and other current liabilities.
f. The interest of any already issued corporate bonds is calculated
at a non-fixed interest rate, and the interest expenses have
risen significantly due to market interest rate fluctuations and
affect the ability of the company to pay principal or interest.
g. Any other matter that could affect the ability of the company to
pay principal or interest.
D. Ways of disclosure of material information:
The ways of disclosure of material information are set forth in Article
6 of the Material Information Regulations. Public disclosure of
information defined in Articles 2 and 4 of such regulations (information
relating to the finance or business of a company that would have a
material impact on its stock price or on the investment decisions of a
reasonably prudent investor, or information that will have a material
impact on the ability of the company to pay principal or interest) is
made when such information is entered on the Market Observation Post
System.
For the purposes of Article 3 of the same regulations (regarding
information relating to the market supply and demand of such securities
that would have a material impact on its stock price or on the
investment decisions of a reasonably prudent investor), public
disclosure of information means any of the following:
a. The company enters such information on the Market Observation
Post System.
b. The Taiwan Stock Exchange Corporation publicly announces the
information on the Market Information System website
c. The GreTai Securities Market publicly announces the information
on the Market Information System website.
d. Coverage of the information in two or more daily national
newspapers on non-local news pages, national television news, or
electronic newspapers issued by any the aforesaid media. In the
case of information publicly disclosed in this way, the period of
18 hours referred to in Article 157-1, Paragraph 1, of the
Securities and Exchange Act shall begin with the later of the
time of delivery of the newspaper, first broadcasting of the
television news, or posting of the news on the electronic
website, as the case may be. (The time of delivery of a newspaper
referred to in the preceding paragraph means 6 a.m. for morning
newspapers and 3 p.m. for evening newspapers.)
E. Unless they have reasonable cause to believe the information had already
been publicly disclosed, persons engaging in insider trading shall be
held liable for damages to trading counterparts who unknowingly
undertook the opposite-side trade with bona fide intent if such persons
violate their recusal or disclosure obligations, whether they gain a
profit from the insider trading or not, even if they suffer a loss
(Securities and Exchange Act §157-1III), and shall also be criminally
liable (Securities and Exchange Act §171).
F. Statute of limitations for the claim of damages against a person
engaging in insider trading:
The right to claim shall be exercised within two years from the time the
claimant learns of the cause which entitles him the right to claim, or
within five years from the offering, issuance or trading, and is no
longer exercisable after such periods expire.
Data Source：Taiwan Stock Exchange - Rules & Regulations Directory
twse-regulation.twse.com.tw