Newsletter
TREATMENT OF DEFAULTING FINI'S SUB-ACCOUNTS
To deal with issues associated with defaults on sub-accounts held by foreign institutional in-vestors, in 1998 the Securities and Futures Bu-reau issued an order stating that if the principal of such a sub-account is a separate securities trad-ing entity, the measures for handling default under the Taiwan Stock Exchange Corporation (TSEC) rules apply only to that sub-account; but the SFB would regard such defaults or other breaches of TSEC rules as an important factor to be considered when reviewing future applica-tions from the same FINI to invest in Taiwanese securities.
On 10 March 2006, the Financial Supervisory Commission (FSC) issued a new order revoking the above order, stating that if one sub-account of a multiple account is in default, all other sub-accounts will be cancelled. Under this new regime, the FSC''s requirements for handling defaults by foreign investors in Taiwanese secu-rities are as follows:
Cases should be handled in accordance with Ar-ticle 76 Paragraph 3 of the Operating Rules of the Taiwan Stock Exchange Corporation, and other relevant provisions (i.e., securities brokers should refuse to open an account, or where an account has already been opened, should refuse to accept trading instructions or subscription applications). Only after the case has been re-solved may the defaulting party open a new ac-count and resume trading.
However, if a default occurs on a sub-account opened by a former Qualified Foreign Institu-tional Investor for a contracted client, and the principal of the sub-account is a separate securi-ties trading entity, then the measures in response to the default will apply only to the defaulting sub-account.
If an offshore FINI holds a multiple account, and one sub-account is in default, all sub-accounts under the multiple account must be cancelled. Until such time as the case is resolved, the FINI will not be able to carry out trading instructions. Only after the case is resolved will it be able to open new accounts and resume trading.