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Proposed amendments to the Securities and Exchange Act were passed by the Executive Yuan on October 21, 2010 ("Proposed Amendments"). This article will highlight the major amendments.
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New Chapter on Foreign Companies
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The public offering, issuance, sale and purchase, and private placement of securities issued by foreign companies shall be governed by the Securities and Exchange Act
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To strengthen the supervision mechanism and protect investor interests, in addition to including the definition of "foreign company", a new chapter 5.1 titled "Foreign Companies" was set out in the Proposed Amendments. Under the said chapter, unless otherwise provided by the competent authority, the public offering, issuance, sale and purchase, and private placement of securities of any foreign company listed on Taiwan Stock Exchange or GreTai Securities Market shall be governed by the Securities and Exchange Act. Then the responsible person of a foreign company shall be held liable for the foreign company's violation of any provision of the Securities and Exchange Act.
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A foreign company shall appoint an agent for litigious and non-litigious matters in the Republic of China. The agent will be deemed as responsible person of the foreign company in the Republic of China.
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Amend the Elements of Intent of Various Market Manipulations for Consistency
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Article 155 of the Securities and Exchange Act sets forth six types of market manipulation. Article 155 in the Proposed Amendments makes consistent the elements of intent behind these market manipulating behaviors as "to influence the trading prices of a particular security" or "to create a false appearance of active trading in a particular security".
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New Exemption of Insider Trading
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The prohibition of insider trading aims to prevent an insider, constructive insider or tippee from trading securities of an issuing company upon his/her knowing of any information that will have a material impact on the share price of the issuing company or on the issuing company's ability to repay interest and principal prior to the public disclosure of such information.
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However, where the trading is to perform a sale and purchase agreement on securities entered into by an insider, constructive insider or tippee before his/her knowing of material information, such trading should be exempted from the prohibition of insider trading. Hence, Paragraph 8 of Article 155-1 in the Proposed Amendments stipulates that such sale and purchase agreement on securities should serve as a defense against the prohibition of insider trading unless its purpose is to circumvent the prohibition of insider trading. Paragraph 9 of Article 155-1 in the Proposed Amendments lists out five scenarios that would be deemed as circumvention.
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Others
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All public offerings should be registered with the competent authority
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To protect investors, Paragraph 3 of Article 22 in the Proposed Amendments stipulates that if any person holding the securities as defined under the Securities and Exchange Act, not limited to the corporate stocks or corporate bonds as specified under the original Article, intends to sell the securities through a public offering, the public offering should be prohibited unless an effective registration with the competent authority.
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Public offering or issuance of securities in violation of law carries prison sentences of up to 5 years; the original prison sentences were up to 2 years. Furthermore, under the Proposed Amendments, administrative sanctions will be imposed on failure to deliver prospectus or public tender offer prospectus and violation of provisions governing margin purchases or short sales for securities transactions, instead of criminal sanction under the original provisions.
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