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Disgorgement is regulated under the ROC Securities and Exchange Act (hereinafter the "Act"). According to Paragraph 1 of Article 157 of the Act, in the event that any director, supervisor, managerial officer, or shareholder holding more than 10% of the shares of a company (hereinafter the "Insider") sells the listed securities within 6 months after acquiring the same, or repurchase the securities within 6 months after selling the same, the company shall claim disgorgement of any gains realized from such transaction.
The Financial Supervisory Commission, Executive Yuan (hereinafter the FSC) of the ROC issued a letter on January 12, 2006 to define "repurchase" as referred to in Article 157 of the Act (hereinafter the "FSC 2006 Letter"). According to the FSC 2006 Letter, in the event that an Insider, as an employee of the company, obtains shares or certificates of payment for the exercise of stock warrants of the company through exercising his right to subscribe for the shares of the company, such transfer falls within the definition of "repurchase" as set forth in Article 157 of the Act. Hence, disgorgement should also apply to this kind of transfer.
According to the FSC 2006 Letter, the time of acquisition of shares of the company is the time when the shares are delivered, and the time of acquisition of the certificates of payment for the exercise of stock warrants is the time when the certificates are delivered. The cost of acquisition is calculated based on the closing price of the shares of the common company on the date of the acquisition.
The FSC issued a new letter to revoke the FSC 2006 Letter on October 27, 2010. The new FSC letter separates listed stocks and over-the-counter stocks from emerging stocks. Cost of acquiring the former is determined based on the closing price of the common shares on the acquisition date, while cost of acquiring the latter is based on the weighted average price of the common shares on the acquisition date. The new FSC letter did not change the determination of the time of acquisition, which has been set forth in the FSC 2006 Letter.
