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RULES GOVERNING SHARES BUY - BACK BY LISTED AND OTC COMPANIES
CHUANG, YUNG-CHI SANDY
In line with the provisions on treasury stock in the new Article 28-2 of the Securities and Ex-change Law, on 7 August 2000 the Securities and Futures Commission (SFC) announced the Rules Governing Shares Buy-Back by Listed and OTC Companies. The main points are as follows:
The procedure
A listed or OTC company intending to buy back its shares should make a public an-nouncement, and report to the SFC, within two days following the relevant resolution of the board of directors.
A company intending to buy back its shares by public tender offer should apply with the SFC for approval in accordance with the Rules Governing Tender Offer to Purchase Securi-ties of a Public Company.
Except where the buy-back is by public tender offer, a company should complete the trans-action within one month following its report to the SFC, and make a further report to the SFC within five days after the expiry of the buy-back period or the completion of the buy-back transaction. If the transaction has not been completed within the period and the company intends to buy back further shares, its board of directors should pass a new reso-lution.
A company should disclose the shares buy-back in the securities market information system.
The purchase price and amount
Except where the buy-back is by public tender offer, the daily number of shares bought back must not exceed 20% of the average daily number of the securities in question traded in the 30 business days preceding the report to the SFC, or 25% of the total projected number of shares to be bought back. The purchase price must not exceed half the daily apprecia-tion limit on the day in question, and no bids may be placed within 30 minutes after the start of trading or 30 minutes before the close of trading. The purchase should be conducted by a single securities broker. Each time the cu-mulative number of shares bought back reaches 2% of the company's total issued shares, or NT$300 million, this should be publicly announced, and reported to the SFC, within two days.
The total purchase cost of shares bought back must not exceed the sum of the company's reserves (including legal reserve, special re-serve and undistributed surplus, but excluding dividends or special reserves pursuant to Ar-ticle 41 Paragraph 1 of the Securities and Exchange Law), plus premium on shares is-sued above par value, plus capital reserves already realized (including proceeds in excess of cost from the disposal of assets, and income from gifts received).
Purchase way
Except as provided otherwise in the rules, a company intending to buy back its shares should do so through the centralized securities exchange market or through the places of business of securities firms, and not by block trading, bids or auction.
A company intending to buy back its shares for the purpose of transferring them to employees should first draw up a plan for such transfer.
Where a company intends to buy back its shares for conversion purposes, this should be explicitly stated in the conversion or sub-scription plan.
To prevent insider dealing, the company's di-rectors, supervisors, managers, shareholders with a holding greater than 10%, and other as-sociated personnel, are explicitly prohibited from engaging themselves in illegal acts as defined in Article 157-1 of the Securities and Exchange Law.
