• Introduction of Relevant Regulations on the Share Transfer of Insiders of Publicly Offered Companies
  • November 7, 2011
  • Law Firm: Lee Tsai Partners - Taipei Office
  • I. Restrictions on the share transfer of insiders of publicly offered companies

    Under Article 22-2, Paragraph 1, Subparagraph 1 of the Securities and Exchange Law, a director, supervisor or managerial officer of a publicly offered company or a shareholder holding over 10% shares of the company (hereinafter, the “Insider”) shall transfer shares in accordance with the following three manners:

    1. Transfer shares to nonspecific persons after the effective date of the competent authority’s approval or of the reporting to the competent authority.

    2. Transfer shares in accordance with the shareholding period and the quantity percentage of transfer allowed for each trading day as prescribed by the competent authority in the stock exchange market or the premises of securities firms three days after the date of reporting to the competent authority.  However, such reporting is not required if less than 10,000 shares are transferred on each trading day.

    Pursuant to the (90)-Tai-Cai-Zheng-(3)-001585 Circular of June 5, 2001, Tai-Cai-Zheng-3-0920000788 Circular of February 26, 2003 and the Tai-Cai-Zheng-3-0920001073 Circular of March 17, 2003 issued by the Securities and Futures Bureau, the “shareholding period” mentioned above means that the Insiders of a publicly offered company may not engage in any transfer in the stock exchange market or premises of securities firms until six months after they obtain their status.  In addition, the “quantity percentage of transfer allowed for each trading day” mentioned above means that the Insiders of all companies listed in the stock exchange, OTC or emerging stock market are subject to the following restriction on the maximum number of shares which may be transferred during the daily trade:

    (1) In case of a company listed in the stock exchange or OTC market, the restriction on the number of shares shall be calculated by either of the following two methods:

    i. 0.2% for a company with less than 30 million outstanding shares; and 0.1% of the number of shares in excess of 30 million outstanding shares.  

    ii. 5% of the average daily turnover (number of shares) of such stock during the ten business days prior to the reporting date.  

    (2) In case of a company listed in the emerging stock market, the restriction on the number of shares is 1% of the number of shares issued.  

    (3) With respect to exceptions, the number of shares transferred is not subject to the restriction on the “quantity percentage of transfer allowed for each trading day” if the transfer is made in any of the following four manners:

    i. Such transfer is made in accordance with the Taiwan Stock Exchange Corporation Rules Governing Auction of Listed Securities by Consignment.

    ii. Securities brokers are entrusted to participate in the competitive sales in accordance with the Taiwan Stock Exchange Corporation Rules Governing Purchase of Listed Securities by Reverse Auction or the GreTai Securities Market Rules Governing Purchase of Listed Securities by Reverse Auction.

    iii. Transactions are conducted in accordance with the Taiwan Stock Exchange Corporation Regulations Governing After-Hour Fixed-Price Trading or with the GreTai Securities Market Regulations Governing After-Hour Fixed-Price Trading.

    iv. Transactions are conducted in accordance with the Taiwan Stock Exchange Corporation Rules Governing Block Trading of Listed Securities or the GreTai Securities Market Rules Governing Block Trading of Listed Securities.

    3. Transfer shares to specified persons who meet the criteria prescribed by the competent authority within three days after the date of reporting to the competent authority.  If the transferees seek to transfer the shares transferred in this manner within one year, they are still required to adopt one of the three methods set forth in Article 22-2, Paragraph 1, Subparagraph 1 of the Securities and Exchange Law.

    In addition, Article 22-2, Paragraph 3 of the Securities and Exchange Law provides that the calculation of the shares held by Insiders shall include those held by their spouses, underage children or in the name of others.  Article 2 of the Enforcement Rules of the Securities and Exchange Law stipulates that the so-called “holding of shares in the name of others” means the satisfaction of any of the following criteria: (i) direct or indirect provision of shares to another person or the provision of funds to another person to purchase shares; (ii) entitlement to the management, use or disposal of the shares held by such other person; or (iii) attribution to the persons concerned the entirety or part of the profits or losses arising from the shares held by such other person.

    If any requirement mentioned above is violated, a fine of NT$240,000 to NT$2,400,000 will be imposed in accordance with Article 178, Paragraph 1, Subparagraph 1 of the Securities and Exchange Law.  

    II. Vesting of short-term transactions conducted by Insiders

    The vesting of short-term transactions conducted by Insiders is stipulated under Article 157 of the Securities and Exchange Law, which requires that with respect to any profit generated by an insider from the sale of a company’s listed stock within six months after acquisition or from the purchase of such stock within six months after its sale, the company shall request that such profit should vest with the company.

    If the board of directors or supervisors of a listed company fails to exercise such right of claim, the shareholders may request the directors or supervisors to exercise such right within thirty days.  In case of failure to exercise the right, the shareholders making such request may exercise such right of claim on behalf of the company.  If the company is injured due to the failure of the directors or supervisors to exercise such right of claim, they shall be jointly and severally liable to the company.

    The above-mentioned right of claim will lapse if not exercise within two years after the day the profit is received.  It should also be noted that when calculating the shares held by Insiders, the provisions of Article 22-2, Paragraph 3 of the Securities and Exchange Law shall also apply.  To wit, shares held by their spouses and underage children or in the name of others should be included.

    III. Reporting duty for shares held by Insiders

    Under Article 25 of the Securities and Exchange Law, a publicly offered company shall report the types and number of the company’s shares held by its Insiders to the competent authority and make public announcements to that effect.

    Insiders are required to report changes to the number of shares held by them in the previous month to the company before the fifth day of each month, and the company is required to consolidate and report such information to the competent authority before the 15th day of each month.  If necessary, the competent authority may demand the company to make public announcements.  If shares held by Insiders are pledged, the pledgers are required to inform the company, and the company should report to the competent authority and publicly announce the pledge status of the shares within five days after the shares are pledged.

    It should be noted that when the shares held by Insiders are calculated, the provisions of Article 22-2, Paragraph 3 of the Securities and Exchange Law shall apply.  To wit, shares held by their spouses or underage children or in the name of others shall be included.

    In addition, Subparagraph 2 of Paragraph 1 and Paragraph 2 of Article 178 of the Securities and Exchange Law provide that if the above-mentioned requirements are violated, the competent authority shall, in addition to imposing a fine of NT$240,000 to NT$2,400,000, demand the violators to rectify within a specified period.  In case of their failure to rectify, such demand requesting rectification within a specified period may be made consecutively along with the imposition of a fine of NT$480,000 to NT$4,800,000 each time until rectification is made.