Recently, the market price of certain Taiwan depositary receipts (TDRs) dropped and stayed below their listing prices for an extended period. In response to an appeal from the TDR issuers, on December 21 2010 the Taiwan Stock Exchange Corporation promulgated the Taiwan Stock Exchange Corporation Rules Governing the Secondary Listed Company's Repurchase of TDRs. The new rules permit TDR issuers to repurchase their outstanding TDRs. This update summarises the purchase rules, which took effect immediately.
TDR issuer's repurchase of its own TDRs must be approved by its board and reported to its shareholders' meeting. The repurchase must be approved by a majority of the directors at a meeting attended by at least two-thirds of the total number of directors. The board resolution in connection with the TDR repurchase, the execution status of the repurchase and any situations in which the TDR issuer fails to repurchase its own TDRs for any reason should be reported at the most recent shareholders' meeting.
The aggregate volume of TDRs that can be purchased by TDR issuers in a repurchase should not exceed 10% of all issued TDRs.
The TDR repurchase volume per day by a TDR issuer during the repurchase period should not exceed one-third of the total units scheduled for repurchase. The TDR issuer should not provide price quotes before regular trading hours begin and should appoint no more than two securities brokers to execute the repurchase. The repurchase volume of TDRs will not be subject to the above-mentioned limitation if the repurchase volume of TDRs is not more than 200,000 units per day.
All of the shares underlying the repurchased TDRs should be withdrawn from the TDR facility and be cancelled within six months of the repurchase in accordance with the laws and regulations of the country of registration of the TDR issuer.
During the period in which the TDR issuer repurchases its own TDRs on the market, insiders and related parties are prohibited from disposing of the TDRs that they hold.
A TDR issuer should execute the repurchase of its own TDRs during trading hours through the stock exchange's automated computer trading system and should not execute the repurchase by means of block trading, oddlot trading, tender offer, auction or after-market fixed-price trading.
A TDR issuer should complete the repurchase of its own TDRs within two months of the disclosure date. If execution of the repurchase is not completed within the two-month period and execution of another repurchase is necessary, another repurchase proposal should be submitted to the board for approval.
A TDR issuer should disclose the following items via the Market Post Observation System within two days of the resolution date, and is prohibited from executing the repurchase before making such report:
- the resolution date and manner of resolution;
- the purpose of repurchase (withdrawal and cancellation);
- the maximum total monetary repurchase amount;
- the scheduled repurchase period and the volume of TDRs to be repurchased;
- the price range for the repurchase;
- the method for the repurchase;
- the ratio of scheduled repurchase units to total units of issued TDRs;
- any repurchase of TDRs within three years before resolution date;
- the scheduled or actual date for cancellation of underlying shares; and
- other items prescribed by the stock exchange.
Whenever the cumulative volume of repurchased TDRs reaches 2% of the total issued TDRs, or when the outstanding TDRs total less than 12 million units, the TDR issuer should, within two days of the occurrence of one of the above facts, make an announcement regarding the date, volume and price of repurchase via the Market Post Observation System.
A TDR issuer should report the status of execution of repurchase:
- upon expiration of the two-month period starting from the disclosure date; or
- within five days of the completion of the repurchase.
For further information on this topic please contact Hsin-Lan Hsu or Nelson Wu at Lee and Li Attorneys at Law by telephone (+886 2 2715 3300), fax (+886 2 2713 3966) or email ([email protected] or [email protected]).