New chapter on foreign companies
Amendments regarding elements of intent
New insider trading exemption
Other amendments
On October 21 2010 the Executive Yuan passed amendments to the Securities and Exchange Act. This update highlights the most significant of these amendments.
New chapter on foreign companies
Following the implementation of the amendments, the public offering, issuance, sale and purchase and private placement of securities issued by foreign companies will be governed by the act.
To strengthen the supervision mechanism and protect investor interests, in addition to the inclusion of a definition of the term 'foreign company', a new Chapter 5.1 entitled "Foreign Companies" was set out in the proposed amendments. According to the 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 the Taiwan Stock Exchange or GreTai Securities Market is to be governed by the act. A foreign company's responsible person will be held liable for any violations of the act by the company.
Foreign companies must appoint an agent for litigious and non-litigious matters in China. The agent will be deemed to be the responsible person for the foreign company in China.
Amendments regarding elements of intent
Article 155 of the act establishes six types of market manipulation. Article 155 of the proposed amendments defines the elements of intent behind market manipulating activities as those which "influence the trading prices of a particular security" or "create a false appearance of active trading in a particular security".
New insider trading exemption
The prohibition of insider trading aims to prevent an insider, constructive insider or tippee from trading securities of an issuing company with knowledge of information that will have a material impact on the share price of the issuing company or on its ability to repay interest and principal prior to the public disclosure of such information.
However, where the trading is to perform a sale and purchase agreement on securities entered into by an insider, constructive insider or tippee without knowledge of material information, such trading is to be exempted from the prohibition. Hence, Paragraph 8 of Article 155(1) of the amendments stipulates that such sale and purchase agreements on securities should serve as a defence against the insider trading prohibition, unless their purpose is to circumvent the prohibition. Paragraph 9 of Article 155(1) in the amendments lists five scenarios that would be deemed as circumvention.
Other amendments
To protect investors, Article 22, Paragraph 3 of the proposed amendments stipulates that if any person holding the securities as defined under the 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, that offering should be prohibited, unless it has been registered with the competent authority.
The public offering or issuance of securities in violation of the law carries a prison sentence of up to five years; previously, prison sentences for such violations were a maximum of two years. Furthermore, under the amendments, administrative penalties will be imposed for the failure to deliver a prospectus or public tender offer prospectus. Previously, violations of the provisions which govern margin purchases or short sales for securities transactions carried criminal penalties.
For further information on this topic please contact Ching-hua Lu or Charlotte Liu 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]).