In review: capital markets law in Taiwan – Lexology
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In Taiwan, there are two public securities markets, the Taiwan Stock Exchange (TWSE) and the Taipei Exchange (TPEx). The TWSE is operated by the Taiwan Stock Exchange Corporation. Products listed on the TWSE include Taiwan depository receipts (TDRs), call (put) warrants, shares, and exchange traded funds (ETFs). Currently, the most heavily traded product is shares. The TWSE is the flagship market for larger, more established companies. According to information released by the TWSE, as at the end of June 2022, there were 966 companies listed on the TWSE with total market capitalisation of NT$46.3 trillion. As at February 2021, the market capitalisation of listed foreign companies was NT$1.6 trillion. Furthermore, as at the end of May 2022, there were 134 ETFs listed on the TWSE, with assets of NT$1.02 trillion. These assets include stocks, overseas bonds, commodities (oil, gold, silver, copper, soybean), exchange rates (US dollars, Japanese yen) and REITs, in addition to trading products such as leveraged, inverse and futures products. The indices tracked encompass the United States, Europe, Japan, China, Hong Kong, India and many other markets.
The Mainboard of the TPEx offers a listing market for smaller companies that may not meet the criteria for listing shares on the TWSE. TPEx also operates an Emerging Stock market, which is generally a market for pre-listing preparation but can also serve as a trading platform for public companies that do not yet meet the criteria for listing on the TWSE and the TPEx Mainboard. In addition, under TPEx, there is a Go Incubation Board for Start-up and Acceleration Firms (GISA) for the small-sized innovative companies with creative ideas and great potential.
According to the information released by the TPEx, as at the end of June 2022, there were 799 listed companies on its Mainboard, with a market capitalisation of NT$4437.9 billion, 294 listed companies on the Emerging Stock market with a market capitalisation of NT$835.7 billion and 89 listed companies on the GISA with the capital raised in the amount of NT$6.34 billion. The TPEx is also the platform for bond trading in Taiwan. Almost all bonds publicly issued in Taiwan, including government bonds, corporate bonds, financial debentures and international bonds, are listed on the TPEx bond market.
Taiwan’s capital market legislation includes several fundamental laws, the most important of which are the Company Act and the Securities and Exchange Act, followed by a series of rules promulgated by the Financial Supervisory Commission of the Republic of China (FSC), the main regulator of the financial industry, and the Ministry of Economic Affairs of the Republic of China. The Company Act applies to companies incorporated in Taiwan and foreign companies operating within Taiwan, and it sets out the principle rules for matters including:
While the Company Act applies to all companies, the Securities and Exchange Act applies only to public companies; however, the Securities and Exchange Act provides the principle rules for the issuing and trading of securities and the responsibilities of securities issuers, market discipline, and securities firms operation, among others.
The regulator of the financial market in Taiwan is the FSC, which is empowered by law with the authority to promulgate and pass regulations, and to issue rulings or interpretation letters. The FSC is in charge of comprehensive reviews of the development, supervision, management and examination of the financial market and services offered, and aims to establish an ideal financial market by improving the operation of financial institutions, maintaining financial stability and promoting the development of the financial market. Four agencies operate under the FSC: the Banking Bureau, the Securities and Futures Bureau, the Insurance Bureau and the Financial Examination Bureau, which are responsible for banking, securities and futures, insurance industries and markets, and the supervision and examination of financial institutions, respectively. Among these agencies, the Securities and Futures Bureau has jurisdiction over the financial market and has main functions such as:
In addition, the chief monetary authority in Taiwan is the Central Bank of the Republic of China (Taiwan) (CBC). One of the CBC’s functions is to meet public demand for money and safeguard the purchasing power of the national currency. In general, its main role is to promote financial stability, ensure sound banking operations, maintain the stable internal and external value of the currency and foster economic development. Therefore, it works closely with the government, banks and financial institutions in Taiwan. The CBC is also the competent authority for foreign exchange control. To complete transactions for inward and outward remittances exceeding a certain amount, applications must be filed with the CBC.
Taiwan’s legal system is established under the jurisdiction of the Judicial Yuan, one of the five branches of government. However, it enjoys complete independence in judicial matters. The court system in Taiwan can be divided into the following three levels.
The district courts are usually the courts of first instance and have jurisdiction over civil and criminal cases. The district courts also have jurisdiction over a company’s bankruptcy, reorganisation, company dissolution and liquidation. Most resolution of commercial disputes will therefore commence in the district courts.
The high courts are usually the courts of second instance and have jurisdiction over civil, criminal and administrative cases. In principle, appeals from the district courts will be brought to trial in the high courts. Similarly to district courts, the high courts also have the power to review all alleged facts and evidence presented by the parties concerned.
The Supreme Court is the venue in which final and binding decisions are rendered in this three-tier legal system. The court is located in Taipei. It hears appeals from the high courts under limited circumstances, such as when a judgment is made based on the improper application of a law or regulation. To appeal a civil case to the Supreme Court, the value of the claim must exceed NT$1.5 million. Since the Supreme Court will not decide on the factual matters of a case, in general, Supreme Court proceedings are based on the relevant documentation, without oral hearings.
Under the current regime in Taiwan, no offshore entity is allowed to engage in any financial services business in Taiwan without obtaining prior approval from the FSC. In general, it is understood that Taiwan laws and regulations do not apply to activities by foreign companies outside Taiwan and the scope of jurisdiction is considered to be limited to the Taiwanese territory. In this regard, transactions or activity undertaken on an offshore basis might not fall within the remit of the FSC. In contrast, if the transaction or the activity involves onshore elements, such as soliciting investors resident in Taiwan to buy offshore financial products without a permit, or where the communication and document execution for offshore products are conducted in Taiwan, Taiwanese laws and regulations might apply and the FSC may take enforcement actions.
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