Introduction to the Taiwan Stock Exchange - · PDF fileIntroduction to the Taiwan Stock Exchange Add: 3F, 9-12F, 19F, ... ‧ Auditing the ﬁnancial and business operations of

Introduction tothe Taiwan Stock Exchange

Add: 3F, 9-12F, 19F, No.7, Sec.5, Xinyi Rd., Taipei, Taiwan 11049, Republic of ChinaTel: 886-2-81013101http://www.twse.com.twE-mail: [email protected]

Published in October 2011

Origin and Mission

Organization

Listing of Securities

Trading of Securities

Computer and Information Safety

Market Surveillance

Clearing and Settlement

TWSE Securities Borrowing and Lending System

Internationalization of Securities Market

Monitoring of Securities Firms

Investors Service

Securities Information

Contents

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Introduction to Taiwan Stock Exchange

Organization

TWSE is a private corporation with 15 board

directors and 3 supervisors. At least one-third of

the board directors and supervisors are appointed

by the government to represent the public interest.

TWSE has sixteen departments/offices,

whose functions are as follows:

Domestic Listing Department

‧ Drafting and executing domestic securities listing rules and regulations.

‧ Monitoring compliance with the continuing listing obligations by domestic listing companies

Foreign Listing Department

‧ Drafting and executing foreign securities listing rules and regulations.

‧ Monitoring compliance with the continuing listing obligations by foreign listing companies.

Trading Department

‧ Drafting and executing securities trading rules and regulations; promoting securities investment.

Clearing Department

‧ Drafting and executing securities clearing and settlement rules and regulations.

Origin and Mission

With a view to establishing a sound

capital market to encourage savings for the

formation of capital, the government of the

Republic of China initiated the Stock Market

Research Task Force in 1959. The Securities

and Exchange Commission was set up

in 1960 and the Taiwan Stock Exchange

(TWSE) was incorporated in 1961. TWSE,

funded by various private and state-owned

enterprises, began operation on February 9,

1962. This is the sole centralized securities

market in Taiwan.

Under the Financial Supervisory

Commiss ion o f the Execut ive Yuan,

TWSE aims to achieve four goals, namely,

accelerating the internationalization of the

securities market, promoting professionalism

and innovation, maintaining and improving

market operational mechanisms, and

enhancing efficiency and risk management.

In accordance with government policy,

TWSE provides a fair, efficient and safe

trading environment, and aims to lead the

Taiwan securities market into a new era of

internationalization.

02 03

Introduction to the Taiwan Stock Exchange


Surveillance Department

‧ Draft ing and execut ing securi t ies market surveillance rules and regulations.

Compliance & Inspection Department

‧ Auditing the financial and business operations of securities firms.

System Development Department

‧ O v e r s e e i n g r e s e a r c h , p l a n n i n g a n d implementation of computer projects and related procurement affairs; developing, designing and testing application programs.

Computer Operation Department

‧ Administering installation, maintenance and management of computer-related facilities; executing, operating, servicing and auditing computer business.

Market Data & Corporate Systems Department

‧ Administering market data dissemination, including management, linkage, promotion and servicing; office automation.

Corporate Communications Department

‧ Contacting and communicating with international securities agencies; handling related international affairs; promoting securities investment and providing investors service; administering domestic public relations, acting as press liaison.

Corporate Planning & Strategy Department‧ Conducting research into securities-related

topics; publishing statistics; designing new products and managing a research library.

Finance Department

‧ Managing operational funds, cashiering, contracts, safekeeping of guarantee deposits, accounting and stock registrar matters.

Legal & Secretarial Services Department

‧ Managing secretariat affairs of the Board Meetings and Shareholders' Meetings and other business meetings; drafting related rules and legal services.

Administration Department

‧ Managing personnel, properties; arranging procurement matters and related affairs; administering corporate seals, files and documentation.

Labor Security Office

‧ Managing labor security and health matters.

Internal Audit Office

‧ Administering internal audits and controls of the Exchange, and reporting directly to the board of directors.

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enhance the quality of information disclosure

in the securities market, TWSE works with

GreTai Securities Market to manage a "Market

Observation Post System", and an "Information

Disclosure Evaluation System".

TWSE has focused on developing new

products to enhance diversification of securities

and provide investors with hedging tools.

TWSE began to accept listing applications

of call warrants in September 1997 and put

warrants in January 2003. The first Exchange

Traded Fund (ETF) was launched on June 30,

2003 then ETF warrants in July 2004; overseas

ETFs were introduced in August 2009.

Listed securities on TWSE currently include

stocks, entitlement certificates of convertible

bonds, convert ib le bonds, government

bonds, beneficiary certificates, call warrants,

put warrants, ETFs and Taiwan Depository

Receipts (TDRs).

Listing of Securities

Domestic public companies or foreign

issuers that have not listed their shares on any

other stock exchanges abroad applying for initial

public offerings have to meet certain financial

and operational criteria. After close examination

by TWSE's listing departments, the application

is submitted to the "Securities Listing Review

Committee" for consideration. Thereafter, the

application needs to be confirmed by a resolution

from the Board of Directors for endorsement,

before being submitted to the Securities and

Futures Bureau (SFB) for final approval. For

foreign l isted companies applying for the

secondary listing on TWSE, the foreign listing

department examines then sends all applications

to SFB for final approval.

After the l ist ing appl icat ion has been

approved by the SFB, the public company pays

listing fees, and submits its quarterly certified

financial reports to TWSE for examination.

TWSE ac t i ve l y p romo tes co rpo ra te

governance of listed companies, supervises and

regulates their financial and operational status

on a routine basis, carries out investigations into

unusual circumstances, and verifies material

information disclosures. In addition, in order to

06 07



Trading of Securities

When TWSE was established, trading in

the centralized market place was carried out

on an open trading floor. However, to meet the

changing needs of the market environment,

the trading system has progressed through

several phases. In August 1985, the open

trading floor was gradually replaced by a

computer-aided trading system (CATS), which

was eventually upgraded to a fully automated

securities trading (FAST) system in 1993. The

fully computerized trading system has helped

boost the trading capacity and efficiency of

the stock market.

The trading hours of the centralized

market trading session are as follows:

Investors may place an order in person, by phone,

fax or Internet. Orders are entered via terminals on

securities firms' premises into TWSE's main computer,

and are processed and executed by the trading system on

a price-and-time-priority principle. In special cases, listed

stocks may be traded through negotiation, auction, tender

or other means.

Orders of all securities (except for warrants) are

matched by call auction. TWSE conducts "intra-day

volatility interruptions" to prevent over volatility of stock

prices. Whenever the trading system detects that the

potential execution price of the security will fall out of a

specified range (+/-3.5%) of the last traded price, the

security matching is postponed for 2-3 minutes. As for

Trading Sessions Trading Days Trading Hours

Regular Trading Monday - Friday 09:00 ~ 13:30

Off-hour Trading Monday - Friday 14:00 ~ 14:30

Odd-lot Trading Monday - Friday 13:40 ~ 14:30

BlockTrading

Non-paired Trade

Monday - Friday 9:00 ~ 17:00

Paired Trade

Monday - Friday08:00 ~ 08:30

（Pre-opening trading hours）9:00 ~ 17:00

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Computer and Information Safety

TWSE'S computer ized t rading, set t lement,

and information transmissions are highly efficient.

For the purpose of maintaining market integrity and

safeguarding investors' rights, TWSE pays close

attention to information and communication safety

mechanisms. TWSE has two full capacity back-up

computer sites to guard against any possible system

failure. TWSE acquired ISO9001 Quality Management

System, ISO27001 Information Security Management

System, and ISO20000 IT Service Management System

certifications for its computer information systems.

Market Surveillance

A healthy and orderly market should be able

to protect investors' rights and privileges, suppress

manipulation and insider trading. In accordance with

the Market Surveillance Regulations, TWSE discloses

daily information about abnormal securities trading

to alert investors, thereby protecting investors' rights.

TWSE may take disciplinary measures, as defined in the

Regulations, to constrain abnormal market behavior, and

prevent damage to the market.

warrants, orders are matched on a continuous basis

during an intraday regular trading session. At the opening

and closing of the trading session, warrant orders are

still matched by call auction. TWSE discloses the 5 best

bid and ask prices/volume of unexecuted orders after the

matching (including call auction or continuous trading

method) on a real-time basis.

In addition, investors can trade through an omnibus

trading account. After securities firms submit the post

allocation transaction statement to TWSE, the trades are

settled through the investor's own account.

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be borrowed to cover the shortfall, the buying securities

firm will get due bills issued by TWSE as temporary

coverage and the selling securities firm has to purchase

shares for the buying securities firm within the settlement

cycle.

Settlement of securities in the form of book-entry

is operated by the Taiwan Depository and Clearing

Corporation (TDCC, the CSD in Taiwan), entrusted by

TWSE; settlement of funds is through the Electronic

Interbank Funds Transfer and Settlement System (CIFS)

of the Central Bank, which acts as the settlement bank of

the securities market.

When a securities firm defaults, another securities

firm will be designated by TWSE to complete settlement

on behalf of the defaulted firm and to liquidate the

defaulted positions in the market. Losses and expenses

incurred will be initially first covered by the Joint

Settlement Clearing Fund (JSCF) contributed to by the

defaulted securities firm, then the First Special Clearing

Fund (SCF) contributed to by TWSE, followed by the

Second SCF and the JSCF contributed to by the other

securities firms, shared jointly pro rata.

Clearing and Settlement

According to the "Securities and Exchange Act", and

TWSE's "Operating Rules" and "Contract for Use of the

Centralized Securities Exchange Market", TWSE acts as

a clearinghouse for all the trades executed in the market.

All securities firms have to fulfill settlement obligations to

TWSE, which acts as the Central Counter Party "CCP"

and gives settlement guarantees to all the trades in the

market.

TWSE implements a same-day clearing method and

employs a multilateral net settlement to calculate the net

amounts of shares and funds receivables and payables

between securities firms and TWSE. The settlement cycle

is T+2.

Settlement obligations of securities firms have to be

fulfilled on settlement day; they are not permitted to be

deferred to the next business day. A securities shortfall

can be covered by applying to use TWSE's "Settlement

Coverage Securities Borrowing System" which requires a

collateral deposit and a borrowing fee from the borrowing

securities firm. If a sufficient amount of securities cannot

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TWSE Securities Borrowing and Lending System

TWSE established a Securities Borrowing

and Lending System (SBL) on June 30, 2003.

Participants include institutional investors such

as securities firms, banks, insurance companies

and foreign institutional investors, while TWSE

serves as an intermediary. The system provides

three kinds of transactions: fixed-rate, competitive

auct ion and negot ia ted. Upon co l lec t ing

borrowers' collateral in fixed-rate and competitive

auction transactions, TWSE acts as the central

counterparty to assume risks. The introduction of

SBL mechanism in Taiwan not only increases the

liquidity of the Taiwan securities market, but also

attracts foreign investors to our market and makes

our market more competitive. More information

about SBL can be found at the TWSE website

(http://www.twse.com.tw/en/products/SBL/SBL_

edu.php).

Internationalization of Securities Market

In order to enhance international information

exchange and cooperation, TWSE has entered

into Memorandums of Understanding with more

than 30 foreign stock exchanges, and actively

participates in global securities meetings and

organizations, such as WFE, AOSEF, ANNA

and IOSCO.

To accelerate the l iberalization and

internationalization of the Taiwan securities

market, TWSE has vigorously engaged

the world in recent years. We have held

promotional tours to major global financial

centers and the Middle East. We wish to

connect the entrepreneurial spirit of Taiwan with

foreign investors' funds, and in turn enhance

the stock market's depth. In addition, TWSE

has held conferences and meetings, at which

famous foreign scholars and experts have

spoken to investment houses, individual and

foreign investors about current international

market trends as well as providing updates

on the continuing liberalization of our stock

market.

In order to keep up with the international

trend of developing index-related products,

TWSE, in association with FTSE, has launched

a series of tradable indices in Taiwan: the

"TWSE Taiwan 50 Index" on October 29, 2002,

"TWSE Taiwan Mid-cap 100 Index" and "TWSE

Taiwan Technology Index" on November

29, 2004, "TWSE Taiwan Eight Industries

Index" and "TWSE Taiwan Dividend+ Index"

on January 15, 2007. TWSE will continue

to cooperate with FTSE, in accordance with

international standards, to compile more

indices to be used for new financial products.

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Monitoring of Securities Firms

According to the Securities and Exchange

Law, the establishment of a securities firm and

its branch has to be approved and licensed

in advance by the relevant authority. Prior to

participating in the market, a securities firm

must sign a contract with TWSE then deposit

a settlement and clearing fund. The securities

firm is responsible for its employees in both

sales representation and ethical behavior when

conducting centralized market business.

To enhance the financial structure and risk

management, all securities firms must meet the

regulatory capital adequacy ratio to maintain

regular business. TWSE regularly sends

inspectors to check the securities brokers and

dealers on-site to verify that their business

operations and financial status meet all these

requirements. In addition, TWSE maintains a

warning system that scrutinizes the operational

risk of securities firms, and also sets up a

risk control database for margin trading to

strengthen the risk management of securities

firms.

For the purpose of s impl i fy ing and

reducing paperwork of trading participants,

TWSE established a unified reporting system

in 1999 for securities brokers to file all TWSE-

required reports through a single electronic

user interface. TWSE also provides securities

brokers with e-mail trading and direct market

access (DMA) to make full use of the most

advanced technology. Furthermore, TWSE has

relaxed requirements for securities firms' sites

and facilities in addition to encouraging their

automation effort so as to reduce operational

cost.

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which became effective on January 1, 2003;

the "Securities and Futures Investors Protection

Center" was established. The Center manages

a protection fund to compensate investors

should securities or futures companies be

unable to do so due to financial difficulties.

According to Article 18 of the Act, TWSE and

other securities-related institutions are required

to contribute funds to the Center.

TWSE has implemented an "investor

personal data inquiry system". This system

helps to reduce the manual handling of

personal data processing. It also provides

speedy and convenient responses to personal

information inquiries, thus helping to lower the

possibility of fraud or forgery.

Investors Service

TWSE employs television, newspapers,

magazines, posters and other media for

promotional purposes, as well as holding

activities, workshops and seminars to inform

and educate investors in regards to investment

and finance. Investors are welcome to ask

questions by calling the Investor Service

Center (886-2) 8101-3101 or 2792-8188.

To enhance and protect investors' rights

and interests, TWSE and other securities-

related institutions jointly established the

"Securit ies Investors' Protection Fund".

Following the promulgation of the "Securities

Investors and Futures Traders Protection Act",

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Securities Information

To enhance the fairness and efficiency

of securities trading, as well as providing

a computer system for stock trading and

matching, TWSE uses various channels such

as websites and publications to give investors

easy access to securities information.

TWSE's website (http://www.twse.com.

tw) carries official announcements concerning

securities listing and trading, as well as

other securities information for investors'

consultation. In addition, the following 3

websi tes establ ished by TWSE can be

accessed from TWSE's home page.

1. Market Information System (http://mis.

twse.com.tw): This website provides real-

time trading information about the market

and individual stocks, including "Market

Summary, Sector Group Quotes, Five Best

Bids and Asks, Category Zone, Block Trade,

Odd Lot Trade, SBL Inquiry and Market

Announcements".

2. Market Observation Post System (http://

newmops.twse.com.tw): This websi te

provides financial and operational information

about listed companies, including company

profiles, financial statements, operational

summaries, electronic book and material

information.

3. Data e Shop (http://dataeshop.twse.com.

tw): This website provides data vendors

and investors with on-line subscriptions to

data services, including end-of-day market

statistics, index constituents and historical

trading data.

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To provide investors with versatile reference data,

TWSE publishes a "Stock Chart of Taiwan Stock

Exchange Capitalization Weighted Stock Index and

Trading Volume & Value" at the beginning of each year,

showing market trends since 1977 (in Chinese only). In

addition, TWSE also puts out the following periodicals,

which are also available on TWSE's website:

To inform and educate investors, TWSE has compiled

a series of booklets. Investors can either access the

booklets on TWSE's website (http://www.twse.com.tw/), or

obtain hard copies at securities firms' premises.

1. Taiwan Stock Exchange Review Monthly (monthly)

2. Taiwan Stock Exchange Statistical Data (annual)

3. Highlights of TWSE Listed Securities (annual)

4. Status of Securities Listed on Taiwan Stock Exchange (monthly)

5. Taiwan Stock Exchange Annual Report (annual)

6. Fact Book (annual)

TWSE has established an "Investors Reading

Room" (3F, No. 7, Sec. 5, Xinyi Rd., Taipei) to display

prospectuses and quarterly financial reports of all listed

companies, as well as monthly and semiannual financial

reports of all securities brokers and dealers.

To bring the public closer to the stock market, TWSE

set up an Information Center in mid-2008. The Center

provides the following information:

‧market data displays such as trading graphs, international stock market data, foreign exchange rates, trade data displays;

‧current trends in TWSE

‧ trading simulation systems and educational network services;

‧interactive inquiries and display systems;

‧live broadcasts of ceremonies and speeches.

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Add: 3F、9-12F, No.7, Sec.5, Xinyi Rd., Taipei, Taiwan

11049, Republic of China

Tel: 886-2-8101-3101

The Investor Service Center: 886-2-2792-8188

Web address: http://www.twse.com.tw

E-mail: [email protected]

Published in October 2011

Taiwan Stock Exchange Corp.

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Introduction to the Taiwan Stock Exchange - · PDF fileIntroduction to the Taiwan Stock Exchange Add: 3F, 9-12F, 19F, ... ‧ Auditing the ﬁnancial and business operations of