Access to securities markets in Taiwan by foreign institutional investors has been liberalized and broadened, as stated in the 2008 U.S. Department of Commerce Country Commercial Guide. The Financial Supervisory Commission (FSC), according to its 2006 Annual Report, is planning to incorporate the Taiwan Stock Exchange, the Taiwan Futures Exchange, the GreTai Securities Market, and the Taiwan Depository and Clearing Corporation into a holding company as a subsidiary of the FSC, in order to enhance the international competitiveness of Taiwan's capital markets. The FSC was established on July 1, 2004 as the integrated financial supervisory and regulatory authority in Taiwan to resolve the problem of overlapping authorities. The Securities and Futures Bureau of the FSC, formerly known as the Securities and Futures Commission, is responsible for the supervision of the securities markets. While the FSC is an ordinary member of the International Organization of Securities Commissions (IOSCO), there is no publicly available assessment of its compliance with the IOSCO Objectives and Principles of Securities Regulation. The securities market in Taiwan is mainly regulated by the Securities and Exchange Act, the Futures Trading Act, and the Company Act. The FSC's 2006 Annual Report notes that the Securities and Exchange Act was amended in 2006, and the Executive Yuan adopted the "Financial Market Package Project" prepared jointly by the FSC and the Ministry of Finance to establish a diversified, internationalized, and stable financial system in Taiwan. Furthermore, the FSC -as of its 2006 Annual report - was drafting a Financial Services Act.

General Overview

The Financial Supervisory Commission (FSC) was established on July 1, 2004, as an integrated financial supervisory and regulatory authority to resolve the problem of overlapping authorities, merging the three separate departments of the Ministry of Finance (MoF): the Bureau of Monetary Affairs, the Department of Insurance, and the Securities and Futures Commission. The FSC comprises four bureaus: the Securities and Futures Bureau (SFB), the Banking Bureau (BB), the Insurance Bureau (IB), and the Financial Examination Bureau (FEB). The SFB, formerly known as the Securities and Futures Commission, is responsible for the supervision of the securities markets, whereas the FEB is in charge of the examination of all financial institutions. As reported on the FSC's website, "as the financial services and activities become more sophisticated and diversified, both the regulatory and examination responsibilities need to be further modified and consolidated to enhance the effectiveness and efficiency of financial supervision."

In order to promote the development of capital markets in Taiwan, the FSC, according to its 2006 Annual Report, has taken a number of measures to implement a new underwriting system, to expand the business scope of securities firms, to strengthen corporate governance and bring accounting standards in line with international standards, and to prevent market manipulation and insider trading. It has further relaxed restrictions on the scope of investments and capital allocations by foreign entities.

The securities market in Taiwan is mainly regulated by the Securities and Exchange Act, the Futures Trading Act, and the Company Act. According to the FSC's 2006 Annual Report, amendments to the Securities and Exchange Act in January 2006 focused on promoting corporate governance, expanding the business scope of securities firms, introducing an independent director and audit committee system, preventing market manipulation and insider trading, and establishing closer cooperation with foreign authorities. Per the same report, the FSC was drafting a Financial Services Act to introduce functional supervision, improve the protection of consumers and investors, and integrate cross-industry participation in financial services. In September 2006, the Executive Yuan adopted the "Financial Market Package Project" prepared jointly by the FSC and the MoF to establish a diversified, internationalized, and stable financial system in Taiwan.

As noted in the 2008 U.S. Department of Commerce Country Commercial Guide, access to securities markets in Taiwan by foreign institutional investors has been liberalized and broadened. Furthermore, all legal limits on foreign ownership, with the exception of Chinese investors, have been removed from most companies listed on the Taiwan Stock Exchange (TSE). As of 2006, there were 688 companies listed on the TSE, as stated on its website, with a total market capitalization of USD 643 billion. According to its 2006 Annual Report, the FSC is planning to incorporate the TSE, the Taiwan Futures Exchange, the GreTai Securities Market (GTSM), and the Taiwan Depository and Clearing Corporation into a holding company as a subsidiary of the FSC in order to enhance the international competitiveness of Taiwan's capital markets.

As stated on its website, the SFB has signed Memoranda of Understanding with 19 foreign securities and futures authorities. While the FSC is an ordinary member of the International Organization of Securities Commissions (IOSCO), there is no publicly available assessment of Taiwan's compliance with the IOSCO Objectives and Principles of Securities Regulation.

The Principles

1. The responsibilities of the regulator should be clear and objectively stated.

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The responsibilities of the FSC, as noted on its website, include supervision, examination, and inspection of the financial market. The FSC includes four bureaus: the SFB, the BB, the IB, and the FEB. The SFB, formerly known as the Securities and Futures Commission, is responsible for the supervision of the securities markets, whereas the FEB is in charge of the examination of all financial institutions. More specifically, the duties of the SFB, as stated on its website, include the approval of new issues of securities, the overseeing of secondary trading on the TSE and the GTSM, the licensing of securities professionals, and the regulation of market intermediaries, foreign investors, and certified public accountants. On the other hand, according to the FSC's website, the FEB "is entrusted with the responsibilities of financial institution supervision and examination as well as the drafting, planning and executing of the policies and regulations." Despite the information provided above, the available sources do not directly address Taiwan's compliance with this principle.

2. The regulator should be operationally independent and accountable in the exercise of its functions and powers.

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The FSC, as noted on its website, functions as an independent agency that directly reports to the Executive Yuan. The Chairperson and commissioners of the FSC are appointed by the President of the Republic of China (ROC) (Taiwan). However, the available sources do not directly address Taiwan's compliance with this principle.

3. The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers.

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As noted on its website, the FSC has adequate resources to carry out vigorous law enforcement and comprehensive supervision due to its quasi-judicial power. However, the available sources do not directly address Taiwan's compliance with this principle.

4. The regulator should adopt clear and consistent regulatory processes.

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There is insufficient information publicly available clearly identifying Taiwan's compliance with this principle.

5. The staff of the regulator should observe the highest professional standards, including appropriate standards of confidentiality.

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There is insufficient information publicly available clearly identifying Taiwan's compliance with this principle.

6. The regulatory regime should make appropriate use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, to the extent appropriate to the size and complexity of the markets.

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There is insufficient information publicly available clearly identifying Taiwan's compliance with this principle.

7. SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities.

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There is insufficient information publicly available clearly identifying Taiwan's compliance with this principle.

8. The regulator should have comprehensive inspection, investigation and surveillance powers.

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See Principle 3.

9. The regulator should have comprehensive enforcement powers.

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See Principle 3.

10. The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program.

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There is insufficient information publicly available clearly identifying Taiwan's compliance with this principle.

11. The regulator should have authority to share both public and non-public information with domestic and foreign counterparts.

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The Securities and Exchange Act was amended in January 2006 to establish closer cooperation with foreign authorities, as noted on the SFB website. More specifically, the Act "provides that the ROC government and agencies (or institutions) authorized by it may, based on the principle of reciprocity, enter into a cooperative treaty or agreement with a foreign government or agency (institution), or with an international organization, to facilitate matters such as information exchange, technical cooperation, and investigation assistance." However, the available sources do not directly address Taiwan's compliance with this principle.

12. Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts.

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As stated on its website, the SFB has signed MoUs with 19 foreign securities and futures authorities. However, the available sources do not directly address Taiwan's compliance with this principle.

13. The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers.

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There is insufficient information publicly available clearly identifying Taiwan's compliance with this principle.

14. There should be full, timely and accurate disclosure of financial results and other information that is material to investors’ decisions.

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The Securities and Futures Institute (SFI), according to its 2006 Annual Report, was entrusted by the TSE and the GTSM to set up the third "Information Transparency and Disclosure Ranking System," covering 630 companies listed on the TSE, and 402 companies listed on the GTSM. Per the same report, the aim of the Ranking System is to encourage enterprises to fully disclose corporate information in compliance with the international standards. However, the available sources do not directly address Taiwan's compliance with this principle.

15. Holders of securities in a company should be treated in a fair and equitable manner.

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The FSC, according to its 2006 Annual Report, issued the Corporate Governance Best-Practice Principles for TSEC/GTSM Listed Companies in 2002 notably to ensure the establishment of independent directors and audit committees. Per the same report, corporate governance was also promoted through the 2006 amendments to the Securities and Exchange Act, as well as various Regulations, which "facilitate the implementation of corporate governance measures, and provide public companies with compliance requirements" (p. 48). In its 2006 Annual Report, the FSC further noted that it would regularly hold international conferences, including the Taipei Corporate Governance Forum, "to give guidance on improving corporate governance and information transparency as well as to boost investor confidence" (p. 48). However, the available sources do not directly address Taiwan's compliance with this principle.

16. Accounting and auditing standards should be of a high and internationally acceptable quality.

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According to a regulatory and standard-setting framework assessment published by the National Federation of Certified Public Accountants Associations of Chinese Taiwan (NFCPAA) in 2004, listed companies are required to prepare financial statements in accordance with the Taiwanese Generally Accepted Accounting Principles (GAAP) pursuant to the Company Act. They must also submit annual financial statements to respective shareholders for their approval. In addition to Taiwanese GAAP, entities regulated by the SFB must follow "Guidelines Governing the Preparation of Financial Reports by Securities Issuers" and "Rules Governing Auditing and Certification of Financial Statements by Certified Public Accountants." According to the January 2008 Deloitte IAS Plus update, the Financial Accounting Standards Committee of the Accounting Research and Development Foundation in Taiwan "has made much effort to converge with International Financial Reporting Standards (IFRSs) since 1999." Furthermore, while most of the IFRSs have been incorporated into Taiwanese standards, efforts are still needed to fully converge with IFRSs. No further information as to Taiwan's compliance with this principle is publicly available.

17. The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a collective investment scheme.

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There is insufficient information publicly available clearly identifying Taiwan's compliance with this principle.

18. The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets.

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There is insufficient information publicly available clearly identifying Taiwan's compliance with this principle.

19. Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investor’s interest in the scheme.

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There is insufficient information publicly available clearly identifying Taiwan's compliance with this principle.

20. Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme.

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There is insufficient information publicly available clearly identifying Taiwan's compliance with this principle.

21. Regulation should provide for minimum entry standards for market intermediaries.

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The SFB, as stated on its website, is responsible for the regulation of market intermediaries. However, the available sources do not directly address Taiwan's compliance with this principle.

22. There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake.

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See Principle 21.

23. Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters.

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See Principle 21.

24. There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.

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See Principle 21.

25. The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight.

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The duties of the SFB, as stated on its website, include the overseeing of secondary trading on the TSE and the GTSM. However, the available sources do not directly address Taiwan's compliance with this principle.

26. There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants.

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The SFB, as stated on its website, has established a system for monitoring stock prices to curb trading abuses. Furthermore, the SFB is empowered to curb abuses and violations of the applicable laws and regulations. Administrative sanctions include issuing warnings, imposing fines and revoking licenses. According to the SFB website, the 2006 amendments to the Securities and Exchange Act include provisions on the prevention of market manipulation and insider trading. However, the available sources do not directly address Taiwan's compliance with this principle.

27. Regulation should promote transparency of trading.

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There is insufficient information publicly available clearly identifying Taiwan's compliance with this principle.

28. Regulation should be designed to detect and deter manipulation and other unfair trading practices.

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There is insufficient information publicly available clearly identifying Taiwan's compliance with this principle.

29. Regulation should aim to ensure the proper management of large exposures, default risk and market disruption.

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There is insufficient information publicly available clearly identifying Taiwan's compliance with this principle.

30. Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk.

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According to the SFB website, clearing and settlement for the trades executed at the TSE and the GTSM are carried out by the Clearing Department of the Taiwan Depository and Clearing Corporation. However, the available sources do not directly address Taiwan's compliance with this principle.