Taipei Exchange

Q&A

(I) Investor orders

Q1. When an investor places an order to trade Emerging stocks, how will the order be executed?

Ans:
Two scenarios will occur after an order is made by the investor through the securities broker:

1. If the price reaches the range of quotes from the RSFs (trading order meeting the price quoted: Investor’s buy order≧ RSF’s ask quote; Investor’s sell order ≦ RSF’s bid quote), the Click System will automatically allocate the order to the RSF with the best quote (highest bid quote or lowest ask quote) and trading will be executed immediately.
2. If the price does not reach the range of quotes from the RSFs (trading order not meeting the price quoted: Investor’s buy order < RSF’s ask quote; Investor’s sell order > RSF’s bid quote), trading will not be executed and will not proceed unless RSFs adjust quotes or trade by clicking . The process is described in detail as follows:
   1. The RSF changes quote to make the trading order meet the price quoted, and the Emerging stocks Computerized Price Negotiation and Click System (the "Click System") facilitates execution: For example, a RSF submits a bid quote of NT$10 and an investor submits an sell order of NT$10.5. It is a trading order not meeting the price quoted. However, the RSF then adjusts the bid quote to NT$10.5 or higher, thus making it a trading order meeting the price quoted. The Click System will then facilitate execution [Example 1].
   2. When the RSF clicks and trades an order not meeting the price quoted, if at the time of the click-and-trade the ask (or bid) order price is lower (or higher) than the ask (or bid) order price clicked, the transaction shall be executed in full . Please see [Example 4] for detailed rules.

Q2. How do investors trade Emerging stocks?

Ans:
Investors can trade Emerging stocks by either of the two following methods:

1. To commission securities brokers to negotiate prices through the Click System:An investor can commission securities broker where the investor has an account to enter a trading order into the Click System and proceed to negotiate prices with the RSFs. If the investor’s price reaches the range of quotes from the RSFs (trading order meeting the price quoted), the Click System will allocate the order to the RSF with the best quote and facilitate execution. If the price does not reach the range of quotes from the RSFs (trading order not meeting the price quoted), the RSFs are not obliged to execute orders (they may click and trade the order , but it is optional ). Therefore, Emerging stocks investors should take ask quotes by RSFs into consideration before deciding a buy order price; and should take bid quotes by RSFs into consideration before deciding an sell order price in order to increase the chance of execution.
2. Commission securities brokers to engage RSFs in brokered trades through outside system price negotiation:Buyers and sellers whose transactions involve 100,000 shares or more or NT$5 million or more may commission a broker to engage RSFs in brokered buy-sell trades through outside system price negotiation (i.e., brokered trades). However, neither the buyer nor the seller can be an insider of such ESB Company[1] , and the execution price must be between the bid and ask quotes from RSFs at the time[2] . Examples:
   Investor A has 100,000 shares of ESB companies and intends to sell them to Investor B. Investors A and B may commission their own securities brokers to engage RSF C in brokered buy-sell trades through outside system price negotiation (i.e., brokered trades). Investor A will sell stocks to RSF C, and then RSF C will sell stocks to Investor B. If a RSF makes a bid quote of NT$10 and an ask quote of NT$10.3 at the time outside system price negotiation is concluded, the execution price sold by Investor A to RSF C and sold by RSF C to Investor B shall be between the bid quote (NT$10) and the ask quote (NT$10.3).

[1]An insider of a ESB company refers to the personnel set out in Article 22-2 of the Securities and Exchange Act and Article 2 of the Securities and Exchange Act Enforcement Rules.

[2]Bid quote≦The execution prices of brokered buy-sell trades through outside system price negotiation≦Ask quote

Q3. How come the order information of investors is not disclosed?

Ans:
ESB is a quote-driven market. The counterparty must be the Recommending Securities Firm (RSF). Thus information publicly disclosed is the ask and bid quotes provided by RSFs. The order information of investors is not supposed to disclose.

Q4. When an investor places an order to trade Emerging stocks, which matter requires attention?

Ans:
Emerging stocks are traded in a market where price negotiations are driven by quotes offered by RSFs. When an investor trades Emerging stocks, one side of the a transaction must be the RSF thereof, and the quote offered by the RSF is the execution price. Therefore, quotes made by RSFs serve as important reference information for investors placing orders. Because TPEx discloses bid/ask quotes made by RSFs at the beginning of trading hours each business day (9:00 A.M.), and the Click System also starts accepting orders at 9:00 A.M., and in order to increase investors’ opportunities of execution, investors are recommended to place orders after bid/ask quotes are disclosed at 9:00 A.M.

Q5. What are the restrictions on the order price of Emerging stocks?

Ans:

Trades of Emerging stocks are dominated by bid and ask quotations of Recommending Securities Firms (RSFs). The counterparty of an executed trade of Emerging stocks must be the RSF and the quote offered by the RSF is the execution price. Therefore, the significant deviation between investors’ order prices and the quote would result in low chance of matching. Investors are advised to take reference to quoted prices before making order prices.

The amendment for the price range of orders is introduced on 17 Oct, 2022.

1. If an order price is 30% higher or lower than the average price of the best bid and ask quotations among the recommending securities firms at the time of placing the order (the base price), the order will be rejected. Provided that it is not applicable for the first five business days on which the stock begins to be traded on the TPEx.
2. For the first five business days on which a stock begins to be traded on the TPEx, there is no limitation on the price range of orders and a reminder message will appear in the Click System when the price of an order is 30% higher or lower than the base price.

(II) Trading rules

Q6. what is the tick of Emerging stocks?

Ans:
The tick of Emerging stocks is the same of that of TWSE (TPEx)-listed stocks, where the tick will be divided into 6 different brackets based on the stock price (as in the following table).

Q7. What are the trading rules for orders?

Ans:

1. The trading rules for trading orders meeting prices quoted (Investor’s buy order ≧ RSF’s ask quote; Investor’s sell order ≦ RSF’s bid quote) are as follows:
   1. Priorities are given to the RSF offering the best quote: For a trading order meeting the price quoted, the Click System will automatically allocate the order to the RSF with the best quote (highest bid quote or lowest ask quote). If two or more RSFs have equal quotes, priority will be given to the RSF who quoted earlier, and the Click System will facilitate executing within the quantity quoted by the RSF [Example 2].
   2. Investor’s odd lot orders of less than 1,000 shares will still be allocated by the system to the RSF with the best quote [Example 3].
2. RSFs can click and trade the trading orders not meeting prices quoted (Investor’s buy order < RSF’s ask quote; Investor’s sell order > RSF’s bid quote). The trading rules are as follows:
   1. Treated as changed quotes: When a RSF clicks and trades a trading order not meeting the price quoted, the system will automatically adjust the quote to the price of the trading order.
   2. The rule that priority is given to better order prices must be observed. It is not allowed to trade through: When the RSF clicks and trades an order not meeting the price quoted, if at the time of the click-and-trade the ask (or bid) order price is lower (or higher) than the ask (or bid) order price clicked, the transaction shall be executed in full. For example, the RSF clicks a buy order with a price of NT$10, any other buy orders with a price of NT$10.1, NT$10.2, or so on (higher than NT$10) should be executed .] [Example 4]
   

(III) Determination of execution price

Q8. What is an execution price?

Ans:
Execution prices are RSF’s quotes or the order prices clicked by RSFs. For example:

1. Trading orders meeting price quoted:
   The bid and ask quotes for an Emerging stock are NT$50 and NT$52.5, respectively. Investor A submits an sell order at NT$46.5 and Investor B submits a buy order at NT$56.5, both of which deviate from quotes in the market. The execution prices are then determined by quotes from RSFs. Therefore, A would sell at NT$50 and B would buy at NT$52.5. The formation of execution prices (quotes from RSFs) will be in favor of investors.
2. Trading orders not meeting the price quoted:
   
   1. The bid and ask quotes for an Emerging stock are NT$50 and NT$52.5, respectively. Investor A submits an sell order at NT$51, which is a trading order not meeting the price quoted and should not be executed. If a RSF is willing to execute the order not meeting the price quoted, the RSF can click and trade such trading order . The Click System will automatically adjust the bid quote made by such RSF to the clicked order price at NT$51 (while no adjustment would be made to the ask quote). Thus, Investor A would sell stocks at NT$51.
   2. The bid and ask quotes for an Emerging stock are NT$50 and NT$52.5, respectively. Investor A submits an sell order at NT$51, which is a trading order not meeting the price quoted and should not be executed. If a RSF is willing to execute the order not meeting the price quoted, the RSF can click and trade such trading order . The Click System will automatically adjust the bid quote made by such RSF to the clicked order price at NT$51 (while no adjustment would be made to the ask quote). Thus, Investor A would sell stocks at NT$51.

Q9. What should investors pay attention to when execution prices are RSFs’ quotes?

Ans:
Trades of Emerging stocks are dominated by bid and ask quotations of RSFs, and one side of a transaction must be the RSF. If the investor’s trading order meets the price quoted (Investor’s buy order ≧ RSF’s ask quote; Investor’s sell order ≦ RSF’s bid quote), the Click System will allocate the order to the RSF with the best quote and automatically facilitate executing. Thus, when investors place orders to buy (sell) Emerging stocks, RSFs’ ask(bid) quotes must be taken into consideration Emerging stocks in order to increase the chance of execution.

Q10. why is the order not executed?

Ans:

1. Because ESB is a quote-driven market, the counterparty must be the RSF thereof no orders can be executed between investors. There must be a spread between the bid and ask quote (due to necessary operating costs required by RSFs in running the Emerging stocks market making business). When investor buy ESB stocks , it represents that a RSF sells Emerging stocks to an investor (execution prices are ask quotes from RSFs). When an investor sells Emerging stocks, it represents that a RSF buys Emerging stocks from an investor (execution prices are bid quotes from RSFs). Therefore, investors should determine an execution price that is the price for investor’s buy order or sell order while referring to the execution price. TPEx’s official website’s “Homepage > Emerging stocks > Day Trading Information” and “Homepage > Emerging stocks > Market Report of Emerging stocks > Trading Information of Individual Stocks” both disclose “Investors’ Trading Types” for the reference of the public.
2. For example, although an investor’s buy order is higher than the latest execution price, it may be another investor’s sell order. Therefore, different trading types are not suitable for comparison. Investors should instead take into consideration whether the RSF’s ask quote is lower than the buy order (or whether the bid quote is higher than the sell order) in order to increase the chance of execution. [Example 5].

(IV) RSF’s bid and ask quotes for Emerging stocks:

Q11. The minimum volume of bid and ask quotation for Emerging stocks?

Ans:
RSF’s minimum volume of bid and ask quotation for Emerging stocks shall be as follows:

1. 5,000 shares if the quoted price is less than NT$20.
2. 3,000 shares if the quoted price is NT$20 or more but less than NT$100.
3. 2,000 shares if the quoted price is NT$100 or more.

Q12. RSF’s bid and ask quotation for Emerging stocks?

Ans:

1. Self-quotation: RSFs are obligated to continuously quote both bid and sell order quotations.
2. Adjusted-quotation after execution of computer-assisted automatic click-and-trade system: As the RSFs clicks and trades a trading order not meeting the price quoted, the clicked trading order price shall be deemed as the changed quoted price.

Q13. The exceptional circumstances for RSFs with the obligation to make corrections within one business day and perform the obligation to provide sell quotes?

Ans:
RSFs holding less than the minimum quoted volume of the Emerging stocks should make corrections within one business day and perform the obligation to provide sell quotes. And RSFs may make corrections within two business days and perform the obligation to provide sell quotes provide sell quotes as following conditions

1. When the weighted average trading price of Emerging stocks during the trading session reaches fifty percent or higher than the weighted average trading price of Emerging stocks on the previous business day.
2. It is a trade resumption day after capital reduction.
3. No sell order in the market.

(V) The guidelines for a securities broker conducting brokerage trading of Emerging stocks

Q14. When securities firms accept orders from customers who trade Emerging stocks for the first time, which matter requires attention?

Ans:
In accordance with Article 15 of Taipei Exchange Rules Governing the Trading of Emerging Stocks on the TPEx, a customer trading Emerging Stocks on the TPEx for the first time shall enter into an Emerging Stock Risk Disclosure Statement with a securities firm, which institutional investors are exempted from signing. In addition, according to the TPEx letter No. 0980300962 dated May 12, 2009, a customer who is a natural person is required to have established a brokerage account for three months and have had at least 10 trading orders executed when securities firms accept the customer’s order for the first time purchasing foreign emerging stock companies.

Q15. How do securities brokers report a default of Emerging stocks?

Ans:
In accordance with Article 33 and 36 of Taipei Exchange Rules Governing the Trading of Emerging Stocks on the TPEx and the rules of Taiwan Depository & Clearing Corporation , a securities broker shall collect the purchase amount or the sold Emerging Stocks by 10 a.m. of the second business day after the trade date. If a customer fails to settle, the securities broker shall complete the settlement for the customer and notify TPEx in writing (download the document) before 10:30 a.m. of the second business day after the trade date

Q16. How do securities firm perform the account change operation?

Ans:
In accordance with Article 14 of Taipei Exchange Rules Governing the Trading of Emerging Stocks on the TPEx and the rules of Taiwan Depository & Clearing Corporation, a securities firm shall perform an account change operation such as the error correction or trade cancellation by 3:30 p.m. on the trade date in the format prescribed by the TPEx via the online information system specified by the TPEx.