Pioneer Stock Board (PSB)

I.Foreword:

For the purpose of helping innovative enterprises raise funds in the capital market, the Pioneer Stock Board (PSB) will be introduced to the Emerging Stock Market. The PSB trading mechanism will follow an automatic matching and execution system with recommending securities firms acting as liquidity providers. In addition, given the investment risks with the innovative enterprises, only qualified investors or the PSB companies buying back their own shares in accordance with laws are eligible to buy the PSB stocks. The market structure of the Emerging Stock Market shows as follows:

II.PSB Stocks Trading:

(I) The PSB trading mechanism will be mostly identical to that of the TPEx Main board stocks, i.e., securities firms can trade PSB Stocks, either in proprietary trading or brokerage through TPEx automated trade matching system and after-hour odd lot trading system; or they can trade in proprietary trading through over-the-counter price negotiation. Key features are described below:

Item PSB Trading Mechanism
Matching mechanism Opening/closing sessions: Call auction
Intraday trading session: Continuous trading
Order placing hours 8:30-13:30
Trading hours 9:00-13:30
Tick size 6 brackets based on the stock price
Minimum trading unit 1,000 shares
Order types 6 types
Clearing/Settlement To be processed with TPEx Main board stocks
Other trading methods After-hour odd lot trading, over-the-counter price negotiation
Daily price fluctuation limit 20% (for both the automated trade matching system and the after-hour odd lot trading system)
Threshold for postponed sessions
(pre-opening/pre-closing)
and intraday volatility interruption
7%
Recommending securities firms Acting as liquidity providers
Trading limits The PSB stocks are not allowable to day trading, margin trading, securities borrowing and lending (securities borrowings for settlement permitted), block trading, after-hour fixed-price trading, intraday odd lot trading, or reverse auction. Also, securities firms are not permitted to trade the PSB stocks through omnibus trading accounts (OTA).

(II) PSB liquidity provider:

The advisory recommending securities firms of the PSB companies shall act as liquidity providers (two or more are required upon registration), and provide market liquidity through their subscribed shares. Furthermore, other qualified securities firms may apply with TPEx to become eligible liquidity providers of the respective PSB stocks after the respective issuers have registered on PSB for one month, without any requisite on subscription amount. The price quoting rules for liquidity providers are as follows:[1]

  1. Every quote shall comprise bid and ask prices (the order types cannot be IOC or FOK, according to the duration).
  2. The minimum quantity per quote is 1,000 shares.
  3. The spread between bid and ask quote shall not exceed 5%.
  4. When a trade is completed or canceled on a quote, the liquidity provider shall provide new quotes at least once every 10 minutes.

(III) Guidelines for the PSB investors::

  1. Buyers must be "qualified investors" or the PSB companies buying back their own shares in accordance with laws.
  2. Criterion for qualified investors:
    1. (1)Juristic person::
      • Professional institutional investors (including domestic and foreign banks, securities firms, and insurance companies), high net worth corporate investors (with a net worth exceeding NT$20 billion), juristic persons or funds that meet specific requirement on total assets and sufficient professional knowledge in financial products (with total assets exceeding NT$50 million), and trust enterprises, as defined under Article 3 of the Regulations Governing Offshore Structured Products.
      • Legally incorporated venture capital enterprises.
    2. (2)Natural persons with 2 or more years of experience in securities investment and meeting one of the following criteria:
      • net assets of NT$10 million or more, or
      • average annual income of NT$1.5 million or more over the last 2 fiscal years.
  3. Natural persons who meet the criteria for qualified investors are required to sign a Risk Disclosure Statement before buying the PSB stocks for the first time.
  4. Securities brokers shall obtain reasonable and reliable supporting evidence from the principals, and review regularly to check if the clients remain as a qualified investor.

[1] A liquidity provider is not required to provide quotes under the following circumstances:

  1. When the quantity of the PSB stocks in the liquidity provider’s segregated account is under 1,000 shares, providing merely bid quotes is permitted.
  2. When 30,000 or more shares have been bought or sold on the day.
  3. When the market discloses bid prices at limit-up, ask prices at limit-down, or trading at market price.
  4. When the PSB stock is a stock placed under disposition measures.

III.Comparison of trading mechanism between PSB, ESB and Main board:

Item     \     Type TPEx Main board Pioneer Stock Board (PSB) Emerging Stock Board (ESB)
I.Trading mechanism Automatic matching and execution Automatic matching and execution incorporated with liquidity providers acted by recommending securities firms Negotiated trading based on prices quoted by recommending securities firms
(I)Order placing hours 8:30~13:30 9:00~15:00
(II)Trading hours 9:00~13:30 9:00~15:00
(III)Minimum trading unit 1,000 shares 1 share
(IV)Order type 6 types of order Limit price order valid for the day only
(V)Trading method
  • Call auction in opening/closing sessions
  • Continuous trading during intraday trading hours
Recommending securities firms provide quotes and trade with investors by negotiation. In that way, a recommending securities firm is either the seller or buyer in any transaction.
(VI)Daily price fluctuation limit 10%; while no limit for newly listed companies on their first five days of listing 20%; while no limit for newly registered companies on their first five days of registering None
(VII)Threshold for postponed sessions (pre-opening/pre-closing) and intraday volatility interruption 3.5% 7% None
II.Recommending securities firms None Yes, to act as a liquidity provider to provide quotes Yes, to be responsible for quoting prices and be obliged to buy and sell shares
III.Investors signing Risk Disclosure Statement Not required (except for purchasing foreign stocks) Required(a qualified natural person is required to sign a Risk Disclosure Statement) Required(except for professional institutional investors)
IV.Restriction on investors None Buyers must be qualified investors or the PSB companies buying back their own shares in accordance with laws. None
V.Overseas Chinese and foreign investors (OC/FI) Allowed Allowed (excluding Mainland area investors) Allowed (excluding Mainland area investors)
VI.Day trading, margin trading, and securities borrowing and lending (SBL) Allowed Not allowed (only securities borrowing for settlement is permitted) Not allowed
VII.OTA trading Allowed Not allowed Allowed
VIII.Other trading methods After-hour/Intraday odd lot trading, after-hour fixed-price trading, block trading, reverse auction and over-the-counter negotiation After-hour odd lot trading and over-the-counter negotiation None
IX.Clearing/Settlement TPEx Main board stocks and the PSB stocks are processed together Processed by TDCC

I.Trading of the PSB stocks

Q1.How does an investor trade the PSB stocks?

Ans:Investors can use their existing securities accounts to buy or sell the PSB stocks. However, buyers of the PSB stocks are exclusively to the qualified investors, and qualified natural persons are required to sign a "Pioneer Stock Board Risk Disclosure Statement". Order placing hours and order types are identical to those for trading the TPEx Main board stocks. There are six types of order, three of limit price (ROD, IOC, and FOK) and three of market price (ROD, IOC, FOK). The orders are matched in call auction trading during opening/closing sessions and in continuous trading during mid-session, respectively. The clearing and settlement of the PSB stocks will be processed together with the TPEx Main board stocks.

 

Q2.What is the criterion for qualified investors of PSB?

Ans:

  1. Juristic person:
    • Professional institutional investors (including domestic and foreign banks, securities firms, and insurance companies), high net worth corporate investors (with a net worth exceeding NT$20 billion), juristic persons or funds with sufficient professional knowledge in financial products and total assets exceeding NT$50 million, and trust enterprises, which are defined under Article 3 of the Regulations Governing Offshore Structured Products.
    • Legally incorporated venture capital enterprises.
  2. Natural persons with 2 or more years of experience in securities investment and meeting one of the following criteria:
    • net assets of NT$10 million or more, or
    • the average annual income of NT$1.5 million or more over the last 2 fiscal years.

 

Q3.What shall the investors pay more attention to when trading the PSB stocks?

Ans: The PSB companies are emerging stock companies, on which TPEx does not perform on-site examination. Given that the PSB companies may have characteristics such as small-sized, relatively young, and not profitable yet, their stock prices would be more volatile. Investors are highly suggested to assess their own risk tolerance before investing.
Furthermore, the trading mechanism of the PSB stocks are identical to that of the TPEx Main board stocks in general, while different from the way the ESB stocks are traded. Investors should notice that the daily price fluctuation limit for the PSB stocks is 20% (while 10% for the Main board stocks); besides, the threshold for intraday volatility interruption and postponed sessions (pre-opening/pre-closing) is 7% (while 3.5% for the Main board stocks).

 

II.Trading and Settlement System

Q1.What are the trading hours for the PSB stocks?

Ans: The trading hours for the PSB stocks are the same as those for the TPEx Main board stocks. The hours for trading through the automated trade matching system are 9 a.m. to 1:30 p.m.; the hours for trading through the after-hour odd lot trading system are 1:40 p.m. to 2:30 p.m.

 

Q2.What is the trading unit of the PSB stocks?

Ans: The trading unit of the PSB stocks is the same as that of the TPEx Main board stocks, i.e., 1,000 shares or multiples of 1,000 shares.

 

Q3.What is the tick size of the PSB stocks?

Ans: The six brackets of tick size for the PSB stocks are the same as those for the TPEx Main board stocks, i.e., NT$0.01 for the market value of each share less than NT$10; NT$0.05 for NT$10 to less than NT$50; NT$0.1 for NT$50 to less than NT$100; NT$0.5 for NT$100 to less than NT$500; NT$1 for NT$500 to less than NT$1,000; NT$5 for NT$1,000 and above.

 

Q4.Is there daily price fluctuation limit on the PSB stocks?

Ans: Except that the newly registered companies are free from price fluctuation limit for the first five consecutive trading days, the PSB stocks are subject to a daily price fluctuation limit at 20% calculated on the reference price. However, when the fluctuation range calculated is less than the minimum tick size, it shall be set by the minimum tick size and the price may not fall below the minimum tick. This is different from what applies to the TPEx Main board stocks and the ESB stocks, to which the investors need to pay attention.

 

Q5.Does intraday volatility interruption system apply to the PSB stocks?

Ans: Yes. To mitigate wild volatility of the PSB stocks in a short period of time, TPEx will impose intraday volatility interruption on the PSB stocks, with exceptions of newly registered stocks during the fluctuation limit exemption period (i.e., the first five consecutive trading days), stocks subject to extended matching intervals implemented pursuant to the TPEx regulations, and stocks with basis price of opening trade at less than NT$1.
In specific, during the period starting from the first matching to a certain time prior to closing session, if the upward or downward movement of any given trade price calculated prior to matching exceeds 7% of reference price, TPEx will take the same volatility interruption measures as on the TPEx Main board stocks.

 

Q6.Is odd-lot trading permitted for the PSB stocks?

Ans: Yes. The PSB stocks can be traded through the TPEx after-hour odd lot trading system (trading hours 13:40 - 14:30). However, intraday odd lot trading is not permitted.

 

Q7.What are the method and timing for clearing and settlement of the PSB stocks??

Ans: Clearing and settlement for the PSB stocks are processed together with those for the TPEx Main board stocks. In other words, both securities and payments will be settled by the book-entry transfer method. The clearing and settlement should be completed before 10 a.m. of the second business day following the transaction date.

 

III.PSB liquidity providers

Q1.How do liquidity providers of the PSB stocks quote prices?

Ans: PSB liquidity providers should quote prices at least once every 10 minutes. A quote should comprise “bid” and “ask” prices, and the spread between best bid-ask prices shall not exceed 5%

 

Q2.What is the minimum quantity per quote by the PSB liquidity providers?

Ans: The minimum quantity per single quote is identical to the minimum trading unit (i.e., 1,000 shares).

 

Q3.Are there circumstances under which the PSB liquidity providers will not provide a quote?

Ans: Yes, the PSB liquidity providers will be allowed not to provide quotes under the following circumstances:

  1. When the quantity of the respective PSB stocks in the liquidity provider's segregated account is under 1,000 shares, the liquidity provider may provide a bid quote only.
  2. When 30,000 or more shares have been bought or sold through the TPEx automated trade matching system on the trading day.
  3. When the quote table discloses bid prices at limit-up, ask prices at limit-down, or trading at market price on the trading day.
  4. When the respective PSB stock is a stock placed under disposition measures.

IV.Market information

Q1.Where can investors find market information of the PSB stocks?

Ans:

  1. During the trading hours, TPEx provides information on executed prices, volume and the best five bid/ask unexecuted orders of the PSB stocks on a real-time basis. Investors will be able to obtain market information from the TPEx website, securities firms, real-time information systems provided by IT firms or by telephoning securities brokers.
  2. TPEx prepares and publishes daily trading stats on the PSB stocks after market closing.

V.Others

Q1.Do investors have to pay the securities transaction tax on the PSB stocks transaction? What is the tax rate?

Ans: As with the TWSE/TPEx Main board listed stocks and the ESB stocks, the securities transaction tax is levied on the sellers of the PSB stocks. The securities brokers, as collecting agents, will collect a transaction tax from its customers who sell the PSB stocks at the rate of 0.3% of the transaction amount.

 

Q2.What are the fees for investors trading the PSB stocks?

Ans: As with the ESB stocks, the fee schedule for the PSB stocks is determined by securities brokers based on their clients' transaction amounts, sometimes with discounts and minimum fees set in place. Their clients shall be notified by the brokers of any rates exceeding 0.5% before effective.

 

Regulations will be released once ready.