ESB Rules

I. Foreword:

The Emerging Stock Board (ESB) is established for investors to trade unlisted stocks efficiently in a well-regulated environment. Therefore, there are no conditions, such as the requirement of the applying company’s profitability and dispersion of shareholding. No review procedures similar to those for TWSE/TPEx listing of stocks are set. A company that has been recommended by two or more Recommending Securities Firms (RSFs) will be eligible for ESB registration.
Trades of Emerging Stock are dominated by bid and ask quotations of RSFs. RSFs are obligated to continuously quote bid and sell order quotations, and the counterparty of an executed trade of Emerging Stock must be the RSF thereof. Trades cannot be executed between investors.

II. Trading Procedures of Emerging Stock:

Trading_Procedures_of_Emerging_Stock

III. Trading Rules:

(I) Trading hours: 9:00 A.M. - 3:00 P.M.

(II) Daily price fluctuation limit: No fluctuation limit.

(III) Trade unit: 1 share.

(IV) Tick: The fixed tick (NT$0.01) is adopted currently. It will be changed to be the same of that of TWSE (TPEx)-listed stocks from Mar 23, 2020, where the tick will be divided into 6 different brackets based on the stock price (as in the following table).

Price Brackets for Emerging Stock Tick
1 Stock price < NT$10 NT$0.01
2 NT$10 ≦ Stock price < NT$50 NT$0.05
3 NT$50 ≦ Stock price < NT$100 NT$0.1
4 NT$100 ≦ Stock price < NT$500 NT$0.5
5 NT$500 ≦Stock price < NT$1,000 NT$1
6 Stock price ≧ NT$ 1,000 NT$5

(V) RSFs’ obligation of market making:

1. RSFs’ quotes are all firm quotes

2. Continuous quotes: During the trading hours, a new quote shall be offered within three minutes after the RSF’s quote is executed or canceled.

3. Bid-ask quote: In principle the RSF shall offer a quote comprising a “Bid” and an “Ask.”

4. The spread between the bid and ask quoted by the RSF shall not exceed five percent of the ask price.

5. The quote volume shall not fall below the minimum quantity:

(1) For quoted price < NT$20, the minimum quantity is 5,000 shares.

(2) For NT$20 ≦ quoted price < NT$100, the minimum quantity is 3,000 shares.

(3) For quoted price ≧ NT$100, the minimum quantity is 2,000 shares.


(VI) Price negotiation through the Emerging Stock Computerized Price Negotiation and Click System(the Click System): If the investor’s 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 allocate the order to the RSF with the best quote; 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), the RSFs are not obliged to execute the transaction.


(VII) Price negotiation at securities firm’s place of business (Outside system price negotiation): When the RSF and the securities broker conduct the price negotiation directly, the trading volume shall be 100,000 shares or higher or the trading value shall be NT$5 million or higher, and any of the following conditions shall be met:

  1. A brokered buy-sell trade is executed on the same trading day and the counterparty is not an insider of such Emerging stock board (ESB) company.
  2. Other matters approved by TPEx.

※Trading methods of outside system price negotiation on ESB are summarized as below:

Counterparty Type of Transactions Description Rules about Quantity/Amount Rules about Execution Price
RSF and customers of securities broker A brokered buy-sell trade is executed with a RSF on the same trading day (either of the counterparties is not an insider of such ESB company). Where the trading volume or trading value meet the criteria, the investor may engage the securities broker to negotiate with RSF. A trading volume is no less than 100,000 shares or a trading value is no less than NT$5 million or more. 1. The spread between the execution price and the quote offered by the RSF then shall not exceed ten percent.
2. For a brokered buy-sell trade, the execution price shall be between the bid quote and ask quote offered by the RSF.
Other matters approved by TPEx.
Out-trades by securities brokers A securities broker handles the out-trade through its error account by a repurchase or resale of equal volume. None
RSF and securities dealer intending to participate in recommendation. Outside system price negotiation with securities dealer intending to participate in recommendation A securities dealer intending to participate in recommendation can acquires the shares by outside system price negotiation. A trading volume is no less than 30,000 shares.
RSF and other RSF. Negotiate price directly with other RSFs. Must comply with RSF’s internal operating rules for the trading of Emerging Stock. None

(VIII) Trading Halt for Individual ESB stocks: In light that no fluctuation limit is set on Emerging Stock, and in order to prevent investors from undergoing trading risks derived from irregular price volatility, when the spread between weighted average trading price of individual ESB stocks during the trading session and on the previous business day reaches fifty percent (inclusive) or higher, trades of such Emerging Stock will be suspended till the end of the trading hours on that day, and trading will be resumed on the next business day. However, any of the following special conditions will be excluded from the trading halt for individual ESB stock:

  1. From the business day following the announcement of termination of EMB trading.
  2. It is an ex-rights/ex-dividend trading date.
  3. It is a trade resumption day after capital reduction.
  4. First five business days when Emerging Stock begin to be traded on the TPEx.
  5. The weighted average trading price of Emerging Stock on the previous business day fell below NT$1.

Q&A

(I) Investor orders

Q1. When an investor places an order to trade Emerging Stock, 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 Stock 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. [Example 1] The RSF changes the quote to make the trading order meet the price quoted
    3. 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 Stock?

Ans:
Investors can trade Emerging Stock 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 Stock 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 Emerging Stock 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).

 

Q3. When an investor places an order to trade Emerging Stock, which matter requires attention?

Ans:
Emerging Stock are traded in a market where price negotiations are driven by quotes offered by RSFs. When an investor trades Emerging Stock, 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.

 

(II) Trading rules

Q4. 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]. [Example 2] Distribution of trading orders meeting prices quoted
    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]. [Example 3] Odd lot orders of less than 1,000 shares
  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] [Example 4] When a RSF clicks an order not meeting the price quoted, it is not allowed to trade through

 

(III) Determination of execution price

Q5. 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. [Illustration] Trading orders meeting price quoted
  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. [Illustration] Trading orders not meeting the price quoted
    2. The bid and ask quotes made by a RSF for an Emerging Stock are NT$50 and NT$52.5, respectively. An investor’s sell order falls between NT$50.5 and NT$52, both of which are trading orders not meeting the price quoted and RSFs are no obligation to execute. If a RSF is willing to execute the order and clicks such trading order not meeting the price quoted with an sell order at NT$51 by means of clicking. 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), and the RSF should execute all trading orders not meeting the price quoted with an ask order price better than (lower than or equal to) NT$51, so as to prevent trade-throughs (The Click System will prevent the trade-throughs,). The execution price is always the order price clicked and traded by the RSF (NT$51). [Illustration] Trading orders not meeting the price quoted

 

Q6. What should investors pay attention to when execution prices are RSFs’ quotes?

Ans:
Trades of Emerging Stock 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 Stock, RSFs’ ask(bid) quotes must be taken into consideration Emerging Stock in order to increase the chance of execution.

 

Q7. why is the order not executed?

Ans:
  1. Because Emerging Stock Market 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 Stock market making business). When investor buy Emerging Stock , it represents that a RSF sells Emerging Stock to an investor (execution prices are ask quotes from RSFs). When an investor sells Emerging Stock, it represents that a RSF buys Emerging Stock 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 Stock > Day Trading Information” and “Homepage > Emerging Stock > Market Report of Emerging Stock > 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]. [Example 5] Illustration of an example when a buy order is higher than the execution price

[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

Regulations Page


  1. (Scheduled) On Mar 23, 2020, with reference to the rules of TPEx/TWSE-listed stocks, the minimum unit for reporting trading prices of Emerging Stock will be adjusted from the existing fixed tick unit to six different brackets:
    Announcement No. Securities-TPEx-Trading-10800529021 dated Mar. 14, 2019. Information link: Please click here

  2. (Scheduled) On Mar 23, 2020, the Taipei Exchange Rules Governing the Trading of Emerging Stock on the TPEx and relevant regulations will be amended to accommodate to the implementation of the continuous trading system during mid-session since Mar. 23, 2020.
    Announcement No. Securities-TPEx-Trading-10700539481 dated Dec. 28, 2018. Information link: Please click here

  3. On Aug. 15 2016, with regard to strengthening Emerging StockRSFs’ market-making obligation (shortening the frequency of continuous quotes and the period in which RSFs are required to repurchase the shares for insufficient holding position), restricting methods of outside system price negotiation, and adding the rule of trading halt for individual Emerging Stock:
    1. Announcement of Regulations: Announcement No. Securities-TPEx-Trading-10500032381 dated Feb. 19, 2016. Information link: Please click here
    2. Announcement of the implementation date: Announcement No. Securities-TPEx-Trading-10500093851 dated Apr. 13, 2016. Information link: Please click here

  4. On Feb. 15, 2016, to adjust the DVP timing of Emerging Stock to Day T + 2 and adjust the timing reporting the trading detail of Emerging Stock through omnibus trading accounts.
    Announcement No. Securities-TPEx-Trading-10500020871 dated Jan. 25, 2016. Information link: Please click here

  5. On Oct. 6,2014, to allow to trade Emerging Stock through omnibus trading accounts, add trading methods through outside system price negotiation, and allow an error account of the payment settlement may be conducted on the basis of the net balance after offsetting the purchases and sales.
    1. Announcement of Regulations: Announcement No. Securities-TPEx-Trading-10300141551 dated Jun. 13, 2014. Information link: Please click here
    2. Announcement of the implementation date: Announcement No. Securities-TPEx-Trading-10300230482 dated Aug. 25, 2014. Information link: Please click here

  6. On Jan. 7, 2013, to implement the trading rules, including RSFs with the best quote have the priority to execute, execution prices to be determined by quotes from RSFs, instant execution of trading orders meeting prices quoted, and minimum quoted volume to be determined by price brackets.
    1. Announcement of Regulations: Announcement No. Securities-TPEx-Trading-1010019748 dated Aug. 22 2012. Information link: Please click here
    2. Announcement of the implementation date: Announcement No. Securities-TPEx-Trading-1010025516 dated Oct. 18, 2012. Information link: Please click here

Education

  1. Training materials about the implementation of the Emerging Stock trading rules from Aug. 15, 2016. Download

  2. Training materials about the implementation of the Emerging Stock trading rules from Oct. 6, 2014.
    1. Trading rules: Download
    2. Computer system: Download
    3. Book-entry operations: Download

  3. Training materials about the implementation of the Emerging Stock trading rules from Jan 7, 2013.
    1. Training slides: Download
    2. Training publicity: Download*Download
    3. Q&A for Recommending Securities Firms of the Emerging Stock trading rules: Download
    4. Emerging Stock trading rules Q&A pamphlets: Download