Taipei Exchange

1. Overview of the TPEx Stock Market

Types of companies suitable for trading on the TPEx:

(1) Those with a shorter public issue period:

The majority of TPEx members are companies of this type.

(2) Those of a relatively small size with growth potential:

Many enterprises that do not meet the size requirement yet show great potential can obtain funding by applying for listing on the securities market and expanding their businesses.

(3) Enterprises under more conservative management:

Some business managers are devoted to business management and are unwilling to recognize speculative trading of their stocks. TPEx listed stocks have a less complicated nature and a lower margin percentage as well as a lower trading risk. In addition, all TPEx listed stock transactions are conducted by book-entry transfer, which makes it easy to track funds and stocks and less attractive to speculative traders and large investors who are less interested in gaining control of a company.

Advantages of listing on the TPEx:

(1) Build a better corporate image, increase exposure, and recruit top talent:

All TPEx listed companies must undergo rigorous reviews of profitability, financial structure, and internal control mechanisms. As a result, companies that are listed on the TPEx enjoy an excellent reputation. In addition, listing on the TPEx enables companies to build a more positive corporate image and receive greater exposure, resulting in further intangible benefits such as business promotion and ability to attract top talent.

(2) Realize long term business results:

All companies that meet the listing requirements are companies that have grown strong under the management of hardworking founding shareholders. However, these companies cannot realize their value as their stocks are not circulated on the open market. Having their stocks listed on the TPEx will enable these companies to achieve their long term business goals.

(3) Eliminate labor disputes:

There have been a large number of labor disputes in recent years, and the underlying cause in most cases is a disagreement between the employer and its employees. By becoming a TPEx listed company and following the Company Act to implement employee bonuses and stock options, employees who are also shareholders have fewer differences with their employer and disputes are less likely to occur.

(4) Strengthen corporate management:

The focus of the TPEx listing review is to see if a company possesses sound finance, accounting and budget systems that are strictly observed. Therefore, TPEx listing enables a company to strengthen its management system.

(5) Facilitate financing and support company expansion:

TPEx listed companies have a positive image and their stocks offer good marketability. Investors are more open to TPEx listed stocks while companies can issue common shares and corporate bonds to raise a large amount of fund at a lower cost for business expansion.

Application requirements under the review rules:

(1) Apply to the Financial Supervisory Commission for a public offering.

(2) A paid-in capital exceeding NT$50 million, based on the capital recorded on the proof of company registration (or change of registration). However, privately placed securities that have not been publicly issued will not be included in the calculation of the aforementioned share capital.

(3) Two complete fiscal years since registration in accordance with the Company Act. The percentage of the net profit before tax out of capital on the financial statements in the most recent year is 4% or higher and the closing result in the most recent fiscal year does not show a cumulative loss; or the average over the two most recent years is 3% or higher and the profitability in the most recent year is better than the year before. The aforementioned profitability in the financial statements does not include the impact by the net profit (loss) from non-controlling equity. However, the aforementioned net profit before tax may not be lower than NT$4 million in the most recent fiscal year.

(4) The number of non-corporate registered shareholders in the company who hold more than 50% of the shares is not smaller than 300 and the total shares held by said parties are 20% more of the total outstanding shares or exceed 10 million shares.

(5) The directors, supervisors, and the shareholders holding 10% or more of the total issued shares of the company shall carry out matters relating to placement in central custody and withdrawal from custody upon expiration for the entire amount of their shareholding in accordance with the TPEx rules.

(6) Written recommendations from 2 or more securities dealers. However, it should be required that one of the securities dealers is a lead recommending dealer and the other co-dealers.

(7) An appointed professional shareholder services agent to handle shareholder services. A TPEx listed company that was listed at any time from 2 January 2013 onward shall engage a professional shareholder services agent to handle shareholder services, and may not take those services back into its own hands.

(8) Its stock shall have been traded on the emerging stock market for not less than 6 months, provided that if the lead recommending dealer is changed, the issuer shall undergo guidance by the newly appointed lead recommending dealer, and then be traded for a further period of not less than 6 months on the emerging stock market before it may submit an application for listing on the TPEx.

(9) Stocks and bonds issued by offering should be issued in dematerialized form without exception.

(10) A remuneration committee shall be established pursuant to Article 14-6 of the Securities and Exchange Act and related regulations.

(11) State-owned enterprises applying for trading of their stocks on the TPEx shall not be subject to the restrictions under Items 3 to 5 and Item 8.

(12) A securities enterprise, futures enterprise, financial enterprise, or insurance enterprise which applies for trading of its stocks on the TPEx shall first obtain an approval letter from the authority in charge of said enterprises.

(13) Publicly offered companies that have obtained a letter of opinion from the central competent authority proving the identity of the respective applicant as a technology company and stating the success of its product or technology development and marketability shall not be subject to the restrictions under Item 3. However, shareholders holding not less than 5% of the shares, and those providing patent rights or technical know-how as capital contribution, holding a position in the company, and holding not less than 0.5% of the total issued shares or 100,000 or more shares of the company at the time of application for trading on the TPEx shall carry out matters relating to placement of their shares in central custody according to Item 5.

2.Features of TPEx Trading System:

Under the TPEx trading system, stocks may be traded via over-the-counter negotiation or via TPEx automated trade matching system which has the following features:

1. The automated trade matching system was developed with the computer facilities of Taiwan Stock Exchange. The system matches orders and reports executed trades instantly to enhance the trading efficiency.
2. The disclosure of stock quotes is highly transparent on TPEx. The TPEx system also discloses the volumes of best asks and bids without being subject to the two up/down tick rule.

Trading Methods:

1. Over-the-counter negotiation: (TPEx Rules §71)
   Over-the-counter negotiation is allowed for the following trades:
   1. Trading between securities dealers.
   2. Trading between a securities dealer and an investor involving 100,000 shares in one transaction.
   3. Trading between a broker and a dealer where the broker buys stocks from the dealer via its out-trade or settlement default account.
2. Automated trade matching system:
   Under the automated trade matching system, orders placed by brokers and dealers are matched automatically by the unit of 1,000 shares, and each order is limited to the volume of 500,000 shares. The automated trade matching system operates in the same manner as the trading system of Taiwan Stock Exchange where the dealer or the broker inputs the volume and price of stock to be bought or sold into the order book and the order is matched by the automated trade matching system.
3. Odd-lot trading system:
   Orders involving volume of 999 shares or less are also matched by computer.

Trading Hours:

1. Over-the-counter negotiation: Monday ~ Friday, 9:00 ~ 15:00.
2. Automated Trade Matching System: Monday ~ Friday, 9:00 ~ 13:30.
3. Odd-lot Trading System: Monday ~ Friday, 1:40 ~ 2:30PM. Transactions shall be completed on the day of the bid.

Transaction Price:

1. Over-the-counter negotiation: The transaction price is the price agreed between the buyer and the seller, which however shall not exceed the daily price limits of the reference price.
2. Automated Trade Matching System:
   Subject to the daily price limits of the reference price, the transaction price is determined by the following principles:
   1. Pre-opening session (8:30 ~ 09:00): The bid quotes higher than the transaction price and the ask quotes lower than the transaction price must be fully filled.
   2. Regular trading session (after 09:00): Orders, including the ones not filled in the pre-opening session, are matched one-by-one at the most reasonable price.
   3. Odd-Lot Trading System: Subject to the limits of 10% of the opening reference price of the day during regular trading session, the transaction price of odd-lot shares is the price that enables the largest number of orders to be executed. The daily price limits however do not apply to newly listed stocks in the first five days of trading for both regular trading and odd-lot trading.

Tick Size:

Securities Transaction Tax and Commissions:

Securities transaction tax is levied on sellers at 0.3% of the value traded. Brokerage commission is subject to a maximum of 0.1425% of the traded value, whereas no commission may be charged for transactions taken place over-the-counter by negotiation.

Settlement:

All stock transactions are settled by book-entry transfer and the settlement is completed on the next business day following the date of transaction.

Margin Trading:

Margin trading of TPEx stocks was launched on January 5, 1999, and day offset of margin purchase and short selling was implemented on November 14, 2005.

What Investors Should Know:

With the number of listed stocks on the rise, investors are expected to become more interested in individual stocks than in the market index. The need to understand the cyclic change of a specific industry and the prospect of a specific stock undoubtedly becomes a new challenge for investors. Although investment information is more readily accessible and available on the web, financial magazines, and TV, investors still need to keep abreast of the viable and updated information and prudently select target stocks. With the implementation of margin trading on TPEx, the market is expected to attract more funds as investors anticipates improved liquidity that will reasonably adjust the stock prices. But investors must understand that in a “high risk and high return” market, it is vital to be diligent in collecting and analyzing information on the fundamentals of a specific stock or a specific industry. As the majority of TPEx-listed companies are in growing stage, investors are advised to buy stocks with their own funds and pick stocks for medium- or long-term investment and avoid over-expansion of personal credit. By investing wisely in TPEx stocks, investors not only creates personal wealth but also supports growing small and medium-sized businesses, which is tantamount to helping strengthen the power of the nation.