02 November, 2007
EY Approves Draft Amendments to Securities and Exchange Act
The Executive Yuan has approved amendments to Articles 21-1, 36, and 157 of the Securities and Exchange Act and will now send the proposed amendments to the Legislature.
Article 21-1 currently authorizes the Financial Supervisory Commission to enter into agreements with its counterparts in other jurisdictions relating to information exchange, technical cooperation, and law enforcement investigations. Under this Article, the Commission may also request corporations, organizations, and private individuals to provide it with the information it needs to carry out these agreements. The proposed amendment to Article 21-1 makes compliance with the requests compulsory.
Article 36 sets out reporting requirements for listed companies. Currently, listed companies are required to issue audited and certified financial reports within one month of the end of the first and third quarters. In addition, they are required to issue an audited and certified financial report which has also been approved by its board of directors within four months of the close of the fiscal year. In practice, this arrangement creates a six month gap with no financial reporting between the end of October when the Q3 financial report is released and the end of April when the year end financial report approved by the board of directors is issued. The proposed amendment would require year-end financial reports to be issued by the end of March, thereby reducing the six month reporting gap to five months.
Article 36 is also amended to create a mechanism by which listed companies can apply to the Commission to delay issuing their financial reports. Approval may be granted in cases where a listed company has been placed in regulatory receivership or the certifying accountant has been disbarred. These measures are believed to be responses to the collapse of the Rebar Group in early 2007 during which the Chinese Bank, which was controlled by the Group, was placed in in regulatory receivership and accountants who had certified financial reports for Group companies were disbarred. Several Group companies have also been fined for failing to comply with Article 36 reporting requirements.
Article 157 will be amended to impose an 18 hour lockup period after material information is publicly announced during which company insiders cannot trade company shares. The current lockup period is 12 hours. Company insiders are defined as directors, supervisors, corporate officers, holders of more than 10 percent of the company's share and key employees.
While this change is intended to strengthen anti-insider trading regulations after several highly publicized indictments for insider trading by insiders at a major financial group and a high tech company in 2007, the proposed amendments to Article 157 also introduce a new defense against insider trading charges. If a corporate insider can show that she has been making scheduled trades for the same amount for a period of six months before the public announcement of material information, or that identical trades have been made by a set formula during that same period, the trades may not be deemed insider trading.
It should be noted that despite its well-deserved reputation for partisan deadlock, the Legislative Yuan has amended the Securities and Exchange Act in each of the past three years, most extensively in 2005.
For further information on these amendments to the Securities Trading Act, please contact Shan Lee at +886-2-2311-2345 ext. 303.
