Annual Report 2010 Taiwan Stock Exchange Annual Report 2010
Taiwan Stock Exchange Corporation Taiwan Stock Exchange 9F, No. 7, Sec. 5, Xinyi Rd., Taipei, Taiwan 11049, R.O.C Tel: 886-2-8101-3101 Fax: 886-2-8101-3066 http://www.twse.com.tw
02-100403 May 2011 Message from the Chairman 2 and the President
Statistical Highlights 5
Business Report
Foreword 7 The Securities Market in 2010 8 Business Achievements in 2010 12 Objectives for 2011 25
Exchange Information
The Executives 29 Board Members 30 The Organization 31
Market Activities
Major Events in 2010 32 Listing Changes in 2010 36 Market Performance 39
Financial Review
Report of Independent Accountants 41 Balance Sheets 42 Income Statements 44 Message from the Chairman and the President
In 2010, the Taiwan Stock Exchange Capitalization Weighted Stock Index (TAIEX) sustained an upward trend for the second consecutive year by opening at 8,207.85 points on the f irst day of trading despite global market volatility. Factors such as the European sovereign debt crisis, the slow recovery of the American and European markets, and Mainland China’s contractionary economic policies were all aspects of marketplace uctuations. The TAIEX fell to a year-low of 7,071.67 points on June 9, 2010. This downward movement was tempered in the second half of the year by increased global capital ows led by the second round of quantitative easing (QE2) in the United States. The Taiwan market also benef ited from the commencement of ECFA and improving economic ties across the Taiwan Strait, causing the TAIEX to rise steadily. It closed at 8,972.50 points on the f inal day of 2010, up 784.39 points or a 9.58% gain for the year.
With the support of shareholders and the dedicated work of our sta , TWSE also attained a number of new Chairman President milestones in 2010, with the number of companies listed on TWSE reaching 784 (including 26 Taiwan Depositary Receipts, [TDRs]), 15 Exchange-Traded Funds (ETFs), and 10,043 new warrants issued.
Over the past year, TWSE continued to work with regulators to push the stock market in the direction of greater liberalization and internationalization. A number of improvement measures were adopted in both the primary and secondary markets in order to enhance both operating e iciency and service quality, as well as bringing 3. Increasing f inancial innovation and the development of diversif ied, cross-border f inancial products TWSE in line with international practice. Some of these measures are outlined below: On December 8, the “Shanghai 50 ETF” became the fourth overseas ETF listed on TWSE, as well as the third direct cross-border ETF to list in Taiwan and the f irst cross-border A Shares ETF in the Greater China region. TWSE also 1. Enhancing fund-raising performance and the establishment of a high-tech and innovative worked to develop new indexes, launching the “Taiwan Employment Creation 99 Index” on December 30. This is a listing platform f irst-of-its-kind, aimed to encourage listed companies to fulf ill corporate social responsibility. A record 39 new companies, 21 local and 18 foreign, were listed with 6 primary listings by foreign companies, In 2010, the total number of new warrants exceeded 10,000, with average daily trading value and market share beginning in May of 2010. There were also 12 secondary listings (TDRs) by companies based in Hong Kong, growing exponentially. E ective September 1, 2010, domestic warrants based on foreign securities or indexes were Singapore, Thailand and other markets, demonstrating the attractiveness of Taiwan as a fund-raising platform allowed to be issued, with a total of 41 listed. for foreign companies. 4. Strengthening of cross-strait and cross-border international cooperation and communication 2. Promoting f inancial reform to better align with international practice TWSE continues to play an active role in international organizations such as the World Federation of Exchanges (WFE), Throughout 2010, TWSE devoted itself to furthering market development, raising service e iciency, and Asian and Oceanian Stock Exchanges Federation (AOSEF) and the International Organization of Securities aligning with international practice. TWSE continued to work with listed companies to strengthen corporate Commissions (IOSCO). TWSE also signed Memorandums of Understanding (MOU) with the BATS Exchange in the governance and encourage detailed disclosure, while also working with TDR issuers to ensure synchronized United States and Hanoi Stock Exchange in Vietnam, while also hosting “Taiwan Investment Forum 2010” in New York, information transparency on TWSE and on their primary exchanges. TWSE also strongly encouraged listed London, Edinburgh, Paris and Shanghai. These events facilitated one-on-one meetings between listed companies and companies to adopt XBRL f inancial reporting, achieving an adoption rate of 95% during the May 2010 international investment institutions. TWSE arranged interviews with local media in Tokyo, London, Singapore, China voluntary reporting period. XBRL reporting was made compulsory in September 2010, a measure fully enforced and the U.S. to raise international awareness regarding the Taiwan capital market. by TWSE. Moreover, the launch of the “XBRL Information Platform” on the new Market Observation Post System website allowed investors to browse and download XBRL f inancial data. The platform also includes a section Looking forward, TWSE will continually seek to elevate the international competitiveness of its fund raising platform, where investors can analyze and compare the f inancial performances of listed companies more conveniently. while also enhancing information transparency, establishing a cross-border regulatory system, strengthening its promotional activities overseas and raising the visibility of the Taiwan capital market. In the area of market reforms, TWSE remains committed to internationalizing its trading and clearing systems, which included the TWSE will work towards facilitating listing applications, boost trading exibility and strengthen the clearing system. implementation of continuous trading for warrants, shortening the latency for index and statistical information disclosure to 15 seconds, and the trading suspension system plan for listed securities and o -market TWSE will also facilitate the development of new and diversif ied f inancial products in order to internationalize its transactions. These services enhanced both market integrity and e iciency. capital market and satisfy the needs of investors.
To stay at the cutting edge of information technology, TWSE established a FIX Communications Protocol There is a strong relationship between the healthy development of the securities market and the national economy. Platform, which enables foreign exchanges and securities f irms to place orders and report trades directly with Facing the future challenges posed by globalization and the liberalization of international capital markets, TWSE will TWSE using international information exchange standards, and raising trading e iciency. TWSE also launched a cautiously and conscientiously provide comprehensive services to raise the competitiveness of our securities market second core trading system with a continuous trading function; all warrant product trades have been in order to become a global “Fundraising Platform for Hi-Tech and Innovative Industries”. transferred to this system.
2 Message from the Chairman and the President 3 Statistical Highlights
Unit: NT$1,000/1,000 shares
2010 (251 trading days) 2009 (251 trading days)
Stocks Total Trading Value 28,218,675,690 29,680,470,925 Average Daily Trading Value 112,425,003 118,248,888 Total Trading Volume 817,567,480 1,088,769,001 Average Daily Trading Volume 3,257,241 4,337,725 Taiwan Depository Receipts Total Trading Value 261,905,819 128,488,924 Beneficiary Certificates ETF Trading Value 199,576,486 197,837,265 Closed-end Funds Trading Value 222,026 511,753 Beneficiary Securities Total Trading Value 5,011,850 5,013,646 Warrants Total Trading Value 204,945,028 106,425,468 Corporate Bonds Total Trading Value 0 0
TAIEX* 8,972.50 8,188.11 Total Listed Companies* 758 741 Total Listed Shares* 581,128,050 577,289,895 Aggregate Capital of Issued Shares* 5,927,948,679 5,869,586,063 Aggregate Market Value of Issued Shares* 23,811,416,303 21,033,640,073 Number of Securities Brokers* 90 91 Number of Securities Dealers* 44 46
* Year-end
4 Statistical Highlights 5 Dazzling Progress
Business Report
Foreword As the global economy recovered in 2010, the Taiwan economy grew by 10.82%, the highest growth rate in 21 years. Most major stock markets around the world rose on the back of better economic gures, with the key exception of Mainland China whose stock market fell amid concerns of in ation. The Taiwan securities market also maintained a steady upward momentum, with the TAIEX rising 9.6% over the year. Since restrictions on the use of proceeds by listed companies were relaxed in 2008, the fund-raising function of the Taiwan securities market has gradually recovered. In 2009, 10 foreign companies undertook secondary listings in Taiwan. In 2010, there were also 6 primary listings and 12 secondary listings by foreign companies based in Hong Kong, Singapore and Thailand, with the rst primary listing by a foreign company taking place in May 2010. This is a testament to TWSE’s e orts to attract foreign listings. There were a total of 39 listings in 2010, 21 by local companies and 18 by foreign companies, the highest number in recent years. Trading volumes for call (put) warrants and Taiwan Depositary Receipts (TDRs) also increased drastically compared with last year, demonstrating Taiwan’s ability to become an international fund raising platform. Heading into the future, TWSE will continue to commit itself to enhance the capital raising e ciency of the Taiwan capital market, establish a fund raising platform for hi-tech and innovative industries, promote market reforms, further the market’s alignment with international practice, develop diversi ed cross-border nancial products and strengthen Taiwan’s international competitiveness. These e orts will further enhance market discipline, e ciency and internationalization, while also bringing the Taiwan securities market into the new century.
6 Business Report 7 The Securities Market in 2010
I. Listing
In 2010, there were 29 primary listings and 12 delistings. Eleven government bonds and one Exchange-Traded Fund (ETF) were listed while 10 government bonds were delisted. 9,979 new call (put) warrants were listed, while 7,853 were delisted. 12 new TDRs were issued.
No. of Listed Companies Trading Volume (billion shares) Trading Value (NT$ billion) No. of Securities Brokerage Firms
1100 1,089 34000 1200 800 33,043 1050 758 32000 1,006 990 978 982 750 741 1000 1000 965 30000 29,680 718 950 28,219 698 28000 800 700 688 900 887 26,115 850 26000 818 600 650 23,900 800 779 24000
750 733 22000 400 600 700 20000 650 200 550 18000 101 97 95 600 91 90
0 0 0 0 2006 2007 2008 2009 2010 Year 2006 2007 2008 2009 2010 Year 2006 2007 2008 2009 2010 Year 2006 2007 2008 2009 2010 Year
Headquarters Branches
The status of securities listed on TWSE in 2010 is as follows:
Item 2010 2009 Change
Number 758 741 17 Listed Stocks Shares 581,128,050 (1,000 Shares) 577,289,895 (1,000 Shares) 3,838,155 (1,000 Shares)
Listed Government Number 94 93 1 Bonds Oustanding 4,348,000,000 (NT$1,000) 3,982,700,000 (NT$1,000) 365,300,000 (NT$1,000)
Exchange-Traded Number 15 14 1 Funds (ETF) Unit 2,231,174 (1,000 Units) 1,935,365 (1,000 Units) 295,809 (1,000 Units)
Number 1 1 0 Close-End Funds Unit 500,000 (1,000 Units) 500,000 (1,000 Units) 0 (1,000 Units)
Beneficiary Number 7 7 0 Securities Unit 5,369,739 (1,000 Units) 5,369,739 (1,000 Units) 0 (1,000 Units)
Call (Put) Number 5,695 3,569 2,126 Warrants Unit 65,611,300 (1,000 Units) 47,380,000 (1,000 Units) 18,231,300 (1,000 Units)
Depositary Number 26 14 12 Receipts Unit 3,666,202 (1,000 Units) 2,591,509 (1,000 Units) 1,074,693 (1,000 Units)
8 Business Report 9 Points Performance of the TAIEX index from Jan to Dec 2010 8,972.50 9,100.00 (12/31)
8,900.00 II. Trading 8,700.00
8,500.00 8,207.85 1. Stock Price Movements and Trading Volumes (1/4) 8,300.00 In 2010, the stock market exhibited a steady upward trend. The TAIEX rose 9.6%, from 8,188 points at the 8,100.00 end of 2009 to 8,972 points as of December 31, 2010, a gain of 784 points. Over 251 trading days, the range between the TAIEX’s year-high and year-low was 1,900 points. The value of shares traded during 7,900.00 the year fell 4.9% to NT$28.22 trillion, a fall of NT$1.46 trillion compared to the NT$29.68 trillion worth of 7,700.00 shares traded last year. Trading volume (including auctions and reversed auctions) for the year was 817.57 billion shares, a fall of 24.9% compared to last year. The average daily trading value of all listed securities 7,500.00 was approximately 115.1 billion, a 4% fall compared to last year. 7,300.00
The total trading value for bene ciary certi cates was NT$220 million, a fall of 56.6% compared to last 7,100.00 year. Trading volume was 29 million units, a 63.0% decrease compared to last year. 7,071.67 6,900.00 (6/9) The total trading value for call (put) warrants totaled NT$204.9 billion for the year, an increase of 92.6% 1/4 1/14 1/26 2/5 2/25 3/9 3/19 3/31 4/13 4/23 5/5 5/17 5/27 6/8 6/21 7/1 7/13 7/23 8/4 8/16 8/26 9/7 9/17 9/30 10/1210/22 11/3 11/1511/25 12/7 12/1712/31 Date from last year. Trading volume was 204.09 billion units, a 118.1% increase compared to last year.
The total trading value for TDRs was NT$261.9 billion, an increase of 103.8% from last year. Trading volume was 17.61 billion units, an increase of 84.8% from last year. 2. Securities Firms The total trading value for ETFs totaled NT$199.5 billion this year, an increase of 0.9% from last year. As of the end of 2010, 92 securities rms had contracts with TWSE to operate in the market. 39 of these only Trading volume was 5.53 billion units, a decrease 7.6% from last year. engaged in brokerage operations, and 41 ran a combination of brokerage, proprietary dealing and The total trading value for bene ciary securities ( xed asset investment trust funds) was approximately underwriting businesses, with 35 of these also o ering margin- nancing services. The number of brokerage NT$5 billion, which was a similar level to last year. Trading volume fell 7.6% from last year to 478 million branches established in Taiwan was 982. units.
The Five Most Active Stocks in 2010 (NT$ billion) The Five Biggest Industries in Terms of Market Capitalization in 2010 (NT$ billion) 2010 Securities Trading Summary 2,000 50,000 1,839 Item 2010 2009 Change 1,800 39,614 1,600 40,000 (16.64%) TAIEX (last day of trading) 8,972 8,188 9.6% 1,400 31,826 Trading value (NT$ million) 28,218,676 29,680,471 -4.9% (13.37%) Listed Stocks Trading volume (million shares) 817,567 1,088,769 -24.9% 1,200 1,135 30,000 21,083 Daily average price (NT$ million) 112,425 118,249 -4.9% 1,000 964 901 894 (8.85%) 19,459 (8.17%) 16,843 800 736 751 20,000 (7.07%) Trading value (NT$ million) 199,576 197,837 0.9% ETFs 600 Daily average price (NT$ million) 795 788 0.9% 459 477 400 10,000 Trading value (NT$ million) 204,945 106,425 92.6% Call (Put) Warrants 200 Trading Value Daily average price (NT$ million) 817 424 92.7% 63 0 Market Capitalization 0 Industries High Tech Hon Hai Media Taiwan Wintek Semiconductors Finance Communications Plastic Computer Trading value (NT$ million) 261,906 128,489 103.8% Computer Precision Tek. Semiconductor & Insurance Networks Accessories TDRs Manufacturing Daily average price (NT$ million) 1,043 512 103.7%
10 Business Report 11 Business Achievements in 2010
Under the guidance of the regulator, TWSE implemented various operational measures in accordance with its yearly plan to promote the healthy development of the securities market. Major achievements were as follows:
I. Listing
1. Expanding the Scale of the Securities Market
a) Encouraging Quali ed Domestic Companies to List on TWSE TWSE worked closely with underwriters, visited quali ed companies and provided channels of assistance to help companies solve issues during their listings. 32 companies submitted listing applications, of which 21 successfully listed on TWSE.
b) Encouraging Foreign Companies to List on TWSE (1) Organizing Overseas Forums and Proactively Promoting Foreign Listings TWSE visited Silicon Valley, Tokyo, Hong Kong, Singapore, Shanghai and Fuzhou to promote Taiwan listings, while cooperating with intermediaries nine times to host 13 forums. These forums outlined Taiwan’s fundamental strengths as a fundraising center, as well as the bene ts of a primary listing or TDR issuance in Taiwan. TWSE also visited a total of 52 sizable Taiwanese holding and foreign holding companies to learn more about their overseas operations and their intentions to list in Taiwan.
(2) Reinforce Corporate Literature and Establishment of Multilingual Websites (6) TWSE introduced a reporting system for the scheduling of annual general meetings (AGM) in order to overcome TWSE published a listing guide in Japanese and frequently updated this website. TWSE also updated the the problem of having too many shareholder meetings scheduled during the same period. The system limits the content of the TWSE homepage, as well as the foreign primary listing and TDR sections within the Market number of AGMs that are held on the same day and evenly disperses the scheduling. Observation Post System (MOPS). (7) In order to help primary exchange listed (or OTC listed) companies adopt corporate social responsibility and (3) Achievements in Attracting Foreign Companies to List in Taiwan increase corporate governance standards, TWSE and GreTai Securities Market (GTSM) co-published a set of i. There were six primary listings by foreign companies (IML, TPK, Gourmet Master, Wisdom Marine, Airtac reference materials such as the “Corporate Social Responsibility Best Practice Principles”, “Regulations Governing and MStar), with 64 companies currently under IPO coaching. the Exercise of Powers by Supervisors”, “Ethical Business Standards”, “Principals of Ethical Operations” and ii. There were 12 TDRs issued by foreign companies, while 12 applications were being reviewed. From “Corporate Governance Principles for Listed Companies”, which aims to help listed companies set up and tailor January 2009 to December 31, 2010, there were a total of 22 TDR listings. their company codes to align with international standards.
2. Strengthening of Governance and Services for Listed Companies b) Organizing Track Record Presentations for Listed Companies a) Promoting Corporate Governance and Corporate Social Responsibility In accordance with the government’s policy to create a quality investment environment, highlight the excellent (1) TWSE co-hosted the “How to Strengthen Corporate Governance in Order to Raise the Competitiveness of performance of listed companies and expand channels of communication between listed companies and the the Capital Market Forum” in June 2010, in conjunction with the Center for the Study of Banking and capital market, TWSE organized f ive result announcements for TDR companies. On average, there were around 200 Finance of National Taiwan University, the Banking Education Association of Taiwan and the Taiwan Hakka participants at each event. Forum Association. c) Promoting the Adoption of XBRL Financial Reporting and Filings (2) TWSE hosted seven forums in July and August 2010 which covered topics such as corporate governance, (1) TWSE organized 24 XBRL training sessions which helped listed companies familiarize themselves with XBRL corporate social responsibility, the prevention of insider trading and enhancement of investor relations, lings. TWSE also set up an inquiry unit which assisted listed companies with completing voluntary reporting to with the objective of raising the quality of listed companies and the capital market. achieve a complete roll-out. During the May 2010 voluntary reporting period, the uptake rate was 95%. XBRL (3) TWSE hosted f ive “2010 Information Disclosure and Reporting on Signi cant Corporate Events” in reporting became compulsory in September 2010. The “XBRL Information Platform” was also launched on the December 2010, which introduced topics such as corporate governance, corporate social responsibility, new MOPS website which allowed investors to browse and download XBRL nancial information. The platform and the introduction of new regulations overseeing corporate governance in 2010. also included a section where investors can analyze and compare the nancial performance of listed companies. (4) GreTai Securities Market and TWSE co-hosted the “2010 Capital Market Forum-Corporate Social This platform was also included on the English MOPS website to allow foreign investors to browse the related Responsibility and Ethical Operation” on December 29, 2010. information. (5) TWSE encouraged listed companies to undergo an evaluation of their corporate governance system, (2) TWSE organized Standard Business Reporting (SBR) forums in Taiwan where it invited Australian SBR project subsidizing the fees incurred. As of the end of December 2010, 19 companies had applied to take part in leaders to share their experiences with adopting XBRL and promoting SBR in Australia. the scheme, among which 13 had already completed their evaluation and obtained certi cation.
12 Business Report 13 II. Trading
d) Assisting Listed Companies to Develop Investor Relations (IR) Functions 1. Market Reforms In order to assist listed companies build their investor relations (IR) functions, TWSE invited professional institutions and organized 3 investor relations forums. TWSE also commissioned professional institutions to a) Implementation of Continuous Trading examine TWSE’s “Plans for Promoting and Assisting Listed Companies to Build Investor Relations and To align with international practice, TWSE planned a framework for the introduction of continuous trading, which Develop Best Practice Guidance for Investor Relations” and develop “Reference Guidance for Investor began with a trial launch for call (put) warrants with lower trading volumes. The trial commenced on June 28, 2010. Relations Best Practice” to promote and assist listed companies in developing their investor relations TWSE will continue to review the possibility of fully implementing continuous trading. functions. b) Reducing the Latency of Index and Statistical Information Disclosures to 15 Seconds e) Promoting the Adoption of International Accounting Principles in Taiwan To further increase the internationalization of TWSE and its alignment with international practice, TWSE worked to TWSE updated the IFRSs section of its corporate website and assisted regulators with developing a provide instant information to investors on the disclosure of real-time index values of TAIEX index series. Latencies “Download Area for IFRSs in Traditional Chinese” on the Securities and Futures Bureau’s (SFB) website where for indexes, trades and information requests were shortened to 15 seconds and were available online from Jan 17, it could be referenced by listed companies. TWSE also co-hosted 10 education forums for listed companies 2011. with GTSM and held 18 training sessions for internal sta . c) Adjustment of Rules for Opening Auctions f) Enforcing Corporate Governance within Listed Companies TWSE revised the rules governing opening auctions in order to add more exibly to the limits imposed on the price TWSE continued to review its “Operation Risk Standards”, which ensure that each listed company’s corporate uctuation of securities, in accordance with market trends to increase matches. Opening auctions now use the governance, nancial structure and trading standards comply with requirements. The level of enforcement closing price of the previous day. If no closing price is available, it will be determined by (1) using the highest applied to each listed company was di erent and was dictated by TWSE’s risk evaluation. Appropriate actions reported buying price if it is higher than the opening auction price of the previous day; (2) using the lowest were taken against industries or companies which exhibited higher risk. reported selling price if it is lower than the opening auction price of the previous day; (3) using the opening auction g) Strengthening Management for the Private Placement of Securities price of the previous day if both (1) and (2) are not applicable. This revision will come into force on March 28, 2011. As part of ongoing reforms to the private placement system, TWSE joined a special committee of regulators to propose revisions to existing regulations, participated in meetings to strengthen the supervision of d) Proposals on Trading Suspensions private placements, conducted surveys and attended public hearings. Based on the rules and measures set by the regulator, TWSE revised the operating procedures for information disclosure and the content which (1) Suspension of TDRs or Warrant Trades needs to be put on the private placement section of the website. TWSE also provided reference examples for Based on the principle of equal access to information, if a TDR issuer or the underlying stock of a call (put) listed companies about the information that needs to be disclosed during private placements. warrant is suspended on its primary-listed market due to the disclosure of sensitive information, the trading of the TDR or warrant would also be suspended in Taiwan until clear information is made available to the public. (2) Suspension of Other Listed Securities Following correspondence with the regulator on the introduction of a suspension mechanism for di erent types of securities, and with reference to the practices of international exchanges, TWSE proposed suspending the trading of securities and its related products if the issuer announces price-sensitive information.
e) Relaxations on Foreign Investors Transferring Assets In order to lower the trading costs for foreign investors, TWSE proposed allowing asset transfers within the “others” category, which is an extension of earlier relaxations to restrictions covering asset transfers implemented in 2009.
f) Adjusting the De nition of Volatile Price Fluctuations for TDRs To strengthen supervision on TDR trading, TWSE revised its de nition on volatile price uctuations to mean a 50% (previously 80%) premium or discount on the original share’s closing price, as well as its highest or lowest closing price compared to the original price over the previous six trading days. TWSE can also lower the margin nance ratio and raise the collateral guarantee amount for these securities by 10% accordingly.
g) Proposals for O -market Trading On the advice of the regulator, TWSE proposed allowing private investors to trade listed stocks o -market, in accordance with the authorization rules within Article 150-4 of the “Securities and Exchange Act”.
14 Business Report 15 2. Stimulating Trading and Strengthening Market Services and Supervision
a) Stimulating ETF Trading In order to stimulate ETF trading and establish a framework for ETF liquidity providers, TWSE continued to adjust its discount on commission fees, as well as its rules for issuing bonuses to ETF liquidity providers. At the end of 2010, TWSE had o ered a total of NT$1,746,260 in discounts and issued NT$7,664,293 in bonuses. In order to raise the liquidity of foreign ETFs, TWSE proposed setting-up a framework which requires overseas ETFs to be covered by at least one liquidity provider, as well as allowing securities rms to authorize FINIs to become liquidity providers for foreign ETFs. TWSE also proposed further adjusting the discount on commission fees in order to raise the liquidity of foreign ETFs.
b) Operations Related to Call (Put) Warrants (1) Permitting Overseas Securities or Indexes to be Underlying Stocks for Warrants TWSE has permitted warrant issuers to use foreign stocks or indexes as underlying securities since September 1, 2010. There have been 41 such warrants listed. (2) Revising the Calculation Method for Warrants which Use Cash Settlements In order to protect the interests of investors, TWSE revised its calculation method for determining the maturity price and settlement index of warrants exercised using cash settlement. The maturity price is now calculated h) Strengthening the Uni ed Reporting Functions for Securities Firms based on the simple average price of the underlying stock 60 minutes before market close, while the settlement To complement the regulator’s e orts in allowing Taiwanese securities rms to trade Chinese securities (red index is now determined based on a simple average of the underlying index 30 minutes before market close. chips and ETFs) issued in Hong Kong or Macau, ECBs or GDRs issued by Taiwanese companies overseas, and The new calculation method was implemented on January 3, 2011. ETFs issued by Taiwanese investment trusts overseas, TWSE permitted futures rms to o er stock-related (3) Organizing Promotional Activities for Warrants trading services and securities rms to apply to operate wealth management businesses as investment trustees. TWSE has already expanded the scope of its “Uni ed Reporting System for Securities Firms”, to cover In addition to the monthly promotional activities TWSE co-hosts with issuers, TWSE and the Economy Daily the disclosure of additional stock-related businesses. TWSE also added a “Disclosure System for Additional News co-hosted a warrant contest entitled “Race for Millions” from March 2010 to February 2011, and co-hosted Securities Services” and a function for the “Supervision and Disclosure for the Wealth Management the rst “King of Warrants” contest with the Commercial Times from August 2010 to February 2011. These Businesses of Securities Firms”. activities aimed to increase the scale of the warrants market. From July 1 to August 31, 2010, TWSE also organized a “Warrant Q&A Contest”, which promoted warrant products and educated investors through its i) Margin Trading for Listed Securities website. The contest attracted around 80,000 participants. (1) On August 2, 2010, U.S. dollars (USD) became quali ed collateral for securities borrowing. Foreign (4) Organizing Training Sessions for Securities Brokers Institutional Investors (FINI) can now use USD as collateral when borrowing securities during pricings or In order to improve the quality of services provided to warrant investors, TWSE encouraged securities brokers to auctions on TWSE, or when accessing TWSE’s SBL system to borrow securities. undertake on-the-job training for warrant trading. From April to December 2010, TWSE commissioned the (2) TWSE revised the SBL commission calculation method for securities rms on September 7, 2010. TWSE Taiwan Securities Association and Securities and Futures Institute to organize training programs. Approximately added a minimum fee for SBL brokerage commissions for xed-rate and competitive auction 3,000 securities brokers completed the training. transactions. TWSE also added an option for securities borrowers or lenders to pay the SBL service fee charged on negotiated transactions in full. 16 Business Report 17 (5) Assisting Warrant Issuers to Resolve Tax Disputes The Taipei National Tax Administration used a di erent set of rules to recognize pro t and losses in the warrant issuance business for the calculation of Income Tax in 2007. This resulted in a back duty of up to NT$2.5 billion being imposed on the sector, which severely a ected the future development of the warrant market. From February 2010, TWSE worked closely with the Taiwan Securities Association and the Taipei National Tax Administration in order to facilitate communication and provide information on the issue of warrants, trading processes, regulations, risk management and accounting methods to 300 tax inspectors. TWSE continued to provide its views to the Taiwan Securities Association and worked closely with the Taipei National Tax Administration and Taxation Agency until the case was resolved in August 2010. (6) Sharp Increase in the Number of Warrant Issues In 2010, over 10,000 warrants were issued, which was a drastic increase compared to the 6,120 warrants that were issued last year.
c) Hosting Information Sessions for Brokerages From April 30 to August 12, 2010, TWSE organized information sessions for 27 brokerages, including Yuanta Securities, to improve broker services and to ensure brokers fully understood their legal responsibilities under Article 18 of the “Regulations Governing the Responsible Persons and Associated Persons of Securities Firms” when appropriating or safekeeping listed securities or outlays on behalf of their clients. Approximately 2,000 brokers and department heads attended.
d) Organizing “Securities Brokerage Regulation Information Forums” From November 19 to December 15, 2010, TWSE organized nine “Securities Brokerage Regulation Information Forums” to ensure the heads of brokerages understood their responsibilities in regards to supervision and the need to enhance the monitoring of their employees, in order to comply with rules aimed at lowering the number of regulatory violations and maintaining market order. Approximately 1,140 managers or OTC head traders attended. (3) Strengthening Disclosure on Share Trading by Insiders e) Supervision and Preemptive Measures TWSE regularly carries out inspections looking for irregularities in the insider trading activities (1) TWSE continued to enhance its operations in regards to issuing warnings to listed companies with and on the accuracy of reporting on changes in share ownership by insiders. TWSE noti es suspicious stock movements. This included the review of information disclosures by listed companies newly listed companies about the need to comply with regulations governing the supervision during trading hours, announcements and the handling of information, the review of investment of share trading by insiders, as well as related rules governing share transfers and share programs, cross-market supervision, and the identi cation of illegal trading. buy-backs. TWSE organized 16 introduction sessions on insider share trading. (2) TWSE launched eleven promotional activities to prevent insider trading. This included arranging insider trading awareness forums, promotional visits to targeted listed companies, o ering guidance for (4) In 2010, TWSE organized 13 compliance o cer training sessions, with a total of 677 preventing insider trading, creating an “Insider Trading Prevention” website, participating in forums at participants. TWSE also organized ve training sessions for compliance o cers from the community colleges, hosting promotional events at schools and providing insider trading prevention Financial Examination Bureau (FEB) of FSC, SFB, GTSM and TWSE, attracting 218 participants in guidance and educational lms to newly listed companies. The targets for these activities included the total. employees of listed companies, consultants at investment trusts, securities rm executives and their brokers, accountants, underwriters and the general investment community. These activities reached approximately 60,000 participants.
18 Business Report 19 III. Computer Applications and Information Services
1. Establishing a New Computer Center
TWSE signed a Land Sale & Purchase Agreement with Chunghwa Telecom on December 20, 2010, and is currently negotiating with service providers on the cost of outsourcing technology services. The new computer center will meet the demand for land, building and computer space from TWSE’s four securities and futures exchange units.
2. Computer System Update for Protection against the R.O.C. Centennial Bug
a) The plan to combat this issue has been implemented since 2007. In 2009 and 2010, TWSE conducted a date format update of its internal system data, which was completed on June 30, 2010. A total of 6,392 computer programs were updated.
b) TWSE continued to supervise the progress of system upgrades by brokerages, listed companies and information providers to complement the regulator’s requirements. All companies under TWSE’s supervision had upgraded to protect themselves from the R.O.C. Centennial Bug by September 2010.
c) In September 2010, TWSE arranged a simulated transition test from 2010 to 2011 for securities rms in order to comprehensively test the performance of all operations covering the main market and OTC market. TWSE completed testing across the entire market in October 2010.
d) TWSE completed the development of its “Contingency Reporting Website” in November 2010. 7. Establishment of the “TAIEX Series Maintenance System” e) All brokerages were required to report the results of further testing on the R.O.C. Centennial Bug by the afternoon of January 1, 2011. Information on constituent changes for indexes was systematically handled by the information system, reducing the error rate resulting from human operations and making it quicker to detect irregularities, which enhanced f) TWSE and all 873 companies under its supervision were free from errors associated with the R.O.C. Centennial both e ciency and market safety. Bug when the market opened on January 3, 2011.
3. Establishing the FIX Communications Protocol Platform 8. Proactively Promoting Information Products TWSE continued to proactively promote its information products, including signing contracts with international TWSE’s “FIX Communications Protocol Platform” began operations on September 27, 2010, which provided information providers for the use of TWSE’s information products and platforms, as well as providing related nancial information using the international standard FIX protocol. It allowed additional overseas exchanges information services to overseas information providers. These e orts further internationalized TWSE. Currently, and brokerages, as well as those using the existing TMP (Transaction Message Protocol), to connect to TWSE there are 15 real-time trading information providers, eight real-time stock price index information providers and and place orders and receive con rmations. This improved the trading operation e ciency. 14 delayed trading information providers having contracts with TWSE.
4. Establishment of Second Core Trading System Dedicated to Warrants 9. Participating in the “2010 IT Month Exhibition” TWSE established a second core trading system on June 28, 2010 to facilitate the continuous trading for TWSE took part in the “2010 IT Month Exhibition” for the rst time, where it invited well-known nancial warrants in the main market and OTC market, after testing was completed at the end of 2009. It was established information providers to share the concept of intelligent wealth management with the public. In addition to to ease the burden on TWSE’s existing core system in the case of a large number of warrant listings. using interactive activities to allow the general investment community to learn more about the correct concepts for investing, the exhibition also introduced di erent investment technologies and nancial products to 5. Establishment of the “TCP/IP Securities Trading Information Network - MPLS” investors. These activities aimed to achieve three goals, including the set-up of intelligent wealth management, TWSE established the “TCP/IP Securities Trading Information Network - MPLS” in order to meet the need for the promotion of technology products and the development of the nancial information market in Taiwan. large data transfers resulting from warrants trading and to reduce the operating costs of brokerages and information providers. TWSE added two or more telecom companies to provide the xed line service. 10. Launching the “Voluntary Information Dissemination of MOPS Service” Information transmission began on June 28, 2010, while part of the trading transmissions commenced on TWSE launched the “Voluntary Information Dissemination of MOPS Service” in order to reduce the latency for the December 27, 2010. issuing companies transferring corporate information to investors in a more e cient way. Seven information providers have subscribed to the service. 6. Index Compiling and Licensing
TWSE proactively complied indexes and cooperated with FTSE to compile and license indexes. TWSE licensed 42 indexes in 2010.
20 Business Report 21 5. Participating in Activities Held by Di erent International Securities Organizations
a) TWSE attended various meetings held by the World Federation of Exchanges (WFE), including Working Committee meetings in Mumbai and Brazil, the Statistics Advisory Group meeting in Shanghai, the “2010 IOMA/IOCA Annual Conference” in New York, the Regulation Committee meeting and workshop held in London, as well as the “50th General Assembly and Annual Meeting” in France.
b) TWSE participated in the “29th General Assembly” of the Asian and Oceanian Stock Exchanges Federation (AOSEF) held in Bali, as well as the Working Committee meeting held in Seoul.
c) TWSE attended a number of meetings organized by international organizations such as the “35th Annual Conference” of the International Organization of Securities Commissions (IOSCO) held in Montreal, the Self-Regulatory Organizations Consultative Committee (SROCC) meeting, the third meeting of the Emerging Markets Committee, the meetings and seminars of the WFE’s Regulation Committee, the annual conference of the Emerging Markets Committee held in Istanbul, the SROCC meeting held in Rio de Janeiro, as well as hosting 2 IOSCO events, the “IOSCO Mobile STP”, the “IOSCO APRC Conference” and its related seminars.
d) TWSE participated in a number of di erent international seminars including the “2010 Lujiazui Summit of Worldwide Chinese Financial Elites” in Shanghai, the “Asian Financial Forum” held in Hong Kong, the “Halter Financial Summit” in Shanghai, the “Boao Forum” in Hainan, the “Cross-straits Economic and Financial Forum 2010” in Haixi, the “Shanghai Forum 2010”, the “Cross-Strait Financial Cooperation and Development Forum”, the “Lujiazui Forum” and the “6th Cross-Straits Economic Trade and Culture Forum”.
e) TWSE signed Memorandums of Understanding (MoU) with the BATS Exchange in the U.S. on May 25, 2010. It also signed a MoU with the Hanoi Stock Exchange in Vietnam on July 19, 2010 focusing on information exchanges. TWSE is currently a party to 32 MoUs with a total of 29 exchanges worldwide.
f) TWSE worked with the Hanoi Stock Exchange to provide assistance with educational training and to share TWSE’s experience on ETFs, corporate governance and MOPS. The President of the Hanoi Stock Exchange plans to visit TWSE in the rst quarter of 2011 to share their experience in operating ETFs.
IV. Research and Development for the International Business
1. Encouraging Domestic ETF Listings
TWSE now allows investment trusts to issue ETFs using other indexes not complied by TWSE. Currently there are eleven domestic ETFs listed in Taiwan with assets under management (AUM) of around NT$71.2 billion. Eight of these ETFs use TWSE’s indexes as its underlying index. V. Securities Investment Education
2. Encouraging Foreign ETF Listings 1. For the seventh time since 2004, TWSE held “Knowledge King of Securities Investment” educational competitions at a number of university campuses to promote investor education. The events were well-received in each school, TWSE revised its listing and trading regulations to complement the regulator’s decision to allow direct with a total of 3,162 students from 88 tertiary institutions applying to participate. cross-border listings and index-linked ETFs in Taiwan. Currently there are 4 such ETFs listed with AUM of around NT$11.3 billion, of which 3 are direct cross-border listings of Hong Kong ETFs, and 1 is an index-linked ETF. 2. TWSE held a total of f ive “Securities Knowledge Camps for Teachers from Primary and High Schools” during July and August 2010. 3. Encouraging the Listing of ETF Warrants
TWSE announced 14 ETFs which can be used as the underlying securities for call (put) warrants. 3. TWSE arranged a total of 50 “Popularization Plan of Financial Knowledge: Invest into the Future” lectures at community colleges. 4. Developing New Indexes 4. TWSE held a “Securities Lending Exhibition” at the Information Exhibition Center on the rst oor of the Taipei 101 TWSE developed the “Taiwan RAFI® EMP 99 Index” with Research A liates, LLC, which was launched on building from March 15 to June 30, 2010 in order to increase investors’ understanding of the Taiwan securities December 30, 2010. lending system and to encourage them to participate. The exhibition also featured a number of posters, slogans and promotional lea ets, as well as the non-stop playing of multimedia movies in order to leave a deeper impression on investors.
22 Business Report 23 Objectives for 2011
I. Promote the Internationalization of the Taiwan Capital Market
1. Develop Taiwan into a Regional Capital Raising Center
a) Encourage quali ed domestic and foreign enterprises to list on TWSE.
b) Encourage the listing of o shore ETFs in Taiwan.
2. Further the Market’s Alignment with International Practice and Reinforce International Cooperation a) Upgrade the Taiwan stock market to a developed market by adjusting trading, clearing and settlement, as well as the securities lending businesses. b) Promote and assist Taiwanese companies in adopting International Financial Reporting Standards in their nancial statements. c) Promote and implement the use of XBRL within the Taiwan capital market. d) Adopt international protocol standards for governing the exchange of information. e) Participate in activities arranged by international securities organizations, arrange international meetings and promote interaction and cooperation with overseas securities institutions.
II. Promote a Comprehensive and Strong Mechanism for Market Operation VI. Media Communication and Caring for the Community 1. Concerning Issuing Business, Encourage Better Corporate Governance and 1. Announcements and News Coverage Corporate Social Responsibility
TWSE arranged 198 press conferences for listed companies to disclose their nancial information. In order to a) Encourage listed companies to develop a comprehensive corporate governance system. deliver accurate and important information to the media, TWSE issued 1,564 bilingual press releases and b) Educate listed companies to place more emphasis on corporate social responsibility and display received press coverage 852 times in the mainstream media. It also worked with the mainstream nancial more integrity in their business. media in Taiwan to co-host investment forums and deliver a total of 30 speeches, as well as promote news, advertising and interviews with domestic TV broadcasters, newspapers and magazines. 2. Concerning Trading, Increase Flexibility of the Trading System
2. Corporate Social Responsibility a) Promote comprehensive and continuous trading.
TWSE organized a number of charitable activities to demonstrate its concern for society, particularly for the b) Propose relaxation on-day trading restrictions. elderly, children and other people in need who play a positive role in the community. c) Suggest ways to outline the importance of T-day settlement within the trading system.
a) Providing assistance services to the elderly and displaying the warmth of society, TWSE sponsored the “Taipei d) Propose allowing o -market trading. City Li Shin Charity Fund” to provide food delivery services to the elderly in the Wanhua District and arranged hiking activities at Taipei 101 during the Double Ninth Festival. 3. Concerning Clearing, Provide a Comprehensive Clearing System
b) Providing a fair and supportive learning environment for children in situations of economic distress, TWSE a) Propose the set-up of a clearing membership system. sponsored a number of schools including the Taipei Municipal Da Li Elementary School, MingDao Elementary School, Fanghe Junior High School, Taipei Municipal ShuangYuan Junior High School, Sansia b) Expand the number of sources for securities borrowing and reduce margin trading restrictions. Elementary School, Pinghsi Junior High School, Wanli Junior High School and National Guan-Shan Vocational Senior High School to provide afterschool tutorial classes, living allowances and emergency assistance to 4. Concerning Products, Develop New Products children in economic hardship. a) Explore the development of new products related to call and put warrants. c) Encouraging prison inmates to rehabilitate and reintegrate into society by stimulating their determination b) Evaluate the potential for developing new nancial products and new indexes. and strength to change, TWSE sponsored a nonpro t organization to arrange 20 “Light up your Life” speech tours to prisons across Taiwan. The objective of these speeches was to encourage inmates to enlighten their lives by inviting previous inmates to share their life changes experiences and how rehabilitation helped them. 24 Business Report 25 III. Strengthen Market Supervision and Services
1. Reinforce the Supervision and Services of Listed Companies
a) Toughen supervision on conglomerate companies.
b) Reinforce supervision of listed companies and bolster the supervision system for the daily nancial reporting provided by foreign issuers.
c) Assist listed companies in developing their investor relations function.
2. Reinforce Supervision of Market Operations
a) Increase inspections to uncover illegal transactions, undertake online and o ine market supervision and enhance communication with legal enforcement o cers.
b) Prepare an investor database to expand the investor information inquiry system. V. Enhance Management E ciency and Performance c) Conduct surveillance on speci c transactions undertaken by foreign investors.
1. Adopt the IFRSs system to prepare nancial reports and strengthen nancial operations 3. Enhance Management and Services of Securities Firms
a) Improve audit operations of securities rms. 2. Strengthen internal management and ensure the e ective use of human resources
b) Gradually implement new capital requirements for brokers. 3. Enhance the e ciency of legal, meeting and documentation operations c) Improve the services provided to securities rms and simplify management measures, while also improving the joint information system of securities rms. 4. Strengthen internal controls and reduce operational risk
IV. Enhance IT Services and Management VI. Complement Government Policies
1. Promote the Establishment of a New Computer System to Facilitate TWSE’s Long-Term 1. Coordinate with the government to promote the “Taipei Financial Area” Development 2. Prepare celebration activities to mark Taiwan’s 100 year anniversary and TWSE’s 50th anniversary 2. Establish a New IT System celebration
a) Develop a new stock trading platform which supports continuous trading. 3. Coordinate the integration of information transmissions for securities and futures exchange units b) Study the use of cloud computing within the stock market.
c) Update the information backup system for the new trading mainframe.
d) Promote the set up of a hierarchical information transmission system.
3. Increase IT services and management functions
4. Reinforce the protection of the information system and management mechanism
26 Business Report 27 Exchange Information
The Executives
Senior Vice President, Market Data & Corporate Systems/Lung Chao Senior Vice President, Corporate Planning & Strategy/Shin-chung Chen Senior Executive Vice President/Michael Lin Senior Vice President, Corporate Communications/Gau-nian Shane Senior Vice President, System Development/Chang-ching Lin Senior Vice President, Computer Operation/Charles Hsu
Senior Vice President, Finance/Chen-tsung Chiang Senior Vice President, Domestic Listing Department/Thann-shing Lao Senior Executive Vice President/Lih-chung Chien Executive Vice President, Internal Audit/Shuh-tzy Hsu Executive Vice President, Foreign Listing Department/Hui-chuan Tu Trustworthy Senior Vice President, Compliance & Inspection/Chun-chin Hsieh Organization
Senior Vice President, Trading/Rebecca Chen Executive Vice President, Administration / Labor Security/Shie-jay Yang Senior Executive Vice President/Chao-zon Yang Senior Vice President, Legal & Secretarial Services/Pauline Cheng Senior Vice President, Clearing/Fred Lin Senior Vice President, Surveillance/Wen-kuei Hwah
(Left to right)
28 Exchange Information 29 Board Members The Organization
Chairman Schive Chi (Government Appointed)
Bank of Taiwan (Representative:Ming-Daw Chang) Internal Audit Office
Land Bank of Taiwan (Representative:Yao-Shing Wang) Domestic Listing Department CPC Corporation, Taiwan (Representative:Maw-Wen Lin) Foreign Listing Department Mega International Commercial Bank (Representative:Tzong-Yeong Lin) Shareholders’ Meeting Trading Department
China Development Industrial Bank (Representative:Lawrence S. Liu) Clearing Department Supervisors Taiwan Cement Corporation (Representative:Nelson Chang) Board of Directors Chairman Surveillance Department
Fubon Securities Co.,Ltd. (Representative:Jerry Harn) Compliance ＆ Inspection Department Directors President Committees Yuen Foong Yu Investment Company Ltd. (Representative:Show-Chung Ho) System Development Department
Yuanta Securities Co., Ltd. (Representative:Lee-Chiou Chang) Senior Executive Vice President Computer Operation Department
Samuel J.S. Hsu (Government Appointed) Market Data ＆ Corporate Systems Department
Tsing-Yuan Hwang (Government Appointed) Corporate Communications Department
＆ Len-Yu Liu (Government Appointed) Corporate Planning Strategy Department
Finance Department Wang-Ruu Tseng (Government Appointed) Administration Department Shang-Wu YU (Government Appointed) Legal & Secretarial Services Department Resident Supervisor Thomas Tunghao Lee (Government Appointed) Labor Security Office Hua Nan Commercial Bank, Co., Ltd. (Representative:Jiunn-Chih Wang) Supervisors Chiloo Industries,Inc. (Representative:Hwe-Ching Wong)
30 Exchange Information 31 Business Highlights
February
Feb. 1 TWSE announced an amendment to Article 10 of the “Rules Governing Trading of Call (Put) Warrants” to include the continuous trading of warrants, in addition to the call auction matching method.
Feb. 8 TWSE developed “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM-Listed Companies” in partnership with the GreTai Securities Market (GTSM).
March Mar. 16 The FSC announced amendments to the “Regulations Governing Approval of Securities and Futures Transactions between the Taiwan Area and the Mainland China Area”. This was renamed as the “Regulations Governing Approval and Management of Securities and Futures Transactions and Market Activities Investment Between the Taiwan Area and the Mainland Area” when the MOU regarding Cross-Strait Regulatory Cooperation on Securities and Futures came into force. The MOU outlined clear regulations concerning due diligence, risk supervision, and follow-up management for Major Events in 2010 Mainland-incorporated securities, futures institutions and Mainland-invested securities. It also covered futures institutions which have established a representative o ce in Taiwan and have participated in equity investment activities. The FSC also amended Article 50 of the “Regulations Governing Securities Firms”, Article 25 of the “Rules Governing Securities Investment Trust Enterprises” January and Article 56-2 of the “Regulations Governing Futures Commission Merchants”, raising the investment limit applied to securities rms, securities investment trusts and futures commission merchants investing in a foreign or Mainland company from 30% to 40% of its total net worth. Jan. 15 The Financial Supervisory Commission (FSC) announced permitted sectors and investment quotas for Mainland investors trading Taiwan securities. Mar. 25 The FSC announced that it will permit Taiwan futures commission merchants to trade Taiwan Depositary Receipts (TDRs) using their own funds. Jan. 16 The Memorandum of Understanding (MOU) on Cross-Straits Banking Supervision Cooperation came into force. The MOU covers supervision and cooperation within the cross-strait banking, Mar. 30 TWSE announced that listed companies should adopt XBRL (eXtensible Business Reporting securities and futures, and insurance sectors. It also covers areas such as the sharing of Language) format in their nancial reports, in addition to the existing nancial report format in information, protection of privacy, co-supervision, follow-up liaison and reciprocal visits as well accordance with regulations, starting from their 2010 interim reports. as crisis management. It also speci ed market entry requirements and preferential measures for both parties in order to facilitate the opening of the banking industry across the Taiwan April Strait, such as the setting up of branches, purchase of shares, mergers and acquisitions. Apr. 7 The FSC announced a revision to the “Regulations Governing Applications for Issuance of Call (Put) Jan. 29 The FSC published disclosure regulations for securities investment trusts who have applied to Warrants by Issuers”, permitting issuers to issue call (put) warrants which were linked to foreign invest in securities listed in Mainland China as a Quali ed Foreign Institutional Investor (QFII). securities or indexes tracking foreign securities markets.
32 Market Activities 33 May
May 19 The FSC announced a partial revision to the “Regulations Governing the O ering and Issuance of Securities by Foreign Issuers”, which expanded the issuing channels for TDRs and extended its scope to cover fund raising in Taiwan and overseas, follow-on public o erings, the issue of employee stock options and capital reduction for foreign issuers that are primary listed, OTC-listed or listed on the Emerging Stock Board of GTSM.
May 21 The FSC announced that it would allow securities rms to apply periodic orders in di erent amounts to o shore funds on behalf of clients. October May 24 TWSE announced a revision to Article 4 of the “Taiwan Stock Exchange Corporation Procedures for Review of Securities Listings”, to create a simpler listing procedure for the spin-o s of Oct. 4 The FSC announced that it would allow o shore overseas Chinese and foreign nationals to invest in companies which are already listed, compared to existing procedures for initial public the stock or TDRs of foreign companies prior to their primary (or OTC) listing or secondary (or OTC) o erings. listing in Taiwan, as well as in stocks issued via a capital placement or a secondary TDR listing.
June Oct. 6 The FSC announced revisions to Article 13 of the “Regulations Governing Securities Investment and Futures Trading in Taiwan by Mainland Investors”, clearly stating that restricted industry sectors, percentage of ownership and investment limits governing investments in Taiwan securities by Jun. 2 The “Securities and Exchange Act” was partially amended by a Presidential Order to set a clear Mainland investors should be drafted by Competent Authority in consultation with Central standard of de nition for insider trading. Competent Authorities of respective industries and foreign exchange departments, before being Jun. 8 TWSE announced a partial revision of the “Taiwan Stock Exchange Corporation Securities submitted to the Executive Yuan for approval. Borrowing and Lending Rules”, allowing US dollars (USD) to qualify as cash collateral provided Oct. 8 TWSE announced partial revisions to the “Taiwan Stock Exchange Corporation Rules Governing by o shore Foreign Institutional Investors (FINI). Review of Securities Listings”, “Supplementary Provisions to the Taiwan Stock Exchange Corporation Jun. 9 Article 2 of the “Securities Investment Trust and Consulting Act” and Article 4 of the “Futures Rules for Review of Securities Listings” and “Taiwan Stock Exchange Corporation Procedures for Trading Act” were amended by Presidential Order, making the FSC the main regulatory body. Review of Securities Listings”, limiting the number of newly issued shares that can be retained for employee purchases by an issuer to less than 15% of the newly issued shares. Jun. 29 The Economic Cooperation Framework Agreement (ECFA) was o cially signed during the Fifth Chiang-Chen Talks in Chongqing. Oct. 14 The FSC announced the addition of the “ lm industry” and “publishing industry” to the list of prohibited industries in which Mainland investors can invest.
July November Jul. 8 TWSE announced new regulations governing the operations of securities borrowers which provide collateral in USD. Nov. 10 The FSC announced that quasi-money market securities investment trust funds, prior to becoming a money market securities investment trust fund, would be exempted from the NT$500 million cap on August short-term securities investments, as required by the “Regulations Governing Securities Investment Trust Funds”.
Aug. 17 The FSC announced a requirement for all securities and nancial companies to open foreign Nov. 11 The FSC announced that outright purchases/sales of government bonds held by foreign investors currency accounts in designated foreign currency banks to hold their foreign currency with a maturity of longer than one year would be counted as part of the 30% limit on funds deposits. The deposit amount was limited to 30% of the company’s capital net worth and transferred to Taiwan. should not be used to undertake any activity which would a ect the exchange rate for New Taiwan Dollars (NT$). Nov. 30 The FSC announced investors with dual Taiwanese and foreign citizenship, after giving up one of their citizenships, are required to apply to remit exchange-listed (or OTC-listed) stocks held through September securities rms.
Sep. 3 In accordance with Article 52-10 of the “Regulations Governing O shore Funds”, the FSC December announced that the amount invested by Taiwan investors in a private o shore fund could not exceed 90% of the net asset value of the private o shore fund. Dec. 8 KGI Securities Investment Trust launched the “Shanghai 50 ETF”, the rst cross-listed ETF in Taiwan which directly tracks the performance of Mainland-listed stocks. Sep. 3 The FSC published disclosure procedures and documents for o shore institutional funds conducting private placements in Taiwan, designating the Securities Investment Trust & Dec. 30 TWSE launched the “RAFI® EMP 99 Index”, adopting a newly developed compilation method by Consulting Association of the R.O.C. (SITCA) as the reporting institution. Research A liates, LLC which determines constituents and weightings based on the number of employees, making it one of the most innovative and pioneering corporate social responsibility indexes in the world.
34 Market Activities 35 Listing: ETFs (Total 1 fund) Code Name Date 2833A TLI-PSA 2010/09/30 Listing Changes in 2010
Listing: ETFs (Total 1 fund) Code Name Date Listings: Common Stocks (Total 29 companies) 008201 WISE-SSE 50 2010/12/08 Code Name Date 3164 GenMont Biotech Inc. 2010/03/22 2597 Ruentex Engineering & Const. Co 2010/03/26 Listing: TDRs (Total 12 companies) 3703 CONTINENTAL HOLDINGS CORP. 2010/04/08 Code Name Date 3638 Integrated Memory Logic Limited 2010/05/18 911201 Kith Holdings Limited 2010/02/04 4930 Star Comgistic Capital Co., Ltd. 2010/06/21 911602 HWA FONG RUBBER (THAILAND) PUBLIC CO., LTD. 2010/02/08 4938 Pegatron Corporation 2010/06/24 912398 Good Friend International Holdings Inc. 2010/03/18 3686 Danen Technology Corportaion 2010/07/20 913889 Global Sweeteners Holdings Limited 2010/03/25 3584 J Touch Corporation 2010/07/27 911609 Yangzijiang Shipbuilding (Holdings) Ltd. 2010/09/08 3704 Unizyx Holding Corporation 2010/08/16 911606 Super Group Ltd. 2010/09/09 6278 Taiwan Surface Mounting Technology Corp. 2010/08/24 911611 China Taisan Technology Group Holdings Ltd. 2010/10/06 6230 CHAUN-CHOUNG TECHNOLOGY CORP. 2010/09/16 911608 BH Global Marine LTD. 2010/10/20 4919 Nuvoton Technology Corporation 2010/09/27 911610 United Envirotech Ltd. 2010/10/22 3673 TPK Holding Co., Ltd. 2010/10/29 911612 Hu An Cable Holdings Ltd. 2010/10/28 3550 Copartner Technology Corporation 2010/11/10 910861 Digital China Holdings Limited 2010/11/24 3591 EDISON OPTO CORPORATION 2010/11/12 910948 Z-OBEE HOLDINGS LIMITED 2010/12/03 8215 BenQ Materials Corporation 2010/11/12 2231 CUB ELECPARTS INC. 2010/11/19 2723 Gourmet Master Co. Ltd. 2010/11/22 Listing: Government Bonds (Total 11 kinds) 2637 Wisdom Marine Lines Co., Limited 2010/12/01 1590 AIRTAC INTERNATIONAL GROUP 2010/12/13 Code Name Date 1762 Chunghwa Chemical Synthesis & Biotech Co., Ltd. 2010/12/20 A99101 Central Government Construction Bonds 2010/01/12 4737 BIONIME CORPORATION 2010/12/23 A99102 Central Government Construction Bonds 2010/01/28 3697 MStar Semiconductor Inc. 2010/12/24 A99103 Central Government Construction Bonds 2010/02/10 2114 HSIN YUNG CHIEN CO., LTD. 2010/12/29 A99104 Central Government Construction Bonds 2010/02/22 3312 G.M.I Technology Inc. 2010/12/29 A99105 Central Government Construction Bonds 2010/03/10 8271 Apacer Technology Inc. 2010/12/29 D99101 Kaohsiung Provincial Construction Bonds 2010/06/22 3432 TAI TWUN ENTERPRISE CO. LTD. 2010/12/30 A99106 Central Government Construction Bonds 2010/07/20 6214 SYSTEX CORPORATION 2010/12/30 A99107 Central Government Construction Bonds 2010/08/12 4733 SWANCOR. IND. CO., LTD. 2010/12/30 A99108 Central Government Construction Bonds 2010/09/21 D99102 Kaohsiung Provincial Construction Bonds 2010/11/15 A99109 Central Government Construction Bonds 2010/12/28 Delistings: Common Stocks (Total 12 companies) Code Name Date Delisting: Government Bonds (Total 10 kinds) 3009 Chi Mei Optoelectronics Corporation 2010/03/18 2452 Cyntec Co., Ltd. 2010/03/31 Code Name Date 3063 International Semiconductor Technology Ltd. 2010/04/01 A93103 Kaohsiung Provincial Construction Bonds 2010/01/05 2526 CONTINENTAL ENGINEERING CORP. 2010/04/08 A94102 Central Government Construction Bonds 2010/01/24 2350 UNIVERSAL SCIENTIFIC INDUSTRIAL CO., LTD. 2010/06/17 A89110 Central Government Construction Bonds 2010/06/16 9922 UB Office Systems Inc. 2010/06/21 00442 Central Government Transportation Construction Bonds 2010/06/16 2391 ZyXEL Communications Corporarions 2010/08/16 A94106 Central Government Construction Bonds 2010/07/20 1523 TAIWAN KAI YIH INDUSTRIAL CO., LTD. 2010/09/01 00551 Central Government Transportation Construction Bonds 2010/07/21 6255 Taiwan Nano Electro-Optical Technology Co. Ltd. 2010/09/15 00652 Central Government Transportation Construction Bonds 2010/08/25 3614 TrendChip Technologies Corp. 2010/10/01 00753 Central Government Transportation Construction Bonds 2010/09/22 2341 BEHAVIOR TECH COMPUTER 2010/10/16 D94102 Kaohsiung Provincial Construction Bonds 2010/12/14 2403 YOSUN INDUSTRIAL CORP. 2010/11/15 A89114 Central Government Construction Bonds 2010/12/15
36 Market Activities 37 Market Performance
TAIEX Taiwan 50 Index
Trading Value Trading Volume
10000 190 3800
180 3600 8972.50 (12/31) 170 3400
160 3200
8000 150 3000
140 2800
7071.67 130 2600 (6/9) 120 2400
6000 110 2200
100 2000
90 1800
80 1600 4000 70 1400
60 1200
50 1000
40 Trading Volume: 100 million shares 800 2000 Trading Value: NT$ 100 billion
30 600
20 400
10 200
0 0 0 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
2009 2010
38 Market Activities 39 Financial Review
Report of Independent Accountants
To the Board of Directors and Stockholders of Taiwan Stock Exchange Corporation
We have audited the accompanying non-consolidated balance sheets of Taiwan Stock Exchange Corporation as of 31st December 2010 and 2009, and the related non-consolidated statements of income, of changes in stockholder's equity and of cash ows for the years then ended. These nancial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these non-consolidated nancial statements based on our audits. We did not audit the 2010 and 2009 nancial statements of Taiwan Depository and Clearing Corporation, Taiwan-Ca. Inc. and Taiwan Ratings Corporation, investees accounted for under the equity method. These long-term equity investments amounted to NT$6,600,075 thousand and NT$6,034,499 thousand as of 31st December 2010 and 2009, respectively, and their related investment income amounted to NT$827,572 thousand and NT$708,142 thousand for the years then ended. These nancial statements were audited by other auditors, whose reports thereon were furnished to us and our opinion, insofar as it relates to the amounts included in the nancial statements relative to these long-term investments, is based solely on the reports of other auditors.
We conducted our audits in accordance with the ''Rules Governing the Examination of Financial Statements by Certi ed Public Accountants" and generally accepted auditing standards in the Republic of China. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the nancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the nancial statements. An audit also includes assessing the accounting principles used and signi cant estimates made by management, as well as evaluating the overall nancial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the non-consolidated nancial statements referred to in the rst paragraph present fairly, in all material respects, the nancial position of Taiwan Stock Exchange Corporation as of 31st December 2010 and 2009, and the results of its operations and its cash ows for the years then Lucrative ended, in conformity with the "Business Entity Accounting Act", "Regulation on Business Entity Accounting Handling", "Criteria Governing Preparation on Financial Reports by Company-Type Stock Exchanges" and generally accepted Finance accounting principles in the Republic of China.
1st March 2011 Taipei, Taiwan
40 Financial Review 41 Balance Sheets （31 December, 2009 and 2010） Unit:NT$1,000 Unit:NT$1,000
2010 2009 2010 2009 ASSETS Amount ％ Amount ％ LIABILITIES AND STOCKHOLDERS’ EQUITY Amount ％ Amount ％
Current Assets Current Liabilities Cash and cash equivalents $ 42,641,046 51 $ 48,791,042 48 Payable for securities settlement service $ 82,660 - $ 78,085 - Available-for-sale financial assets 5,075,990 6 22,924,293 22 Accrued expenses 777,231 1 773,696 1 Held-to-maturity financial assets 1,274,060 2 2,658,907 3 Income tax payable 206,672 - 298,745 - Accounts receivable-net 454,111 1 421,650 - Securities lending and borrowing collateral payable 40,722,402 49 62,022,599 61 Interest receivable 148,105 - 146,572 - Other current liabilities 516,588 1 616,737 - Income tax refundable 147,398 - 85,268 - Performance bond payable - - - - Other current assets 5,946 - 12,743 - Total Current Liabilities 42,305,553 51 63,789,862 62 Performance bond - - - - Other Liabilities Total Current Assets 49,746,656 60 75,040,475 73 Default damages reserve 8,036,253 10 7,865,216 8 Funds and Long-term Investments Deposits received 45,800 - 49,460 - Held-to-maturity financial assets-noncurrent 16,341,349 20 11,296,642 11 Reserve for land value increment tax 44,599 - 44,599 - Financial assets carried at cost-noncurrent 821,652 1 821,652 1 Total Other Liabilities 8,126,652 10 7,959,275 8 Default damages fund 7,995,246 9 7,839,909 7 Securities Settlement Credit - - - - Long-term equity investments accounted for under the equity method 6,600,075 8 6,034,499 6 Total Liabilities 50,432,205 61 71,749,137 70 Total Funds and Long-term Investments 31,758,322 38 25,992,702 25 Property, Plant and Equipment Stockholders’ Equity Original Cost Capital stock Land 129,496 - 129,496 - Common stock 5,837,281 7 5,694,908 6 Buildings 180,233 - 180,233 - Capital reserve 37,682 - 37,682 - Computer equipment 1,459,305 2 1,259,017 1 Retained earnings Other equipment 498,258 1 437,086 1 Legal reserve 3,933,324 5 3,733,696 4 Revaluation – land 37,084 - 37,084 - Special reserve 19,849,613 24 18,911,362 18 2,304,376 3 2,042,916 2 Unappropriated earnings 2,660,919 3 2,016,210 2 Less:Accumulated depreciation ( 1,601,393 ) ( 2 ) ( 1,395,800 ) ( 1 ) Other adjustments to Stockholders’ Equity Prepayments on equipment 101,612 - 137,293 - Unrealized gain or loss on financial instruments 49,966 - 127,346 - Total Property, Plant and Equipment 804,595 1 784,409 1 Total Stockholders’ Equity 32,368,785 39 30,521,204 30 Other Assets Commitments and Contingent Liabilities Rental assets 85,657 - 86,111 - Significant subsequent events Operations guarantee deposits 300,000 1 290,000 1 Refundable deposits and miscellaneous assets 105,760 - 76,644 - Total Other Assets 491,417 1 452,755 1 Securities Settlement Debit - - - -
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 82,800,990 100 $ 102,270,341 100 TOTAL ASSETS $ 82,800,990 100 $ 102,270,341 100
42 Financial Review 43 Income Statements（31 December, 2009 and 2010） Unit:NT$1,000
2010 2009 Amount ％ Amount ％
Operating revenues Trading fees $ 3,309,108 65 $ 3,444,763 71 Market data fees 412,894 8 368,322 7 Listing fees 745,346 15 519,189 11 Computer and other equipment fees 82,658 2 82,005 2 Data processing fees 195,208 4 182,354 4 Others 321,257 6 241,555 5 Total Operating Revenues 5,066,471 100 4,838,188 100 Operating expenses Personnel ( 1,209,085 ) ( 24 ) ( 1,207,845 ) ( 25 ) General and administrative ( 2,386,584 ) ( 47 ) ( 2,404,609 ) ( 49 ) Total Operating Expenses ( 3,595,669 ) ( 71 ) ( 3,612,454 ) ( 74 ) Operating income 1,470,802 29 1,225,734 26 Non-operating income Interest 668,554 13 560,671 12 Equity in net income of investee companies 827,572 16 708,142 15 Gain on disposal of investments 150,932 3 25,466 - Other income 24,191 1 27,499 - Total Non-operating Income 1,671,249 33 1,321,778 27 Non-operating expenses Interest ( 69,114 ) ( 1 ) ( 23,614 ) - Impairment loss - - ( 34,623 ) ( 1 )
Other expenses ( 84,621 ) ( 2 ) ( 85,409 ) ( 2 ) Total Non-operating Expenses ( 153,735 ) ( 3 ) ( 143,646 ) ( 3 ) Income before income tax 2,988,316 59 2,403,866 50 Income tax expense ( 351,491 ) ( 7 ) ( 407,586 ) ( 9 ) Net income $ 2,636,825 52 $ 1,996,280 41
Pre tax After tax Pre tax After tax
Basic earnings per share $ 5.12 $ 4.52 $ 4.12 $ 3.42
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