Newsletter
HIGHLIGHTS OF SECONDARY REGULATIONS ON FINANCIAL ASSET SECURITIZATION
Following the enactment of the Financial Assets Securitization Statute (Statute), the Ministry of Finance (MOF) promulgated several regulations to govern the issuance of beneficiary certificates by trustees and the issuance of asset-backed se-curities (ABSs) by special-purpose companies (SPCs). The Regulations Governing the Issu-ance of Beneficiary Certificates by Trustees and ABSs by SPCs (Issuance Regulations) regulate the registration and approval of issuances. The Regulations Governing the Scope of Offerees, Content of Prospectuses and Restrictions on Transfer for Private Placements of Beneficiary Certificates and ABSs (Private Placement Regulations), and the Regulations Governing the Public Offering of Beneficiary Certificates by Trustees and ABSs by SPCs (Public Offering Regulations), further regulate matters concern-ing the private placement and public offering of beneficiary certificates and ABSs.
The key points of the above-mentioned regula-tions are described below:
The Issuance Regulations
The MOF promulgated the Issuance Regulations on 8 October 2002 in accordance with Paragraph 1 Article 9, and Paragraph 1 Article 73, of the Statute, to define the procedures for trustees and SPCs to seek approval for, or to register, the is-suance of beneficiary certificates or ABSs; the procedures to be performed after registration or approval; and the conditions under which the competent authority may return, reject, annul or revoke an application, registration or approval.
The Issuance Regulations explicitly provide that the issuance of beneficiary certificates by a trustee and the issuance of ABSs by an SPC are subject to a two-track system of either prior ap-proval or prior registration. If the issuance in-volves a public offering to unspecified persons, the Public Offering Regulations apply.
Under the Issuance Regulations, an issuance of beneficiary certificates by a trustee or of ABSs by an SPC in principle requires only prior regis-tration. Unless the supporting documents or the required information stated in the supporting documents are incomplete, or there is a need for further explanation in order to protect the public interest, or the applications are returned by the competent authority, the registration becomes effective after a statutory waiting period of 15 business days from the date when the application is received by the authority. But prior approval is required under certain exceptional circum-stances, such as in the case of the first application, or if any previous application was returned, re-jected or the registration annulled or revoked, or if the sale of assets is to any foreign nationals.
The competent authority may suspend the regis-tration process if the registration documents, or their required contents, are incomplete, or if the authority considers such suspension necessary in order to protect the public interest. If the trustee or SPC submits amendments or explanation to address the reasons for suspension, the compe-tent authority may lift the suspension after a further statutory waiting period. But if the ap-plicant does not cure the deficiency, the compe-tent authority may return the registration docu-ments.
If certain circumstances, as defined in the Issu-ance Regulations, exist when a trustee or SPC seeks registration or approval to issue benefici-ary certificates or ABSs, the competent authority may return or reject the application or registra-tion filing. If such circumstances arise after the registration has taken effect or approval has been granted, the competent authority may annul or revoke the registration or approval.
The Private Placement Regulations
The MOF promulgated the Private Placement Regulations on 24 September 2002 in accor-dance with Paragraph 4 Article 17 and Article 101 of the Statute. The Private Placement Regulations apply to private placements of beneficiary certificates and ABSs by trustees and SPCs, and regulate matters such as the permitted offerees, the information that must be stated in the prospectus, and restrictions on the disposal of such certificates or securities.
Permitted offerees for private placements in-clude (i) banks, bills finance companies, trust companies, insurance companies, securities firms, and other juristic persons, institutions and funds approved by the competent authority; and (ii) individuals, juristic persons and funds meet-ing the conditions prescribed by the competent authority. The number of subscribers under category (ii) must not exceed 35.
According to an MOF interpretation letter, ap-proved juristic persons or funds under category (i) include securities investment trust enterprises (SITEs), securities investment trust funds offered by SITEs, mutual trust funds offered by trust companies, the Civil Service Pension Fund, worker retirement funds, and the Labor Insur-ance Fund. According to another MOF inter-pretation, in the case of natural persons, the re-quired conditions under category (ii) are based on their assets or income, and are equivalent to the conditions for individual subscribers to pri-vate placements under Article 43-6 of the Secu-rities and Exchange Law; for juristic persons, they are based on assets.
When these persons subscribe to a private placement, or if they subsequently seek to dis-pose of their beneficiary certificates or ABSs, the trustee, SPC or the seller must exercise due diligence in investigating whether the subscriber or new purchaser meets the conditions for private placement, and must obtain documents evi-dencing their eligibility. Only then may the trustee or SPC register the transfer of the cer-tificates or securities.
The Private Placement Regulations also explic-itly state that when a trustee or SPC conducts a private placement, it must prepare an investment prospectus, which must include certain important items of content. These items include the terms and conditions of issuance, profiles of related institutions, the status of the entrusted or trans-ferred assets, the allocation of fees, credit rating and credit enhancement, restrictions on disposal and so on. Such requirement is to enable sub-scribers or purchasers to be fully aware of rele-vant information in order to determine the ap-propriateness of the investment.
Beneficiary certificates or ABSs sold by private placement may not be resold, except if they have been classified as short-term bills, or as allowed by the laws and regulations, or with the approval of the competent authority; and their private placement or resale must not be the subject of general advertisements or public solicitations. Privately placed beneficiary certificates or ABSs must also be conspicuously marked with text stating that there are restrictions on their disposal, and these restrictions must be clearly stated in the related documents delivered to the subscriber or purchaser. To ensure clarity of ownership, beneficiary certificates or ABSs may only be disposed of if their transfer is registered with the trustee or SPC.
The Public Offering Regulations
The MOF promulgated the Public Offering Regulations on 2 October 2002 according to Paragraph 2 of Article 17, and Article 101 of the Statute. The Public Offering Regulations define the procedures to be followed when financial asset securitization products are to be publicly offered on securities markets.
A public offering may only be made after a reg-istration filing or an application for approval, together with other required documents, have been filed with the Securities and Futures Commission (SFC), and the registration has taken effect or approval has been granted. In principle, the registration system will apply. But prior approval will be required for new public offerings if in past public offerings the issuer has had a registration filing or approval application returned or rejected, or a registration or approval annulled or revoked, by the Bureau of Monetary Affairs or the SFC, or if any of the related parties during the issuance has been in serious breach of the Banking Law, Trust Enterprise Law, Insur-ance Law or Securities and Exchange Law, or has been unable to pay out principal, profits, in-terest or benefits. For cases requiring only reg-istration, the registration becomes effective 12 business days after the date on which the SFC receives the registration documents.
Once registration becomes effective or approval is granted, the trustee or the SPC, as the case may be, must make a public announcement, and un-dertake all other matters related to the public offering, within 30 days after the date on which registration takes effect or on which it receives the notice of approval. Except for otherwise provided in the law and regulation, the trustee or the SPC, as the case may be, must complete the offering within three months after the effective date. If necessary, this term may be extended once, by up to three months. Within 30 days after filing a report with the SFC regarding complet-ing the offering, the trustee or SPC must deliver the beneficiary certificates or ABSs.
The SFC may return or reject a registration filing or application if the application contains any illegality or misrepresentation; if the under-writer's evaluation report does not clearly indi-cate the feasibility and reasonableness of the offering plan; if a certified public accountant has not provided a fairness opinion clearly indicating that the entrusted property or transferred assets are appropriately priced; if there are objective facts showing that the asset entrustment and se-curitization plan or asset-backed securitization plan is not achievable; or if there are facts showing major irregularities in the finances or business operations of the trustee or SPC.
Before the registration with the SFC becomes effective or SFC's approval is granted, the trustee or SPC must obtain a letter of consent of listing from the Taiwan Stock Exchange the GreTai Securities Market.
Except where the law and regulation provides otherwise, all the securities to be publicly offered must be sold by underwriters on a firm-commitment basis. The originator must not be affiliated with the lead manager.
To protect investors' interests, the Public Offer Regulations also require that if any material change affecting the issuer, or the contents of the registration or application documents, occurs after such documents have been accepted for consideration by the SFC but before the issuer receives letter of registration or approval from the SFC, the change must be disclosed by public announcement, and must be reported to the SFC, together with an expert opinion. In the period from the effective date of registration or the date of approval of a public offering of beneficiary certificates or ABSs until the date of their listing, the SFC may annul or revoke the registration or approval if any of various circumstances occurs, including failure to complete the offering on time; discovery of misrepresentation or concealment concerning the offering; or material changes in the underlying financial assets that may seriously affect the price or issuing terms.
If a registration or approval is annulled or re-voked, and the trustee or SPC has already re-ceived payments for the securities, the trustee or SPC must refund such payments with accrued interest at the rate provided under the law within ten days after receiving the letter of annulment or revocation from the SFC.
Financial asset securitization is one of the gov-ernment's most important financial reform measures in recent years. It provides a mecha-nism that can expand the scale of financial markets, allocate risk, and promote more effi-cient utilization of funds, and should therefore bring new vitality to Taiwan's financial envi-ronment. The regulations described above clearly define the procedures for the issuance and offering of beneficiary certificates and ABSs, and are of obvious importance. The competent authority is expected to draw up other related regulations as soon as possible to facilitate fi-nancial asset securitization.