Newsletter
SFC RELAXES RESTRICTIONS ON QFIIS AND ON FOREIGN INVESTMENTS IN SECURITIES
In order to expand the scale of Taiwanese secu-rities markets, accelerate their internationaliza-tion, and attract foreign investors, on 27 June the Securities and Futures Commission (SFC) amended the Regulations Governing Investment in Securities by Overseas Chinese and Foreign Nationals, and shortly thereafter issued a series of orders relaxing restrictions on investments by qualified foreign institutional investors (QFIIs). In line with the amendments to the regulations, the SFC also issued an order lifting the restric-tions on withdrawal of overseas depositary re-ceipts (DRs) in order to sell the underlying shares.
The key points of the amended regulations are as follows:
Ÿ Overseas Chinese and foreign investors are now permitted to invest in the shares of Tai-wanese companies listed on the emerging stock market of the GreTai Securities Market, in publicly offered or privately placed securi-ties created by the securitization of financial assets, in stock warrants (call and put), and in securities privately placed overseas by Tai-wanese public-issuing companies.
Ÿ Except with certain limits imposed by other laws and regulations, there are generally no limits on the foreign ownership of the issued share capital in a local company.
Ÿ The provisions of the old regulations are abolished that granted discretionary powers to the securities regulatory authority when con-sidering applications from overseas Chinese and foreign investors to invest in local securi-ties; and the grounds for rejecting an applica-tion are explicitly limited to false or mislead-ing statements in the application documents, failure to amend incomplete application documents within a notified time period, and grave breaches of securities-related legisla-tion.
Ÿ The provision that an overseas Chinese or foreign investor could only maintain a single NT-dollar investment account in Taiwan is abolished. "Three-in-one" accounts are also allowed for all investors, permitting overseas Chinese and foreign investors' existing sepa-rate accounts for the withdrawal of DRs, the conversion of overseas convertible bonds, and the sale of overseas shares to be combined with their general investment accounts.
Ÿ The provisions requiring QFIIs to file annual financial statements audited and certified by a certified public accountant, and those requir-ing the record of instructions by a QFII to a securities firm to be in written form, are abol-ished.
Ÿ To make the regulatory framework more flexible, the securities regulatory authority is given discretionary powers to lift restrictions on certain investment actions by overseas Chinese and foreign investors, in accordance with market conditions and with such inves-tors' needs.
On 9 July the SFC issued three orders relaxing restrictions on investments by QFIIs as follows:
Ÿ The maximum investment limit of US$3 bil-lion is abolished: A QFII need no longer ap-ply for approval of an investment amount when applying to invest in local securities.
Ÿ The requirement is abolished for funds to be remitted into Taiwan within two years after investment approval is granted: In the past QFIIs had to remit funds within two years, and at the end of each two-year period had to apply for approval of a new investment amount. This requirement has now been dropped.
Ÿ Minimum assets removed from qualifying conditions: Institutional investors' eligibility as QFIIs will henceforth be assessed solely upon their specialist status. They will no longer be required to show minimum assets of US$100 million (US$50 million for securities firms).
QFIIs that have already received approval to invest in Taiwanese securities are also freed from the above restrictions from the date of the order.
To encourage QFIIs to engage in arbitrage trad-ing in Taiwanese exchange-traded funds, on 27 June 2003 the SFC issued an order allowing QFIIs to participate in the securities borrowing system in accordance with the TSE's Securities Lending and Borrowing Regulations. The pur-poses for which QFIIs may borrow securities also include hedging and arbitrage transactions in overseas corporate bonds and DRs.
The amendments to the regulations removed the provisions that when DRs were issued via issue of new shares for a cash increase in the issuer's capital, a holder could not request the withdrawal of the underlying shares within three months following the issuance of the DRs, and that when overseas shares were issued on the basis of a cash increase in the issuer's capital, holders could not sell such overseas shares on Taiwanese markets within three months from their date of issuance. Accordingly, on 16 July 2003 the SFC issued an order stating that with immediate effect, it would cease to apply the provisions of the Criteria Governing the Offering and Issuance of Over-seas Securities by Issuers forbidding the with-drawal of DRs within three months from their issuance, and the sale of overseas shares on do-mestic markets within three months from their issuance.