SECURITIES INVESTMENT TRUST AND CONSULTING ACT ENACTED

07/01/2004

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To put the operations and development of secu-rities investment trust and consulting enterprises on a sound footing, and to protect investors' in-terests, on 11 June 2004 the Legislative Yuan enacted the Securities Investment Trust and Consulting Act, which was promulgated on 30 June 2004, but will not take effect until a date to be set by the Executive Yuan. The new legisla-tion integrates the current regulations, including the Regulations Governing Securities Investment Trust Enterprises, the Regulations Governing Securities Investment Consulting Enterprises, the Regulations Governing Securities Investment Trust Funds, and the Regulations Governing the Operation of Discretionary Investment Services by Securities Investment Consulting Enterprises and Securities Investment Trust Enterprises. The main provisions of the Act are as follows:

No person or entity may offer, sell, or under-take investment consultancy of overseas funds within the ROC, whether on its own account or as an agent, except with the prior approval of the competent authority, or after registra-tion with the competent authority (as applica-ble).

Permitted cross-sector operations:

1.A securities investment trust enterprise (SITE) or securities investment consulting enterprise (SICE) that meets the conditions set by the competent authority may, on obtaining a license, additionally conduct the business of the other type of enterprise.

2.With the prior approval of the competent authority, a SITE or SICE may additionally conduct other types of business.

3.A securities firm, futures trust enterprise, futures consulting enterprise, futures management enterprise, or other related enterprise, may also conduct the business of a SITE or SICE on obtaining a license from the competent authority.

Under new provisions, a fund may be offered to specific investors by private placement.

If a person or entity becomes liable for dam-ages due to a breach of the Act, and the cul-pable actions concerned were committed by gross negligence or intentionally, the court may impose punitive damages up to twice or three times the actual loss incurred.

A SITE or SICE that provides discretionary investment services must deposit a business guarantee bond with a financial institution. As necessary in order to protect the interests of the public or of beneficiaries, the competent authority may order a SITE that meets certain criteria to deposit a business guarantee bond.

To clarify the legal relationships involved in securities investment trusts, a securities in-vestment trust agreement is explicitly defined as a trust agreement under which a SITE is the principal, a fund custodian institution is the trustee, and an investor is the beneficiary.