INVESTMENT DECISIONS FOR FUND ASSETS IN SOME REGIONS MAY BE OUTSOURCED

01/01/2010

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l	Current Status of Regulations
	Paragraph 1, Article 5 of the Regulations Governing Securities Investment Trust Funds (the Regulations) stipulates that, "A securities investment trust enterprise shall have the power to direct utilization of fund assets. The securities investment trust enterprise shall implement such utilization itself, and except where the Financial Supervisory Commission (FSC) provides otherwise, may not authorize a third party for the same." Accordingly, a securities investment trust enterprise (the SITE) in principle should not authorize a third party to utilize the fund assets.
	There are two exceptions to the above principle: (1) a SITE, pursuant to Paragraph 1, Article 7 of the Regulations, using fund assets for overseas investment may engage its group member company or a company which provides overseas investment consulting services to provide the SITE with centralized market trading services to place a trading order on its behalf through a foreign securities firm; and (2) according to a ruling issued by the FSC on June 13, 2007, a SITE may delegate a third party to handle foreign exchange business and currency hedge business in relation to fund asset utilization. However, pursuant to Paragraph 1, Article 5 of the Regulations, a SITE is still prohibited from authorizing a third party in regard to asset utilization and investment decisions for the fund.
l	2009 Ruling
	A new ruling announced by FSC on 21 December 2009 (2009 Ruling) marks a major breakthrough of the above outsourcing-forbidden principle. A SITE is now allowed, under the 2009 Ruling, to outsource investment decisions to third parties (Appointed Management Institution) in markets in time zones different from that of Taiwan excluding Asia and Oceania.
	Key points of the 2009 Ruling are as follows:
	1.	Choice of the Appointed Management Institution
		(a)	Qualifications of the Appointed Management Institution
			The Appointed Management Institution should have professional capacity for the mandated business. Further, it should have been permitted under relevant regulations to engage in the mandated business and meet the qualifications prescribed by the FSC. In addition, the Appointed Management Institution should have relevant specialist expertise in the type of fund and the investment regions of the mandated investment assets.
		(b)	Disqualifications
			The Appointed Management Institution should not be the custodian institution of the fund nor the custodian institution's affiliated enterprise as defined in Chapter 6-1 Affiliated Enterprises of the Company Act.
	2.	A written agreement specifying required matters
		A SITE should enter into a written agreement with the Appointed Management Institution. Said agreement should specify the required matters set forth in the 2009 Ruling.
	3.	Cooperation in supervision
		The regulator of the Appointed Management Institution and the FSC should establish an arrangement for supervision cooperation unless the Appointed Management Institution has entered into an agreement with the FSC for the exchange of information and cooperation in supervision regarding the fund.
	4.	Disclosure
		A SITE should disclose, in the prospectus of the fund, the outsourcing details, name of the Appointed Management Institution and its background. The securities investment trust agreement should include the following statement: "When an intentional or negligent act on the part of the SITE in its choice of and instruction to the Appointed Management Institution results in losses on the fund, the SITE should be liable for damages. The SITE shall be held liable for the intentional or negligent act on the part of the Appointed Management Institution in carrying out the duties and obligations under the securities investment trust agreement, to the same extent as for its own intentional or negligent act." The foregoing statement should also be disclosed in the prospectus.
	5.	Supervision duty of the custodian institution remains intact
		The supervision duty of a custodian institution under the law and the securities investment trust agreement will not be affected by the SITE's outsourcing of management of fund assets to an Appointed Management Institution.
	6.	Existing securities investment trust funds
		A securities investment trust fund approved by the FSC before the announcement of the 2009 Ruling should not outsource overseas investment business in the markets in time zones different from that of Taiwan excluding Asia and Oceania to the Appointed Management Institutions, unless it:
		(a)	obtains the approval of the beneficiaries' meeting;
		(b)	amends the securities investment trust agreement accordingly; and
		(c)	discloses relevant matters in the prospectus.
l	Impacts
	The Regulations prohibit outsourcing on the ground that the investment trust fund asset utilization and investment decision-making form the core business of a SITE, and hence the SITE should undertake such work by itself. Since the 2009 Ruling was announced, a SITE may outsource the overseas investment business in the markets in time zones different from that of Taiwan excluding Asia and Oceania to a qualified Appointed Management Institution. These Appointed Management Institutions may offer full range of investment services, including investment consulting and strategies services, which can benefit investors.