Law beefs up securities, corporate governance rules sector

This article was written by Bowun Jhu and published by the Taiwan Journal on December 30, 2005. It reports that the Legislative Yuan in Taiwan recently passed the final reading of amendments to the Securities and Exchange Law, which include provisions on insider trading, corporate governance and the responsibilities of certified public accountants.

The revised law bans insiders from trading in company shares over a period of 12 hours before and after the publication of important company news that may influence share prices. The term "insiders" is defined to include board directors, superintendents and managers of listed companies, as well as those who have left these positions for less than six months and shareholders who hold 10 percent or more of a company's shares. It is expected that such revision will provide strong deterrence to insider trading and stock market manipulation.

The revised law also mandates a system of independent directors for listed firms, in order to strengthen corporate governance. Specifically, the law requires listed companies to allocate at least two, and no fewer than one-fifth of, board seats to independent directors, whose objections to or reservations about company policies must be recorded in the minutes of board meetings. In extreme cases, companies may be required to set up a special committee consisting of at least three independent board directors to take over supervision of all company operations. It is expected that such revision will affect more than 60 percent of companies listed on the Taiwan Stock Exchange and over-the-counter markets.

Finally, the revised law stipulates that certified public accountants can be held liable to compensate both investors and companies for losses resulting from their endorsement of falsified financial records.

More detailed information about the revised Securities and Exchange Law is provided in this article.