Taiwan Securities Association

Case:

Key Words:

securities underwriting, book building, listed company, association

Reference:

Fair Trade Commission Decision of April 6, 2011 (the 1013rd Commissioners' Meeting), Disposition Kung Ch'u Tzu No. 100044

Industry:

Securities Brokerage (6611)

Relevant Laws:

Article 14 of the Fair Trade Law

Summary:

1. At its Second Underwriting Business Committee Meeting on March 7, 2007,
   Taiwan Securities Association (hereinafter referred to as the TSA) reached the decision that when its member underwriters considered a fee was required for the book building service they provided, the fee should not be lower than 2% of the underwritten amount. The conduct was in violation of the Fair Trade Law (FTL).
2. Findings of the FTC after investigation:
   (1)At the TSA's First Underwriting Business Committee Meeting in 2007, a motion was presented to the members for the purpose of discussing their charges for book building service. On March 7 of the same year, the TSA reached the decision at the Second Underwriting Business Committee Meeting that "underwriters may act in line with the condition of each case and stipulate in the book building and underwriting announcements whether to charge a book building service fee. If an underwriting case is determined as requiring payment of a book building service fee, the fee shall be collected from the allotee only and at the rate no less than 2% of the underwritten amount." The decision was approved by the Board Director and Supervisor Joint Meeting on March 13, 2007 and all the members were notified on March 15, 2007 to abide by the decision.
   (2)On December 9, 2004, the TSA added Paragraph 6 to Article 26 of the "Rules Governing Underwriting and Resale of Securities by Securities Firms" to stipulate that "when a securities underwriter accepts a book building bid for processing, it may collect a book building processing fee from the bidder, in accordance with the Taiwan Securities Association Rules Governing Securities Underwriters' Allocation of Securities by Book Building", laying the legal basis for underwriters to charge for book building. Another finding revealed that the aforesaid "Rules Governing Securities Underwriters' Allocation of Securities by Book Building" only prescribed the operating procedure of book building and set no regulations on collection of charges. Therefore, there was no stipulation regarding the standards of book building fees to be collected.
3. Grounds for disposition:
   According to Article 89 of the Securities and Exchange Act, securities firms must join the TSA before they are allowed to operate their businesses. Hence, all securities firms are members of the TSA and are required to abide by the TSA's decisions. In consequence, the said decision had certain influence and binding effects on all TSA members that provided underwriting service. As the "Rules Governing Securities Underwriters' Allocation of Securities by Book Building" only stipulated that underwriters could charge for their book building service but set no regulations regarding the standards of charges, TSA members that were on the same horizontal level should be allowed to consider the competition condition on the market to determine their own rate of charges when providing securities underwriting service so that their business opportunities could increase. On the contrary, the TSA directly set a limit on the standard of book building service fees in its decision. It was actually a restriction on the competition among its members to obtain business opportunities. The data from the TSA showed that in 69 out of the 70 underwriting cases requiring collection of book building fees after the said decision was made no less than 2% of the underwritten amount was collected as the book-building fee. Obviously, the members were collecting the fee according to the aforesaid bottom line and the decision had indeed set a restriction on their business activities. The conduct was therefore in violation of Article 14 (1) of the FTL and the FTC imposed an administrative fine of NT$1,000,000 on the TSA.

Summarized by: Tsao, Hui-Wen; Supervised by: Chen, Yuhn-Shan