Taiwan: Disputes Arise from Requirement that Securities Underwriters Attend KY Companies’ Board Meetings

As some KY Companies (foreign-registered Taiwanese companies, mostly registered in the Cayman Islands) with financial problems have recently caused investor losses, Taiwan Stock Exchange Corporation announced new regulations in March 2021 requiring the mandated lead securities underwriters to attend KY companies’ board meetings as guests. However, due to criticisms that the new regulations may result in disclosures of said KY Companies’ trade secrets and infringe on their corporate governance rights, TWSE promised to review these issues and to respond in June.

According to paragraph 6 of Article 2 and paragraph 4 of Article 3 of the “Taiwan Stock Exchange Corporation Directions for Lead Securities Underwriters Mandated to Assist Primary Listed Companies in Complying with ROC Laws and Regulations and the Taiwan Stock Exchange Corporation Rules Related to TWSE Listings” amended on 31 March 2021 by TWSE, during the duration of the mandate contract between KY companies and securities underwriters, the securities underwriters must attend KY companies’ board meetings as guests, review the board meeting minutes, create methods of communication with independent directors, and assist KY companies in the selection of qualified director nominees, for the purposes of supervising the practice of KY companies’ boards and ensuring effective operation of said boards.

However, in the Legislative Yuan’s Finance Committee on 11 May 2021, it became a concern that the new regulations may result in disclosures of KY Companies’ trade secrets and infringement of their corporate governance rights, as securities underwriters usually have multiple mandators (KY companies), and could leak the trade secrets revealed at KY companies’ board meetings.

TWSE explained that securities underwriters are responsible for understanding the operating conditions of the KY companies they assist, and securities underwriters may not participate the board meeting when the discussion issues involve trade secrets. Furthermore, the Taiwan Securities Association raised no contrary opinion to the new regulations. However, TWSE promised to review the above issues and will respond to the same in June 2021.