The Taiwan Depository & Clearing Corporation
The Debt Instruments Depository and Clearing Co Ltd Taiwan (DIDC) was merged with the Taiwan Securities Central Depository Co (TSCD) on March 27, 2006 and renamed as The Taiwan Depository & Clearing Corporation (TDCC). TDCC is still supervised by the Securities and Futures Bureau (SFB). The total capital is TWD2.8 billion and 50.43% owned by the Taiwan Stock Exchange (TSE), 13.96% by Fuh-Hwa Securities Finance Co Ltd and 35.61% by other financial institutions and individuals.
Securities settlement through the TDCC is not mandatory; currently, over 80% of listed stocks are immobilized/dematerialized and over 80% of trades are settled within the TDCC. Trades not settled via the TDCC are mainly for bonds and odd-lot transactions. Assets are held on a fungible basis.
As of June 2006, there were 1,175 participants in the TDCC. Eligible participants include the FSC, the TSE, the GreTai Securities Market (GTSM), securities firms, financial institutions, insurance companies and custodian banks. Each custodian opens one account with the TDCC with all its custody clients’ accounts opened as sub-accounts under this umbrella account in the clients officially approved names. TDCC is the central clearing agent and depository for all shares and bonds listed on the TSE and the GTSM and short-term papers. Stock certificates are immobilised/dematerialised at TDCC and trades are settled via book-entry on a net settlement basis. All money settlements (except short-term papers) take place outside the TDCC. Custodian banks make payments to and from the brokers.
The major functions of the TDCC are:
* custody of securities;
* book-entry of securities settlement or pledged securities;
* computerized processing of securities-related issues;
* registrar and transfer agent for publicly issuing companies; and
* Cash and clearing of short-term papers (including commercial paper (CP), negotiable certificates of deposit (NCD) and bankers’ acceptances), and particular fixed-income instruments, including financial debts, corporate bonds and provincial/municipal bonds.
Securities eligible to be immobilized/dematerialized at the TDCC include common shares, preferred shares, depository receipts, warrants, beneficiary certificates, government bonds, supra-national bonds issued in Taiwan, corporate bonds, convertible bonds, strip bonds, entitlement certificates and short-term papers issued after April 2004, and financial bonds issued after August 21, 2006. Securities maintained at the TDCC are settled via a book-entry system.
For short-term papers, and particular fixed income instruments, including financial debts, corporate bonds and provincial/municipal government bonds, eligible papers shall be delivered by the bills underwriters to the “Physical Securities Depository Bank (PSDB)” (currently The Farmers Bank of China is the designated PSDB for custody. Details of the bills will be maintained in the TDCC’s “Bills Clearing and Settlement System (BCSS)”. Cash and securities settlements on a DVP (delivery against payment), real-time gross settlement (RTGS) basis. Securities are transferred via book-entry system at TDCC’s designated clearing banks. TDCC also handles interest payment and principal redemption.
However, for short-term papers, a FINI will maintain a securities account for safekeeping and book-transfer of bills, and a cash account for cash settlements, at any of TDCC’s designated clearing banks, in the name of the FINI as registered with the TSE.
As required by the SFB, the TDCC has to appropriate 5% of its operating income to a default damage fund after each quarter until the accumulated fund equals its capital. The existing fund size as at year-end 2005 was approximately TWD1.108 billion (USD34.64 million). The fund will indemnify the TDCC’s clients against any shortfall in the quantity of clients’ securities as a result of an oversight by the TDCC. In addition, the ex-DIDC has deposited TWD100 million in the form of cash, government bonds or financial bonds with the Central Bank of China. TDCC should also reserve 30% of its net profit after tax when distributing its annual profit surplus.
In order to ensure that human error by TDCC personnel does not result in any shortfall of securities and that securities held in TDCC vaults or in transit are not depleted or lost by theft, burglary, armed robbery, misplacing, employee negligence/dishonesty, fires, explosions or other causes, the TDCC has taken out insurance to protect all the securities in its custody. The amount of the insurance policy is TWD710 million per year.