Executive summary

The Financial Supervisory Commission (FSC) on 23 August 2024 promulgated a new ruling to remove the current limitation of one local custodian designation, aiming to attract more international capital investment in Taiwan's stock market by improving the investment environment. The new rule will allow a FINI to appoint one primary local custodian and up to three secondary custodians. This new mandate will take effect on 24 February 2025.

Detailed discussion

Many institutional investors, such as sovereign wealth funds or pension funds, routinely grant multiple mandates to various asset management firms and appoint more than one global custodian to support their global portfolio investments. In international practice, whenever multiple global custodians are used for various considerations to segregate the portfolios under multiple mandates in local markets, each global custodian has discretion to appoint a local sub-custodian based on an overall assessment and review of qualified custodians. The current Taiwan regulations prohibit the appointment of more than one Taiwan custodian, thus requiring all appointed global custodians to use the same domestic custodian in Taiwan. This rule can inhibit the selection and use of qualified/preferred Taiwan custodians by global custodians.

The "Operational Guidelines for Foreign Institutional Investors Appointing More Than Two Custodians" approved by the FSC and released by the TWSE mainly make changes to the following areas:

• Registration of foreign investors
• Administration of shareholder services
• Separate calculations and supervision by the primary and each of the secondary custodians for investment quota or limits (e.g., fixed-income products, remittance of sale proceeds from borrowed securities, remittance of capital or investment earnings, etc.)

The TWSE will be working with the Taiwan Depository and Clearing Corporation (TDCC), stock agents, custodians, securities firms and other market participants in developing and establishing the new operation systems.

Implications

The implementation of this measure is scheduled to commence on 24 February 2025. It is anticipated to enhance the operational efficiency of foreign investment and to lower the costs associated with asset managements for foreign investors investing in Taiwan's stock market.