A SPECIAL AND UNDERVALUED STOCK MARKET IN TAIWAN

Transcription

1 A SPECIAL AND UNDERVALUED STOCK MARKET IN TAIWAN 1 Yao-Chun Tsao, Cheng-Shiu University & I-Shou University Wen-Kuei Chen, I-Shou University Abstract The managed stock market in Taiwan is neglected by the authorities and general investors. In our paper, we explored the link between financial trait and stock price changing in that special market. Overall, the authors analyze and discuss managerial implications for institutional investors, general investors and the authorities as well. Keywords: managed stock; financial distress; stock market; OTC Introduction The stock market in Taiwan has fairly developed since 1960s. It helps many businesses expand and strengthen themselves and provides the public with a proper channel for investment. Besides, it leads to the upgrade of entire industries and enhancement of competitiveness. On the other hand, by the rapidly-enlarging scale of Taiwan s stock market and the magnificent foreign funds inflow, it has emerged as one of the most important stock market in Asia. Like the other Asian countries, Taiwan s economy was shocked by financial risk in Asia and global involve in depression around Taiwan s stock market seriously plunged, too. And there are many business distress cases occurred in that special time. Most reasons include abnormal trade, insider trading and assets deceit, etc. Take examples, they are Jui-Lien Corporation, Han-Yang Group (Kuo-yang, Kuang-Yu), Hsin-Chu-Chun Group (Ya-Se technology, Tai-fang, Pu-ta), Kuang-San Group (Shun-Ta-Yu, Chung-Chi), Jung-Chou Group (Ta-Kang, Yu-Li), Sakura Group (Taiwan Sakura, Sakura construction), Lien-Cheng, Ta-Ying, Hsin-Yen, Ta-Yung-Hsing, Chin-Wei, Chung-Ching-Chi, Ming-Chia-Li, Feng-An, Hsin-Tai-Shen Copper, Kuo-Tsan Car, Chung-Chiang, Chang-Yi, Hung-Fu, Huang-Pu, Jen-Hsiang, Chien-Mei, Tung-Lung, Yu-Mei, etc. Regulations are designed to de-list listed companies from stock market mostly focus on those investors are unwilling to invest, such as extreme stockholder concentration, rare trading volume and turnover, too much lower stock price and/or market value. But the practical de-listed events generally are due to individual financial affairs. That is, most listed firms were announced to stop trading temporarily or even de-listed by the authority because of their financial distress. The next question is where are those de-listed firms going to? Many of them transfer to the managed stock market for trading again. Our concern is how about their performance by staying there! In the period of our study, managed stock market included thirteen firms as follows: Tong 1 The authors would like to express thanks to anonymous reviewers for kindness suggestions and to Heng-Yi Zheng in NKFUST for her thoughtful assistance with this study.

2 Lung (code 8705), Victor (code 8707), Tah Chung (code 8708), YiShin (code 8710), CAC (Chinese Automobile Company, code 8712), TIDC (Taiwan Industrial Development Corporation, code 8718), Hung Fu (code 8719), Ensure (code 8720) and Sun Home (code 8721), TaTeh code 8722), Taiyu (code 8723), Lee Tah (code 8724) and Sun Splendor (code 8725). In the viewpoint of investment strategy, we should not ignore the significance of managed stock market. Virtually, managed stock market still holds its own value and intrinsic importance. For that reason stated above, it is taken for granted that the authorities should care about managed stock market, and pay more attention to its stock price and financial performance. In other words, even if a firm with financial distress listed managed stock, the authority is obliged to supervise as serious as it could. For general investors, they should keep alarming to managed stock, because it might be another grounds that can make fortune. Research Purpose Accordingly, the business financial distress was generally ascribed to either artificial mistakes or incorrect policy decision. In fact, a firm s financial distress is just like a chronic disease. It doesn t happen suddenly, but gradually in separate stages. The signals of its first stage are the shortage of operating funds and payment delaying; the second stage is the stage of unbalanced financial affairs. Its phenomena are fund turnover difficulty and debts default; the last one goes to bankruptcy. The firm loses the ability to pay off all debts. Some listed firms stop trading in TSE (Taiwan Stock Exchange) or OTC (Over the Counter) owing to their financial distress. Then, the firms that are regarded worthily to operate by the authorities will apply to list as managed stock on OTC. They are allowed improving themselves in certain time. Once they list in managed stock market, they will be de-listed in managed stock market if their performance couldn t get better before the deadline. So the study focuses on whether the firms have appears signals of worse financial status before the happening of financial distress. Moreover, whether do they improve financial status after transferring as managed stock and how abut those stock price performed? In addition, whether managed stocks get valuation as relatively as TSE or OTC markets? The firms listed on managed stock market may be still somewhat acceptable objects for general. Therefore, our research investigates the relative changes of managed stock between stock price and financial performance before and after listed in the stock market in efforts to catch on to the connection between financial distress stock price pattern. Literature Review The literatures discussed about managed stock in Taiwan are fairly limited. Most of them examine advantage/disadvantage and feasibility about the managed stock market. We introduce some informative research offerings of managed stock for comprehension. Also, we synthesize the definitions and regulations of managed stock in the appendix for your reference (see Appendix).

3 As we know, managed stocks list on the special market after de-listed in TSE or OTC. We found that most of them matching these requirements are encountering either hardship in financial condition or shortage of capital. Therefore, we must examine more literatures about the reasons for the happening of financial distress, and discovering the connection and possible relation. Financial Causality Financial crisis incessantly occurs in Taiwan in the late twentieth century. Not only did it cause prices plummet, but influence the performance of whole stock market in Taiwan. Moreover, the un-performing loan and default of the companies cause the financial institution worsen and frail. Even the contagion spill over into other well-conditioned companies and also impede economic development. The problem is so serious beyond imagination. Actually, a firm s financial distress shed some light to trace. Financial analysis is central to business valuation and business lending decision (Foster, 1978; Palepu et al., 1997). Generally, it results form either artificial mistakes or incorrect policy decisions. Some important tracking indexes and financial ratios are precisely related with the financial distress diagnosis as follows in Table 1. Researcher Zmijewski (1984) Lai (1989) Yin (1994) Tsai (1995) Chu (1996) Cooper et al. (1998) TABLE 1 Literature Review Summary for Financial Distress Advocate Develop weighted profit bankruptcy prediction model including three critical independent variables: ROA, Debt Ratio and Current Ratio. Four financial indexes: Net Return on Investment, Debt Ratio, Quick Ratio, and Operating Income of This Quarter - Operating Income of Previous Quarter/ Operating Income of Previous Quarter. Five low - Current Ratio, Total Assets Turnover Ratio, Return on Total Assets, Return on Total Capital, Operating Income Ratio. One high - Inventory Turnover Raito. Six financial indexes - Total Liability/Total Assets, Quick Assets/Current Liability, Operating Grass Profit/Operating Income, Earning After Income Tax, Stock Accounts Value, and Stock Cash Divided. Seven financial indexes: - Return on Stockholder s Equity, Current Assets Raito, Debt Raito, Accounts Receivable Turnover Ratio, Selling Growing Ratio, Revenue Ratio, and Return on Total Assets. Advocate eighteen ratio types for different users. The most important ratio is Liquidity and the second one is Profitability.

4 Li (2000) Chang, Chiu, and Hsu (2000) Hsiao (2001) Swamy (2002) Pan (2002) Yu (2002) Milauskas (2003) Stage of Beginning - Inventory begins to be un-salable and Accounts Receivable appears to be in arrears and un-receivable. Stage of Worsening - Profitability declines sharply. Stage of Striving - Be lack of operating fund. (1)Higher Debt Ratio and too more financial leverage. (2)All profit ratio is much lower than companies. (3)Accounts Receivable Turnover Ratio goes average worse, and so does Inventory Ratio. Seven critical financial indexes - Debt Ratio, Current Ratio, Quick Ratio, Inventory Turnover Ratio, Fixed Assets Turnover Ratio, Net Income/Revenue Ratio, Earning Per Stock. Adopt four groups of financial ratios to diagnosis corporate sickness: Liquidity Ratios, Profitability Ratios, Turnover Ratios, and Operating Efficiency Ratios. Four financial indexes - Operating Income/Sales Income Ratio, Inventory/Sales Income Ratio, Total Assets Growing Ratio, and Fixed Assets/Total Assets Ratio. The common phenomena - Such as lack of ability for paying debt, too higher Debt Ratio, too low profit, and so forth. The most 5 critical financial ratios are: Liabilities to Net Worth, Current Ratio, ROA, ROS, and ROE. We can precisely scout the uncertainty of whether financial distress occurs by each financial index so as to further take preventive measures and tactics. This paper synthesizes some precedent studies, finding that we could observe the trends of eight financial ratios- Debt ratio, Current ratio, Quick ratio, Accounts receivable turnover ratio, Average days for sale of goods, Return on total assets, Earning per share, and Cash flow ratio -to discern the signal of financial distress in advance. Theoretically, there are many causes could make a listed firm into managed stock market, from our practical of data analysis, the causes of these thirteen managed stock companies in this study-one is because false and concealed items of accounts, one is because the operation items of the business changed substantially. Another three come from the negative net assets, and still other eight are from the records of refusal transactions by the financial company or of check deposit shortage for payment (Table2). All signs comply with literatures claimed above. As a result, the performance of financial ratio can be the measurement and linkage with price

5 performance.

6 TABLE 2 Reasons and Regulations for De-listed Firms Name Main Reasons Relative Regulations Tong Lung Victor Tah Chung YiShin CAC TIDC Hung Fu Ensure Sun Home TaTeh Taiyu The consolidated financial report shows negative net assets. The false and concealed items of accounts still exist at the time of the final confirmation of judgment. The scope of the business of the company changed substantially. Records of refusal of transaction by a financial institution or insufficient funds on check deposit. Records of refusal of transaction by a financial institution or insufficient funds on check deposit. Records of refusal of transaction by a financial institution or insufficient funds on check deposit. Records of refusal of transaction by a financial institution or insufficient funds on check deposit. Records of refusal of transaction by a financial institution or insufficient funds on check deposit. The consolidated financial report shows negative net assets. Records of refusal of transaction by a financial institution or insufficient funds on check deposit. Records of refusal of transaction by a financial institution or insufficient - Paragraph 9 of Article Subparagraph 14-2 of Paragraph 5 of Article Paragraph 8 of Article Paragraph 8 of Article Paragraph 8 of Article Paragraph 8 of Article Paragraph 8 of Article Paragraph 8 of Article Paragraph 9 of Article Paragraph 8 of Article 50-1

7 funds on check deposit. - Paragraph 8 of Article 50-1 Lee Tah Sun Splendor Records of refusal of transaction by a financial institution or insufficient funds on check deposit. The consolidated financial report shows negative net assets. - Paragraph 8 of Article Paragraph 9 of Article 50-1 Method The samples of this paper are thirteen specific firms listed on managed stock market at the end of June, 2003, including Tong Lung, Victor, Tah Chung, YiShin, CAC, TIDC, Hung Fu, Ensure, Sun Home, TaTeh, Taiyu, Lee Tah and Sun Splendor. The main reasons why the listed firms forced to de-list by the authority are the happening of its financial distress. Thus, we summary eight key financial ratios of managed stock firms in recent years for empirical study, and also analyzes the performance and trend analysis of financial ratio following listed on managed stock market. Moreover, the authors draw a comparison between the trend charts of the most valuable figure of four dominant financial ratios. They are debt ratio, current ratio, account receivable turnover ratio and return on total assets respectively. By the figures of annual stock prices (the end of month) to observing whether the trend of the charts present or negative correlation with their stock performance. For statistical and economic information, we scrutinize all of each period of stock price of -1 year, -0.5 year, +0.5 year, +1 year and the very right year listed on managed stock market to examine whether they get better or worse with t test and signed ranks test. Specially, we take Tong Lung which is in more excellent condition than any other managed stock firms for an standard example, enumerating P/E ratio of Tong Lung, average P/E ratio on OTC, average ratio of other sector of stocks on OTC to examine if the relative values of a managed stock is undervalued by investors or not. Discussion Critical Financial Ratio Here we explain reasons about the adoption of important financial ratio in this paper. a. Debt ratio shows how large the debt is in total assets with a view to know the situation of financial structure. The higher debt ratio a company owns, the more credit risk a company has. This index is for the purpose of measuring a company s long-term capacity to pay debts.

8 Therefore, it is appropriate to examine whether the status of a company s capital is strongly sufficient or not. b. Cash flow ratio measures the multiple in cash flow divided by current debt. Net cash flow indicates that in the preceding year so as to predict that a company will produce how much net cash flow of operating activities in the future. This paper omits this ratio because it s meaning just similar to current ratio. Current ratio measures a company s short-term capacity to pay debts, and the risk of poor turnover in short time. Practically, it is more suitable to take the industry average for standard level. To the greater extent, current ratio is very essential to the use of capital. Much higher current ratio means capital doesn t be manipulated better enough. In contrast, too lower current ratio means poor capital turnover capacity, tending to result in a company s failure to emergency operating. As another point of view, quick ratio, having close resemblance to current ratio, estimates a company s capacity to pay a short-term debt. Therefore, this paper merely takes current ratio to gauge a company s capacity to pay the short-term debt. c. Higher accounts receivable turnover ratio shows cash of accounts receivable is received promptly. In contrary, lower ratio means that is received slowly. Investors can compare a company s turnover ratio in different time level. If turnover ratio decreases continually or sharply, it could be potential in trouble. In addition, by way of comparison with other companies turnover ratio of an industry, we can tell from the accounts receivable turnover ratio is worse or better than the standard of the same industry. As regards to the other index - average days for cash receipts. It is reasonable we just take accounts receivable turnover ratio for assessing turnover ability since their functions are the same. By this way, this study excludes inventory for cash receipt. d. Return on total assets presents the efficiency of return by exerting assets. Higher return ratio implies higher efficiency of return. Lower return ratio means lower efficient or excessive investment assets. For this reason, it is logical that this paper adopts return on total assets to gauge a company s capacity of earning. Earning per share also shows a company s capacity of earning. We herein exclude it because of its same application as return on total assets. Comparison between Stock Price and Financial Performance Next, the researchers compare trends of financial ratio with stock price to explore the connected

9 implication. We combine them as Table 3 and Table 4 2 below briefly. 2 Owing to the limitation of the length of article, this paper doesn t enumerate detailed financial ratio figures and analyses of each managed stock company but those are available on request.

10 TABLE 3 Linkage between Price Performance and Financial Performance(Before Listed) Financial Ratio Accounts Performance Name Before listed Debt Ratio Current Return on Combined Price vs. Receivable Total Index Index Ratio Turnover Assets Ratio Tong Lung +worsen -worsen +better -worsen (worsen) Victor +worsen -worsen -worsen -worsen (worsen) Tah Chung +worsen -worsen -worsen -worsen (worsen) YiShin +worsen -worsen -worsen -worsen (worsen) CAC +worsen -worsen +better -worsen (worsen) TIDC +worsen -worsen +better -worsen (worsen) Hung Fu +worsen -worsen -worsen +better (worsen) Ensure +worsen -worsen -worsen +better (worsen) Sun Home +worsen -worsen -worsen +better (worsen) TaTeh -better -worsen +better -worsen * (not changed) Taiyu +worsen -worsen -worsen -worsen (worsen) Lee Tah +worsen -worsen -worsen +better (worsen) Sun Splendor +worsen -worsen -worsen -worsen (worsen) irrelevance

11 TABLE 4 Linkage between Price Performance and Financial Performance(After Listed) Financial Ratio Accounts Performance Name After listed Debt Ratio Current Return on Combined Price vs. Receivable Total Index Index Ratio Turnover Assets Ratio Tong Lung -better +better -worsen +better (better) Victor +worsen -worsen -worsen +better (worsen) Tah Chung +worsen -worsen +better +better * (not changed) YiShin +worsen -worsen -worsen +better (worsen) CAC +worsen -worsen +better -worsen (worsen) TIDC +worsen -worsen +better +better * (not changed) Hung Fu +worsen -worsen -worsen -worsen (worsen) Ensure +worsen +better +better -worsen * (not changed) Sun Home +worsen -worsen +better -worsen (worsen) TaTeh -better -worsen -worsen +better (worsen) Taiyu +worsen -worsen -worsen +better (worsen) Lee Tah +worsen -worsen -worsen +better (worsen) Sun Splendor +worsen -worsen +better +better * (not changed) irrelevance irrelevance irrelevance irrelevance

12 TABLE 5 Returns of Individual Stock (Before and After Listed) Name -1 year -0.5 year 0.5 year 1 year Tong Lung % -6.81% % % Victor % % % % Tah Chung % % 61.29% 1.00% YiShin % % % % CAC % % % % TIDC % % % % Hung Fu % % 1.00% % Ensure % % % % Sun Home % % 80.06% % TaTeh % % % % Taiyu % 6.25% 21.42% 80.06% Lee Tah % % 78.26% 63.04% Sun Splendor % % 28.57% 1.00% TABLE 6 Difference Test for stock Returns Items -0.5 year 0.5 year -1 year 1 year Mean Variance t value P (T<=t), single tail Critical Value No. of Samples 13 In Table 5 and Table 6, we can identify the stock returns and relative testing hypothesis of thirteen managed stocks. Table 6 shows the average stock returns of the half year before delisting is less than the mean value of the half year after listed as managed stocks. The variance of the half year before delisting is more than the variance of the half year after listed. Also, t statistics of the half year before delisting and after listed in managed stock market implies insignificantly differences in return. On the other side, t-test of the one year before de-listed and after listed in managed stock market, the average of the one-year before de-listed is much less than one year after listed. Implying the stock performance one year after listed in managed stock market largely rises. For further exploring the robustness of our study, we analyze these data by Wilcoxon Signed Ranks Test as follows in Table 7 and Table 8. And the same answers fully support our induction about the significant differences one year before and one year after these stocks were listed in the managed stock market.

13 before.5y - after.5y before1y - after1y TABLE 7 Wilcoxon Signed Ranks Test Negative Ranks Positive Ranks Ties Total Negative Ranks Positive Ranks Ties Total a. before.5y < after.5y b. before.5y > after.5y c. before.5y = after.5y d. before1y < after1y e. before1y > after1y f. before1y = after1y Z Asymp. Sig. (2-tailed) N Mean Rank Sum of Ranks 9 a b c 13 9 d e f 13 TABLE 8 Significance a. Based on ranks. b. Wilcoxon Signed Ranks Test before.5y - before1y - after.5y after1y a a Synthesizing these statistical analyses, in light of investment returns, the stock performances of managed stock before delisting from SEC or OTC are extremely poor. However, those firms evidently go better after listed in managed stock market in a certain time. The Traits of Managed Stock Returns It is interesting that nine out of thirteen firms-tong Lung, Tah Chung, CAC, Hung Fu, Ensure, Sun Home, TaTeh, Lee Tah and Sun Splendor performed well in the half year after listed in managed stock market. Four in thirteen-victor, YiShin, TIDC and Taiyu are eventually losers. In addition to that, except Tong Lung, Hung Fu, and Ensure s stock returns evidently rise in the one year after listed in managed stock market (see Table 5 and Table 6). The other ten firms, including-tah Chung, CAC, Sun Home, Sun Home, TaTeh, Lee Tah, and Sun Splendor reverse to downward after half year. As a result, if investors hold these stocks just while listed in managed stock market, it could still make profits in the short-term. But in the viewpoint of

14 long term, you are not so sure whether lasting excessive profits exist there. Relative Market Performance vs. Tong Lung Case FIGURE 1 Comparison of P/E Defeat the Market Defeat the Market Figure 1 tells the P/E of Tong Lung is far lower than the P/E of other sector in OTC and total average P/E of OTC after listed in managed stock market except December 2000 to April 2001 and May to August In other words, we find the stock price of Tong Lung is undervalued for most periods even if it is the most outstanding company in the managed stock market. Conclusions According to the results, we conclude some concrete suggestions from three different dimensions. a. For general investors General investors may pay more attention to managed stock market. In effect, it might be a source of making fortune. And for the investors already plunged in to managed stock market, they should be carefully aware of the risk as well as attribute of managed stock, and take notice of the fundamental changes for reference to adjust their portfolios. b. For the securities authority In terms of the fundamental performance and stock price status of managed stock, they didn t experience should-be evaluation by comparison with TSE and OTC Market. The explainable excuse is that investors have a subjective conception to regard managed stock market as an inferior market. As for the authority, it is noticeable that the stock price of individual stock in managed stock market is much lower than intrinsic value. Maybe that is deserved to discuss if the promotion of managed stock market is necessary.

15 c. For institutional investors From our viewpoint, managed stock is not a nice object to invest because of its mortal illiquidity. The individual stock with better financial status will enjoy the excellent stock performance when managed stock gradually goes from bad to good. Until then, it may be a good choice for institutional investors to involve in before lists in TSE again for sure. Appendix Definitions and Regulations of Managed Stock a. Forty days prior to the de-listing of securities as approved by the Competent Authority, this Corporation shall publicly announce such facts and inform the over-the-counter trading exchanges and such company that the securities may by applied for as managed stocks. b. A public issuer meeting one of the following conditions and without any of the conditions under Operation Rules Article 13 and Article 13-1 of OSE for Trading Securities on OTC Markets (the "Operation Rules") are, with the written recommendation of more than two underwriters, qualified to apply for trading in managed stock market. (1) Where trading of the stocks on OTC market is terminated pursuant to Article 12-2 of the Operation Rules; or (2) Where the issuer is a listed company whose listing on the Taiwan Stock Exchange is terminated. c. GreTai Securities Market Rules Governing Securities Trading on Over-the-Counter(OTC) Markets Article 13: (1) Where any condition specified in Article 282 of the Company Law exists, and a court has prohibited the transfer of its shares pursuant to Subparagraph 5 of Paragraph 1 of Article 287 of the Company Law. (2) Where the securities transfer institution established at the location of the GreTai is withdrawn, or a dummy transfer institution is established such that no transfers are processed, and upon the order of the GreTai to correct the situation within a certain time period, no correction is made. (3) Where any document or information that has been submitted is suspected to be untrue, and upon the request of the GreTai to explain the matter, no reasonable explanation is provided within the prescribed time period. (4) Where the most recent financial report publicly announced and reported under Article 36 of the Securities and Exchange Law shows a negative net worth at the same figure of the paid-in capital; provided, when a company records as a deduction from shareholders equity the cost of shares bought back by it pursuant to Article 28-2 of the Securities and Exchange Law or of shares held in said company by subsidiaries thereof, the par value of treasury stock held in said company by the company and subsidiaries thereof may be deducted from the paid-in capital in the calculation of the above-stated ratio. (5) Where the financial report publicly announced and registered pursuant to Article 36 of the Securities and Exchange Law was not produced pursuant to relevant laws and regulations and generally accepted accounting principles, and such violations were serious and corrections or

16 rewrites were not made within the specified time period; or the CPA audit report for the publicly announced and registered semi-annual or annual financial statement contained a disclaimer of opinion or an adverse opinion. (6) Where there exists any circumstance set forth in Article 9 of the GreTai Procedures for Verification and Disclosure of Material Information of OTC Companies, Article 7 of the GreTai Procedures for Press Conferences Concerning Material Information of OTC Companies, Article 11 of the GreTai Procedures for the Ordinary and Extraordinary Management of Financial Business of OTC Companies, Article 8 of the GreTai Procedures for Verification and Disclosure of Material Information of Foreign Securities, or Article 6 of the GreTai Regulations Governing Information Reporting by OTC Securities Companies, were such violation was serious, and there is the need to suspend trading in its securities. (7) Where an OTC company has violated an undertaking it gave when applying for OTC listing. (8) Where there is any other condition for which the trading of securities on the OTC market shall be suspended in accordance with GreTai regulations or opinions of the GreTai. d. GreTai Securities Market Rules Governing Securities Trading on Over-the-Counter Markets Subparagraph 1 of Article 13: (1) Where the stocks have been listed on Taiwan Stock Exchange Corporation. (2) Where the stocks have been changed to ordinary stocks traded on the OTC Market pursuant to Article 12-5 of these Rules. (3) Where the application and the attached documents contain false statement or omission in connection with significant issues or facts. (4) Where the most recent financial report publicly announced or reported under Article 36 of the Securities and Exchange law shows that the net worth is twice the paid-in capital. (5) Where the issuer has any of the conditions under Article 9, Article 10, Article 11, Paragraph 2 of Article 17, Subparagraph 1 through Subparagraph 7 of Paragraph 1 of Article 315, and Article 397 of the Company Law or other conditions, and its corporate registration is revoked or the company is dissolved by the relevant competent authority. (6) Where the issuer has any of the conditions under Article 251 or Article 271 of the Company Law or other conditions, and the approval is revoked by the relevant competent authority. (7) Where an application for re-organization is dismissed pursuant to Article 285-1, paragraph 3, subparagraph 2 of the Company Law and such dismissal becomes final. (8) Where the issuer is adjudicated bankrupt by the court and such adjudication becomes final. (9) Where the stocks have been traded as OTC managed stocks for a period of longer than two years. (10) Where any circumstance set forth in Paragraph 1 of Article 13 of these Rules continues to exist six months after the Competent Authority has approved suspension of OTC trading of the stocks pursuant to application by the GreTai. (11) Where the issuer has materially violated the contract for trading securities on the OTC Market or these Rules, or where other significant event occurs, and the GreTai decides that it is improper for the issuer to trade as managed stocks on the OTC Market. (12) Where there is any other matter for which it is necessary to terminate the trading of managed stocks on the OTC Market.

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