During the 2025 Qingming Festival, the Taiwan Stock Market will be closed for two days. During this period, U.S. President Trump announced details regarding reciprocal tariffs, including the significant news that Taiwan would be subjected to a 32% high tariff. Upon hearing the news, investors, panicked, began selling off stocks, resulting in the largest in the history of the Taiwan Stock Market when trading resumed after the holiday. To make matters worse, the trading volume was less than 200 billion, and over a thousand stocks immediately hit the daily price limit. Investors were further distressed by margin calls flooding in, and some even faced cases of defaulted deliveries. So, what legal responsibilities are involved in a defaulted delivery?

What is a defaulted delivery?

A defaulted delivery is specifically regulated under Article 155, Paragraph 1 of the Securities Exchange Act:"For securities listed on a securities exchange, the following actions are prohibited: 1. Ordering or declaring a buy or sell order in the centralized trading market and failing to fulfill the delivery after a transaction, to the extent that it affects market order." In other words, when an investor places an order and the buyer's account does not have sufficient funds to complete the transaction, it constitutes a defaulted delivery. Common situations of defaulted delivery are as follows:

1. Insufficient account balance: A defaulted delivery occurs when an investor fails to ensure that there are enough funds in their settlement account.

2. Failure in fund transfer: Some investors may fail to pay the transaction amount on time due to improper fund arrangements.

3. Failure of day trading: A day trader may experience a defaulted delivery if they fail to sell the stocks they hold within the same day and have insufficient funds in their account.

4. Order errors: If an investor enters the wrong quantity or amount when placing an order, it may also lead to an inability to fulfill the delivery obligation.

Legal Liability for Defaulted Delivery

Criminal Liability

The penalties for defaulted delivery are specified in Article 171 of the Securities Exchange Act:"Anyone who violates the provisions of Article 20, Paragraphs 1 and 2, Article 155, Paragraphs 1 and 2, or Article 157-1, Paragraphs 1 and 2, shall be sentenced to imprisonment for not less than 3 years and not more than 10 years, and may be fined an amount not less than NT$10 million and not more than NT$200 million." In simple terms, investors are legally prohibited from defaulting on deliveries. If a defaulted delivery occurs, the investor may face imprisonment for 3 to 7 years, which is considered a serious offense under the Securities Exchange Act. Breaking down the law, the key elements for criminal liability in a defaulted delivery are:

1. Failure to fulfill the delivery after the transaction (e.g., insufficient funds in the deduction account).

2. There must be criminal intent on the part of the offender.

Civil Liability

In addition to possible criminal liability, securities firms can charge the client a penalty for defaulted delivery, up to 7% of the highest transaction amount. They may also seek to recover the debts and costs incurred due to the default. The defaulted delivery record will be reported to the joint credit system of securities firms, where all financial institutions can access the record. As a result, the investor may face greater difficulty in applying for mortgages, credit cards, and loans due to their "poor credit history."

Is There Always Criminal Liability for Defaulted Delivery? Judicial Practice Opinions

As mentioned earlier, investors do not automatically face criminal liability for defaulted delivery. According to current judicial opinions, the determination of criminal liability for defaulted delivery should consider factors such as the actual transaction amount and quantity, as well as the opinions of the securities regulatory authority (i.e., the Financial Supervisory Commission), to assess whether it is sufficient to disrupt market order. Additionally, it is necessary to examine whether the individual had subjective knowledge that they lacked the financial capability but still engaged in the transaction of securities listed on the exchange, indicating a subjective criminal intent. This would be the case when the individual placed an order to buy or sell in the centralized trading market and could not fulfill the delivery after the transaction.

What to Do in the Case of a Margin Call?

A margin call, also known as a "forced liquidation," occurs when a securities firm notifies the investor to make up the difference within two days and the investor fails to do so or only partially makes the payment. If the investor's debt is still not cleared after the forced sale of the financed stocks, the securities firm will typically require the investor to pay the remaining balance and may charge a margin default penalty. Relevant regulations can be found in Articles 55 and 82 of the Regulations for Securities Brokers' Operation of Securities Margin Trading.

If you are unfortunate enough to face a margin call, you can check with the securities firm to confirm whether there are any discrepancies in the amount being requested and communicate with them to negotiate a settlement (such as discounts or installment payments).

In addition, our firm has handled legal disputes related to financial market issues, including the 0206 options price fluctuation incident. If you encounter any related legal disputes, we recommend seeking professional legal advice promptly to protect your rights!

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