The Secret Behind Layered Order Routing: The Complete Guide to Taiwanese Investors' Multiple Power of Attorney US Stock Trading

In Taiwan, investing in US stocks does not necessarily require opening an overseas account. An increasing number of investors are choosing to use sub-brokerage to access the US stock market, but many still have only a partial understanding of how this mechanism works, its fee structure, and trading rules. This article will thoroughly break down the complete process of sub-brokerage to help you determine whether this investment method suits you.

The Essence of Sub-brokerage: The Delegation of Delegation

Sub-brokerage, officially known as “Trust Business for Buying and Selling Foreign Securities,” has a simple core concept — you do not directly deal with overseas brokers but place orders through a Taiwanese broker as an intermediary.

Specifically, when you decide to buy a US stock, the process works as follows: first, you place an order via your Taiwanese broker’s app; then, your Taiwanese broker forwards your order to an overseas partner broker (these overseas brokers are usually registered with US exchanges); after the overseas broker successfully matches the trade in the market, they report the transaction result back to the Taiwanese broker; finally, the Taiwanese broker updates your account holdings accordingly.

Because the order is transferred through a domestic broker rather than placed directly, it is called “sub-brokerage” (Sub-brokerage). This model allows you to settle in TWD, have dividends directly credited to your domestic account, and have tax matters handled by professionals.

Sub-brokerage vs. Overseas Brokers: Weighing Your Options

For Taiwanese investors, sub-brokerage is not the only option. Comparing it with opening an account directly with an overseas broker, each has its advantages and disadvantages:

Convenience and Security: Sub-brokerage only requires an in-person or online application, using a domestic bank account for trading, eliminating the need to handle cross-border remittances. Although overseas brokers often have lower transaction fees, they require you to manage foreign currency accounts and international wire transfers yourself.

Fee Differences: Overseas brokers charge a commission of 0% to 0.1% of the transaction amount, whereas domestic sub-brokerage fees are approximately 0.1% to 1%, sometimes with minimum charges. However, Taiwanese brokers are gradually adjusting — Cathay Securities has eliminated minimum commissions, making it a more competitive option.

Trading Products: Overseas brokers offer a wide range of products such as stocks, futures, and derivatives. Sub-brokerage is limited to stocks, ETFs, and bonds. If you only want to hold index ETFs long-term, sub-brokerage is sufficient; but if you want to leverage or trade futures, an overseas broker is necessary.

Order Execution: Overseas brokers execute trades in real-time, while sub-brokerage may have some delay. Additionally, sub-brokerage only accepts limit orders and cannot place market orders for immediate execution.

Fee Structure: More Than Just Commission

Investors often mistakenly believe that commissions are the only costs involved in sub-brokerage, but the actual fee structure is quite complex.

Order Commission is charged by the domestic broker, with a rate of about 0.1% to 1%, and a minimum fee usually between USD 25 to USD 50 per transaction. At the federal and state levels, the US Securities and Exchange Commission (SEC) charges a transaction fee of 0.00278% per trade, and exchanges charge 0.00565% for both buy and sell sides, plus a trading activity fee (TAF) of USD 0.000119 per share (up to USD 5.95).

Settlement Currency and Exchange Rate Risks: Sub-brokerage uses a fixed exchange rate set by the broker for settlement, which introduces exchange rate spread risk. The cost of cross-border remittance on the transaction day varies by bank; some banks like Taishin Bank waive fees, others require you to check.

Tax Costs: US stock dividends are subject to a 30% withholding tax, which can be reclaimed through a refund process but is cumbersome. Income from overseas investments must exceed certain thresholds (basic income exceeding TWD 6.7 million) to be taxed. For example, if your comprehensive income tax is TWD 24,000 but the basic tax amount is only TWD 20,000, you only need to pay the comprehensive income tax.

Sub-brokerage Settlement Time and Trading Rules

Understanding the settlement timing of sub-brokerage is crucial for actual investment. US stocks follow a T+2 settlement system, but within the sub-brokerage framework, there are specific rules:

Buy Settlement: Deduction occurs on T+1 after placing the order, meaning if you buy today, the deduction happens tomorrow.
Sell Settlement: Funds from selling are credited on T+3, so you must wait three trading days before you can withdraw the proceeds.
Funds Usage: During the settlement period, the “in-transit funds” (funds from unsettled trades) can be used to buy again in the same market and currency. That is, after selling stocks, you can immediately buy again, but withdrawal requires actual settlement completion.

Additionally, the acceptance time for sub-brokerage services follows the non-holiday principle of the overseas market — brokers do not close, but if banks’ foreign exchange services are closed, processing is unavailable. US stock trading hours are from 09:30 am to 04:00 pm Eastern Time; during daylight saving time in Taiwan, this is 21:30 to 04:00 the next day; during standard time, it is 22:30 to 05:00.

Other Key Trading Rules

There are several important rules to note in sub-brokerage trading. First, your account must have sufficient pre-deposited funds to execute trades; otherwise, orders can be submitted but not executed. Second, the pre-deposited funds are often greater than the actual transaction amount because the system reserves some for exchange rate fluctuations, and the excess will be refunded after the trade.

Sub-brokerage prohibits margin trading and short selling, but most brokers allow day trading. Also, only limit orders are accepted; market orders are not available — you must set your buy and sell prices in advance.

Practical Account Opening: From Preparation to Successful Registration

Opening a sub-brokerage account requires preparing two accounts: a domestic sub-brokerage account and a foreign currency account. The account opening requirement is being a natural person aged 18 or above.

Step 1: Prepare Necessary Documents

• Dual identification: original ID card and passport or residence permit
• Second ID: health insurance card, driver’s license, etc.
• Seal: used for signing account opening documents in person
• Bank statement: proof of funds

Step 2: Sign Agreements to Complete Opening
Visit the broker’s branch or apply online, inform the staff of the broker code, choose the settlement currency (TWD or USD), and complete the signing of agreements. After successful opening, transfer funds into the sub-brokerage settlement account. The broker will hold custody of funds and stocks.

Note that legally, stocks are held in the broker’s name, but you enjoy economic rights — this is a common practice in international markets.

Major Taiwanese Sub-brokerage Brokers Fee Comparison

When choosing a broker, fee differences do exist, but they are generally small and most can be negotiated for discounts. For electronic orders:

Cathay Securities has eliminated minimum commissions after reforms, with a fee of 0.10%, making it the most competitive option currently. Fubon, Yuanta, E.SUN, KGI, Yuanta, and CTBC Securities charge between 0.5% and 1%, with minimums around USD 35 to USD 39.9. Taishin Securities and E.SUN Securities charge 0.50% and 0.40%, respectively, with few brokers like E.SUN currently having no QI restrictions.

Note that sub-brokerage fees are split into two layers: local broker fees plus those from the foreign exchange or overseas exchanges (and possibly overseas brokers). Buying US stocks is relatively cheap, but purchasing stocks from mainland China or Hong Kong can reach 1% or even 2%.

Is Sub-brokerage Suitable for You?

Sub-brokerage is most suitable for investors who trade infrequently, have simple investment targets, and are willing to hold stocks long-term. This method is simple and convenient, avoiding the complexities of dealing directly with overseas brokers, but the costs are relatively higher.

Active traders or those with large capital may find overseas brokers more cost-effective. However, if you want low costs without high barriers, sub-brokerage with TWD settlement and full Chinese-language services remains a safe entry option.

Key Term Explanations

ETF: In the context of sub-brokerage, it specifically refers to index-based securities investment trust funds, such as FANG ETF by Uni-President Securities, which bundle a basket of stocks into an index fund, periodically adjusting weights to track leading sectors.

Lot: The trading unit. The Hong Kong stock market varies by company, from 200 shares to tens of thousands; mainland China standardizes at 100 shares; US stocks are traded per share.

In-transit Funds: Funds from sales that have been settled but not yet delivered can be used to buy again in the same market and currency. That is, after selling, you can immediately buy, but full withdrawal requires actual settlement completion.