In-depth analysis of the operation logic and cost structure of delegated trading

The Essence and Market Positioning of Sub-Agency Trading

Sub-agency trading, officially known as “Trustee Buying and Selling of Foreign Securities Business,” is the most common way for domestic investors to access overseas stock markets. Its operational principle appears simple but actually involves coordination across multiple links. Investors open a sub-agency account with a domestic securities firm, which then, through an agreement with overseas partner brokers, forwards the investor’s orders to the overseas market for execution.

Because the order passes through the process of “domestic broker → overseas broker → overseas exchange,” rather than being directly entrusted, it is called “sub-agency trading.”

Through sub-agency trading, investors can participate in multiple overseas markets such as US stocks, Japanese stocks, and Hong Kong stocks, with investment categories including stocks, ETFs, and foreign bonds. Among these, buying US stock ETFs via sub-agency trading is the largest overseas investment method in Taiwan by trading volume.

Detailed Explanation of the Four Steps in Sub-Agency Trading

The trading process of sub-agency trading may seem complex but can be broken down into four clear steps:

Step 1: Local Order Placement
Investors place buy or sell orders via the domestic securities firm’s app or web platform, selecting target stocks, quantities, and prices.

Step 2: Cross-Border Delegation
The domestic broker receives the order and immediately forwards it to an overseas partner broker registered with a US exchange, which then executes the actual buy or sell operation in the relevant market.

Step 3: Market Execution
The overseas broker matches orders on the exchange, reports the transaction results back to the domestic broker, which then updates the investor’s account accordingly.

Step 4: Custody and Settlement
The stocks resulting from the transaction are held in custody accounts of the overseas broker. Investors hold shares in the name of the broker but enjoy full shareholder rights. This practice is legal and common in international markets.

Core Differences Between Sub-Agency Trading and Overseas Brokers

Account Opening Convenience
Sub-agency accounts can be opened at domestic branches or online, with a relatively simple process. Overseas brokers require online account opening, involving foreign exchange accounts and cross-border remittances, which are more complex.

Settlement Arrangements
Sub-agency trading supports settlement in TWD, with dividends and interest paid directly into domestic bank accounts, eliminating the need for investors to handle currency exchange themselves. Overseas brokers manage USD or other foreign currency accounts, involving exchange rate risks.

Cost Structure
Sub-agency transaction fees are approximately 0.1%-1% of the transaction amount, with minimum consumption thresholds (usually $25-$50). Overseas brokers tend to have lower fees (0%-0.1%) and no minimum consumption limit.

Product Range
Sub-agency products are limited mainly to stocks, ETFs, and bonds. Overseas brokers support stocks, futures, options, convertible bonds, and other derivatives, offering a broader selection.

Trading Flexibility
Sub-agency trading prohibits margin trading and short selling; orders are limited to limit orders, with no support for market orders. Overseas brokers support margin trading, short selling, and conditional orders.

Target Users
Sub-agency trading is suitable for conservative investors with low trading frequency, small capital, and long-term holding preferences. Overseas brokers are better suited for active traders with large capital and complex trading needs.

Complete Analysis of Sub-Agency Trading Fee Structure

Commission Fees

The commission fee for domestic sub-agency trading is based on 0.1%-1% of the transaction amount, with different brokers setting various minimum thresholds (usually $25-$50). As market competition intensifies, some brokers have eliminated minimum consumption requirements, allowing investors to negotiate discounts based on their trading volume.

Exchange Fees

Sub-agency trading involves not only domestic broker fees but also fees paid to overseas exchanges:

• US SEC Fee: 0.00278% of the sale amount
• Transaction Activity Fee (TAF): $0.000119 per share, with a maximum of $5.95 per order, charged on sales
• Hong Kong Stock Trading Levy: 0.00565% on buys and sells, plus trading fees from the Financial Services and Treasury Bureau
• Currency Conversion Spread: Domestic brokers use fixed exchange rates for settlement, which may differ from real-time market rates

Tax Costs

• US stock dividends involve a 30% withholding tax; eligible investors can apply for a tax refund, though procedures are complex
• Overseas income is only included in the basic income tax calculation if it exceeds NT$6.7 million
• Basic tax calculation formula: ( (Basic Income - NT$6.7 million) × 20%

) Bank Remittance Fees

Cross-border remittance fees vary by bank; investors should confirm their banks’ fee policies.

Rules and Restrictions of Sub-Agency Trading

1. Limit Order Only: Sub-agency trading does not support market orders; prices must be specified in advance.
2. Funds Freeze: Before placing an order, the account must have sufficient funds, usually more than the expected transaction amount to account for exchange rate fluctuations. Excess funds are refunded afterward.
3. Trading Hours: Follows overseas market hours; US stock trading is from 09:30 to 16:00 Eastern Time (Taiwan summer time 21:30-04:00, winter time 22:30-05:00).
4. Settlement Cycle: T+1 deduction for buying US stocks, T+3 credit for selling, with the market settlement date on T+2.
5. Day Trading Rules: Most sub-agency platforms support day trading; specific rules vary by broker.
6. Margin Trading Prohibition: Margin trading and short selling are strictly prohibited in sub-agency trading.
7. Bank Holidays Impact: During bank foreign exchange holidays, sub-agency transactions cannot be processed.

Sub-Agency Account Opening Process

Pre-conditions for Opening an Account

• Must be a domestic individual aged 18 or above
• Prepare dual identification documents (original ID card and second ID such as health insurance card or driver’s license)
• Prepare a seal (required for in-person application)
• Provide a bank account copy (for verification)

Opening Steps

Step 1: Choose a Broker and Application Method
Options include in-person application or online registration, with the above documents prepared.

Step 2: Sign Relevant Agreements
Confirm settlement currency (TWD or USD), sign the sub-agency agreement and foreign currency account opening documents.

Step 3: Fund Transfer
After successful account opening, transfer investment funds into the sub-agency settlement account to start trading.

Investors’ funds and stocks are managed and held by the domestic broker.

Use Cases and Cost Examples of Sub-Agency Trading

Suppose an investor plans to invest in US stock ETFs and hold long-term:

• Initial investment: NT$50,000
• Estimated annual trades: 2-3 times
• Expected holding period: over 5 years

In this scenario, the advantages of sub-agency trading are clear: no need to manage foreign currency, dividends automatically credited, tax matters handled by professionals. Annual trading costs are about NT$1,500-2,000, which is higher than overseas brokers, but considering convenience and security, the cost difference is acceptable.

Conversely, if trading frequency increases to 2-3 times per month, annual costs could rise to NT$4,000-6,000 or more, making direct overseas broker accounts more economical.

Alternatives to Sub-Agency Trading for US Stock Investment

Direct Trading via Overseas Brokers

By registering accounts with US-based brokers, investors can directly trade US stocks, futures, and options with zero commissions, paying only exchange fees (negligible). The barriers include a more complex account opening process with high English proficiency requirements and higher initial capital.

US Stock Derivatives Trading

Some domestic platforms offer US stock CFDs (Contracts for Difference), allowing two-way trading based on US stocks with leverage. Fees are low (0.01%-0.015%) with no trading commissions. Suitable for high-frequency traders and those needing flexible trading strategies.

Investment Decision Recommendations for Sub-Agency Trading

Sub-agency trading is most suitable for three types of investors:

1. Beginners: Limited trading experience, seeking safe and stable entry methods
2. Long-term Holders: Low trading frequency, moderate capital, pursuing stable dividends
3. Conservative Investors: Avoid derivatives, prioritize principal safety

If you are a high-frequency trader or have large capital, using overseas brokers directly will be more cost-effective; for leverage and complex trading tools, US stock CFDs offer more flexibility.

The core advantage of sub-agency trading is simplicity and peace of mind, but the trade-off is relatively higher transaction costs. Rationally choosing based on your trading habits and capital size is the best strategy.