Laws and Regulations Database of the Central Bank of the Republic of China(Taiwan)

1.

1. These Directions are prescribed by the Central Bank of the Republic of China (Taiwan) (hereafter referred to as "the Bank") to implement a system of designated dealers in open market operations for the purpose of strengthening the efficiency of open market operations and promoting the sound development of financial markets.

2.

2. Designated dealers for open market operations (hereafter referred to as "designated dealers") of the Bank are classified into the following two categories:

(1) General designated dealers: those are able to comply with the Bank's adjustment of financial policies.

(2) Primary dealers in central government bonds market: those are able to provide liquidity in government bond trading and promote the sound development of the government bonds market.

With the permission of the Bank, a financial institution may concurrently operate as a general designated dealer and a primary dealer in the central government bonds market.

3.

3. A bank or the Chunghwa Post Co., Ltd. may apply to the Bank as a general designated dealer if the following criteria are met:

(1)Net worth of the most recent fiscal year is at least NT$20 billion.

(2)Long-term credit rating for the most recent year meets one of the following criteria:

i. A rating of A- or above by Standard & Poor's Corporation.

ii. A rating of A3 or above by Moody's Investors Service.

iii.A rating of A- or above by Fitch Ratings Ltd.

iv. A rating of twA- or above by Taiwan Ratings Corporation.

v. A rating of A-(twn) or above by Fitch Ratings Ltd., Taiwan Branch.

vi. A rating of A3.tw or above by Moody's Taiwan Corporation.

(3)The ratio of equity capital to risk assets of each applicant shall not be less than 8% based on the most recent report to the competent authority.

Chunghwa Post Co., Ltd. may be exempt from subparagraphs 2 and 3 of the preceding paragraph with the Bank's consent.

4.

4. In addition to participating in the Bank's open market operations as a counterparty, a general designated dealer is entitled to the following rights：

(1) In case of funding needs arising from compliance with the Bank's policies, a general designated dealer could request the Bank for financial assistance.

(2) A general designated dealer with bonds or bills dealer qualifications could issue trade confirmations as requested by other financial institutions and charge service fees in accordance with the “Directions for Open Market Operations by the Central Bank of the Republic of China (Taiwan)” (hereafter referred to as “Operation Directions”).

(3) Other rights or privileges granted by the Bank or the Interbank Money Center of R.O.C. Bankers Association (hereafter referred to as "Interbank Money Center").

5.

5. A general designated dealer shall:

(1)Complies with the Bank's policies and adjusts market funds.

(2)Actively participates in the Bank's open market operations and in auction bids for certificates of deposits issued by the Bank.

(3)Offers two-way price quotations in the Interbank call loan markets where such dealer has a certain market shares by trading volume.

(4)Complies with the "By-laws to be implemented by General Designated Dealers for Open Market Operations".

(5)Provides market information to the Bank when required.

(6)Others required by the Bank.

The "By-laws to be Implemented by General Designated Dealers for Open Market Operations" as referred to in subparagraph 4 of the preceding paragraph shall be drafted by the Interbank Money Center and submitted to the Bank for approvals.

6.

6. A bank, bills finance company, securities company and Chunghwa Post Co., Ltd.may apply to the Bank to become a primary dealer in the central government bonds market if the following criteria are met:

(1)Possesses the central government bond dealer specified in Direction 3 of " Directions for the Sale of Central Government Bonds."

(2)Net worth after closing the book for the most recent year meets the following requirements:

i. Net worth of a bank or Chunghwa Post Co., Ltd.shall comply with subparagraph 1, paragraph 1, Direction 3.

ii. Net worth of a bills finance company or securities company shall be at least NT$6 billion.

(3)Except that subparagraph 2, paragraph 1, Direction 3 shall apply to a bank, the long-term credit rating of a bills finance company and a securities company for the most recent year shall meet one of the following criteria:

i. A rating of BBB- or above by Standard & Poor's Corpration.

ii. A rating of Baa3 or above by Moody's Investors Service.

iii. A rating of BBB- or above by Fitch Ratings Ltd.

iv. A rating of twBBB- or above by Taiwan Ratings Corpration.

v. A rating of BBB-(twn) or above by Fitch Ratings Ltd., Taiwan Branch.

vi. A rating of Baa3.tw or above by Moody's Taiwan Corporation.

(4)The ratio of equity capital to risk assets based on the most recent report to the competent authority during the most recent time shall meet the following standards:

i. The ratio of a bank shall meet the standard as specified in subparagraph 3, paragraph 1, Direction 3.

ii. The ratio of a bills finance company shall be at least 8%.

iii. The ratio of a securities company shall be at least 200%.

Chunghwa Post Co., Ltd. may be exempted from (3)and (4)of the preceding paragraph with the permission of the Bank.

7.

7. In addition to participating in the Bank's open market operations as a be counterparty, a primary dealer in central government bonds market shall be entitled to the following rights：

(1) In case of funding needs arising from compliance with the Bank's policies, a primary dealer could request the Bank for financial assistance.

(2) A primary dealer with bonds or bills dealer qualifications could issue trade confirmations as requested by other financial institutions and charge service fees in accordance with the Operation Directions.

(3) The following privileges are provided by the non-profit Gre Tai Securities Market (hereafter referred to as "GTSM") regulations:

i. Preferential daily net trading position limits in the computer-assisted Securities Market of R.O.C. (hereafter referred to as "Gre Tai trading system for purchasing / selling government bonds GTSM electronic bond trading system (EBTS)”).

ii. Preferential bond service charges.

(4) Other rights or privileges granted by the Bank or GTSM.

8.

8. A primary dealer in central government bonds market shall:

(1)Complies with the Bank's policies.

(2)Actively participates in the Bank's open market operations.

(3)Actively engages in auction bids for central government bonds, when-issued trading of central government bonds, and two-way price quotations in secondary markets for central government bonds.

(4)In either the when-issued trading in primary central government bonds market or the outright trading in secondary bonds market shall maintain a certain proportion of market shares by volume.

(5)Complies with relevant rules established in "By-laws to be implemented by Primary Dealers in Central Government Bonds Market."

(6)Provide information on its position in central government bonds and relevant trading details.

(7)Provides market information to the Bank when required.

(8)Others required by the Bank.

The "By-laws to be Implemented by Primary Dealers in Central Government Bonds Market" in subparagraph 5 of the preceding paragraph shall be drafted by the Gre Tai Securities Market, and submitted to the Bank for approvals.

9.

9. A designated dealer shall maintain business confidentiality; submit annual financial statements to the Department of Banking of the Bank (hereafter referred to as "the Department of Banking") within four months after the end of each business year; cooperate in on-site examinations conducted by the Bank or, upon the Bank's request, dispatch business executives to the Bank for explanation when requested.

10.

10. When applying for designated dealership, an applicant shall submit completed application documents (as attached) with photocopies of relevant certification and proof of financial status to the Department of Banking. The Bank may approve based on the needs of financial market development.

When granting its approval in accordance with the preceding paragraph, the Bank may, in light of the financial environment and business needs, restrict the number of designated dealers subordinated of the same financial holding company.

Applicants qualified for Directions 3 and 4 may apply to be a general designated dealer and a primary dealer in the central government bonds market concurrently. When granting its approval to application in accordance with the preceding paragraphs, the Bank may take consideration of the needs of financial markets development. In light of the financial environment and business needs, the Bank may restrict the number of designated dealers subordinated under the same financial holding company.

Application in accordance with paragraph 1 or paragraph 2 shall be submitted in July each year except as agreed by the Bank.

The Bank may re-screen a designated dealer when necessary. Previously qualified designated dealers shall re-apply within the period specified by the Bank. Designated dealers that fail to re-apply in time or are not approved by the Bank's shall be disqualified.

11.

11. A Designated dealer that wishes to relinquish its status shall inform the Department of Banking in writing at least two weeks before the Bank revokes its status.

If designated dealers become subsidiaries of the same financial holding company out of mergers, the Bank may, in accordance with paragraph 2, Direction 10, revoke approval previously granted to designated dealers.

When a designated dealer of a financial holding company plans to transfer its business to another affiliate under the same group, the transferee shall submit a written consent of the financial holding Company, a declaration of relinquishment from the designated dealer, and other relevant documents for the Bank's permission.

12.

12. The Bank may rescind the status of designated dealers under any of the following conditions; reapplication for designated dealer status may be filed only after rectification:

(1)Net worth fails to meet the following requirement:

i. A general designated dealer: subparagraph 1, paragraph 1, Direction 3.

ii. A primary dealer in central government bonds market: subparagraph 2, paragraph 1 of Direction 6.

(2)Long-term credit rating fails to meet the following rating criteria:

i. A general designated dealer: subparagraph 2, paragraph 1, Direction 3.

ii. A primary dealer in central government bonds market: subparagraph 3, paragraph 1 of Direction 6.

(3)Ratio of equity capital to risk assets fails to meet the following requirement:

i. A general designated dealer: subparagraph 3, paragraph 1, Direction 3.

ii. A primary dealer in central government bonds market: subparagraph 4, paragraph 1 of Direction 6.

(4)A primary dealer in central government bonds market becomes disqualified.

(5)violation of laws or regulations with serious consequences.

13.

13. Where a designated dealer violates the provisions of Direction 9; a general designated dealer violates the provisions of Direction 5 and a primary dealer in central government bonds market violates the provisions of Direction 8, the Bank may serve notice to order rectification; suspend its participation in openmarket operations, or other privileges for a period of between three to six months. The Bank may revoke its status in serious cases; and the dealer in question may not re-apply for dealership within one year from the date of such revocation.

14.

14. The Bank may take appropriate measures where a designated dealer violates other laws or regulations.

15.

15. The Bank may award those designated dealers that demonstrate cooperation with the Bank’s policy and full compliance with the Bank's regulations.