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

1. These Directions are specially prescribed by the Central Bank of the Republic of China (Taiwan) (“hereinafter called the Bank") for the purposes of managing the sales and buybacks of central government bonds.

Except where otherwise provided by laws, central government bonds shall be sold by means of auctions, placements, or consigned sales, and bought back by means of competitive bidding. Auctions and buybacks shall be conducted electronically on- line; the directions for electronic bidding procedures will be adopted separately.

2. Particulars of issues and buybacks of central government bonds such as the issue name, type, form, serial number, method, date, amount, coupon rate, face value, as well as maturity terms and method for payment of principal and interest shall be handled pursuant to the offering announcement provided by the Ministry of Finance.

3. Banks, Chunghwa Post Co., Ltd., bills finance companies, securities firms, and insurance enterprises which meet the following criteria may, in accordance with these Directions, apply to the Department of the Treasury of the Bank (hereinafter called “the Department of the Treasury ") for being delegated as central government bond dealers (hereinafter called “dealers") to participate in auctions, placements and buybacks of central government bonds:

(1)The applicant, unless an insurance enterprise, has received approval from the competent securities authority to trade government securities in an over-the- counter market on its own account.

(2)Net income after taxes in the latest fiscal year.

(3)Paid-in capital equals to or more than NT$1 billion and net worth per share above par value.

Any financial institution having been delegated by the Bank to handle bond operations prior to the adoption of these Directions may apply to the Bank in writing for being delegated as a dealer.

4. When applying to be delegated as a dealer, the applicant shall fill out a Central Government Bond Dealer Application Form (Form 1) and attach a copy of the relevant certificates and licenses and documents for verification of financial status, and submit them to the Department of the Treasury .

Applications may be approved by the Bank based on need as determined by bond market development.

5. After being delegated by the Bank, a dealer shall fill out an“Application for Participation in On-line Bidding for Central Government Bonds and Treasury Certificates" and submit it to the Department of the Treasury along with a sample seal impression card. The institution shall also immediately prepare system on- line connections and complete testing of on-line connections within two months from the date of being delegated as a dealer. Where an institution fails to complete the preparations within the prescribed time period, the Bank may revoke its qualification as a dealer.

The applicant shall immediately apply by letter for amendments in the event of any change in the information contained in the materials referred to in the preceding Paragraph.

6. Central government bonds are issued principally through auctions, and are open to dealers only. However, the Bank may notify dealers to handle placements, when necessary.

Individuals and juristic persons may engage dealers to submit bids under the dealers’ names. Subscriptions of NT$1 million or less may be undertaken in accordance with the Directions for Consigned and Sub-consigned Sales of Central Government Bonds by the Chunghwa Post Co., Ltd.

7. Either multiple or single price or yield method may be adopted for auctioning central government bond.

Multiple price and yield bids are classified as either competitive or noncompetitive:

(1)Competitive bids will be accepted successively, starting with those at the price higher than the minimum price or lower than the maximum acceptable yield set by the Ministry of Finance. Where bid prices are equal and the remainder of the issue is insufficient to meet demand, allocations will be made pro-rata to the bid amounts. The prices for awarded bonds are calculated at the price or the yield they bid.

(2)Noncompetitive bid will be calculated as the weighted average price or yield of accepted competitive bids . Where the amount of subscription exceeds the publicly announced amount of the issue, distributions will be made pro-rata based on the subscription amount.

The awards referred to in the preceding Paragraph will be in multiples of NT$50 million.

All single-price or yield bids will be competitive; the determination and proration of awards shall be handled according to the previous two Paragraphs applied mutatis mutandis. The price for awarded bonds is calculated at the lowest price or the highest yield of the accepted bids.

8. If multiple-yield method is used for interest-bearing bonds auctions, yield is set at increments of 0.125%, equal to or closest to, but lower than the weighted average yield of the winning bids.

If single-yield method is used for interest-bearing bonds auctions, yield is set at increments of 0.125%, equal to or closest to, but lower than the highest yield of the winning bids.

9. Dealers will be restricted to submitting one tender for each offering, on which there may be no more than ten competitive bids, and to only one subscription through a non-competitive bid. Competitive bidding and non-competitive subscriptions may use only the tender document prescribed by the Treasury Department, which shall be placed in a sealed envelope for submission.

10. Tenders shall be filled out in accordance with the following provisions:

(1)Business administrative number shall be the same as that originally submitted to the Department of the Treasury for filing.

(2)Minimum bid amount for each competitive bid shall be NT$100 million. Minimum subscription amount for non-competitive bids shall be NT$50 million. Amounts in excess of those figures will be calculated in increments of NT$50 million. Maximum competitive bid amount and maximum non-competitive subscription amount shall not exceed the limit announced by the Ministry of Finance.

11. Any of the following circumstances will result in a tender being deemed void:

(1)A tender not submitted in the format prescribed by the Department of the Treasury .

(2)A tender not delivered in a sealed envelope.

(3)The seal of the dealer not complying with the sample seal impression.

(4)The number of tenders exceeds the prescribed number.

(5)Other circumstances not in conformance with bidding regulations.

Under any of the following circumstances, a bid will be considered void:

(1)The bid price or yield not written in Arabic numerals or having been altered or illegible.

(2)The bid amount or subscription amount not written in Arabic numerals or having been altered or illegible.

(3)Minimum bid amount for a competitive bid or minimum subscription amount for a noncompetitive bid lower than those prescribed in subparagraph 2, Direction 10.

12. The time and place for an auction shall be given in the offering announcement of the Ministry of Finance.

13. Auctions and determination of auction awards will be carried out in accordance with the law prescribed by the Bank and the Ministry of Finance. The auction results will be announced by the Bank.

14. The distribution of auction awards to individual dealers in competitive or non- competitive auctions may not exceed the limits announced by the Ministry of Finance.

15. Where a portion of the offering remains unsold after an auction, that portion may be handled by placement at the non-competitive bid price or the price publicly announced by the Ministry of Finance or by a re-auction at another time.

16. On the business day next following the date of auction, each dealer shall dispatch an employee to the Department of the Treasury to collect the notice of awards, unaccepted bids, and invalid bids.

17. Successful bidders shall settle on the prescribed date.

The settlement of book-entry government bonds shall be performed in accordance with applicable provisions of the Directions for the Operation of Book-Entry Central Government Securities.

For the settlement of government bonds in physical forms, dealers shall make out a collection list and shall draw a check with the Department of Banking of the Bank as the drawee or a promissory note payable by the Department of Banking of the Bank (with the maturity date corresponding to the issue date of government bonds), or transfer funds into the account of the Department of the Treasury in the Department of Banking through the Central Bank Interbank Funds System, and collect the bond certificates from the Bank.

18. The buybacks of central government bonds are open to dealers only. Individuals and other juristic persons may engage dealers to submit bids under the dealers’ names.

19. The buybacks of central government bonds may use a multiple-yield, or a single- yield auction mechanism. All bids are competitive.

Multiple-yield bids will be accepted successively, starting with those at yields higher than the minimum acceptable yield set. Where competing bid yields are equal and the remaining buyback amount is insufficient to meet the demand, allocations will be made pro-rata based on the bid amounts. Successful bidders shall settle their sellback securities at the yields they bid.

The provisions in Paragraph 2 shall apply mutatis mutandis to the competitive bidding and allocation method in single-yield auctions. Successful bidders shall settle their sellback securities at the lowest yield of the accepted bids.

20. Dealers shall use only the sellback tender document prescribed by the Department of the Treasury and submit the bids in a manner prescribed in Direction 9 for competitive bidding.

21. The sellback tenders shall be filled out in accordance with the provisions in Direction 10.However, the minimum for each competitive bid shall be NT$1 million and bids in excess of NT$1 million will be in increments of NT$1 million.

The provisions in Direction 11 shall apply mutatis mutandis to sellback tenders deemed void.

The provisions in Direction 12, Direction 13 and Direction 16 shall apply mutatis mutandis to the time and place of an auction as well as the determination of auction awards.

22. Successful bidders shall carry out settlement on the buyback date of central government bonds.

Settlement for the buyback of central government bonds shall be performed in accordance with applicable provisions of the Operational Directions for Book- Entry Central Government Securities.

23. Dealers shall abide by the following provisions:

(1)Participate in each central government bond auction.

(2)Participate in placements of government bonds pursuant to the Bank’s notification.

(3)Submit bids at prices or yields in line with the market conditions at central government bond auctions.

(4)File the following documents to the Department of the Treasury in accordance with the prescribed deadline. The Bank may, when necessary, dispatch personnel to perform on-site inspections:

i. Submit bidding status reports on the second business day after each auction of central government bonds( Form 2 ).

ii. Submit monthly statements of central government bond holdings in the preceding month before the second business day of each month ( Form 3 ).

iii. With the exception of insurance enterprises, submit yearly statements of government bond trading each year by the end of January (Form 4 ).

iv. Submit yearly financial reports with a letter within four months after the end of each accounting year. Financial reports of private institutions must be duly audited and certified by certified public accountants, approved by the board of directors and acknowledged by the supervisors. However, public institutions may submit their reports with a letter on a provisional basis pending finally approved by the auditing agency and then resubmit their reports when approved.

(5)Perform matters relating to electronic on-line bidding in accordance with the applicable regulations.

24. Under any of the following circumstances, the Bank may issue a letter of notification to dealers requesting rectification:

(1)Failure to participate in auction or placement of bonds.

(2)Participate in auctions with all bids invalid.

(3)Submit Competitive bids at prices or yields significantly below or above prevailing bond market conditions.

(4)Failure to submit relevant documents truthfully within the prescribed period of time.

(5)Failure to perform matters relating to electronic on-line bidding in accordance with the applicable regulations.

(6)Failure to comply with Central Bank regulations related to government bonds .

25. Under any of the following circumstances, the Bank may consider requiring a dealer to post a deposit:

(1)Without positive net income after taxes in the latest fiscal year.

(2)Where a dealer’s actual paid-in capital is below NT$1 billion or net worth per share below par value.

Where a dealer fails to submit a deposit within the prescribed period of time, the Bank may suspend its participation in auctions until the deposit is made.

26. Where any of the following circumstances have occurred with respect to a dealer within the past year, the Bank may impose a one-time suspension of its participation in auction:

(1)Competitive bids at prices or yields significantly deviating from prevailing bond market conditions three times or more.

(2)Failure to submit relevant documents truthfully within the prescribed period of time three times or more.

(3)Other failure to handle the business related to government bonds in accordance with Central Bank regulations three times or more.

27. Where any of the following circumstances have occurred with respect to a dealer within the past year, the Bank may impose a two-time suspension of its participation in an auction:

(1) Fail to participate in auctions or placements of bonds two times or more.

(2) Participate in auctions with all bids invalid three times or more.

28. In any of the following circumstances, the Bank may terminate the dealer’s commission:

(1)Failure to deliver the government bonds or the payment for government bonds on the prescribed date.

(2)Part of business having been suspended by the central competent authority, rendering it unable to participate in auctions.

(3)Having been placed under conservatorship or taken over by personnel sent from the central competent authority.

(4)Having been suspended by the central competent authority.

For Institutions in Subparagraph 1, a dealer may resubmit an application pursuant to the provisions of these Directions three years after the termination of its commission.

29. A dealer that intends to terminate commission on its own cause shall notify the Department of the Treasury in writing two weeks prior to the planned date of withdrawal.

30. The Central Bank may assess dealers on a non-periodic basis with regard to matters carried out pursuant to these Directions through use of the Form for Assessment of Dealers Performance in Government Bond Matters (Form 5), and issue commendations to those with outstanding performance records.