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Summary: Primary Subject:From the date of this letter, an Authorized Bank shall not engage in any foreign exchange derivatives business listed in the negative list as Explanation. Open new window for Chinese

Ref. No:94.1.3 Tai-Yang-Wai-(7)-Tze No. 0940002564

停止適用日期:

104.05.22

Subject:

From the date of this letter, an Authorized Bank shall not engage in any foreign exchange derivatives business listed in the negative list as Explanation. Please take note.

Explanations:

1.An Authorized Bank shall act in accordance with Article 13, Paragraph 2 of the“Regulations Governing Foreign Exchange Business of Banking Enterprises” (the “Regulations”) announced by the Central Bank of China (“CBC”) on May 19, 2004.

2.An Authorized Bank approved by the CBC to engage in any foreign exchange derivatives business in accordance with Article 13, Paragraph 2 of the Regulations, in engaging in transactions other than the foreign exchange derivatives business described in Explanation 3, shall submit a brief introduction, prospectus (must reflect actual trading, including trading dates, settlement dates, maturity dates, notional amounts, execution prices or other relevant indices, parameters) and the documents specified in Article 13, Paragraph 1, Item 4 of the Regulations to the CBC for its records within one week after starting the business; if the CBC does not object to the above matters within three (3) weeks from the date following the receipt of the letter from the Authorized Bank, it shall be deemed that the CBC accepts the letter for its records and the Authorized Bank may continue to engage in the business.

3.When an Authorized Bank engages in any foreign exchange derivatives business, a prior approval from the CBC is required with respect to the following three items. With respect to the items other than the following three items (agent andfull discretionary account management are not included), post-reporting is permitted:

(1) The Authorized Bank must formulate a“Know Your Customer”system and tracking and inspection chart, and shall achieve a good understanding of the customer's financial status, investment experience, investment needs, ability to withstand potential losses, as well as the suitability of a transaction involving foreign exchange derivatives.

(2) Promotional material for foreign exchange derivatives shall be clear and fair, can not mislead investors, and must make investors understand the risks associated with the products. The customer shall make a declaration that the bank has dispatched a specific individual to explain the product,and shall sign each prospectus as a confirmation.

4.When an Authorized Bank handles post-reporting, it shall fill out the summary form of the prospectus regarding post-reporting item by item. From 2005, each Authorized Bank shall fill out a quarterly report form regarding structured products transactions on a quarterly basis while engaging in any foreign exchangederivatives business (with the form and the fill-out statement as attachments).

5.When handling post-reporting, if the Authorized Bank makes any false claims or violates any Regulations or the rules issued by the relevant competent authorities, the CBC may take disciplinary actions or suspend specific foreign exchange businesses or post-reporting of the business depending on the situation. Until the suspension of foreign exchange business or of application for foreign exchange business by the CBC or the relevant competent authorities is lifted or specific improvement measures have been reported, post-reporting is not permitted.

6.The CBC shall adjust the application procedures for foreign exchange derivativesor take other necessary actions at any time depending on the financial and economical situation.

7.An Authorized Bank engaged in foreign exchange derivatives business shall ensureit has sound risk management, information disclosure, internal controls and audits, and comply with the following:

(3) The risk disclosure statement shall fully provide the nature and content of risks associated with products and the source and methods of reaching the return rate promised by the bank; if the term of the product exceeds one year, the return shall be stated in annualized rate of return, and an explanation of the greatest possible loss on the product and a table showing the analysis of possible losses and gains under different conditions shall be made. Protection measures provided to non-professional investors shall be strengthened, and the assumption of credit risk by the bank and structured deposits linked to derivatives not covered by deposit insurance shall be stated in the risk disclosure statement.

8.An Authorized Bank engaging in foreign exchange derivatives shall treat investorsfairly, avoid and disputes, comply with the following:

(4) After-sale service measures must be established.

(5) Educational courses provided to investors on a regular and sporadic basis arerequired. However, it is not permitted to predict the price movements of the products, including foreign exchange rates ,or promote products inappropriate.

9.The CBC letter, dated May 26, 2004 (Ref. No. Tai-Yang-Wai-Chi-Tze-0930027107) will no longer apply from the issue date of this CBC letter.3.With respect to the transaction volumes of the business, the buyer and seller of credit risk under CDS, and Call Option and Put Option under CDO(Options bought and sold) shall be separately filled in the “Monthly Report Regarding Notional Amount Transactions Volume of Derivatives”, which shall be submitted to the Department of Financial Inspection of the CBC.

Attachment

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