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

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 and
　full discretionary account management are not included), post-reporting is 
　permitted:
　(1) New financial products linked to any foreign exchange derivatives business 
　　　that have not yet been approved or have been approved no more than half a 
　　　year previously.
　(2) Derivatives involving or linked to the New Taiwan Dollar Exchange Rate (other
　　　than Quanto business in which the New Taiwan Dollar Exchange Rate is not 
　　　included and cross currency swaps between the new Taiwan dollar and a foreign 
　　　currency involving the exchange of principle both at inception and maturity.)
　(3) Foreign exchange derivatives that are denominated in foreign currency and for 
　　　which the underlying risk involves domestic factors (including securities or 
　　　beneficiary certificates, such as ECB and GDR, issued by domestic companies 
　　　overseas, Taiwan share prices and indices, and the MSCI Taiwan index, the
　　　subject underlying or credit risk of which involve domestic factors).
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 exchange
　derivatives 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 derivatives
　or 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 ensure
　it has sound risk management, information disclosure, internal controls and 
　audits, and comply with the following:
　(1) The name of each foreign exchange derivatives business shall be stated 
　　　specifically on the resolution from the board of directors of a domestic bank 
　　　and the letter of authorization provided by the head office (or regional head 
　　　office) of a foreign bank, submitted to the CBC. The name of the business 
　　　shall be consistent with the name of the business shown on the prospectus and 
　　　compliance statement.
　(2) The responsible persons for foreign exchange derivatives (including financial
　　　and marketing staff) and the relevant managers shall meet the qualification 
　　　requirements specified in Article 12 of the Regulations and the time, place
　　　and content of the seminars, licenses, internships or actual experience of 
　　　the relevant business must be stated specifically in order to ensure that 
　　　professional credentials required for the business are met.
　(3) It is prohibited to use foreign exchange derivatives to varnish over or 
　　　manipulate financial statements by, for examples, deferring or concealing 
　　　losses, falsely reporting earnings, recording earnings prematurely, or 
　　　helping a customer defer or conceal losses, falsely report earnings, or 
　　　recognize earnings  prematurely. In options transactions, a bank shall take
　　　care to avoid using premiums (especially for long-term or extremely short-
　　　term options) to varnish over financial statements which then lead to 
　　　impropriety.
8.An Authorized Bank engaging in foreign exchange derivatives shall treat investors
　fairly, avoid and disputes, comply with the following:
　(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.
　(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.
　(4) After-sale service measures must be established.
　(5) Educational courses provided to investors on a regular and sporadic basis are
　　　required. 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.