1. Financial Supervisory Commission 1 Country Report Financial Supervisory Commission Chinese Taipei April 2008

2. Financial Supervisory Commission 2 Content  Snapshot of Economy  Role of FSC and SFB  Principal and Alternative Stock Markets  Principal Derivatives Market  Bond Market  Recent Important Measures  Key issues

3. Financial Supervisory Commission 3 Snapshot of Economy

4. Financial Supervisory Commission 4 Snapshot of Economy  the 144 th member of the World Trade Organization (WTO)  IMD’s report, “World Competitiveness,” Taiwan’s overall competitiveness ranked 11  Rank the top 5 competitive countries according to the WEF Global Competitiveness Report 2005-2006  By the end of Mar. 2008, the foreign exchange reserves hit US$286.86 billion  The economic growth of 2008 is forecasted to 4.53%.

5. Financial Supervisory Commission 5 Niche of Taiwan Economy One of the East Asia’s economies  Geographic center  Comprehensive industrial infrastructure  Human resource  Research and development capabilities

6. Financial Supervisory Commission 6 Role of Financial Supervisory Commission, Executive Yuan

7. Financial Supervisory Commission 7 Financial Supervisory Commission, Executive Yuan  Background Established on July 1, 2004 One single vertical integrated institute, consolidating financial supervision of insurance, securities and banking affairs  Organization Structure Of nine commissioners, one appointed as Chairperson and two as Vice Chairpersons 4 Departments, 4 offices 4 Bureaus: Banking Bureau, Securities and Futures Bureau, Insurance Bureau and Financial Examination Bureau

8. Financial Supervisory Commission 8 Financial Supervisory Commission, Executive Yuan  Scope of Services  The development, supervision, administration and examination of the financial market and financial services industry  Responsibilities  Promote the internationalization and liberalization of both the capital and the financial markets  Solidify the operation of financial institutions  Emphasize the self-disciplinary of financial institutions  Develop risk-oriented supervisory mechanism

9. Financial Supervisory Commission 9 Framework of the Organization Banking Bureau Securities and Futures Bureau Insurance Bureau Financial Examination Bureau Financial Supervisory Commission Executive Yuan

10. Financial Supervisory Commission 10 Organization The SFB is composed of eight functional divisions and three offices: Division 1: Corporate finance Division 2: Securities firms administration Division 3: Securities market administration Division 4: Securities service industries Division 5: Securities and futures research and education

11. Financial Supervisory Commission 11 Organization-1 Division 6: Accounting administration Division 7: Futures Division 8: International affairs Auditing Office: securities auditing Legal Affairs Office: compliance and regulations Information Management Office: information management and computer affairs

12. Financial Supervisory Commission 12 Framework of Laws Securities & Futures Markets Securities and Exchange Act Futures Trading Act Securities Investment Trust and Consulting Act Securities Investor and Futures trader Protection Act

13. Financial Supervisory Commission 13 Principal and Alternative Stock Markets

14. Financial Supervisory Commission 14 Principal and Alternative Stock Markets  Taiwan Stock Exchange Corp (TSEC) and GreTai Securities Market (GTSM)  The daily price limit, beneficiary certificates and convertible bonds  Clearing and settlement  Multilateral net clearing and T+2 rolling settlement convention  New products: REITs, REATs, CBO, ABS, MBS, SN

15. Financial Supervisory Commission 15 The General Situation of Securities Markets Numbers and Market Capitalization of TSEC Listed Companies

16. Financial Supervisory Commission 16 Numbers and Market Capitalization of GTSM Companies Unit:NT$ Billion

17. Financial Supervisory Commission 17 Numbers and Market Capitalization of Emerging Stock Board Companies Unit:NT$ Billion

18. Financial Supervisory Commission 18 The General Situation of Offering in Taiwan & Offshore of TSEC Listing & GTSM Companies

19. Financial Supervisory Commission 19 Securities Trading Value on TSEC Market Securities Trading Value on GTSM Market

20. Financial Supervisory Commission 20 Highlights of Fund Issuance Net Asset Value of Fund

21. Financial Supervisory Commission 21 The General Situation of Securities Services Providers Number of Securities Firms Firms No. of Securities Investment Trust Enterprises.& Securities Investment Consulting Enterprises

22. Financial Supervisory Commission 22 Highlight of Market Performance  Stock Market The market capitalization amounted to USD 0.72 trillion with a total of 707 TSEC-listed companies at the end of Mar. 2008. The trading value summed total USD 0.26 trillion from Jan. to Mar. 2008 Turnover rate 38.35% (from Jan. to Mar. 2008)

23. Financial Supervisory Commission 23 Principal Derivatives Market

24. Financial Supervisory Commission 24 Principal Derivatives Market  Taiwan Futures Exchange (TAIFEX) established in 1998.  Products:  NT$: 7 equity index futures, 2 interest rate futures, 5 equity index options, 30 equity options, and a gold futures  US$: 1 equity index futures, 1 equity index option and 1 gold futures  New Reforms to Foreign Investors: Non-hedging & Omnibus acc.  33 clearing members and 57 FCMs  Trading system: In-house developed Electronic Trading System (ETS)

25. Financial Supervisory Commission 25 Hightlights of Futures Market Year Remarks ： By the end of Mar. 2008, the number of Managed Futures Enterprises is 9. By the end of Mar. 2008, the number of Futures Advisory Enterprises is 26.

26. Financial Supervisory Commission 26 Growth and Ranking of Taiwan’s Futures Products YearTotal trading volume International ranking* Annual growth rate 1998277,90957_ 19991,075,78948287.10% 20001,926,7894479.10% 20014,351,39038125.84% 20027,944,2543582.60% 200331,874,93426301.23% 200459,146,3762085.56% 200592,659,7681856.66% 2006114,603,0001824.00% 2007115,150,624 21** 0.48 ％ *Source: Futures Industry magazine, **The trading volume during the 1Q in 2008 totaled 29,782,604 contracts, which increases 14.42% over the 26,029,358 contracts during the 1Q in 2007.

27. Financial Supervisory Commission 27 Highlight of Market Performance Futures Market Rapid growth of trading volume 115 million contracts in 2007 Options accounted for 85% Ranked 21st on trading volume in 2007 Awarded “Derivatives Exchange of the Year 2004” by Asia Risk Magazine in Oct. 2004

28. Financial Supervisory Commission 28 Bond Market

29. Financial Supervisory Commission 29 Bond Market  GTSM was authorized to take over fixed-income market since 1994.  EBTS (Electronic Bond Trading System )was implemented in July 2002. A trading platform with functions of quoting, trading risk management as well as clearing and settlement Set up a real time and transparent benchmark indicator Expand repo-trading function into the system in March 2005.  New OTC products: Interest rate derivatives such as IRS, IRO and bond derivatives such as bond option and bond forward  New trading mechanism: bond lending, margin trading, when issued trading

30. Financial Supervisory Commission 30 Issues and Trading of Bond Year

31. Financial Supervisory Commission 31 Highlight of Market Performance Bond Market By the end of Mar. 2008, the turnover reached USD 1.36 trillion. Outright trades amounted to USD 0.72 trillion and repo/reverse repo trade counts USD 0.64 trillion. Government bond outright trading takes 98.4% of total outright trading. The number of primary dealers recorded 103, including banks, securities firms and bills finance companies.

32. Financial Supervisory Commission 32 Recent Important Measures Securities Market Expanded the scope of financial institutions Underwriting system Expanded the business scope of securities firms Wealth Management Business Borrowing and lending securities and money Diversified financial product trading business Opening up securities firms to issue foreign call (put) warrants Concurrent operation of Securities Investment Trust Enterprise and Futures Trust business Deregulation on Foreign Investors

33. Financial Supervisory Commission 33 Recent Important Measures Bond Market Compile Taiwan Government Bond Index (GTSM) Introduce Strip trading of financial debenture, corporate bond and government bond Build International Bond Market

34. Financial Supervisory Commission 34 Recent Important Measures  Futures Market Introduction of Omnibus Accounts Allowing Trading for Non-Hedging Purpose Launched US dollar denominated products Reduction of margin requirements

35. Financial Supervisory Commission 35 Supervision of Broker/Dealers & SROs Supervision of securities firms –Finance and Business Operation (the Securities and Exchange Act Article 44 ) –Examination: the SFC may order a securities firm to provide financial or business reports and information, or examine the business operations, assets, books and records, documents or other relevant objects (the Securities and Exchange Act Article 64 ).

36. Financial Supervisory Commission 36 Supervision of Broker/Dealers & SROs Supervision of Securities Dealers Associations –Finance and Business Operation (the Securities and Exchange Act Article 90 ) – Examination: the SFC may order a securities dealers association to amend its articles of association, bylaws, or resolutions, and also to provide reference materials and reports, or to perform any other acts (the Securities and Exchange Act Article 91 ).

37. Financial Supervisory Commission 37 On-line Trading & Supervision （ Securities Business ） Law and Rule –Operating Rules of the Taiwan Stock Exchange Corporation –Relevant rules of E-signature Law

38. Financial Supervisory Commission 38 On-line Trading & Supervision （ Securities Business ） Key Points of Supervision of Broker/Dealers & SROs –Before Applying for Operating, Securities Firms shall Report the Authorities for Reference –Signing with Digital Signature Issued by Certificate Signing Services –Encrypting Investors’ Data –Reporting month trading summary to the Authorities –Setting up an Inspection Mechanism for Information & Communication Security. (To be included in annual Audit)

39. Financial Supervisory Commission 39 On-line Trading & Supervision （ Futures Business ） The FCMs are permitted to accept orders made through the Internet The FCMs are not required to fill out an individual order form provided that trading order records shall be printed out in order The FCMs shall record each the trader's Internet Protocol (IP) address and electronic signature issued by a certificate authority Each FCM shall set up its internet certificate regime

40. Financial Supervisory Commission 40 Investor Education ◆ Established the “Market Observation Post System （ MOPS ） ” ◆ Established the search engine - “Engine for Securities and Future Laws and Regulations” ◆ Organized the “Securities and Futures Education Promotion Committee” ◆ Supervise the SFI to hold workshops to discuss hot topics

41. Financial Supervisory Commission 41 Investor Education ● To strengthen investors protection and education 1.Supervising the Securities and Futures Protection Center to claim actively the rights and interests of investors. 2. Combining relevant securities and futures institutions to set up a propaganda cell to advance market education. 3. Holding a series course regarding investment to improve investors’ finance knowledge. 4. Holding workshops for juridical authorities to know securities and futures markets. 5. Holding workshops for all levels of schools to firmly boost financial literacy.

42. Financial Supervisory Commission 42 Securities Borrowing and Lending Market Launched in 2003. Provided a centralized system by Taiwan Stock Exchange. Targeted at qualified institutional investors.

43. Financial Supervisory Commission 43 Securities Borrowing and Lending Market Qualified lenders: insurance companies, financial institutions, securities investment trust companies (i.e. funds raised by), dedicated futures commission merchants, securities firms and others approved by the competent authority, such as foreign institutional investors (“FINIs”), and four governmental funds: labor pension fund, labor insurance fund, public service pension fund and Chunghwa postal fund. Qualified borrowers: securities dealers, securities investment trust companies (currently limited to ETF issuers), futures dealers, banks and others approved by the competent authority such as FINIs.

44. Financial Supervisory Commission 44 Securities Borrowing and Lending Market TSEC’s SBL system provides three kinds of transactions: fixed-rate transaction, competitive auction transaction and negotiated transaction. SBL brokers and TSEC act as intermediaries in TSEC’s SBL system. For fixed-rate transaction and competitive auction transaction, TSEC also acts as a guarantor and requires collaterals.

45. Financial Supervisory Commission 45 Securities Borrowing and Lending Market ● Remove purpose test requirement and on shore collateral restrictions in 2005. ● Ceilings for short selling. 1. Daily maximum short selling shares of borrowed stock cannot exceed 3% of outstanding shares per lending stock. 2. Maximum short selling of borrowed stock cannot exceed 10% of outstanding shares per lending stock. 3. The total volume of short selling of borrowed stock and margin sale cannot exceed 25% of outstanding shares per stock.

46. Financial Supervisory Commission 46 Securities Borrowing and Lending Market （ Securities Firms ） 1.Based on Article 60 of the Securities and Exchange Act, FSC issued "Regulations Governing Securities Lending by Securities Firms" on August 11, 2006. 2.Comply with the ceiling rules of short selling

47. Financial Supervisory Commission 47 Securities Borrowing and Lending Market （ Securities Finance Enterprises ） ● Allowing the securities finance enterprises to engage in borrowing or lending securities  Based on Article 18 of the “Securities and Exchange Act”, the FSC amended “Regulations Governing Securities Finance Enterprises” to allow the Securities Finance Enterprises to engage in Securities Borrowing and Lending on March 12, 2007.  Comply with the ceiling rules of short selling.

48. Financial Supervisory Commission 48 Thank You