A zero-coupon bond is a bond for which interest is not paid prior to maturity and the par value is repaid at the time of maturity. It is therefore usually issued at a "discount" of the par value. The discount is regarded as the interest paid to the investor.

After the selling bond dealer submits the customer's bond passbook and discovers that there are discrepancies between the contents of the bond passbook and the transaction information, the selling bond dealer shall fill out the "bond passbook correction application form" and submit the original copy of the bond passbook to TDCC to apply for the cancellation of the bond passbook. If the dealer fails to provide the original copy of the bond passbook, the correction application form must be signed by the customer. The application form may be faxed to TDCC but the original copy of the application form and the bond passbook must be submitted within five business days after the application date. After TDCC reviews and verifies the information, it shall notify the selling bond dealer to reopen the bond passbook.

If the bond passbook is damaged or lost, the selling bond dealer shall fill out an affidavit and apply the originally retained seals or the customer's signature/seal and apply to TDCC for the cancellation of the bond passbook. The affidavit may be faxed to TDCC but the original copy must be submitted within five business days after the application date. After TDCC reviews and verifies the contents of the affidavit, it shall notify the selling bond dealer to operate the "bond passbook issuance" transaction (transaction code A74). The dealer shall print the bond passbook, apply its seal, and deliver it to the customer. The passbook shall also be specified as reissued.

When a bond repurchase/resale transaction matures, the selling bond dealer may fill out the "bond repurchase/resale due notification and bond passbook cancellation application form" and operate the "bond repurchase/resale due notification and bond passbook cancellation application" transaction (transaction code A75) and notify TDCC to process passbook cancellation. Where amounts are due, it shall also specify the payable amount, payment method, and the time. After TDCC reviews and verifies the information of due transactions and bond positions, it shall cancel the bond passbook records.

When a repurchase/resale transaction is terminated early, the bond dealer shall fill out an affidavit and submit the original copy of the bond passbook to TDCC to apply for the cancellation of the bond passbook. If the dealer fails to provide the original copy of the bond passbook, the affidavit must be signed by the customer and the customer's payment certificate must be provided. The affidavit and payment certificate may be faxed to TDCC but the original copy of the affidavit and the bond passbook must be submitted within five business days after the early termination date. After TDCC reviews and verifies the information, it shall terminate the bond passbook records.

After the selling bond dealer delivers the bond passbook, the bond dealer and its customer participants may operate the "query on bond repurchase/resale transaction information" transaction (transaction code A76) to inquire the information on undue, due, early termination, correction, and re-issuance of repurchase/resale transactions.

A government stripped bond is a bond where the "principal" and "interest" in an interest-bearing bond is separated. After the separation, the principal part is the "principal-only bond" (hereinafter referred to as "PO") and the interest part is the "interest-only bond" (hereinafter referred to as "IO"). Both can be traded independently and both are "zero-coupon bonds." No interest shall be paid prior to maturity and the par value is repaid at the time of maturity. The five-year government bond issued on the 20th of July each year is currently adopted. The fixed par value interest rate of 2% makes it a strip bond. As an example, once the par value of NTD 5 million of the A94106 Type A Phase 6 government bond is divided, it is divided into: 1.Principal-Only bond: A zero-coupon bond with a par value of NTD 5 million under the code P99G20 and set to mature on July 20, 2010.

2.Interest-Only bond: (1). A zero-coupon bond with a par value of NTD 100,000 under the code I99G20 and set to mature on July 20, 2010.

(2). A zero-coupon bond with a par value of NTD 100,000 under the code I98G20 and set to mature on July 20, 2009.

(3). A zero-coupon bond with a par value of NTD 100,000 under the code I97G20 and set to mature on July 20, 2008.

(4). A zero-coupon bond with a par value of NTD 100,000 under the code I96G20 and set to mature on July 20, 2007.

(5). A zero-coupon bond with a par value of NTD 100,000 under the code I95G20 and set to mature on July 20, 2006.

A stripped bond is referred to as STRIP and it contains six codes:

1.Principal-Only bond: The PO is indicated by the letter P in the first digit.

2.Interest-Only bond: The IO is indicated by the letter I in the first digit.

3.The second and third digits refer to the "maturity" year in the Republic of China calendar which turns into "00" by the year 100.

4.The fourth digit refers to the "maturity" month. The English letter A stands for January, B stands for February, and so on. All such bonds are currently set at G for July.

5.The fifth and sixth digits refers to the "maturity" date. All such bonds are currently set at 20 for the 20th day of the month. Therefore, P99G20 refers to a PO bond set to mature on July 20, 2010; I99G20 refers to a stripped IO bond set to mature on July 20, 2010.

Only central government bond dealers and bond dealers are qualified for applying for a division of interest-bearing bonds. As the minimum registered amount of the Central Bank is NTD 100,000, the minimum amount for the division of interest-bearing government bonds with fixed nominal interest rate of 2% is NTD 5 million.

When the holder applies for the division of interest-bearing government bonds, it shall be required to pay the income tax of the interest-bearing government bond on the interest accruing from the previous interest payment date to the date of application for division and file an application with its clearing bank. The bank shall notify the Central Bank of the division and the Central Bank shall settle the division and notify the Company's clearing bank of the information of the division. The clearing bank shall register the balance of the stripped bond in the Company's bond account and notify the Company of the account registration information. The Company shall transfer the strip bond to the holder's depository account.

1.Simpler and more convenient procedures compared to purchasing and selling interest-bearing government bonds: Investors can issue orders to their securities broker to purchase stripped bonds.

2.Investors can plan for future children's education and their own pension: They can purchase zero-coupon bonds at a discount and plan fixed-sum income necessary for several years in the future.

3.Increase investment flexibility: Investors are only required to have a central custody account for securities to purchase and sale stripped bonds. The transaction amount can also be combined with the sales and purchase of securities listed on TWSE and TPEx for settlement. In other words, when the stock market shifts from a bull market to a bear market, investors can consider selling the stocks in their accounts and purchase stripped bonds. If the sales and purchase amounts are equivalent, the investor is not required to prepare additional funds and shall only be required to have a central custody account to easily navigate between the stock market and the bond market.

4.Government bonds have no credit risks and are safer and more reliable: Government bonds are issued by the state which has the highest credit rating in the country. It is safer and more reliable than time deposits in regular banks.

5.Higher liquidity than time deposits in banks: Stripped bonds can be sold in secondary markets and they have superior liquidity. Time deposits in banks can only be deposited or canceled and they generally incur a 20% reduction on interest when canceled.

6.Access to repurchase/resale transactions: Investors that hold stripped bonds may conduct financing with securities dealers through repurchase/resale transactions to increase the flexibility of fund usage.

Individual investors or corporate investors with central custody accounts and OTC account registered at securities broker can place orders for the purchase and sales of stripped bonds in the same way they purchase and sell securities.

1.The securities transaction tax and the tax of Gains derived from the securities transactions are waived.

2.Payment of the service fees to the broker: The flexible fee system in the regulations for the purchase and sales of OTC stocks capped at 0.1425% applies mutatis mutandis to the service fees collected by securities brokers from clients for the purchase and sales of stripped bonds.

3.Payment of interest income tax:

(1). When bondholders sell bonds or when bonds mature, a 10% tax is withheld for the interest income accruing in the holding period (a withholding rate of 20% is applicable to non-domestic individuals or corporate investors). The tax payment withheld can be used to offset the individual income tax or profit-seeking enterprise income tax of the current year. The basis of tax base for individuals or corporate investors is as follows: Individuals: The interest shall be calculated based on the holding period of ownership. The cash payment basis shall be adopted and the interest shall be included into the tax-exempt amount of NTD 270,000 per year for interest income at maturity or sales year. The parts in excess of NTD 270,000 shall be applicable to individualincome tax based on the individual's income tax bracket. Corporate investors: The interest shall be calculated based on the duration of ownership and included as taxable income on an accrual basis.

(2). The calculation of income on interest shall be based on the amounts listed in the strip bond interest allocation baseline table to calculate the actual income on interest in the period held.

The minimum par value is NTD 100,000.

The division and reorganization passbook transfer operations for stripped bonds were announced and implemented on November 7, 2005. Participants may connect to the Company's network and operate the "stripped bond corresponding principal/interest information query" transaction - - (B59) " stripped bond interest allocation baseline table query" transaction - - (B53) to obtain information on the principal/interest of stripped bonds and the interest allocation table.

Only central government bond dealers and bond dealers may apply for reorganization of PO and IO government bonds. When applying for reorganization, the applicant shall apply to its TDCC participant and request the participant to notify the Company of the information on the reorganization. After the Company confirms the information, the reorganization information shall be sent to the Company's Clearing bank. The bank shall transfer the reorganization information to the Central Bank. The Central Bank shall notify the applicant's clearing bank and transfer the interest-bearing government bonds to the government bond account of the holder.

TDCC is the tax withholder for short-term bills. According to regulations in the "Regulation governing Issuance Registration, Central Deposit and Book-Entry Operations for Short-Term Bills" the short-term bills registered or deposited by the central depository institution shall be presented for redemption by TDCC on behalf of the holder. TDCC shall also withhold tax payments on the interest of the redeemed amount in excess of the initial issuance price in accordance with related regulations in the Income Tax Act. TDCC shall compile and send the withholding tax statement to the taxpayer before the 10th of February each year. The withholding tax statement is based on the amount of withholding taxes in the investor's account from the previous year. TDCC shall also provide a detailed statement of the interest income and withholding taxe for each individual bill. When the investor receives the withholding tax statement and detailed statement, the investor shall pay the taxe of the detailed statement based on the sum of the tax applicable to the pre-owner on the trade confirmation slips and the taxes for the period the investor held the bills.

No. The due funds shall be directly transferred to the settlement account in the investor custodian bank originally used for the purchase of the bills. For example: When an investor purchases a bill, the payment is paid from Account A in Investor Custodian Bank A. When the bill is at maturity, it can only be paid to Account A in Investor Custodian Bank A.

An "investor custodian banks" refers to a bank responsible for settlement of payments as well as bill clearing and settlement for the investor. Currently, there are 16 banks which provide such services and they include Mega International Commercial Bank, Bank of Taiwan, Land Bank of Taiwan, Taiwan Cooperative Bank, First Commercial Bank, Hua Nan Commercial Bank, Chang Hwa Bank, Shanghai Commercial and Savings Bank, Cathay United Bank, Taiwan Business Bank, E.SUN Commercial Bank, Taishin International Bank, Bank SinoPac, CTBC Bank, Citibank (Taiwan), and JPMorgan Chase Bank. Among them, 13 banks offer settlement services in foreign currencies and they include Mega International Commercial Bank, Bank of Taiwan, Hua Nan Commercial Bank, Taiwan Cooperative Bank, Cathay United Bank, First Commercial Bank, Taiwan Business Bank, Chang Hwa Bank, Citibank (Taiwan), JPMorgan Chase Bank, Bank SinoPac, E.SUN Commercial Bank, and CTBC Bank.

If the bank is both an investor custodian bank for both bonds and bills, the investor can use its original NTD or foreign currency demand deposit account as the bills settlement account. However, as the subject of the bills settlement account is different, the investor is required to open a separate book-entry transfer account.

Starting from December 25, 2015, the direct transfer, inheritance, and donation of fixed income between private parties for public offering bonds shall be operated by the participant who shall review related documents and operate the "bond transfer" transaction (transaction code C56) for account transfer operations. For private placement bonds, the participant shall operate the "direct account transfer/cancellation application between individuals" transaction (transaction code 375) or the "inheritance, donation, price offset by shares, and waiver of stocks account transfer/cancellation application" transaction (transaction code 376) for the account transfer.

Yes. The bond holder may set up NTD bond principal and interest repayment accounts in different banks in the TDCC system. When the principal and interest is repaid, TDCC shall provide information to the principal and interest collection institution to process the payment of the principal and interest based on the accounts in the same banks specified by the bond holder and bond principal and interest repayment institution. This measure saves the interbank remittance fees for the bond holder. When the account number provided by the bond holder does not belong to the principal and interest repayment institution of the bond, the principal and interest repayment shall be processed based on the default payment account specified by the bond holder. Yes. The bondholder may set up repayment of the principal and payment of interest of NTD bond principal and interest repayment accounts number in different banks in the TDCC system. When the principal and interest is paid, TDCC shall provide the principal and interest payment institution the bank accounts numbers retained by the bondholder which is the same as institution to process the repayment of the principal and payment of interest based on the accounts in the same banks. This measure saves the interbank remittance fees for the bond holder. When the account number provided by the bond holder does not belong to the principal and interest repayment institution of the bond, the principal and interest repayment shall be processed based on the default payment account designated by the bond holder.accounts number in different banks in the TDCC system. When the principal and interest is paid, TDCC shall provide the principal and interest payment institution the bank accounts numbers retained by the bondholder which is the same as institution to process the repayment of the principal and payment of interest based on the accounts in the same banks. This measure saves the interbank remittance fees for the bond holder. When the account number provided by the bond holder does not belong to the principal and interest repayment institution of the bond, the principal and interest repayment shall be processed based on the default payment account designated by the bond holder.

The mechanism was effective on April 2, 2004.

After the implementation of the system, the transaction procedures between investors and bills dealers have remained the same. However, the manual settlement method used for physical bills or custody receipts was converted to book-entry transfers. Therefore, the new operation method for investors' short-term bill trading and settlement is as follows: 1.The investor is required to open a bill transfer account at the investor custodian bank and specify the NTD or foreign currency demand deposit account in the investor custodian bank as the settlement account. The investor may be required to open accounts in multiple investor custodian banks based on their requirements. 2.After the investor concludes negotiations with the bills dealer for each purchases or sales of bills, the investor shall confirm the contents of the transaction over the counter or through other services provided by the investor custodian bank (e.g. telephone or online banking services). The investor may also sign the "short-term bills settlement authorization letter" with the investor custodian bank beforehand to authorize the bank to process settlement confirmation operations so that the investor is not required to confirm each settlement. 3.When the investor purchases a bill, the investor shall deposit sufficient funds in the settlement account to pay the settlement price and processing fee. The investor custodian bank shall automatically deduct payments from the account when processing the settlement. After the investor sells the bill, the investor custodian bank shall transfer funds, minus the processing fee, to the investor's settlement account. 4.The investor custodian bank may print the investor's settlement statement and inventory balance on the passbook or provide a reconciliation statement for verification.

The Company is not a government Institution or foundation. Based on the principle of user pays, related expenses should be borne by the user. The establishment of the rates shall be reviewed by the "Research & Development and Rate Review Committee," approved by the Board of Directors of the Company, and reported to the competent authority and Central Bank for approval for reference before implementation.

No. A book-entry transfer account can be used for settlements with different bills dealers. The investor can also open multiple book-entry transfer accounts in different investor custodian banks but the investor can only use one book-entry transfer account for each settlement.

No. As each book-entry transfer account can only be connected to one fund settlement account, an investor cannot use two or more accounts for payment or collection in each settlement.

If the bank of the original NTD or foreign currency demand deposit account is an investor custodian bank, the account can be used as the settlement account and the investor is not required to open a new deposit account. However, the use of NTD checking accounts must be approved by individual investor custodian banks.

1.When purchasing bills, the payment is deducted directly from the investor's account and the investor is not required to deposit (remit) funds to the bills dealer's account.

2.The issues of loss or damage of bills or custodian receipts can be prevented if the investor opens a bills account at the investor custodian bank and holds the bills through book-entry transfers.

3.Investors can directly process related procedures for pledging outright-purchased bills through the bills account and simplify manual operating procedures.

Yes. According to Point 2 of the "Regulations on the Par Value of Transactions in Short-Term Bills and Underwriting of Commercial Papers for Bill Dealers," the lowest transaction unit shall be NTD 10,000, USD 10,000, EUR 10,000, AUD 10,000, RMB 50,000, and JPY 1 million.

The investor will continue to receive trade confirmation slips issued by the bills dealer. However, the custody receipts will be replaced by passbooks or reconciliation statements and will no longer be issued.

Yes. However, the offsetting is only restricted to transactions with the same bills dealer in the same currency. Transactions with different bills dealers cannot be offset against each other. If the investor wants to offset the payments, the investor may request the bills dealer to process transactions conducted in secondary markets on the current day with "batch net settlement" in the subsequent settlement. The "batch net settlement" means processing batches of net value settlement of multiple settlements instructions between a bills dealer and an investor. In other words, the investor can combine the purchases and sales made with the same bills dealer on the secondary market in same day in one settlement. The amount is the net value of the purchase or sales settlement.

Example: Investor A purchases bills from Bills Dealer A totaling NTD 99 million and sells bills totaling NTD 49 million on the same day. When the two transactions are settled in "batch net settlement," Investor A is only required to pay Bills Dealer A NTD 50 million.

To meet requirements for the clearing and settlement time, the investor is required to complete settlement confirmation for purchasing bills and the investor is required to deposit (remit) the payment to the funds settlement account before 3:30 PM each day to protect the investor's rights and interests.

Yes. The investor can request the bills dealer to send an instruction to change the original maturity date and interest rate. After the investor confirms the change, the transaction shall be processed in accordance with the changed RS contract conditions.

(I) Establishing pledges: The pledgor and pledgee fill out the application form to the investor custodian bank of the pledgor to establish the pledge.

(II) Canceling pledges: The pledgee and pledgor fill out the application form and submit the third sheet of the "pledge establishing application form" held by the pledgee to the investor custodian bank of the pledgee to cancel the pledge.

(III) Exercising pledge rights

1.The pledgee should presents one of the following legal documents to exercise pledge rights:

(1) The contract with which the pledgor agrees to the pledgee's acquisition of the ownership of the things pledged.

(2) A letter of attestation via the post office.

(3) Affidavit of the pledgee.

2.The pledgee fills out the application form and submits the third sheet of the parties' application form for establishing the pledge and apply for the exercise of pledge rights to the investor custodian bank where the account is opened.

(IV) The investor custodian bank may print the balance of the pledges established by the pledgor and pledgee on the passbook or provide a reconciliation statement for verification.

1.Setting pledges (including pledge establishing after purchase): The investor and bills dealer fill out the application form to the investor custodian bank of the investor to establish the pledge.

2.Canceling pledges: The bills dealer completes the pledge cancellation and delivers the pledge cancellation notification to the investor.

3.Exercising pledge rights: The bills dealer completes the pledge rights exercise and delivers the second sheet of the "pledge rights exercise application form" to the investor.

4.Making substitution of the subject of pledges: The investor and bills dealer fill out the application form to the investor custodian bank of the investor to make substitution of the subject of the pledge.

5.The investor custodian bank may print the balance of the investor's pledge establishment on the passbook or provide a reconciliation statement for verification.

To simplify operations between bills dealers, investors, and investor custodian banks, bills dealers have to process entries of tax-exempt funds for the purchase and sales of short-term bills by tax-exempt entities since July 2012 to replace the original practice which required bills dealers to fill out tax-exempt fund calculation forms and deliver them to investors for operations at the investor custodian bank.