Regulations Governing Internal Operating Systems and Procedures for Banks Conducting Financial Derivatives Business Article 18

When a bank undertakes a financial derivative transactionlinked to a credit event, if the bankitself is the protection seller and the reference entity is an interested party, the terms of the transaction shall not be more favorable than those offered to other counterparties in the same category, and shall comply with the following provisions:1. For a domestic bank, the transaction shall be approved in a resolution adopted by at least three-fourths of the directors present in a board of directors' meeting attended by at least two-thirds of all directors. If the bank has drawn up internal operating rules therefor, it is deemed that the bankhas compliedwith thepreceding provision, provided the bank'smanaging department is fully authorized to conduct the business in accordance with the operating rules by its board of directors in a resolution adopted by at least three-fourths of the directors present in a board of directors' meeting attended by at least two-thirds of all directors (For branches of foreign banks in Taiwan, the internal operating rules shall be approved by their head office or regional center).2. A bank shall require full guarantee for potential loss of the transaction estimated based on credit risk and put such potential loss under credit control fortheinterested party. The eligibility criteria for collateral should be set in consideration of the contract duration and the liquidity of reference assets, and the collateral shall be limited to cash, government bonds, negotiable certificates of deposit issued by the Central Bank, savings bonds issued by the Central Bank, treasury bills and certificates of deposit issued by a bank.