Regulations Governing Internal Operating Systems and Procedures for Banks Conducting Financial Derivatives Business Article 37

When a bank engages in Taiwan stock-linked equity derivatives business, the bank shall comply with the provisions of the “Taipei Exchange Regulations Governing Over-the-Counter Trading of Financial Derivatives by Securities Firm” with regard to methods of payment upon exercise, confirmation of opening of a central depository account, pledging of securities in hedge accounts prohibited, rules for securities borrowed or sold short for hedging purpose, confirmation of registration when the counterparty is an offshore overseas compatriots or foreign national, duration of contract, concentration management, and restriction on related-party transactions and the requirements for the business of convertible (or exchangeable) corporate bond asset swap options.A bank that trades TWSE or TPEx-listed stocks due to the hedging needs of its Taiwan stock-linked equity derivatives business shall open a hedge account. The opening of a hedge account, payment upon exercise of contract, and information reporting operation shall be carried out in accordance with relevant rules of the Taipei Exchange.When providing customers with Taiwan stock-linked equity derivatives services which involves transactions of convertible (or exchangeable) corporate bonds, a bank shall obtain a permit for engaging in securities firms operating proprietary trading and comply with the rules of proprietary trading of convertible (or exchangeable) corporate bonds.