Directions for the Management and Sale of Central Government Bonds

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Title：

Directions for the Management and Sale of Central Government Bonds

Inactive Regulations

Announced Date： May 22, 1998

Amended Date： June 17, 2004

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Chapter I General Provisions

1.

1. These Directions are specially prescribed by the Central Bank of the Republic of China (Taiwan) (“Central Bank") for the purposes of managing and selling central government bonds.

Except where otherwise provided by law, central government bonds will be sold by means of sale by auctions, placement, and consigned sale. Sale by tender will be done electronically on-line; Directions for electronic tender procedures will be adopted separately.

2.

2. Particulars of issues of central government bonds such as the issue name, type, form, serial number, method, date, amount, coupon rate, face value, and dates and methods for payment of principal and interest shall be handled pursuant to the offering announcement provided by the Ministry of Finance.

Chapter II Commissioning of Central Government Bond Dealers

3.

3. Banks, the Chunghwa Post Co., Ltd., bills finance companies, securities firms,and insurance enterprises, meeting the following criteria may, in accordance with these Directions, apply to the Central Bank’s Treasury Department (“Treasury Department") to be delegated as a central government bond dealer (“dealer") and participate in central government bond auctions and placements:

(1)The applicant, unless an insurance enterprise, has received approval from the competent securities authority to trade government securities in an over-the-counter market on its own account.

(2)Positive net income after taxes in the latest fiscal year .

(3)Paid-in capital equals NT$1 billion or more and net worth per share above par value.

Any financial institution delegated by the Central Bank to handle bond operations prior to the adoption of these Directions may apply to the Central Bank in writing to be delegated as a dealer.

4.

4. When applying to be delegated as a dealer, the applicant shall fill out a Central Government Bond Dealer Application Form (Form 1) and attach a copy of the relevant certificates and licenses and documents for verification of financial status, and submit them to the Treasury Department.

Applications may be approved by the Central Bank based on need as determined by bond market development.

5.

5. After being delegated by the Central Bank, a dealer shall fill out an“Application for Participation in On-line Bidding for Central Government Bonds and Treasury Certificates" and submit it to the Treasury Department along with a sample seal impression card. The institution shall also immediately prepare system on-line connections and complete testing of on-line connections within two months from the date of being delegated as a dealer. Where an institution fails to complete the preparations within the prescribed time period, the Central Bank may revoke its qualification as a dealer.

The applicant shall immediately apply by letter for amendments in the event of any change in the information contained in the materials referred to in the preceding Paragraph.

Chapter III Sale of Central Government Bonds

6.

6. Central government bonds will be issued, in principle, through auctions, open to dealers only. The Central Bank may notify dealers to arrange placements, when necessary.

Individuals and juristic persons may engage dealers to submit bids under the dealer’s name. Subscriptions of NT$1 million or less may be undertaken in accordance with the Directions for Consigned Sale and Sub-consignment of Sales of Central Government Bonds by the Chunghwa Post Co., Ltd.

7.

7. Either multiple or single price or yield method may be adopted for auctioning central government bond.

Multiple price and yield bids are classified as either competitive or noncompetitive:

(1)Competitive bids will be accepted successively, starting with those at the price higher than the minimum price or lower than the maximum acceptable yield set by the Ministry of Finance. Where bid prices are equal and the remainder of the issue is insufficient to meet demand, allocations will be made pro-rata to the bid amounts. The prices for awarded bonds are calculated at the price or the yield they bid.

(2)Noncompetitive bid will be calculated as the weighted average price or yield of accepted competitive bids . Where the amount of subscription exceeds the publicly announced amount of the issue, distributions will be made pro-rata based on the subscription amount.

The awards referred to in the preceding Paragraph will be in multiples of NT$1 million.

All single-price or yield bids will be competitive; the determination and proration of awards shall be handled according to the provisions of Paragraph two and Paragraph three applied mutatis mutandis. The price for awarded bonds is calculated at the lowest price or the highest yield of the accepted bids.

8.

8. If multiple-yield method is used for interest-bearing bonds auctions, yield is set at increments of 0.125%, equal to or closest to, but lower than the weighted average yield of the winning bids.

If single-yield method is used for interest-bearing bonds auctions, yield is set at increments of 0.125%, equal to or closest to, but lower than the highest yield of the winning bids.

9.

9. Dealers will be restricted to submitting one tender for each offering, on which there may be no more than ten competitive bids, and to only one subscription through a non-competitive bid. Competitive bidding and non-competitive subscriptions may use only the tender document prescribed by the Treasury Department, which shall be placed in a sealed envelope for submission.

10.

10. Tenders shall be filled out in accordance with the following provisions:

(1)Business administrative number shall be the same as that originally submitted to the Treasury Department for filing.

(2)Minimum bid amount for each competitive bid shall be NT$100 million. Minimum subscription amount for non-competitive bids shall be NT$50 million. Amounts in excess of those figures will be calculated in increments of NT$10 million. Maximum competitive bid amount and maximum non-competitive subscription amount shall not exceed the limit announced by the Ministry of Finance.

11.

11. Any of the following circumstances will result in a tender being deemed void:

(1)A tender not submitted in the format prescribed by the Treasury Department.

(2)A tender not delivered in a sealed envelope.

(3)The seal of the dealer not complying with the sample seal impression.

(4)The number of tenders exceeds the prescribed number.

(5)Other circumstances not in conformance with bidding regulations.

Under any of the following circumstances, a bid will be considered void:

(1)The bid price or yield not written in Arabic numerals or having been altered or illegible.

(2)The bid amount or subscription amount not written in Arabic numerals or having been altered or illegible.

(3)Minimum bid amount for a competitive bid or minimum subscription amount for a noncompetitive bid lower than those prescribed in subparagraph 2, Direction 10.

12.

12. The time and place for an auction shall be given in the offering announcement of the Ministry of Finance.

13.

13. Auctions and determination of auction awards will be carried out in accordance with the law prescribed by the Central Bank and the Ministry of Finance. The auction results will be announced by the Central Bank.

14.

14. The distribution of auction awards to individual dealers in competitive or non- competitive auctions may not exceed the limits announced by the Ministry of Finance.

15.

15. Where a portion of the offering remains unsold after an auction, that portion may be handled by placement at the non-competitive bid price or the price publicly announced by the Ministry of Finance or by a re-auction at another time.

16.

16. On the business day next following the date of auction, each dealer shall dispatch an employee to the Treasury Department to collect the notice of awards, unaccepted bids, and invalid bids.

17.

17. Successful bidders shall carry out settlement on the date prescribed by regulations.

Settlement of book-entry bonds shall be performed in accordance with applicable provisions of the Operational Directions for Book-Entry Central Government Bonds.

For settlement in the form of bond certificates, the dealer shall make out a list for bonds settlement and shall draw a check with the Central Bank’s Banking Department as the drawee or a promissory note with the Central Bank’s Banking Department as the payment agent (with the maturity date corresponding to the bond issue date), or by transfer of funds into the Treasury Department’s account in the Banking Department through the Central Bank Interbank Funds System, and shall collect the bond certificates from the Central Bank.

Chapter IV Regulation of Central Government Bond Dealers

18.

18. Dealers shall abide by the following provisions:

(1)Participate in each central government bond auction.

(2)Participate in placements of bonds pursuant to Central Bank notification.

(3)Submit bid prices and yield when participating in bidding for central government bonds that accord with the market conditions.

(4)File the following documents to the Treasury Department before the specified deadline. The Central Bank may, when necessary, dispatch personnel to perform on-site inspection:

i.A bidding status report submitted on the second business day after each periodic auction of government bonds( Form 2 ).

ii.A monthly statement of bond holdings in the preceding month submitted on or before the fifth business day of each month ( Form 3 ).

iii.With the exception of insurance enterprises, a yearly statement of government bond trading to be submitted each year by the end of January ( Form 4 ).

iv.An yearly financial report submitted by post within four months of the end of each fiscal year. Financial reports of private institutions shall have been duly audited and certified by a certified public accountant, approved by the board of directors and recognized by the supervisors. However, public institutions may submit their reports by post on a provisional basis pending final approved by the auditing agency.

(5)Perform matters relating to electronic on-line bidding in accordance with the applicable regulations.

19.

19. Under any of the following circumstances, the Central Bank may issue a letter of notification to dealers requesting rectification:

(1)Failure to participate in auction or placement of bonds.

(2)Participate in auctions with all bids invalid.

(3)Submit Competitive bids at prices or yields significantly below or above prevailing bond market conditions.

(4)Failure to submit relevant documents truthfully within the prescribed period of time.

(5)Failure to perform matters relating to electronic on-line bidding in accordance with the applicable regulations.

(6)Failure to comply with Central Bank regulations related to government bonds .

20.

20. Under any of the following circumstances, the Central Bank may consider requiring a dealer to post a deposit:

(1)Without positive net income after taxes in the latest fiscal year.

(2)Where a dealer’s actual paid-in capital is below NT$1 billion or net worth per share below par value.

Where a dealer fails to submit a deposit within the prescribed period of time, the Central Bank may suspend its participation in auctions until the deposit is made.

21.

21. Where any of the following circumstances have occurred with respect to a dealer within the past year, the Central Bank may impose a one-time suspension of its participation in auction:

(1)Competitive bids at prices or yields significantly deviating from prevailing bond market conditions three times or more.

(2)Failure to submit relevant documents truthfully within the prescribed period of time three times or more.

(3)Other failure to handle the business related to government bonds in accordance with Central Bank regulations three times or more.

22.

22. Where any of the following circumstances have occurred with respect to a dealer within the past year, the Central Bank may impose a two-time suspension of its participation in an auction:

(1) Fail to participate in auctions or placements of bonds two times or more.

(2) Participate in auctions with all bids invalid three times or more.

23.

23. In any of the following circumstances, the Central Bank may terminate the dealer’s commission:

(1)Failure to deliver the payment for government bonds by the prescribed date.

(2)Part of business having been suspended by the central competent authority, rendering it unable to participate in auctions.

(3)Business having been supervised or taken over by personnel sent from the central competent authority.

(4)Business having been suspended by the central competent authority.

In the circumstances in Subparagraph 1, and where three full years have passed after termination of its commission, a dealer may submit a new application pursuant to the provisions of these Directions.

24.

24. A dealer that intends to terminate commission on its own cause shall notify the Treasury Department in writing two weeks prior to the planned date of withdrawal .

25.

25. The Central Bank may assess dealers on a non-periodic basis with regard to matters carried out pursuant to these Directions through use of the Form for Assessment of Dealers Performance in Government Bond Matters (Form 5), and issue commendations to those with outstanding performance records.