Merits and Demerits of Direct Indirect Account Method

Merits and Demerits of Direct & Indirect Account Method Taiwan Depository & Clearing Corporation July 27 th, 2006

Content v Market Overview v Operation Models v Comparison btw Direct & Indirect Accounts v Prospects

Market Over – Ministry of Finance Central Bank Pension Fund

Market Overview – Direct Account • Ministry of Finance – National Stabilization Fund was established in 1999 – To maintain safeness and soundness of financial market – Became TDCC’s participant on March 16 th, 2000 • Public Service Pension Fund – Established in 1943 – Contributed by individual public servants and the government – Became TDCC’s participant on Nov. 11 th, 2004 • Central Bank – For business in which securities under TDCC custody are collateral of the public construction contracts – Became TDCC’s participant on Dec. 30 th, 2005

Operational Process - Indirect Account 7 Trading Report nt iry u o c Inqu c 6. A ance l Ba Investors • Pressing Order 4. Confirmation TDCC 5. Settlement Notice 2. Pressing order Securities Firms 3. Confirmation TSEC

Book-entry Process - Indirect Account TDCC Participant: Broker S TSEC Customer’s Account: 1) -1000 shares Participant’s Settlement Account: 2) +1000 shares 3) -1000 shares 參加人 B券商 Participant: Broker B Participant’s/ Customer Account: 3) +1000 shares 1) +1000 shares 2) -1000 shares Securities will be transferred to TDCC participants’ settlement account on T+1 but securities and payment will be settled on T+2.

Operational Process - Direct Account 6. Securities Transfer 8 Trading Report Pension Funds 7. Account Reconciliation TDCC 1. Pressing Order 4. Confirmation 5. Settlement Notice 2. Pressing order Securities Firms 3. Confirmation TSEC

Book-entry Process -Direct Account TDCC Pension Fund Participant’s Account 1) -1000 shares Participant: Broker S Participant’s Settlement Account: TSEC Participant: Broker B 參加人 B券商 Participant’s Settlement Account: Participant’s/ 自有帳/ Customer Account: 客戶帳 +1000股 3) +1000 shares 1) +1000 shares 2) -1000 shares 2) +1000 shares 3) -1000 shares Securities will be transferred to TDCC participants’ settlement account on T+1 but securities and payment will be settled on T+2.

Comparison btw Direct & Indirect Accounts Items Order & Confirmation Direct Accounts Order through and confirmed by securities firms Indirect Accounts Order through and confirmed by securities firms Receive packed data via Account Reconciliation TDCC computer linkages Reconcile trade data with each securities firm Securities transferred to each Confidentiality securities firm only when of Trading Information trading activities happened Protect more privacy Order through securities firms and position is maintained by individual securities firm itself. Securities firms acknowledge trading and balance details Note: Direct Account herein refer to Public Service Pension Fund

Comparison btw Direct & Indirect Accounts Items Direct Accounts • • Securities Settlement • Account Balance • • Indirect Accounts Short position-account owner shall transfer securities on their own. Long position-TDCC will transfer the securities to buyers’ direct Conducted by securities accounts automatically. firms Post-trading clearing and settlement to be controlled by account owners Single account Easy to manage Note: Direct Account herein refer to Public Service Pension Fund Customers must manage each account owned by themselves among various securities firm.

Comparison btw Direct & Indirect Accounts Items Direct Accounts • Corporate action • • Operating Cost • Risk Control Indirect Accounts All of the stock dividends and new shares will be distributed to one account Easy to manage • Stock dividends and new shares will be distributed to various brokers’ accounts • Difficult to manage Cost of computer connections Cost of custody • No cost of computer connections • No cost of custody Higher security Note: Direct Account herein refer to Public Service Pension Fund Credit risk of participants

Prospects • Potential Customers – Major shareholders of listing companies – Insurance companies – Labor Insurance Fund, Labor Pension Fund and Postal saving fund • Follow-up issues v Individual investors’ incentives to open direct accounts. v Competition with CSD’s current participants (e. g. custodian banks) v Management of numerous direct accounts and corresponding operations.

Thank You