TAIFEX FTSE 4 Good TIP Taiwan ESG Index

TAIFEX FTSE 4 Good TIP Taiwan ESG Index Futures Taiwan Futures Exchange May 2020

Outline n Purpose n Introduction n Contract Specifications n Trading Strategies n “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited (“FTSE”) under licence. “TIP®” is a trade mark of the Taiwan Index Plus Corporation (“TIP”). All rights in the FTSE 4 Good TIP Taiwan ESG Index (the “Index”) vest in FTSE and TIP. Neither FTSE nor TIP nor any of their affiliates or licensors: (a) assumes any liability, losses, damages, expenses or obligations in connection with any derivative product based on the Index; or (b) accepts any liability for any errors or omissions, fitness for a particular purpose or the results to be obtained from the use of the Index or related data. No party may rely on the Index or related data contained in this communication which Index and data is owned by FTSE or TIP or their affiliates. No use or distribution of the Index is permitted without FTSE’s or TIP’s express written consent. Neither FTSE nor TIP promotes, sponsors or endorses the content of this communication nor any financial or derivative product that it relates to. 2

n Growing demand for ESG (Environmental, Social and Governance) investment across the globe and in Taiwan n The underlying “FTSE 4 Good TIP Taiwan ESG Index” officially named as a domestic discretionary investment benchmark for the Labor Pension Fund in 2018 with a total investment amount of NTD 42. 0 billion n Domestic ESG ETFs with AUM exceeding NTD 10 billion n Strong hedging and trading demands for ESG derivatives n Further development in Taiwan ESG investment market TAIFEX FTSE 4 Good TIP Taiwan ESG Index Futures to Be Launched

Introduction 4

FTSE 4 Good TIP Taiwan ESG Index n Index Name: FTSE 4 Good TIP Taiwan ESG Index (F 4 G TIP TW ESG) n Date of Launch: December 18, 2017 n Base Value: 5000 n Base Date: June 16, 2017 n Index Introduction: (subject to TIP’s index methodology) n Jointly compiled by FTSE Russell and Taiwan Index Plus Corporation (TIP), the FTSE 4 Good TIP Taiwan ESG Index represents the performance of companies listed on the Taiwan Stock Exchange (TWSE) that meet the globally recognized ESG standards used by the FTSE 4 Good Index Series. Source: FTSE Russell FTSE 4 Good TIP Taiwan ESG Index Factsheet (30 April 2020) and Methodology 5

FTSE 4 Good TIP Taiwan ESG Index (cont. ) n Qualification Criteria: n The initial eligible universe comprises the constituents of the FTSE 4 Good Emerging Index that are listed on the TWSE. n Companies with negative trailing 12 -month Return on Equity (ROE) are excluded, subject to the index covering at least 90% of capped investable market capitalization weight* of the initial eligible universe. n Periodic Review: n The constituents are reviewed semi-annually in June and December. Changes arising from the review will take effect after the market close on the third Friday of June and December. * Individual company weights are capped at 30% on a semi-annual basis. Source: FTSE Russell FTSE 4 Good TIP Taiwan ESG Index Factsheet (30 April 2020) and Methodology 6

FTSE 4 Good TIP Taiwan ESG Index vs. TAIEX 7

Historical Index Periodic Review Results n Changes of the number and weight of constituents were slight Semi. Number Annual of of Review Constituents Change 201712 66 201806 71 5 201812 69 -2 201906 73 4 201912 71 -2 Change Total Change of Weight of of Deletion Inclusion 9 4 5. 50% 0 2 0. 00% 9 5 5. 29% 1 3 0. 76% Total Weight of Deletion 3. 64% 0. 29% 1. 82% 1. 01% n Comparison of F 4 G TIP TW ESG Index and TAIEX Index F 4 G TIP TW ESG TAIEX Net Market Top 10 Weight of the Number of Capitalization Constituents Largest Constituents (trillion NTD) Weight - TSMC 71 17. 59 56. 98% 29. 59% 922 33. 11 42. 08% 23. 84% As of April 30, 2020 Source: TIP, FTSE Russell FTSE 4 Good TIP Taiwan ESG Index Factsheet (30 April 2020) & Bloomberg 8

Index Volatility & Correlation n F 4 G TIP TW ESG Index has higher volatility than TAIEX and high correlation (0. 969) with TAIEX Period F 4 G TIP TW ESG Volatility TAIEX Volatility Correlation 2015(6. 22~12. 31) 20. 02% 18. 75% 0. 950 2016 14. 80% 13. 35% 0. 957 2017 9. 36% 8. 50% 0. 950 2018 16. 45% 15. 81% 0. 970 2019 12. 09% 10. 76% 0. 977 2020(~4. 30) 30. 86% 31. 87% 0. 995 2015(6. 22~)-2020(~4. 30) 15. 96% 15. 20% 0. 969 Source: Bloomberg & TIP 9

Index Industry Concentration n F 4 G TIP TW ESG Index differs from TAIEX in industry breakdown. Both indices’ top 1 sector is Technology with a difference of 4. 26% in weights, and the top 2 sector of F 4 G TIP TW ESG Index is Banks (13. 91%), while that of TAIEX is Industrial Goods & Services (14. 71%). n The top 5 sectors account for 80. 20% of F 4 G TIP TW ESG Index, while 74. 02% for TAIEX. Weight (%) F 4 G TIP TAIEX ICB Supersector TW ESG Technology 43. 68 39. 42 Basic Resources 1. 69 1. 93 Banks 13. 91 8. 53 Retail 1. 19 2. 59 Industrial Goods & Services 12. 26 14. 71 Oil & Gas 0. 84 2. 64 Insurance 5. 49 3. 69 Travel & Leisure 0. 82 0. 88 Chemicals 4. 86 6. 01 Automobiles & Parts 0. 53 1. 43 Telecommunications 4. 78 4. 42 Real Estate 1. 34 Financial Services 3. 28 2. 01 Health Care 0. 53 Food & Beverage 2. 29 2. 17 Utilities 0. 16 Personal & Household Goods 2. 25 5. 35 Media 0. 07 Construction & Materials Total 100 2. 13 Source: TIP, FTSE Russell FTSE 4 Good TIP Taiwan ESG Index Factsheet (30 April 2020) & Bloomberg 10

FTSE 4 Good TIP Taiwan ESG Index Information n Traders can access the market information via websites of TAIFEX Real-Time Snapshot Quotes (https: //info 512. taifex. com. tw/EN/index_home. aspx) and TIP, and other market data providers, such as Bloomberg (symbol: TWF 4 GTTE<INDEX>) and Mitake APP. 11

Contract Specifications 12

Contract Specifications n Underlying Index: FTSE 4 Good TIP Taiwan ESG Index (F 4 G TIP TW ESG) n Ticker Symbol: E 4 F n Multiplier: NTD 100 u u The contract value of TAIFEX F 4 G TIP TW ESG Index Futures was around NTD 540, 000, as the index value closed at 5, 363. 74 points on May 12, 2020. Small contract size lowers the trading threshold and facilitates greater participation. n Minimum Price Fluctuation: 1 index point (NTD 100) n Trading Hours: 8: 45 AM-1: 45 PM Taiwan time; 8: 45 AM-1: 30 PM on the last trading day for the delivery month contract n Delivery Months: Spot month, the next two calendar months, and the next three quarterly months 13

Contract Specifications (cont. ) n Daily Price Limit: +/- 10% of previous day's settlement price n Daily Settlement Price: The volume-weighted average price, calculated by dividing the value of trades by the volume within the last one minute, or otherwise determined by TAIFEX according to the Trading Rules. n Last Trading Day: The third Wednesday of the delivery month n Final Settlement Day: The same day as the last trading day n Settlement: Cash settlement n Final Settlement Price: The average price of the underlying index disclosed within the last 30 minutes prior to the close of trading on the final settlement day. The method used to calculate the final settlement price is prescribed by TAIFEX. 14

Trading Strategies 15

Best Hedging and Trading Tool for Taiwan ESG Investment n Compared to TAIEX Futures (TX), F 4 G TIP TW ESG Futures (index) has a better track of Yuanta F 4 G TIP TW ESG ETF’s (00850) performance, representing high hedge efficiency. n F 4 G TIP TW ESG Futures can provide an efficient hedging and trading tool for Taiwan ESG investment. 2019/9/2 2020/1/14 TAIFEX F 4 G TIP TW ESG Futures (F 4 G TIP TW ESG) 5, 176. 24 6, 049. 19 Change (%) +16. 86% +17. 35% +14. 86% 2020/1/14 2020/3/19 6, 049. 19 4, 416. 62 23. 74 17. 37 12, 181 8, 356 Change (%) -26. 99% -26. 83% -31. 40% Item Source: TIP, Yuanta Funds, TAIFEX websites Yuanta F 4 G TIP TW ESG ETF NAV TAIFEX TAIEX Futures 20. 23 23. 74 10, 605 12, 181 16

Trading Strategies n Expecting F 4 G TIP TW ESG Index to move upward Long F 4 G TIP TW ESG Futures (E 4 F) Date T Day T+5 Day June 2020 E 4 F Contract 5, 500 5, 800 Long or Short Long 10 contracts Short 10 contracts Profit & Loss (5800 -5500) × NTD 100 × 10 contracts = NTD 300, 000 n Expecting F 4 G TIP TW ESG Index to move downward Short F 4 G TIP TW ESG Futures (E 4 F) Date June 2020 E 4 F Contract Long or Short Profit & Loss T Day 5, 500 Short 10 contracts T+5 Day 5, 400 Long 10 contracts (5500 -5400) × NTD 100 × 10 contracts = NTD 100, 000 17

Spread Trading n Calendar Spreads: long and short E 4 F with different delivery month contracts n Example: long (short) June F 4 G TIP TW ESG Futures and short (long) July F 4 G TIP TW ESG Futures n Inter-commodity Spreads: long and short E 4 F and other futures product with the same delivery month contracts n Example: long (short) June F 4 G TIP TW ESG Futures and short (long) June TAIEX Futures 18

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