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2007 Annual R

eport

Dear Shareholders,

In the first half of 2007, the securities market in Taiwan was encouraged by continuous

investment from foreign investors as well as the growth of global stock markets; thereby, the

Weighted Stock Index has twice approached the 10,000-point threshold. However, in the second

half of the year, due to the rapidly-increased oil prices as well as the subprime mortgage and

credit crisis in the United States, the stock market has become more fluctuating.

Generally speaking, the market was still active in the year of 2007, with the increase of

trading value of Taiwan Stock Exchange (TSEC), GreTai Securities Market (GTSM) and the

emerging stock market. In TSEC, total turnover of stocks in 2007 amounted to TWD 33.5274

trillion (USD 1,032.12 billion), an increase of 38.26% from TWD 24.2503 trillion (USD 746.53

billion) in 2006. In GTSM, the total turnover was TWD 8,537.3 billion (USD 262.82 billion),

up 66.4% as compared to TWD 5,129.1 billion (USD 157.89 billion) in 2006, while the number

for the emerging stock market was TWD 317.3 billion (USD 9.76 billion), an increase of 99%

from TWD 159 billion (USD 4.89 billion) back in the year of 2006.

Chairman

Fortune Ju

Letter to The Shareholders

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In response to the growth of the market, TDCC has launched and promoted various

services and businesses in 2007 under the guidance of competent authorities to keep in line

with developments in the securities, bonds and bills markets. Major initiatives are specified as

follows:

1. Provide depository services for share certificates kept by the Central Bank

Following the Central Bank’s Department of Banking, the Bank’s Department of

Treasury has also opened a depository account with TDCC as a participant in order to

deposit share certificates kept by the Department in TDCC. Such transformation would

help the Bank to save vault space, to reduce inventory checks, to lower the demand of

manpower, to streamline accounting processing and to strengthen asset management.

On the other hand, it would also extend the scope of TDCC’s participants and raise the

centralized depository ratio of the securities.

2. Provide book-entry service for SLB conducted by securities firmsIn support of the securities lending and borrowing (SLB) business of securities

firms, TDCC has offered book-entry services for the acquisition, lending and return of

securities on loan as well as the delivery, return, disposal and cancellation of collateral

provided by the investors.

President

Sherman Lin

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2007 Annual R

eport

3. Strengthen matching services of VMU for institutional investorsTo amplify the services of sending and receiving trade settlement data between

securities firms and custodian banks, TDCC added a new function to the Virtual

Matching Utility (VMU) system in order to transfer trade settlement data on emerging

stocks. In addition, DVP settlement data of bonds and short-term bills transactions

were included into the system. Bonds and bill dealers have been therefore allowed to

participate in the VMU, enhancing the operational efficiency and reducing the costs of

brokers, dealers and custodian banks.

4. Extend the scope of DVP settlement services for fixed income instruments

In addition to corporate bonds and bank debentures, TDCC has further extended

DVP settlement services to other fixed income instruments traded in over-the-counter

market, including beneficiary certificates of bonds, asset-backed securities, domestic

bonds issued by foreign issuers, stripped government bonds and etc., in order to

increase operational efficiency of market participants.

5. Launch the Futures Trust Fund Observation PostIn response to the legal offering of futures trust funds by futures trust enterprises,

TDCC and Chinese National Futures Association (CNFA) collaboratively launched the

Futures Trust Fund Observation Post. The Observation Post not only provides futures

trust enterprises with registration of such uncertificated funds but also provides such

enterprises with electronic transmission of reporting, announcing and inquiring fund-

related information, which therefore increases market transparency and operational

efficiency.

6. Support competent authorities to strengthen proxy management, promotion and audit

Under the guideline and authorization by the competent authorities, TDCC

audited the use of proxy regularly and occasionally during the period of solicitation.

Such inspection would help to improve proxy management, to develop self-regulation

of proxy solicitation as well as to avoid the use of blank proxy and thereby effectively

strengthen the order of proxy voting.

7. Awarded CMMI Level II certification on futures clearing systemOn December 7th, 2007, TDCC’s futures clearing system successfully passed

CMMI-DEV Level II certification, which proved that our quality of software

development and management for the information systems has met the international

standard. TDCC is also the first company obtaining such certification among all SROs

securities related organizations (including TSEC, GTSM, TAIFEX and TDCC) in

Taiwan.

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8. Inventory check project – assurance of accuracy on the records of physical and dematerialized securities, bonds and short-term bills under custody

To maintain accurate balance and transaction records of securities, bonds and

short-term bills for investors, TDCC conducted an inventory check from May

28th until June 29th, 2007. The results of the check were reviewed and certified

immediately by two appointed CPA firms, Deloitte & Touche and Ernest & Young,

which declared that all the inventory records have been accurate for the accounting

certificates to be formally signed.

9. Co-host the 9th Central Securities Depository ConferenceWith monumental participation of 216 delegates from 97 depository-related

institutions in 69 countries and territories, the 9th Conference of Central Securities

Depositories (CSD9) was taken place on the week of April 11st to 13th, 2007, hosted

jointly by Japan Securities Depository Center Inc. (JASDEC), Japan Securities

Clearing Corporation (JSCC), Korea Securities Depository (KSD) and TDCC.

Dr. Rebecca Chung-Fern Wu, Commissioner of Taiwan’s Financial Supervisory

Commission, was also invited as a keynote speaker of CSD9. With the Co-host of

CSD9, TDCC indeed extended the scope of information exchange and business

collaboration between TDCC and other CSDs.

10. MOU with foreign CSDsIn 2007, TDCC relatively signed Memorandums of Understanding (MOU) with

National Securities Depository Limited (NSDL), Thailand Securities Depository

Company Limited (TSD), Mongolian Securities Clearing House & Central Depository

(MSCH&CD), Deutsche Börse AG (DBAG) and Japan Securities Clearing

Corporation (JSCC). TDCC actively cooperates and shares experiences with other

securities depositories and clearing houses around the globe, extending channel of

experience sharing for exchange of information and personnel in the back-office arena.

Supported by the competent authorities and securities industry, the number of participants,

eligible securities of custody and book-entry transfer operations increased substantially in 2007.

As of the end of 2007, total number of TDCC investor depository accounts were accumulated

over 13 million under 1659 participants, and the market value of the securities and short-term

bills under custody topped up TWD 21 trillion (USD 646.47 billion). Eligible securities have

included both securities and money market instruments. The ratio of securities under custody for

TSEC-listed, GTSM-listed and emerging stock companies reached 90.28%, among which the

ratio of uncertificated securities tremendously increased to 31.76%.

On the other hand, corporate bonds, bank debentures, municipal bonds, and Formosa

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2007 Annual R

eport

bonds under TDCC custody have amounted to TWD 936.7 billion (USD 28.83 billion).

Short-term bills traded in the market have been 100% centrally deposited with the amount of

TWD 785 billion (USD 24.16 billion). Over the past year, shares transferred by book-entry

delivery amounted to 1,433,110,642,000 shares, including 1,160,298,400,000 from TSEC,

266,433,900,000 from GTSM and 6,378,342,000 from emerging stock market. In terms of

clearing and settlement of short-term bills, the daily clearing was averaged in the amount of

TWD 828.4 billion (USD 25.50 billion).

Based on our commitment to the market, TDCC will be even more active in providing

better services and solutions in 2008.

1. Central depository servicesApart from routine operations including record filing, cancellation of previous

holders, inventory management and registration of uncertificated securities, TDCC

will continuously provide depository services for securities kept by the Central Bank’s

Department of Treasury.

2. Book-entry servicesIn addition to book-entry distribution and delivery of new shares as well as

clearing and settlement for emerging stocks, TDCC is planning to apply the T+2 DVP

settlement mechanism to the entire stock market, to facilitate the book-entry operation

for foreign ETFs listed in Taiwan and to increase the efficiency of book-entry delivery

for pledge transactions.

3. Fixed income businessIn addition to the clearing, settlement and depository business for short-term bills

and other fixed income instruments as well as book-entry delivery and collection/

distribution for interest/redemption payment of Formosa bonds, TDCC will also

plan for the clearing and settlement of foreign-currency denominated bills in the

domestic market, provide institutional investors matching services for DVP settlement

information of bond and bill transactions as well as study the feasibility of registration

services for the issuance of electronic commercial paper II.

4. Mutual fund businessWhile endeavoring to promote and enhance the existing information reporting,

announcement, transmission and payment collection platforms for offshore funds,

TDCC will continue to facilitate dematerialized fund issuance for domestic funds as

well as information reporting and announcement operations for futures trust funds.

5. Audit operationsApart from providing routine guidance to securities firms as well as auditing share

registrars and transfer agents, TDCC will also support the competent authorities with

auditing proxy-related operations.

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6. Information system servicesTDCC will continue with its improvement plan for the depository system, enhance

the functionality of mutual fund operation platforms, improve the clearing, settlement

and depository systems for short-term bills as well as increase operational efficiency

and control mechanism of information system continuously.

7. Quality control and enhancementBased on customer-centric orientation, TDCC will promote business operations by

actively holding seminars and business forums to extend the channel of communication

with participants, issuing companies, transfer agents, fund companies, master agents

and investors.

8. InternationalizationTDCC will actively attend international conferences as well as exchange

experience and extend collaboration with foreign institutions in order to increase the

visibility of the company in global market.

Under the guidance of the competent authorities, the support of shareholders, market

participants and investors, the supervision of directors and supervisors as well as the efforts of

all employees, TDCC have experienced a steady growth of business. In the future, to comply

with the government policies and meet the commitment to our participants, TDCC will strive to

enhance the operation of custody, clearing and book-entry, to apply the Central Bank Interbank

Funds Transfer System to the securities market, and to make efforts to provide the market with

low-cost, high-efficiency services. Furthermore, TDCC will endeavor to develop new types

of business and continue to expand its scope of services in the financial market to raise the

international competitiveness of Taiwan capital market.

Taiwan Depository & Clearing Corporation

ChairmanFortune Ju

PresidentSherman Lin