June 2003

TSEC Taiwan 50 Index Futures

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Background

The current TAIEX index and sector indices deviate measurably from

most cash portfolio held by stock investors, adding to the difficulty of

utilizing hedging and arbitrage strategies, and affects

the price discovery function of futures market;

the market mechanism to maintain effective prices; and

the precision and efficiency of futures trading strategies

Most renown stock index futures contracts use the index composed by

a fixed number of component stocks as underlying to facilitate hedging

purpose and, thereafter, the development of futures markets.

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TAIFEX Products at a Glance

TAIEX Futures(07/98)

Electronic Sector Index

Futures(07/99)

Finance Sector Index Futures

(07/99)

Mini-TAIEX Futures(04/01)

TAIEX Option(12/01)

Equity Option(01/03)

Total

98 2,233

99 3,653 714 155 4,522

00 4,944 1,512 654 7,100

01 11,659 2,807 1,596 2,334 856 19,252

02 16,661 3,367 1,479 4,210 6,316 32,033

03 19,217 3,357 3,410 4,451 45,508 1,512 77,455

2003 data up to May 30

Daily average (contracts)

Background

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Underlying: the TSEC Taiwan 50 Index

Abbreviation ： Taiwan 50 Futures

Ticker symbol ： T5F

Trading hours ： 8 ： 45 AM ～ 1 ： 45PM

Taiwan time on trading days of Taiwan Stock

Exchange

Contract size ： NT$500 × Index

Contract Specifications

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Delivery months: Five delivery months, including spot month, the next calendar month plus next three quarter months of the March, June, September, and December cycle.

Daily price limit ： ±7% of previous day's settlement price.

Last trading day ： The third Wednesday of the delivery

month.

Final settlement day ： The first business day following the

last trading day.

Settlement ： On net cash basis.

Taiwan 50 Index Futures Contract Specifications

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Contract Multiplier－ 500

Contract size ＝ TSEC Taiwan 50 Futures Index × NT$500

The medium contract size accommodates the features of the

index and encourages participation of institutional investors by

meeting their needs

Establishing market segregation from TAIEX futures reduces

crowding out between the two products, while taking into

account both the needs of institutional and individual investors

Reducing trading cost

Larger contract size (than TAIEX future) is more in tune with

international trend

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In reference to international practice and based on contract size, a

proper integer multiple is set for the conversion between futures

contract and the ETF to facilitate hedging, arbitrage and regular

trading.

20 futures contracts

50 ETF shares

1 futures contract

1 ETF basket

Contract Multiplier－ 500

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Order Order placement ： limit order or market order.

Orders are accepted starting at 8 ： 30AM.

Matching 8 ： 45 (market open) ： competitive auction.

8 ： 45 ～ 13 ： 40 ： Match order by order.

13 ： 40 ～ 13 ： 45 (market closing): competitive auction.

Trading System

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Position Management Opposite positions of the same delivery month for

the same product in the same account are automatically offset.

Margin Calculation

Margin calculation will be the same as that for stock index futures of TAIFEX, that is risk coefficient is used to estimate the greatest possible variation in the price of underlying to cover single-day index volatility risk.

Cash settlement

Settlement System

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Futures market

participant

ETF market participants

Primary market

Secondary market

Market participants

Securities dealersMutual fund companiesQFIIFutures dealersBanks and insurance companiesCPOOther juristic personsIndividuals

Participating securities

firms,

Institutional investors

Institutional investors,

Small traders

Market Participants

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Hedging needs—ETF issuing market (creation and redemption)

ETF participating firms that create or redeem ETF

shares can use futures products for hedging when they

face price risk arising from time difference.

When ETF participating firms intend to engage in

arbitrage trading, they can resort to futures trading

when buying or selling a basket of stocks is hard to

execute.

Needs of ETF Market for Futures Products

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Needs of hedging —ETF trading market

After the TSEC Taiwan 50 Index ETF is listed on the TSEC, its

fluctuation will reflect the fluctuation of all component stocks.

Institutional or individual investors can use futures products to

hedge the risk of ETF price volatility.

Needs of arbitrage

Price imbalance in the spot market, EFT market and futures

market may be corrected using futures products.

Needs of ETF Market for Futures Products