5.2. Trading and clearing system
Primary dealers of government bonds are chosen by the Central Bank of Republic of China (Taiwan) (“Central Bank” or “CBC”) to act as market makers. Primary dealers are obligated to give quotes on all benchmark bonds under any market situation to help maintain market liquidity. There are currently 14 primary dealers, including 5 banks, 3 bills finance companies and 6 securities firms.
Only government bond dealers are allowed to submit bids at the government bond auctions. However, investors can participate in auction by submitting bids through any one of the government bond dealers. The list of government bond dealers and contact information are available on CBC website under the “Government Securities Services”
The Central Bank issues government bonds on behalf of the Ministry of Finance. Currently government bonds are sold at auctions, using the single-price method. Minimum bid is 100 million NT dollars and the increment thereafter is 50 million NT dollars. All bids are placed in percentage yield.
Government bonds are issued regularly starting from July 1, 2002. Currently around NT$25 – 35 billions of Type-A bonds are issued each time. The Ministry of Finance will announce its next year’s bond issuance plan at the end of each year(12/23) on its website (http://www.mof.gov.tw), and the issue date and amount for the following quarter at the end of each quarter(3/23, 6/23, 9/23 and12/23). Aside from the regular issuance system, the Ministry of Finance also implements the bond reopening system starting from April 15, 2003.
Government bond auction results, including historical auction data are published on CBC website (http://www.cbc.gov.tw
) under Government Securities Services > Government Securities Auction Results.
Currently bond dealers trade book-entry (registered) government bonds through Taipei Exchange"s Electronic Bond Trading System (EBTS). EBTS trading accounts for around 80% of outright transactions in the market.
For foreign investors to trade book-entry government bonds, they need to open a book-entry account and a fund account with a clearing bank. The book-entry account should be under the name of “ XXX fund under the trust of XYZ Bank” and the fund account should be under the name of “Foreign investment account under the trust of XYZ Bank”, whereas the investment amount is capped at the total approved investment. If foreign investors plan to engage in RP/RS trade, they must sign a RP/RS Master Agreement with their broker.
For government bonds traded over-the-counter, investors and their brokers can agree on their own to settle the transaction within T+2 (two business days after trade day). Payment for settlement can be made via remittance or a Bank of Taiwan check. Delivery of book-entry central government bonds shall be made through the clearing bank system for transfer and registration. Government bonds traded through EBTS system are settled on T+2 on a delivery versus payment basis. RP/RS trades are commonly settled on trade day.
Book-entry bonds are registered with the Central Bank through clearing banks and physical bonds are kept by custodian banks.