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Investors Q&A

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4.1. Guide to the index and ETF/ETN market

1. When did TPEx launch the capitalization weighted index? What kind of indices were available then?

The Taipei Exchange Capitalization Weighted Stock Index was launched on November 1, 1995, and the industrial sub-indices were launched starting from July 1996.

2. Why did TPEx choose November 1, 1995 to be the base date for the Taipei Exchange Capitalization Weighted Stock Index (TPEX)?

Because November 1, 1995, was the one-year anniversary of the establishment of TPEx, we choose November 1, 1995, to be the base date of theTPEX.

3. What is an ETF?

ETF (exchange traded fund) is a securities investment trust fund traded in the securities market that tracks the performance of a specific index and “securitizes” the index to seek the return of the index. It is a passive investment vehicle where investors need not buy a basket of securities but invest in them indirectly by holding the beneficial certificates that represent the component securities of the underlying index. ETF enables investors to participate in the performance of an index with a small investment. So ETF is a security that enables investors to participate in the securities market, track the performance of an index and earn the index’s return.

ETF can both be created/redeemed in the primary market and bought/sold in the secondary market. It features low trading cost and a transparent investment portfolio. Thus ETFs have become one of the most popular investment vehicles in the market.

4. What is ETN?

An Exchange Traded Notes, or ETN is issued by a securities firm and listed on the securities market to track the performance of certain index returns. Investors can buy and sell ETN by way of trading stocks, or can choose to hold until maturity, and then the issuer will pay the ETN expiration value until the ETN matures. Briefly, an ETN is an investment tool that acquires index returns by stock trading, allowing small investors to enjoy diversified investment benefits or reduce investment thresholds as an innovative financial product.

5. What are differences between ETN and ETF?

	ETN	ETF
Listed	YES	YES
Subscription and Redemption	Cash ONLY	Cash/ In-kind creation and in-kind redemption
Fee	LOW	LOW
Maturity	YES	NO
Credit risk of issuer	YES	NO
Tracking Error	NO	YES

Note: The English translation is for reference only. In case of any discrepancy between the English version and the Chinese version, the Chinese version shall prevail.