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4.2. Trading ETF and ETN products

1. How to buy and sell ETF?

Trading: There are two ways to buy and sell ETF. Investors can place an order through their existing brokerage account and settle the trade on T+2, just like trading stocks; or investors can request creation or redemption of ETF with the ETF issuer (sponsor) through a participating dealer, just like purchasing or selling the shares of a mutual fund. The only difference is there is a quantity requirement for ETF creation and redemption. For example, at least 500,000 beneficial units or multiples thereof per creation or redemption. Each ETF has different quantity requirements. Investors can refer to the ETF prospectus.

2. What are the securities transaction tax and fees for buying or selling ETF?

The trading costs of buying or selling ETF are the same as those of buying or selling stocks, which include fees and securities transaction tax. Investors must pay the commission fee to the brokers when buying or selling ETF. The commission fee is agreed between brokers and investors but capped at 0.1425% of the trading value. The Securities transaction tax levied on ETFs when the investors sell ETFs which is currently set at 0.1%. The trading costs of bond ETFs are lower. Because the securities transaction tax levied on bond ETFs is suspended during the period from January 1, 2017 to December 31, 2026. Investors only need to pay their broker a commission which is capped at 0.1425%. When an investor applies to the ETF issuer for the creation or redemption through the participating dealers, the taxes are the same as trading in the secondary market. However, the investor is required to pay a creation or redemption fee, which varies for each ETF. Investors can inquire the information about commission fee on the issuer’s website.

3. What are the benefits of investing in bond ETF?

Low entry barrier: In comparison with the higher entry barrier of investing directly in individual bonds, bond ETFs provide retail investors with a channel to participate in the performance of bond market with an affordable amount of money. Bond ETFs are passive investing vehicle and charges management fees far lower than those of bond funds.
Index investing: Bond ETFs are securities investment trust funds traded on an exchange that track the performance of a specific bond index and “securitize” the index in order to obtain a return. Bond ETFs are a passive investment vehicle which indirectly provides investors with access to a basket of component bonds by holding the beneficial certificates that represent the underlying index. Currently bond ETFs listed on TPEx track several kind of specific bond indexes such as short, medium and long-term U.S. Treasury bond index, China policy bank bond index, corporate bond index, emerging market bond index and high yield bond index.
Convenient trading: Investors can trade bond ETFs in the centralized securities exchange at market prices by using current stock accounts with the same manner as stocks. Some brokers offer periodic investment for bond ETFs, which enables retail investors to include bonds in their long-term asset allocation and for them to regularly receive coupon payments
Lower cost: Bond ETFs are passive investing vehicle and charges management fees far lower than those of bond funds. Additionally, the securities transaction tax on bond ETF is suspended and the management fee and custodian fee of bond ETFs are bracket type. For example, as the size of the bond ETF increases, its management and custodian fees will be reduced.
High liquidity: There are two ways to invest in bond ETFs. One is trading in the secondary market. Another way of investing is through creation or redemption in the primary market. When investors buy or sell bond ETFs in the secondary market, the trades are similar to trading stocks by placing an order with a securities broker using an existing securities account. Moreover, investors can apply to the bond ETFs issuer (a securities investment trust company) for the creation or redemption of bond ETFs through the participating dealers in the primary market. Moreover, the liquidity provider system has supplied the liquidity of the bond ETFs to facilitate smooth trading. The market makers provide a stable trade offer and make trading accessible to retail traders, which helps investors to liquidate their investments at a better price in time.
Transparent information: Realtime bond ETF trading information and the net asset values of bond ETFs are available during market hours. Investors can also obtain bond ETF information on the Market Observation Post System, Market Information System, websites of bond ETF issuers, the SITCA website, and the bond ETF section of the TPEx website. All related information is highly transparent.

4. What are the risks of investing in bond ETF?

Market risk: The prices of component bonds directly influence the price of bond ETF. When the price of a bond ETF fluctuates, the value of investment may rise or drop below the original investment.
Tracking error risk: Like other ETFs, a bond ETF cannot fully replicate or track the underlying index, and there are expenses incurred in the process of creating the index portfolio, such as commissions, transaction tax and management fees. As a result, there is a gap between the index return and the bond ETF return.
Exchange rate risk: The majority of bond ETFs listed on TPEx are denominated in New Taiwan Dollar (NTD), while the component bonds are denominated in foreign currencies. As the ETF issuer (sponsor) carries out related futures, derivatives or component bond transactions in foreign currencies, the resulting exchange gain or loss will be directly reflected in the net value of ETF. Thus investors are exposed to exchange rate risk.

5. How do investors buy and sell ETN?

There are two ways for investors to buy and sell ETN. First, like buying and selling stocks, investors can use existing securities trading accounts to entrust securities brokers to place orders and settle them on the second business day after the closing date. Second, investors can apply to the issuing securities firm through the securities broker to buy or sell back ETN, just as the investor purchases the fund, but there is a certain restriction on the number of ETN if investors choose this way. Investor should read carefully the ETN prospectus.

6. What are ETN related taxes and fees?

When an investor places an order through a securities broker, the brokerage fee is the same as the stock. The transaction tax is 0.1% at the time of sale. When investors sell back to the ETN to the issuer or the issuer redeems the ETN in advance, there is no need to pay securities transaction tax for the investor. As for the ETN’s capital gain tax for securities, it is exempt.

7. What are the benefits of investing in ETN?

1	No tracking error	ETN's investment returns are fully linked to the performance of the index being tracked. However, the indicative value is the index return with the deduction of investor fee.
2	Small diversified investment	Investing in one unit of an ETN is equivalent to investing in a basket of securities or other tracked assets.
3	Participation in specific markets	ETN tracks specific index returns, making it easier for investors to engage in thematic investments, or for general investors to enter higher-threshold markets.
4	Investment threshold is low	ETN’s price per unit is between 5 NTD and 20 NTD. If investors buy 1 ETN, they only have to pay 5,000 to 20,000 NTD.
5	Simple procedure	As long as the existing stock account is used, an ETN can be traded via the existing stock account. As long as the stock market is open, investors can engage in trading.
6	Instant and transparent information	During the trading hours, there are real-time transaction prices, and the value of real-time indicative value can be found. Investors can also obtain ETN related information through Market Observation Post System, our website, and the website of the issuing securities firm.
7	Low Transaction Tax	When an investor places an order through a securities broker, the brokerage fee is the same as the stock. Capital gains are tax-free, paying only 0.1% securities transaction tax at the time of sale.
8	Transparent investor fee	ETN’s issuer will announce the investor fee rate, which is directly reflected in the indicative value of an ETN. The calculation is simple and transparent, and the investor does not have to pay additional fees such as custodian fees and manager fees. Other fees like subscription fees and redemption fees, please check the ETN's prospectus.

8. What are ETN’s risks?

The risks that investors may face when investing in ETN are credit risk of the issuing securities firms, non-guaranteed capital, discounted premium risk, liquidity risk, and early redemption risk of securities firms and other risks. Investors should refer to the risk notice example and the each ETN’s prospectus.

9. What should investors notice before investing ETN?

Investors should pay attention to the fact that an ETN has a maturity date, usually more than one year, but the longest maturity for an ETN cannot exceed 20 years.
An ETN has a mandatory redemption mechanism. When an ETN rises above a certain price or falls below a certain price, even if the ETN has not expired, the issuer must proceed mandatory redemption, so the investor should pay attention to the mandatory redemption conditions of the ETN.
Not every ETN’s issuer allows investors to apply subscription for the issuers. Investors should read the information about the ETN on the issuer's website and the prospectus of the ETN before investing.

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.

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