Department of Finance

Datong Kuo Chang

April, 2005

Copyright © 2003. Citibank, N.A. All rights reserved. CITIGROUP and the Umbrella Device are trademarks and service marks of Citicorp and its affiliates and are used and registered throughout the world.

Citigroup® Global Transaction Services

National Taiwan University

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Agenda

» Investment Industry Value ChainInvestment Industry Value Chain

» Who needs a custodian?

» What services do custodians provide?

› Service model (direct vs. global window)

› Sub-custodian network (proprietary vs. third-party)

» Who are the top ranking providers?

» How are they measured?

» What are the risks to the custodians?

» Taiwan Market

3

TransactionProcessing

4

AssetAccumulation

1

AssetManagement

2

TransactionExecution

3

Fiduciaryand InvestorServices

7

Investment Industry Value Chain

InvestmentAccounting

5

Performance Measurement

6

Focus on the transaction processing & portfolio administration stages of the clients investment value chain

Fund managers Brokers

Custodians Custodians Custodians Trustee/ others

Pensions, Mutual funds

4

Definition of “Custody” or “Global Custody”

»First developed with the passage of the Employee Retirement Security Act of 1974 in the US => fund managers were required to segregate client assets from own assets.

»In the 90’s, the industry experienced substantial growth. Custodians also spent big money to boost their technology and efficiency.

»What started off as a complementary service has become a global scale business.

WHAT CUSTODY AIMS TO PROVIDE?

Safekeeping and protection of financial assets

Facilitating the trading of such assets

Tracking the values of portfolios

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Agenda

» Investment Industry Value Chain

»Who needs a custodian?Who needs a custodian?

» What services do custodians provide?

› Service model (direct vs. global window)

› Sub-custodian network (proprietary vs. third-party)

» Who are the top ranking providers?

» How are they measured?

» What are the risks to the custodians?

» Taiwan Market

6

» Division of professional specialties

» Cross border investment activities

» Regulatory requirement

Who Needs A Custodian?

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Agenda

» Investment Industry Value Chain

» Who needs a custodian?

»What services do custodians provide?What services do custodians provide?

› Service model (direct vs. global window)

› Sub-custodian network (proprietary vs. third-party)

» Who are the top ranking providers?

» How are they measured?

» What are the risks to the custodians?

» Taiwan Market

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What Services Do Custodians Provide?

» Transaction Processing

› Clearing

› Settlement

› Cash Management

› Foreign Exchange

› Safekeeping

› Reporting

› Corporate Actions

› Securities Lending

› Tax Reclamation

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What Services Do Custodians Provide - continued

» Investment Accounting

› Net asset valuations

› Profit/ Loss

› Statement – management and regulatory

› Multi-currency accounting

› Compliance monitoring

» Performance Measurement

› Alliance with Frank Russell Company

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Service Model - Direct Custody

CLIENT

CitibankCanada

CitibankSingapore

CitibankFrance

CitibankMalaysia

CitibankHong Kong

CitibankItaly

CitibankUK

CitibankUSA

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Service Model - Direct Custody - continued

Operating Procedures :

» Direct access to local A/Cs and local service contacts

» It suits sophisticated institutional investor that

› has knowledge of the foreign markets; and

› has set up its own back-office operations to manage the multiple accounts in various markets

Benefits to Client :

» Direct access to market information

» Transaction timeliness

» Better cut-off times

» Facilitate quick turnaround of asset trading

» Readiness to customize based on local conditions

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Service Model – Global Custody Single Window Operations

AgentBank #1

Excellent Execution

Highest industry STP rates through proprietary network

Internet delivery/data warehouse

Fast inquiry resolution through global tracking system

Global Consistency

Largest global reach

Citigroup brand

Driving to a consistent customer experience

Implementing our global system set

Local Market Expertise

Recognized industry expertise, 50 global markets

Early notification of market issues

Timely market news delivery to Investors

Access to and influence with regulators

CompetitorGlobal Hub

Customer

AgentBank #1Agent

Bank #1AgentBank #1Agent

Banks

AgentBank #1Agent

Bank #1AgentBank #1Agent

Bank #1

Competitor Model

AgentBanks

AgentBank #1

CitibankGlobal Hub

Customer

Citibank

Citibank

CitibankCitibank

Citibank

Citibank

Citibank

Citibank Model

CitibankCitibank

AgentBank #1

Excellent Execution

Highest industry STP rates through proprietary network

Internet delivery/data warehouse

Fast inquiry resolution through global tracking system

Global Consistency

Largest global reach

Citigroup brand

Driving to a consistent customer experience

Implementing our global system set

Global Consistency

Largest global reach

Citigroup brand

Driving to a consistent customer experience

Implementing our global system set

Local Market Expertise

Recognized industry expertise, 50 global markets

Early notification of market issues

Timely market news delivery to Investors

Access to and influence with regulators

CompetitorGlobal Hub

Customer

AgentBank #1Agent

Bank #1AgentBank #1Agent

Banks

AgentBank #1Agent

Bank #1AgentBank #1Agent

Bank #1

Competitor Model

AgentBanks

AgentBank #1

CitibankGlobal Hub

Customer

Citibank

Citibank

CitibankCitibank

Citibank

Citibank

Citibank

Citibank Model

CitibankCitibank

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Canada

ArgentinaChile

PeruBrazil

Colombia

MexicoPuerto Rico

AmericasUnited States

Ecuador

Citigroup’s proprietary network covers 95% of Total Market Capitalization of the world

Indonesia

MalaysiaNew Zealand

AsiaAustraliaHong KongIndia

JapanKorea

Shenzhen

Taiwan

Philippines

Thailand

Singapore

EuropeAustria

Ireland

United Kingdom

Luxembourg

Jersey

Portugal

Italy

Spain

Netherlands

GermanyGreece

France

Switzerland

BelgiumFinlandSwedenNorwayDenmark

Depository Relationships

Bermuda

South Africa

Israel

Botswana

Slovenia

Croatia

Bangladesh

Bulgaria

Estonia

LatviaLithuaniaMauritius

Slovakia

Shanghai

- Proprietary- Third Party

Venezuela

CEEMEACzech RepublicEgypt

Sri Lanka

HungaryJordanMoroccoPakistanPolandRomaniaRussiaTurkey

UkraineZimbabwe

EuroclearClearstream

Costa Rica

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Benefits of Proprietary Network to the Client

» More favorable cut-off times

» Local market knowledge

» Control of services & costing

» Consistent technology

» Fast problem resolution

» Higher STP rates

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Agenda

» Investment Industry Value Chain

» Who needs a custodian?

» What services do custodians provide?

› Service model (direct vs. global window)

› Sub-custodian network (proprietary vs. third-party)

»Who are the top ranking providers?Who are the top ranking providers?

» How are they measured?

» What are the risks to the custodians?

» Taiwan Market

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Who Are The Top Ranking Providers?

» Well capitalized banks

› Citigroup

› JP Morgan Chase

› Bank of New York

› HSBC

» Specialized banks

› State Street

› Mellon Trust

› Northern Trust

› Brown Brothers Harriman

› BNP –Paribas

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Agenda

» Investment Industry Value Chain

» Who needs a custodian?

» What services do custodians provide?

› Service model (direct vs. global window)

› Sub-custodian network (proprietary vs. third-party)

» Who are the top ranking providers?

»How are they measured?How are they measured?

» What are the risks to the custodians?

» Taiwan Market

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How Are They Measured?

» Size

› Asset Under Custody (AUC)

› Transaction Volume

» Information Delivery

› Accuracy

› Speed

» Service Quality

› Advise on market/ infrastructure change

› Technology

› Flexibility in handling exception processing

› Ability to influence market/regulation change

› Competitive fees

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Citigroup Securities Services - a core business

50,000transactionsprocessed dailywith averageturnover of$60 billion

2,500 globalinvestorsand issuersserved;

70% fund managers & brokers

More than $6.6TrillionAssets Under Custody

Network spanning 70markets.

Largest proprietarynetwork with 45countries

Citigroup S&P AA-Moody’s Aa1Fitch IBCA AA+

Citibank N.A.S&P AAMoody’s Aa1

TransactionsClients Assets Network Credit

Ratings

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Agenda

» Investment Industry Value Chain

» Who needs a custodian?

» What services do custodians provide?

› Service model (direct vs. global window)

› Sub-custodian network (proprietary vs. third-party)

» Who are the top ranking providers?

» How are they measured?

»What are the risks to the custodians?What are the risks to the custodians?

» Taiwan Market

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What Are The Risks To Custodian?

» Operational

» Credit

» Technology

» Regulatory

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Agenda

» Investment Industry Value Chain

» Who needs a custodian?

» What services do custodians provide?

› Service model (direct vs. global window)

› Sub-custodian network (proprietary vs. third-party)

» Who are the top ranking providers?

» How are they measured?

» What are the risks to the custodians?

»Taiwan MarketTaiwan Market

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Characteristics of the Taiwan Market

» Regulations define both products and clients

» Taiwan is well known for tight regulatory control

» Market-induced efficiency

› Fully automated trading systems

› Tight T+1 settlement cycle

› Severe penalty on failed trade

» Restrictions minimize credit exposure

› No or very restricted financing allowed

» Continuous lobbying for deregulation

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Global Securities Services in Taiwan

» Established in 1989

» Current asset under custody: US$54 billion

» Transaction volume: 11,000 - 21,000 per month

» Client base

› Foreign Institution investors (FINI)

› Domestic investors

› Insurance companies

› Public funds – Pensions and Postal

› Securities Investment Trust Enterprise

› TAIEX listed companies which sponsor Depositary Receipts

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Citigroup as Viewed by Clients and the Market

Results for 2003/04

• Best Bank in Asia, Awards for Excellence, July 2004

• Best at Cash Management in Asia, Awards for Excellence, July 2004

• Best at Investor Services in Asia, Awards for Excellence, July 2004

• Best at Cash Management and Payments Globally, Awards for Excellence, July 2004

• Ranked 2nd Best Regional Trade Bank, Trade Finance Poll, September 2004

• Best Cross-Border Corporate Cash Management Bank in Asia (>$500 million category), June 2004

• Best Cash and Trade Finance House in Japan, April 2004

• Best Corporate/Institutional Online Cash Management Bank in Asia Pacific, September 2004

• Best Corporate/Institutional Internet Bank in China, Korea and Singapore, September 2004

• Best Overall Bank for Cash Management, April 2004

• Best Bank for Cross-Border Pooling and Netting in Asia, 2nd year in a row, April 2004

• Best Cash Management Specialist in Asia – Financial Institutions, December 2003

• Best Bank/Best Commercial Bank in Asia, December 2003

• CitiDirect® Online Banking ranks #1 Best Cash Management website (2nd consecutive year)Greenwich Associates, 2004 Cash Management Internet Benchmarking Study, May 2004

• Best Global Custodian in Asia, Unweighted, May 2004

• Best Global Custodian for Insurance Companies, Unweighted (global award), May 2004

Best in Class in Mutual Fund Administration Survey, June 2004

Best in Class in Hedge Fund Administration Survey, June 2004

Most Acclaimed Network globally – Top Rated or Commended in 95% of markets, January 2004

Top Rated in 13 countries in Asia – Australia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Pakistan, Philippines, Singapore, Taiwan, Thailand, December 2003

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Why Citigroup?

» One of the strongest financial services companies in the world

» Largest proprietary sub-custodian network in the world

» Most diversified product range of securities services in the world

» Commitment to the custody business

» Automation and technology

» Focus on providing value-added custody services

» Continuous improvement in service excellence

» Consistently voted best in class in independent surveys

» We are a relationship bank and view ourselvesas partners to our clients