A plan to transfer at least 150 OTC companies to Taiwan Stock Exchange before the end of this year has been called into question -- especially as its main proponent, KMT candidate Lien Chan (
When he pushed the idea as a part of his campaign platform several months ago, Lien said the migration of OTC companies to the TSE would make Taiwan's equities markets more competitive.
An exchange with a large number of listed companies would make it more attractive to foreign investors.
But analysts say forcing OTC companies to list on the TSE would decrease the OTC's market's competitiveness.
Furthermore, it would undermine President-elect Chen Shui-bian's (陳水扁) goal of turning the OTC market into a "TASDAQ," Taiwan's answer to the US' NASDAQ.
"I could not fall asleep for two weeks," said Huang Ming-chu (黃敏助), president of ROC-OTC, recalling when he first learned of Lien's idea. "That policy would have significantly cut down the number of listed companies on the OTC."
Today, there are 119 tech companies listed on the OTC, or 43 percent of the total.
Huang said that although the NASDAQ is well known as a home to high-tech, just 20 percent of the companies listed there are actually technology companies.
In addition, NASDAQ's volume is not as active as the OTC's, he said.
"The real cradle of Taiwan's technology companies has been the OTC market [versus the TSE], as the OTC market contains companies such as IC designers, software firms, computer component maker, networkers, semiconductor firms and Internet distributors," Huang said. "Listed companies on Taiwan Stock Exchange have no similar diversification."
There's another simple reason why Lien's policy of forced migration shouldn't be implemented, analysts say. Not every OTC company wants to be listed on the nation's main exchange.
"We would like to stay listed on the OTC," said Tsao Sing-cheng (
"If we list with many other high technology companies, it's easier for us to raise capital and get better quoted prices."
But the TSE does have its advantages, analysts note.
A Yuanta Securities (
In addition, foreign and institutional investors favor TSE-listed stocks, as the higher liquidity makes them easier to sell.
Another incentive for OTC companies to list on the TSE is the different rules when it comes to margin trading.
Against TSE stocks, investors may borrow up to 50 percent the value of their holdings. But for the OTC, the limit is set a just 30 percent. However, such differences between the two exchanges' rules can easily be corrected.
Chen's administration could simply allow investors to borrow up to 50 percent the value of their OTC holdings.
As long as the OTC market is able to operate in a similar trading environment as the nation's main exchange market, it would encourage competition between the two on an equal basis.
Analysts say forcing OTC companies onto the exchange would certainly disrupt the competition.
RSS