The government is planning to introduce interest rate futures for investors by the year's end, providing a new financial tool to hedge the fluctuation of interest rates.
"The planned interest rate futures market is expected to allow investors a way to manage interest rate risk," President Chen Shui-bian (陳水扁) said yesterday at a seminar organized by the Taiwan Thinktank (台灣智庫).
Interest rate futures are futures contracts based on financial instruments such as bank bills of exchange or government bonds. They can provide traders and investors protection against movements in interest rates.
Addressing participants at the seminar yesterday, Chen said his administration has adopted a series of steps to further liberalize Taiwan's financial market over the past three years. The government is also working on streamlining supervision of financial institutions, he added.
An industry watcher yesterday welcomed the government's new policy to revitalize the nation's secondary markets, including bonds and futures markets.
The policy initiative may attract foreign capital to the local futures markets, beefing up the local capital markets' competitiveness in the Asia-Pacific region, said Ko Chen-en (柯承恩), dean of the management college at National Taiwan University.
"Taiwan's bond markets are sure to play the leading role in the region, next to those of Japan," Ko said.
In the past three years, the volume of transactions in the nation's bond market has fast grown to triple that of transactions in the equity market.
According to a finance professor from National Taiwan University named Joseph Lee (李存修), full development of the local futures market will require more deregulation. Lee said that institutional investors -- including banks, governmental and pension funds -- should be able to invest in futures markets.
Lee said that the Cabinet has given preliminary approval to the idea of allowing the nation's pension funds to be involved in futures markets. This change also requires legislative approval.
Panelists from securities firms at yesterday's seminar were upbeat about the government's new policy change.
Chien Hung-wen (簡鴻文), chairman of the Chinese Securities Association (券商公會), said that the DPP government's deregulatory moves in the past three years have helped strengthen the nation's process of financial liberalization.
Chien, however, urged the government yesterday to revise the Income Tax Law (所得稅法) regarding capital gains on financial derivatives such as call warrants and the interest rate futures market.
In addition, Chien urged the government to relax restrictions on securities firms' branching out into China, where Taiwanese enjoy an advantage in grabbing market share.
Moreover, the president yesterday said that financial authorities plan to soon overhaul the nation's financial laws, facilitating a comprehensive financial service industries law (金融服務業法) under a unified regulatory system.
Shortly after Chen's announcement, the Ministry of Finance said the Securities and Futures Commission has completed plans for opening interest rate futures trading, the Central News Agency reported, citing SFC Chairman Ding Kung-hwa (