The Finance Supervisory Commission (FSC) yesterday gave its approval to the Taiwan Futures Exchange’s (TAIFEX) new scheme for the transaction of equity options, which will take effect today.
The TAIFEX will be allowed to cut the contract unit limit from the previous level of 5,000 shares of underlying stock, which refers to common stocks listed on the Taiwan Stock Exchange (TAIEX), to 2,000 shares.
In so doing, officials are lowering the trading threshold in the hopes of improving the futures market’s turnover since futures investors tend to avert risk and prefer to trade small.
The exchange will also add one more contract month to the previous four quarterly months by implementing new contract months in the spot month, the next calendar month and the next three quarterly months, the FSC’s press statement said yesterday.
In addition, the exchange will now allow cash settlement, which relaxes tighter liquidity rules for investors since their margin requirements will be released through simplified clearing procedures.
The option’s final settlement price will be computed based on the simple arithmetic average price method, stipulated by the TAIFEX, of the underlying stocks taken within 60 minutes prior to close of trading.
By doing so, the chance of price manipulation or insider trading will be greatly cut down, the commission said. Meanwhile, the TAIFEX will begin sales of gold options on Jan. 19 that will be traded based on a New Taiwan (NT) dollar pricing system, an FSC official said on Saturday.
The official said the TAIFEX launched trading of NT dollar-valued gold futures on Jan. 28 last year, with the average exchange volume of the futures reaching more than 23,000 contracts per day over the year.
The planned gold options will offer investors another operational and hedging choice at the TAIFEX in addition to the current trading of the NT dollar-priced gold futures and the US dollar-priced gold futures, the FSC said.
According to the TAIFEX plan, each contract unit will be 187.49g of a portion of gold.