The Financial Supervisory Commission (FSC) yesterday introduced a new cap on short-selling of stocks in an apparent bid to curb the practice, which is widely blamed for the TAIEX’s recent tumble.
Effective today, the divestment of borrowed shares is limited to 20 percent of their previous 30-day trading average, the commission said.
The old cap allows short-selling of up to 3 percent of a company’s outstanding shares.
“The change is intended to make stock lending transactions more reasonable,” it said.
In related developments, the commission reiterated its plan to tighten loan-loss reserve requirements to help domestic lenders better cope with potential credit deterioration during the economic downturn.
The commission said it is encouraging lenders to increase their loan loss reserve to 1 percent of outstanding loans, from 0.5 percent, in a gradual fashion. The requirement also applies to cooperative banks, it said.
For the first nine months, the loan loss reserve stood at 0.66 percent among domestic lenders, lower than their Asian peers with an average of 1 percent, the commission said.
“That suggests room for improvement by domestic banks to strengthen their credit quality,” it said.
Lenders that fail to meet the reserve requirement can still apply for overseas expansions next year, but new branches and offshore banking units will not be able to start operating until their loan loss reserve improves to 1 percent, it said.
The requirement is set to dilute the fourth-quarter earnings of domestic banks such as Bank SinoPac (永豐銀行), E. Sun Commercial Bank (玉山銀行) and Shin Kong Bank (新光銀行).
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