Taiwan’s regulators urged insurers to stop lending securities to short sellers, seeking to bolster equities after the benchmark TAIEX slumped the most among Asian benchmark gauges this year.
Officials called insurance companies on Thursday to remind them such actions may result in the reduction in the value of their own stocks, Financial Supervisory Commission Vice Chairperson Lee Jih-chu (李紀珠) said in a phone interview yesterday. She denied a report by the Chinese-language Commercial Times that the regulator had banned four state funds and insurers from securities lending.
“Taiwan is a retail-dominated market, so we hope foreigners won’t use the advantage they have to do things that will be unfair to other investors amid this uncertain market environment,” Lee said. “We told the insurers: ‘Look, you may gain some fees from lending, but it will reduce the overall value of shares. You have to evaluate the cost effectiveness.’”
The commission is trying to stop investors from profiting from declines in markets at a time when surging borrowing costs in the eurozone are stoking concern the region’s debt crisis will derail global economic growth. Short sales are when investors bet on declines in securities by borrowing stock to sell on the expectation it can be purchased at a lower price.
Lee also denied the Commercial Times report, saying the regulator respected “the operation of the market mechanism.”
She said the commission is not in charge of state funds and was not in a position to advise them.
The TAIEX fell 79.87 points, or 1.16 percent, to close at 6,784.52 points yesterday. While the local financial authorities have asked securities borrowers to return their loaned shares in a bid to curb short-selling and prevent further volatility in share prices, unfavorable external factors still weighed on the local bourse to send the index lower, dealers said.
“It seemed that many investors remained frustrated by the development of the Europe debt situation as the leaders there have failed to come up with any immediate solutions to deal with the crisis,” Concord Securities (康和證券) analyst Kerry Huang said.
Huang said that to avoid further losses amid the global financial volatility, many foreign investors have been moving funds to the US dollar as a safe haven by dumping equities.
“In line with its counterparts in Asia, the local bourse trended lower in the second half of the Friday trading session,” Huang said. “With no signs of any quick turnaround in Europe, it is likely for the local market to test the support range of 6,600 to 6,700 points soon.”
Taiwan amended rules to cap the daily maximum short-selling of borrowed stocks at 20 percent of the average transaction volume of the previous 30 trading days, up from a 3 percent limit of issued shares of each stock, the commission said in a statement on its Web site on Monday.
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