The Taiwan Stock Exchange Corp (TWSE, 台灣證交所) said yesterday it would expand its number of underlying stocks for callable bull/bear contracts (CBBCs) in a bid to boost buying interest in that particular derivative.
The number of underlying stocks for CBBCs will rise to 188 today, from the current 30, the exchange said.
Currently, the 30 underlying stocks are 13 high-tech stocks, 13 financial stocks and four traditional-economy stocks. They include Taiwan Semiconductor Manufacturing Co (台積電), United Microelectronics Corp (聯電), Acer Inc (宏碁), Cathay Financial Holding Co (國泰金控), Fubon Financial Holding Co (富邦金控), China Steel Corp (中鋼) and China Airlines Ltd (中華航空).
After the expansion, the 188 underlying stocks will include companies that issued Taiwan depositary receipts (TDRs), such as instant noodle maker Tingyi (Cayman Islands) Holding Corp (康師傅控股) and Hu An Cable Holdings Ltd (滬安電力控股), according to the exchange.
Firms that launched primary listings on the main board, such as integrated circuit designer MStar Semiconductor Inc (晨星半導體), will also be included in the underlying stocks.
The TWSE has been allowing trade of CBBCs since July 8 last year to lift the trading volume of derivatives in the local market.
Last year, turnover of CBBC contracts totaled NT$6.26 billion (US$212 million), accounting for 0.05 percent of the total turnover on the TWSE.
During the year, warrants made up 1.05 percent of the total turnover on the main board, it added.
Similar to stock warrants, but issued by third parties such as investment banks and brokerages, CBBCs follow the performance of an underlying asset or stocks, and, as a Wall Street Journal blog put it, appeal to the gambling instincts of retail investors.
They are leveraged instruments, meaning investors need only pay a fraction of the value of the underlying asset or stock to get contracts. Investors who buy callable bull contracts tend to hold a -bullish view on the underlying asset or stock, while buyers of callable bear contracts bet the asset value will fall.
Meanwhile, the TWSE is planning to allow a warrant issuer who has sold 90 percent of the warrants available to issue additional units to prevent possible manipulation of the derivative, the exchange said.
However, no timetable has been set for the new measure, the TWSE said.
The exchange said it would work with the Securities and Futures Institute to set up an information disclosure platform for warrant trading. Investors are expected to gain access to the information through this channel starting July 1.