Wed, Sep 09, 2015 - Page 13 News List

FSC denies short-selling ban caused spike in defaults

VOLATILITY:The FSC said it planned to launch an investigation to determine whether settlement failures are the result of clients’ recklessness or brokerages’ lack of oversight

By Ted Chen  /  Staff reporter

The Financial Supervisory Commission (FSC) yesterday denied media reports that its ban on short-selling stocks below their closing prices from the previous session was the culprit behind a surge in investors failing to settle their day-trading transactions.

The commission said that two incidences of settlement failures involving day-trading of Largan Precision Co (大立光) shares were detected on Aug. 24 and Monday last week. The commission’s short-selling ban was put into effect on Aug. 24.

“These incidents were not related to the short-selling ban, but were caused by inadequate risk management by investors and inadequate auditing by brokerages,” Securities and Futures Bureau Deputy Director-General Wang Yung-hsin (王詠心) said at a news conference.

It is easy for investors to borrow shares from the Taiwan Stock Exchange, but the commission has not seen a rise in stock loan applications, Wang said.

On Aug. 24, an investor failed to settle a NT$120 million (US$3.64 million) intraday trade of Largan shares and therefore incurred losses of NT$335,000. The investor was a client of First Securities Inc (第一金證券), a subsidiary of state-run First Financial Holding Co (第一金控).

On Monday last week, another investor failed to settle a NT$325 million in Largan intraday trade incurring losses of NT$9 million. The investor was a client of Yuanta Securities Corp (元大證卷), a unit of Yuanta Financial Holding Co (元大金控).

Wang said that heightening market volatility ecouraged investors to engage in day trading, with day trading in June accounting for 8.82 percent of total trading on the local bourse, a figure that rose to 10.66 percent last month and which stands at 13.39 percent so far this month.

The commission is set to launch an investigation to determine whether settlement failures are the result of clients’ recklessness or brokerages’ lack of oversight of risks and margins, she said.

Meanwhile, the number of settlement failures expanded from NT$360 million between Aug. 7 to Aug. 21, to NT$450 million between Aug. 24 and Monday.

The TAIEX yesterday rose 0.19 percent to 8,001.5 points, on turnover of NT$699.28 billion. Wang attributed the low turnover to lingering concern over a US interest rate hike and China’s slowing economic growth.

The Chinese-language United Evening News yesterday reported that the short-selling ban had left a number of investors with no other option but to fail to settle their day trades.

The report said that the ban did not prevent investors from short-selling their day trading positions. Rather, some investors increased their day-trading activity as the National Financial Stabilization Fund was activated to take long positions to support the local bourse.

However, the report suggested that with the ban on short selling, investors might take a longer time to unwind their positions as the local bourse rose, leaving them with no other option but to dump their positions at market prices and book losses.

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