The Taiwan Securities Association (TSA, 券商公會) yesterday said that it expects stock warrants turnover to increase threefold this year after fees for hedging transactions are reduced to 0.1 percent from 0.3 percent.
“Market makers in Taiwan are subject to much higher taxes when using warrants as part of a hedging strategy than their peers operating in China, Hong Kong and Singapore, where transaction and capital gains taxes are not levied,” TSA secretary-general Chuang Tai-ping (莊太平) told reporters at a briefing.
A stock warrant is a company-issued certificate that represents an option to buy a certain number of shares at a specific price before a predetermined date. The derivative instrument has a specified value and can be traded on the open market.
If the taxes are reduced, stock warrant turnover is expected to represent 5 percent of turnover on the local bourse, compared with 2.87 percent last year, Chuang said, adding that the change would yield more government revenue.
Chuang is upbeat about the implementation of the association’s proposed tax reductions after the next legislature is sworn in on Monday next week.
Taiwan’s warrants market still has headroom, Chang said.
He said that the number of active warrant traders are about 110,000, falling short of the 400,000 to 600,000 expected for Taiwan’s 2 million to 3 million retail investors.
Last year, average daily turnover for warrants fell 3.43 percent annually to NT$2.64 billion (US$78.52 million) to represent a 2.87 percent turnover of the nation’s equity markets, down from 2.95 percent in 2014, Taiwan Stock Exchange data showed.
At the same time, the total value of warrants traded last year dropped 8.7 percent annually to US$20.38 billion, ranking fifth in the world, World Federation of Exchanges data showed, while the warrants issued for a variety of underlying stocks grew 6 percent annually.
Chuang said that warrants are an ideal option for investors hoping to capture gains in an increasingly volatile market, as bullish and bearish bets might be made at a fraction of the funds required to buy shares outright.
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