Sat, Feb 03, 2018 - Page 12 News List

Financial Supervisory Commission to monitor rumors of foreign hot money

By Ted Chen  /  Staff reporter

The Financial Supervisory Commission yesterday said it would continue to monitor rumors suggesting that a number of foreign institutional investors have been attempting to park their hot money in Taiwan through the purchase of domestic exchange-traded funds (ETFs).

The commission is working with the central bank on the matter, FSC Chairman Wellington Koo (顧立雄) said on the sidelines of a financial forum in Taipei.

Current regulations stipulate that no more than 30 percent of foreign inflows may be allocated toward fixed-income securities, such as bonds and other debt instruments, as a means to contain speculation on the strength of the New Taiwan dollar and encourage investment in local equities.

HEDGING

As ETFs are not classified as a fixed-income security, they are not subject to the regulatory limit.

The central bank has detected a surge in ETF purchases by foreign institutions, possibly to avoid its capital inflow controls.

The foreign institutions have been buying ETFs and matching their long position with a near-equal amount of inverse ETFs that reaps profits on price declines, which produces a high level of hedging.

CURRENCY SPECULATION

The move could be a way to speculate on the strength of the NT dollar, Chinese-language media quoted the central bank as saying.

The NT dollar yesterday closed 0.1 percent lower at NT$29.235 in Taipei trading.

The currency has appreciated 2.05 percent since the beginning of the year, central bank data showed.

The latest consensus between the central bank and the commission is that ETFs will continue to be excluded from the 30 percent fixed income limit, Koo said.

However, the commission would no longer provide monthly updates on net foreign inflow figures, at the request of the central bank, which compiles the data, he added.

The monthly figures do not fully reflect actual net foreign inflows, as tallies also include global depositary receipts and convertible bonds, Koo said, adding that the central bank wants to devise a new gauge that is suitable for public release.

FINTECH DEVELOPMENT

Separately, Koo said that a public hearing regarding the Act on Financial Technology Innovations and Experiments (金融科技創新實驗條例) would be held on Friday next week, adding that financial technology developers could begin submitting their proposals to participate in the regulatory sandbox beginning next quarter.

The site for a financial technology industrial park would be selected before the end of the first half of this year, he said.

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