The Taiwan Stock Exchange (TWSE) on Wednesday said that it is considering introducing a market-making system as early as next year to improve market liquidity for companies that are financially sound, but unpopular among investors.
The proposal came after the Financial Supervisory Commission (FSC) required the stock exchange to provide a solution amid concerns by lawmakers that there are too many “zombie stocks” on the market.
Zombie stocks refer to shares with little turnover, resulting in fewer daily price changes.
“Although there are multiple reasons for the stocks’ low trading volume, the primary reason is that investors are not interested in them,” FSC Securities and Futures Bureau Deputy Director-General Tsai Li-ling (蔡麗玲) told the Taipei Times by telephone.
“However, among them we think there are still some companies with good financial performance. They lack investors’ attention because they are low-key or do not know how to advertise themselves,” she said.
“Some companies might have a stable business, but dividend payouts are too low, deterring attention from investors, who want to make profits when buying stocks,” TWSE trading division director Ben Chen (陳正斌) said.
The mechanism proposed by the stock exchange is expected to help boost the trading volume of such securities by making them easier to trade, Tsai said.
Under the mechanism, some brokerages would take the role of market makers that are to continuously give buy or sell quotations for a guaranteed number of those stocks, Tsai said, adding that if the quotations are accepted by other investors, the market makers have to make the transactions immediately.
The stock exchange would regulate and finalize a range of quotes, she said.
For instance, if a stock tends to hover at about NT$30, the market makers could quote the price from NT$25 to NT$35, she added.
The system would not apply to all 932 companies listed on the stock exchange, instead focusing only on stocks with good profit, but low trading volume, Tsai said.
The stock exchange would finalize the standards, she said, without elaborating.
To encourage brokerages to serve as market makers, the stock exchange plans to reward them by reducing handling fees or other administrative costs, as well as allowing them to choose investment targets by themselves, Chen said.
It would take a while for the system to materialize, as the stock exchange first has to give priority to launching a continuous trading system in March next year, Tsai said.
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