The Financial Supervisory Commission (FSC) yesterday announced plans to extend day trading to short sales of shares in yet another bid to boost the local bourse.
Currently, day traders can only go long — first buying and then selling shares within the same trading day in the hope of taking profit from the price difference.
“We believe it is time to relax day trading further, as the easing has effectively enlarged stock turnover this year without raising the default rate,” Tseng told a media briefing.
Under the planned deregulation, day traders may sell any of 200 selected stocks on the main board and the over-the-counter market and buy them later in the day, making a profit if shares closed lower. However, if the price of the stock rises, investors have to buy it back at the higher price and lose money.
The new regulation, which is scheduled to go into effect on June 30, could boost daily stock turnover by between 3 and 5 percent, or between NT$3.6 billion and NT$6 billion (US$117.6 million and US$196 million), based on a daily turnover of NT$120 billion, Tseng said.
Since the introduction of day trading in early January, average daily turnover climbed to NT$121.1 billion last month and to NT$132 billion this month, while settlement default decreased from NT$2.42 million a month to NT$1.48 million, he said.
The trend lent support to further liberalization, especially in times of market stabilization, Tseng said.
However, the commission will keep the limits on day trading to the 200 selected stocks, without any plans to relax that limit in the foreseeable future, Tseng said.
The 200 stocks account for 81 percent of the trading, as they are also targeted by major exchange traded funds and index funds, he said.
“The heavy weighting of the stocks renders the proposed extension of day trading to all 1,200 stocks insignificant,” Tseng said.
So far, there are 5,500 day trading accounts and together they make up only 2 percent of trading volume, Tseng said, adding that their contribution to the market is larger.
Day trading was once an activity that was exclusive to financial firms and professional speculators. Many day traders are bank or investment firm employees working as specialists in equity investment and fund management.
However, with the advent of electronic trading and margin trading, day trading has become increasingly popular among at-home traders.
The TAIEX rose 0.55 percent to 8737.27 on a turnover of NT$92.63 billion yesterday, Taiwan Stock Exchange data showed.
The main trading index could rise to 9,000 later this year on the back of a series of stimulus measures, various securities houses have forecast.