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Cross-strait securities bill approved

"It's difficult to estimate an exact figure for the potential influx of foreign capital, but to establish a laissez-faire and open market would surely attract more foreign participation." — Susan Chang, vice chairwoman of the Financial Supervisory Commission

The Cabinet yesterday approved five measures to enhance cross-strait securities exchanges, which officials said would promote the internationalization of the local stock market and encourage more medium and long-term foreign capital inflow.

“It’s difficult to estimate an exact figure for potential influx of foreign capital, but to establish a laissez-faire and open market would surely attract more foreign participation,” Financial Supervisory Commission (FSC) Vice Chairwoman Susan Chang (張秀蓮) told a press conference.

The proposal was drafted by the FSC in consultation with the Council of Economic Planning and Development, the Mainland Affairs Council and the Central Bank of the Republic of China (Taiwan).

A policy goal is to indirectly open the local stock market to Chinese capital. Current regulation do not allow Chinese investors to purchase Taiwanese stocks.

To meet the goal, the government will abolish a regulation on foreign institutional investor (FII) funds that requires the presentation of written statements to prove that the capital that would be put into local securities and futures markets would not be from China when registering with the Taiwan Stock Exchange Corp (TSEC).

China started to allow its Qualified Domestic Institutional Investors (QDII) to invest in offshore funds last June, so keeping the regulation on FII funds in the country would only impede them from the local stock market, Chang said.

A measure to open mutual listings of Exchanged Traded Funds (ETF) on the Taiwan and Hong Kong stock markets is also expected to meet Cabinet goals, as Chinese would then be able to indirectly invest in Taiwan’s local stock market via their transactions in Hong Kong’s stock market.

Taiwan-issued ETFs will be able to go public on the Hong Kong stock market when the FSC reaches an agreement on the exchange of information and examination with Hong Kong’s Security and Futures Bureau, under a side letter based on the bilateral Memorandum of Understanding of 1996, Chang said.

Chang said the FSC would also allow Hong Kong-issued ETFs to list on the local stock market based on the principle of equality and reciprocity.

The government is also aiming at attracting Taiwanese capital back to the country by allowing companies listed on the Hong Kong Stock Exchange to realize their second listings on Taiwan’s stock market or issue Taiwan Depository Receipts (TDR).

The move would make Hong Kong exchanges the 18th overseas stock market with which companies listed for more than six months can have second listings in Taiwan's stock market.



But companies that have registered in China, foreign companies whose main shareholders are Chinese, and 20 percent of shares of companies that are directly or indirectly owned by Chinese will be excluded from the measure for the moment, Chang said.

“The exceptions are just a temporary remedy, as the ministry is now deliberating whether to remove the ban on Chinese investment in Taiwan,” Chang said.

Another measure was to cancel rules that allow offshore funds to invest a certain ratio in Chinese shares as well as Hong Kong/Macau H and red chip shares.

Previously, offshore funds and overseas funds raised by securities investment trust enterprise and discretionary investment businesses could invest up to 0.4 percent of their net assets in Chinese shares and up to 10 percent of their net assets in Hong Kong/Macau H and red chip shares.

Private funds of securities investment trust firms are not allowed to purchase shares in the Chinese stock market and red-chip and H shares in Hong Kong and Macau stock market, while future trust funds and discretionary future trading businesses are also banned from future transactions in China.

Chang said the government would loosen all the regulations, but added that the percentage by which the government would raise the ratio has yet to be determined.

“Twenty-four funds have been forced to close for failing to conform to the ratios. Given the tendency of holding more red-chip shares, it’s necessary to revise the regulations,” Chang said.

The government also said it would allow local securities investment trust firms to invest in China or purchase shares of China’s investment funds management companies and allow local futures firms to invest in China’s counterparts directly or indirectly.



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