The Taiwan Stock Exchange (TWSE) yesterday said it has made the unprecedented move of revoking a foreign institutional investor’s right to buy local shares because it remained inactive for the past six months, but moved funds in a fashion that violated foreign exchange regulations.
The exchange announced the penalty after the central bank said on Tuesday last week that it had discovered an unnamed foreign institutional investor (FINI) making profits from the local currency by parking funds here, at odds with its claimed intention to buy Taiwanese stocks.
“We have revoked the investor of its FINI status given its violation of securities investment rules,” TWSE senior executive vice president Chien Lih-chung (簡立忠) told a news conference.
The FINI has opened four accounts with a local brokerage since May, but failed to carry out any stock investment activity as pledged, Chien said.
He refused to provide details about the investor’s name, brokerage, custodian bank or fund movements, citing concerns over confidentiality.
It is the first time the TWSE has taken action against currency speculation after the central bank turned the case over to the Financial Supervisory Commission (FSC), though other foreign funds had made similar moves, Chien said.
The central bank is known for its intolerance of attempts to speculate in the New Taiwan dollar, which has strengthened 2.21 percent in the past two months, central bank data showed, while stock turnover remains light and major economic data hold steady.
Central bank Governor Perng Fai-nan (彭淮南) told the legislature’s Finance Committee yesterday morning that he believed the commission would rein in currency speculators in a timely manner after lawmakers questioned his resolve to do so.
It falls within the jurisdiction of the commission to rein in unruly FINIs, whereas the central bank can only monitor the consistency of foreign fund flows, Perng said.
“Foreign investors must comply with the nation’s laws and must not underestimate the central bank’s determination to defend the local currency,” he told lawmakers.
Perng dismissed media reports that the investor made NT$10 million (US$339,443) from currency speculation, but declined to elaborate.
Last week, the central bank told reporters the foreign investor repeatedly moved its funds in and out of the nation a few days apart in an apparent bid to circumvent its requirement that foreign investors buy local stocks within seven days after channeling funds here.
Foreign institutional investors that plan to invest in stocks can park only 30 percent of their funds in government bonds or fixed-income products.
It is not clear if or when the foreign investor can apply to restore its FINI status because the situation has no precedent, the TWSE said.