The Legislative Yuan has approved an amendment to the Establishment and Management of the National Stabilization Fund Act (國家金融安定基金設置及管理條例) to allow for stepped-up monitoring of government use of a fund meant to stabilize the local stock market.
According to the amendment passed by the Legislative Yuan on Friday, fund managers will have to make reports to the legislature over its interventions in the stock market, in a move aimed at allowing the Legislative Yuan better scrutiny of the fund’s operations.
The NT$500 billion (US$15.81 billion) fund was set up by the government to serve as a buffer against unexpected external factors disrupting the local bourse.
The fund — created in February 2000 — intervenes in the market when it receives authorization from the fund committee, which is normally managed by the deputy minister of finance.
The current manager is Deputy Minister of Finance Su Jain-rong (蘇建榮).
According to the amendment, fund managers should submit a report to the Legislative Yuan within three months of the fund entering into or exiting the market, and the report should include details about its decision to intervene and the financial outlay.
Before being elected in February, Chinese Nationalist Party (KMT) Legislator William Tseng (曾銘宗) served as the chairman of the Financial Supervisory Commission and was a manager of the stabilization fund.
The amendment is aimed at ensuring the transparency of the stabilization fund, Tseng said.
Tighter supervision of the fund by the Legislative Yuan would prevent the fund from becoming a tool for a ruling party to gain political benefits by doling out massive amounts of money to support the market and win the recognition of equity investors.
He said the amendment would help to avoid a long period of intervention, which can hamper market mechanisms and limit the efficiency of intervention.
The fund’s most recent intervention was from Aug. 25 last year through April 12. The entry of the fund into the market was triggered by a plunge in the Chinese yuan in August last year that sent ripples through the global financial market.
The fund decided to stay in the market through April since there had been worries over non-economic factors resulting from the presidential election on Jan. 16, when the Democratic Progressive Party won the vote, unseating the China-friendly KMT.
Earlier this month, the Ministry of Finance said that the stabilization fund had made a profit of about NT$1.2 billion after disposing of all of its shares of large-cap stocks, such as Taiwan Semiconductor Manufacturing Co (TSMC), which it had bought during the intervention.
TSMC is the most heavily weighted stock in the nation.
The Ministry of Finance said the presence of the stabilization fund did protect local equities from adversary impacts during the period, which saw the weighted index on the main board rise 856 points, or 11.15 percent, to close at 8,531 points on April 12.
Lawmakers also passed an amendment to the Futures Trading Act (期貨交易法) to tighten monitoring of insider trading in the futures market.
Under the new framework, company insiders would be kept from trading futures, which track a company’s shares, within 18 hours before and after material information is released.
The new rules have also increased the punishment on insider for to a jail sentence of three to 10 years, from the previous sentence of up to seven years, while fines have been raised to between NT$10 million and NT$200 million from a previous maximum of NT$3 million.
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