A recently announced small investment scheme to make expensive stocks and other securities more accessible to retail investors might have loopholes, brokerages said.
Securities insiders said majority shareholders of a listed company could take advantage of the loopholes to dump their shares.
The scheme, which is to be launched today, allows retail investors to buy expensive stocks, such as those of smartphone camera lens supplier Largan Precision Co (大立光), which closed at NT$4,240 on the Taiwan Stock Exchange (TWSE) on Friday.
Stocks in Taiwan are usually sold in minimum blocks of 1,000 shares, meaning investors need to spend at least NT$4.24 million (US$134,092) to buy Largan stock, an amount out of reach of most people.
Under the scheme, retail investors can invest fixed amounts at regular intervals in stocks and exchange-traded funds, and buy high-priced stocks in small quantities.
To enable investors to buy less than a minimum of 1,000 shares, a securities firm needs to take orders from different retail investors to reach the 1,000-share minimum.
However, if the minimum is not met, the firm would have to use its own funds to buy the remaining amount to reach the minimum.
A majority shareholder of a listed company that is not favored by investors could place an order to buy 10 or fewer shares of the stock with several brokerages and because of weak demand for the stock, the brokerages would have to buy the rest of the shares on their own, brokerages said.
That would give the majority shareholder a chance to dump shares on a large scale they said.
To prevent losses resulting from such loopholes, brokerages said they will only take orders from retail investors to buy large-cap stocks favored by investors so that it will be easy for them to meet the 1,000-share requirement.
The scheme is one of several measures unveiled by the Financial Supervisory Commission to increase market turnover.
It would be similar to a regular savings plan for investors who put their money into mutual funds. The system, called the dollar-cost averaging method, is expected to offset market risk in the long run.
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