Taiwan’s timing on rolling out a new stock trading system could have been better.
Starting today, traders in Taipei are to be able to trade stocks continuously, rather than through a five-second matched call auction that has been in place since 2014.
It is the only major capital market that runs such auctions throughout regular trading, the Taiwan Stock Exchange said.
The move, which culminates a decade-long process, has been widely encouraged.
The exchange has said that continuous trading should make for more efficient activity and provide market participants with pre-trade information in addition to post-trade details.
However, some traders worry that any snags from the change could add to recent volatility.
This month’s sell-off wiped out US$340 billion of market value in two weeks.
“It’s concerning to deal with a new trading system given how volatile the market is now,” said Kidd Tu, a manager at E.Sun Securities Co (玉山證券). “It will be a headache if the system is unstable or something goes wrong.”
The exchange is confident that it can handle the switch.
“We tested the system many times to make sure everything is ready,” Taiwan Stock Exchange senior executive vice president Rebecca Chen (陳麗卿) said.
Like markets across the world, Taiwan’s stocks are reeling from the impact of the COVID-19 pandemic. The benchmark TAIEX joined the list of bear markets this month and dropped to its lowest level since the middle of 2016.
The TAIEX surged 6.4 percent on Friday last week, the most since stock-price limits were loosened in 2015, as the National Stabilization Fund pledging to back the stock market with as much as NT$500 billion (US$16.5 billion). Meanwhile, the Financial Supervisory Commission tightened rules on short selling.
Foreigners have long been an important part of Taiwan’s stock market and they recently owned about 40 percent of equities here.
However, overseas investors have sold a net US$16.3 billion of stocks to start this year, which tops any end-of-year figure since at least 2000, according to data compiled by Bloomberg.
Derivatives trading in warrants and options is already done continuously, so the thinking goes that strategies for stocks and derivatives can now be more integrated.
The Taiwan Stock Exchange is also expanding order types today to include market orders, immediate or cancel orders, and fill or kill orders. Previously, there had been just limit orders.
“Ideally you want to run live when the situation is perfect, but on the other hand, the regulators are confident the system is bulletproof and their liquidity measuring tools are showing a green light.” Axicorp Ltd chief market strategist Stephen Innes said.
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