The Financial Supervisory Commission (FSC) has cleared 10 foreign brokerages of misleading investors following a probe into their sales of Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) shares.
The commission found the firms, which include Goldman Sachs Group Inc, Citigroup Inc and UBS Group AG, had committed no wrongdoing in their trading of Taiwan’s biggest company, according to a commission report prepared for lawmakers and seen by Bloomberg.
The commission launched the investigation last month at the behest of legislators who complained the brokerages had issued reports on TSMC with “buy” recommendations, while their trading desks sold large amounts of the company’s shares between Dec. 1 last year and March 21.
Photo: Pichi Chuang, Reuters
The brokerages sold TSMC shares at their clients’ request, the report found, adding that their clients are mostly institutional investors who adjust their asset allocations based on their own global investment considerations, not necessarily following advice of research reports.
None of the sales involved the institutions’ proprietary trading, the report concluded.
After scrutinizing 45 research notes issued during the period in question, the regulators found that nine of the brokerages had changed their views on TSMC’s outlook, but had updated their research notes in a timely manner in line with stock exchange regulations and the companies’ internal controls.
The companies subject to the probe were Goldman Sachs, Citigroup, UBS, Morgan Stanley, Merrill Lynch, Nomura Holdings Inc, JPMorgan Chase & Co, Daiwa-Cathay Capital Markets Co (大和國泰證券), CL Securities Taiwan Co (台灣匯立證券) and HSBC Holdings PLC.
The increased scrutiny of TSMC’s shares has done little to arrest their slide. The shares have fallen more than 7 percent to NT$547 as of yesterday since the probe began in late last month. Shares have plunged almost 20 percent since reaching a record high of NT$683 on Jan. 17.
The declines have been driven by equity outflows out of the country. Foreign investors have pulled a net NT$172.5 billion out of the benchmark market this month.
In the report, regulators recommended that the two main local stock exchanges do more to explain to investors that the trading data they release include financial institutions’ prop trading and client trading data. The bourses should also strengthen investor education to improve their understanding of research reports.
The commission also said it would consider strengthening its management of research notes to protect investor rights and maintain trading order.
The regulator is known for keeping a tight grip on financial companies, especially in cases like front-running trades or when retail investors are harmed. It penalized Deutsche Bank AG and three other foreign lenders last year after a probe into speculation on the surging local currency a year earlier involving grain companies.
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