Rules on collateral for stock traders would be eased, the Financial Supervisory Commission (FSC) said yesterday, as it seeks to reduce financial pressure on investors amid volatility on the local stock market.
The announcement of the second relaxation of the rules since the second quarter of 2020 came after the government activated the NT$500 billion National Stabilization Fund on Tuesday to support the local stock market.
When getting a margin call, investors were previously required to deposit cash or securities as collateral to prevent brokerage companies from closing out their portfolio positions.
Photo: CNA
The commission said investors can now also use assets other than cash or securities as collateral, including gold and real estate.
Newly allowed assets must be liquidity similar to the previously required assets, the commission said.
It is further required that their value can be objectively assessed and the brokerages involved must agree to their use, it added.
“For example, mutual funds can be the sources of collateral as well,” Securities and Futures Bureau Deputy Director Kao Ching-ping (高晶萍) told the Taipei Times by telephone.
Investors receive margin calls when their collateral to loan ratio falls below the maintenance requirement ratio of 130 percent. The commission did not adjust this requirement.
As the value of securities used as collateral fluctuates on a daily basis, the collateral to loan ratio might change more frequently and more quickly amid a volatile market, the commission said.
Investors with a collateral to loan ratio of close to 130 percent might therefore receive margin calls more frequently, it said.
“We hope this relaxed measure can help reduce pressure on investors because we have seen local stocks fluctuate more greatly in recent sessions,” Kao said.
In 2020, the commission eased the rules on collateral for three months.
This time, the commission said that the measure would be phased out when the situation in the stock market allows that move.
The commission also encouraged listed companies to buy back shares, saying that it would help improve investors’ confidence in Taiwanese equities.
The TAIEX yesterday closed up 113.84 points, or 0.79 percent, at 14,438.52, recovering from earlier losses induced by the higher-than-expected US inflation data released overnight.
The bellwether electronics sector led the rebound as large-cap semiconductor stocks, in particular contract chipmaker Taiwan Semiconductor Manufacturing Co (台積電), bounced back from their opening lows, while the financial sector moved below its previous closing throughout the session.
Turnover totaled NT$208.999 billion (US$6.99 billion) on the main board, with foreign institutional investors buying a net NT$571 million of shares, Taiwan Stock Exchange data showed.
Additional reporting by CNA
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