The Financial Supervisory Commission (FSC) yesterday tightened its regulations on short selling by lowering the maximum number of securities that can be borrowed and increasing the margin requirement, moves intended to stabilize local stock markets.
The new curbs come after a bout of volatility in global markets, driven by concerns about the US Federal Reserve’s rate hikes and recession fears.
Taiwan’s benchmark index tumbled nearly 5 percent this week to close at its lowest since November 2020, its sixth consecutive week of losses.
Photo: CNA
The TAIEX fell 0.81 percent, or 109.68 points, to 13,424.58 yesterday, with turnover totaling NT$207.934 billion (US$6.55 billion), Taiwan Stock Exchange data showed.
The index sank to its lowest in about 22 months, with foreign institutional investors selling a net NT$5.9 billion of local shares, the eighth consecutive day of net outflows, the data showed.
The new measure, which takes effect today, limits the volume of intraday securities lending orders to 20 percent of the average daily trading volume over the previous 30 days, Securities and Futures Bureau Director-General Sam Chang (張振山) told a virtual news conference.
That is down from 30 percent previously, Chang said.
The commission cut the ratio after short-selling activity by foreign institutional investors rose over the past nine months, he said.
It expects the measure to help prevent the TAIEX from falling further, he said.
Short selling is when investors borrow securities, typically from brokerages and sell them, expecting the price to fall so they can make a profit by buying them back at a lower price.
It has been more than two years since the FSC tightened its regulations on short selling in March 2020 to mitigate the negative impact of the COVID-19 pandemic on local stock markets.
On that occasion, it slashed the ratio of securities lending to 10 percent.
“The TAIEX plunged about 10 percent in September, less than the 2020 fall of 20 percent,” Chang said, adding that “foreign institutional investors did not sell as much as they did that year.”
“Therefore, we do not need to go as far” as the March 2020 change, he added.
The commission also boosted the margin requirement of securities lending to 100 percent from 90 percent to increase costs for bearish investors of local stocks, it said.
It did not say how long the tightened short-selling regulations would last, although it would review its rules based on market activity.
The 2020 change lasted about three months.
Taiwan’s decline is broadly in line with regional peers. The TAIEX fell 11 percent last month, while the MSCI Asia Pacific Index slumped 12 percent.
The market has seen one of the biggest foreign outflows in the region this quarter.
Additional reporting by Bloomberg
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