Financial Supervisory Commission (FSC) Chairman William Tseng (曾銘宗) might do what his predecessors had wanted to do for the past two decades — expand the daily trading band of local stocks to brace for intensifying competition in Asia, such as China’s Shanghai stock market.
The commission on Monday said that it was seriously considering raising the daily 7 percent limit to 10 percent by the second half of next year.
That is the latest in a slew of short-term deregulation measures the commission has introduced to prop up local stocks since Tseng took office in September last year.
This is not the first time the financial regulator has considered widening the long-standing daily trading limit.
Former Taiwan Stock Exchange Corp chairman Schive Chi (薛琦) in 2000 urged the regulator to lift the fluctuation limit to 10 percent. However, his efforts came to nothing amid widespread skepticism and a faltering global economic recovery from the financial meltdown in 2008.
On Saturday, Tseng brought up the issue again and made widening the trading band one of his mid-term missions to revive the local stock market.
Why now? What has changed? With the rise of emerging stock markets, such as Chinese bourses, foreign investors are losing their appetite for Taiwanese shares, which are subject to stringent restrictions.
Strict regulation was a major factor in Taiwan’s removal in June from Morgan Stanley Capital International’s (MSCI) list of national indices for potential upgrade to developed market status, after having been on the list for five years. The reclassification implies more overseas investment flowing into local stock markets. About US$8 trillion is estimated to be benchmarked to the MSCI indices from around the world.
It is time for the local stock market to be globalized and liberalized, or the local bourse will keep losing competitiveness and momentum.
With 80 percent of investment coming from individual investors, China has kept its daily limit at 10 percent, Tseng said. South Korea plans to broaden the trading band to 30 percent next year from its current 15 percent, while no trading limit is imposed in Hong Kong, Singapore and the US, Tseng said.
“Taiwan should be confident in itself, now that individual investors account for 58 percent of overall trading, down from 80 percent before,” Tseng said.
Apart from an improvement in the proportion of stock investors, the FSC’s confidence is also built on some significant relaxations launched last year for investors to hedge against investment risk due to volatility.
Those measures include allowing day trading — buying and selling stocks within the same trading day — of about 200 stocks targeted by major exchange-traded funds. The commission last year also lifted the ban on short-selling listed stocks traded on margin, even when they lose value.
Brokerages and big stock investors embraced Tseng’s new proposal, saying that relaxing the daily trading limit would make the TAIEX more appealing to foreign investors and enable the TAIEX to catch up to its Asian peers in terms of accessibility. As a result, stock turnover would grow, they said.
The effect was already reflected in Monday’s trading, when the TAIEX climbed to 9,322.95, its highest level in more than three months. Turnover spiked to NT$82.76 billion (US$2.61 billion), from the previous trading day’s NT$39.33 billion, on Friday.
It is good to see more deregulation, but it also means greater volatility. Before implementing new trading rules, the regulator needs to be ready with supporting measures to safeguard investors’ interests. Those measures might include a trading suspension mechanism and better information disclosure.
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