New rules on equity short sales to kick off
CNATAIPEI--New rules to allow more short sales in the local bourse are expected to kick off Monday as part of the government's efforts to boost daily turnover in the equity market.
September 22, 2013, 12:01 am TWN
Market analysts said the relaxed regulations on short sales are expected to encourage more investors, including speculators, to jump into the market. The aim is to eventually help the local bourse get out of the current doldrums.
Under the new rules, which were announced by the Financial Supervisory Commission (FSC) on Sept. 3 along with two other measures, investors will be allowed to short about 1,200 stocks on the main board and on the over-the-counter (OTC) market even if they fall below their previous closing levels.
Currently, investors are allowed to short only 150 stocks in the local bourse in a session, even if they fall below their closing prices in the previous day, according to the FSC, the top financial watchdog in Taiwan.
However, the new rules will not allow investors to short those stocks which fell 7 percent, the maximum daily decline, in the previous session. Short sales in the involved stocks, however, will resume in the next trading session.
The GreTai Securities Market (GTSM), which operates the local OTC market, said it has set up a special page on its website for the stocks which can be traded in short sale when they fall below their previous closing levels.
The GTSM said a special page on its website has been set up to provide investors with information on the new rules and trading information on short sales. It said it hopes investors will take advantage of the information disclosure while conducting more short sales in a less regulated market.
The GTSM said the new short sale rules are expected to broaden investment targets for investors, while investors who tend to conduct hedge and arbitrary trading will be able to make good use of the new trading mechanism.
In addition to the relaxed rules on short sales, the FSC has allowed proprietary traders to place buying orders when a stock rises to its daily maximum increase of 7 percent, or place selling orders when a stock plummets by the maximum 7 percent since Sept. 9. The measure will be effective until March 8, 2014.
Analysts said the measure is expected to add upward or downward pressure on the stock when its price is frozen at the daily limit and encourage higher trading volume in subsequent sessions.
The FSC is also planning to allow investors to conduct day trading (buying and selling a stock on the same day) on select large and mid-cap stocks, with the new measure scheduled to take effect on Jan. 6.
At present, day trading is only allowed for margin trading or short selling.
In the plan's initial stage, the stocks opened to day trading will be large-cap stocks in the FTSE TWSE Taiwan 50 Index and the FTSE TWSE Taiwan Mid-Cap 100 Index, such as Taiwan Semiconductor Manufacturing Co., United Microelectronics Corp., Formosa Plastics Corp.
Analysts said the day trading rules are expected to be the most effective way among the three new measures announced by the FSC to boost daily turnover, but can increase the chance of defaults by investors.