Exchange traded notes to be launched on Taiwan market in 2019

Taipei, Exchange traded notes (ETNs) will be launched in Taiwan for the first time next year amid efforts to diversify the capital market product portfolios and attract more buying.

The Taiwan Stock Exchange (TWSE) and the Taipei Exchange (TPEx), which operate the local main board and over-the-counter market, respectively, said they are planning to start ETN trade in the second quarter of 2017.

Like exchange traded funds, ETNs are designed to track an underlying index or an underlying stock, but ETNs have a maturity date like bonds, the exchanges said.

The funds raised by a securities house for a particular ETN are not limited to investing in an underlying index or an underlying stock, the exchanges said, adding that investors will be responsible for ensuring a brokerage's credibility and ability to repay debt.

Even if the issuer invests some of the funds in other financial instruments, it will have to pay the same return that the underlying securities yield during a certain period, according to the exchanges.

The Financial Supervisory Commission (FSC), therefore, has set certain regulations regarding ETN issuers in an effort to protect investors, the exchanges said.

For example, a securities firm seeking to issue ETNs must have net worth of at least NT$10 billion (US$325 million) and a capital adequacy ratio of no less than 250 percent, the FSC has stipulated.

So far, 10 brokerages in Taiwan have met the requirements to issue ETNs, namely Yuanta Securities, KGI Securities, Fubon Securities, Capital Securities, SinoPac Securities, President Securities, Jih Sun Securities, MasterLink Securities, Mega Securities and Hua Nan Securities.

The TWSE and the TPEx said they will hold investment conferences before the ETNs are launched, to give investors a better understanding of the new financial product.

According to the FSC, the first global ETN was issued by Barclays Bank in 2006, tracking the Goldman Sachs Commodity Index, and is scheduled to mature in 2036.

The issuance of ETNs in Taiwan is expected to help bring the local capital market more in line with global practices, the FSC said.

As of the end of October 2017, there were 207 ETNs in the United States, 19 in the United Kingdom, 152 in Germany, 19 in Japan, and 130 in South Korea, according to FSC data.

Source: Focus Taiwan News Channel