Taiwan’s top financial regulator tightened short-selling rules for the third time in three weeks Friday, amid volatility on the global markets and aggressive rate hikes by the U.S. Federal Reserve.
Under the Financial Supervisory Commission’s (FSC) new rules, if a stock closes lower by 3.5 percent or more in the previous session, investors are prohibited from using the previous closing price or a lower price to short the stock through borrowing securities.
However, securities houses and futures traders that conduct short selling for hedging purposes will be exempt from the newly imposed ban, the FSC said.
In addition, the rules bar investors from using the previous closing price or a lower price to conduct day trading if a stock ends lower by 3.5 percent or more in the previous session.
Day trading refers to either buying then selling, or selling then buying a stock on the same day.
The newly tightened rules on short selling are effective immediately, the FSC said.
According to statistics compiled by the FSC’s Securities and Futures Bureau, 105 stocks on the main board and 47 stocks on the over-the-counter market fell 3.5 percent or more on Friday. As a result, these stocks will be covered by the new rules when the market opens Monday.
● Taiwan shares end lower amid lingering Fed worries
Friday’s announcement represented the third raft of measures introduced by the FSC to tighten short-selling rules since Oct. 1.
On Oct. 11, the FSC cut the maximum intraday security lending volume for short selling from 20 percent to 10 percent of a stock’s average daily trading volume over the previous 30 trading sessions, following a lowering of the limit from 30 percent to 20 percent on Oct. 1.
In addition, the FSC raised the deposit for securities borrowing by investors from 100 percent of a stock’s value to 120 percent after increasing it from 90 percent to 120 percent on Oct. 1.
According to analysts, the FSC’s actions will likely push up costs for investors who want to short the market.
Despite the FSC’s raft of measures, the Taiex, the Taiwan Stock Exchange’s weighted index, has fallen 2.18 percent since Oct. 11, closing at NT$12,819.20 on Friday.
The Taiex lost 0.98 percent Friday after a 0.24 percent decline on Thursday, when government-led funds helped the main board recoup about 210 points.
Analysts attributed the rebound from the day’s low Thursday to government-led funds intervening to prop up investor confidence.
● Taiwan’s stabilization fund to continue intervening in stock market (Oct. 6)
Geopolitical tensions caused by the conflict in Ukraine have also brought headwinds to the local market.
Since the beginning of this year, the Taiex has plunged 5,399.64 points, or 29.64 percent, with foreign institutional investors selling a net more than NT$1 trillion worth of shares on the local stock market.
According to equity market analyst Chen Wei-tai (陳唯泰), the FSC’s cap on short selling is unlikely to reinvigorate the local market, which has been weakened mainly by investors reluctant to buy the dips despite the heavy losses.
Chen said the government should institute concrete measures to stimulate the economy, such as tax cuts or other incentives to boost domestic demand.
Before the three rounds of short-selling restrictions, the National Stabilization Fund’s governing committee authorized the fund on July 12 to intervene to shore up share prices.
The NT$500 billion stabilization fund was set up in 2000 by the government to serve as a buffer against unexpected external factors that might disrupt the local bourse.
Source: Focus Taiwan News Channel