Taiwan’s FSC tightens short-selling rules amid market volatility
Taipei, Oct 1 (CNA) Taiwan’s main financial regulator, the Financial Supervisory Commission (FSC), has introduced measures to limit short selling at a time when the local stock market is facing volatility from losses suffered by world markets.
From Saturday, the FSC said intraday securities lending volume for shorting a stock has been reduced to 20% of the average daily trading volume over the previous 30 trading sessions, from 30% currently. .
Market analysts said the reduction in intraday securities lending for short selling should ease downward pressure on the local stock market, which has been hit hard by fears of a hawkish U.S. Federal Reserve.
The Federal Reserve has raised policy rates by 300 basis points since March and hinted at a further hike of 75 basis points in November to combat soaring inflation.
It was the first time Taiwan’s FSC reduced intraday securities lending volume for short selling since March 2020, when global markets were hit by the COVID-19 pandemic.
The previous reduction in securities lending volume to 10% from 30% helped the Taiex rebound to 11,637 points from 9,218 points in three months.
Additionally, the FSC said it has also increased deposits for securities borrowing by an investor to 100% of a share’s value from the previous 90%, a move that will increase costs for investors. who wish to short the market, betting that the price of a stock will fall and they will buy the stock later to return the stock to their lenders.
This week, the Taiex, the benchmark weighted index of the Taiwan Stock Exchange (TWSE), fell 693.80 points or 4.91% to close at a 22-month low of 13,424.58 after the index lost 0.81% on Friday, coming out of a low. of 13,274.72 as funds directed by the government would have intervened to limit the losses.
Tech heavyweights fell victim to the selloff with contract chipmaker Taiwan Semiconductor Manufacturing Co. (TSMC), the most weighted stock in the local market, plunging 7.25% during the week.
This is the sixth consecutive month that the Taiex has fallen. In September, the local main council plunged 1,670.86 points, or 11.07%.
An aggressive Fed has been a major driver of volatility in global markets, with the Taipei market being no exception, analysts said.
As the interest rate differential between the US and Taiwan markets widened, foreign institutional investors continued to shift their funds. Compared to the Fed’s 300 basis point rate hike since March, the local central bank has only raised its key rates by 50 basis points.
Since the beginning of this year, the Taiex has even fallen by 4,794.26 points or 26.31% after foreign institutional investors recorded a net sale of over NT$1 trillion ($31.52 billion). as they rushed to park their money in US dollar-denominated assets, analysts said. said.
David Chu (儲祥生), chairman of Hua Nan Securities Investment Management, told CNA that the FSC’s decision to limit short selling was intended to tell foreign institutional investors that they should refrain from short selling the local market.
“The message was that the commission was watching them,” Chu said.
However, stock market analyst Chen Wei-tai (陳唯泰) said the foreign institutional sale was not the only factor behind the recent heavy losses in the local stock market; he believed that the low willingness of many other investors to buy during the decline also served as a driver.
Chen said the government should boost domestic consumption to improve the local economy and provide incentives such as tax reduction to encourage investment.
Prior to the FSC’s decision to limit short selling, the National Stabilization Fund was allowed to enter and boost the local stock market since July 12.
The NT$500 billion stabilization fund was established in 2000 by the government to act as a buffer against unexpected external factors that could disrupt the local stock market.
Earlier this week, Deputy Finance Minister Juan Ching-hwa (阮清華), who is executive secretary of the stabilization fund committee, said the fund was determined to work with related agencies to stabilize the local stock market. , while emphasizing that the fundamentals in Taiwan remain solid.