Market Reform

Easy, Flexible, Convenient

To promote an efficient, fair and orderly securities market, the Taiwan Stock Exchange Corporation (“TWSE”) is dedicated to implementing policies that improve the overall securities investment environment, enhance market efficiency, and deliver a trading mechanism in line with international standards. The following reforms in the trading, clearing and settlement systems demonstrate the TWSE’s on-going dedication to advancing securities investment in Taiwan.


‧Exemptions from up-tick rule restrictions on Margin Trades and borrowed Shares

  • Status Reform / Future Improvement Significance Date of Implementation
    Current Situation Removed the up-tick rule on margin trades and borrowed shares for all shares eligible for margin trading But the exemption does not apply under certain conditions, as illustrated per the following case: If the subject borrowed security’s closing price of the previous day reaches the limit down price, or if the subject security’s price is the lowest recorded sell order at market close of the previous trading day (and no trade is executed), then the uptick rule applies for the following trading day and the subject borrowed security may not be entered at a price lower than the previous day’s closing price. The exemption is reinstated only after such an aforementioned trading day and only if the subject security’s price does not remain at the limit down price at market close. The purpose of the measure is to increase ease of trading and make other means of hedging available to investors. At the same time, the measure is also expected to facilitate margin day trading and attract much needed capital to Taiwan’s securities markets. September 2013
    Previous Situation Removed the up-tick rule on borrowed shares for the constituent stocks of the Taiwan 50 Index. Investors enjoy greater price flexibility in conducting short sales and have more freedom in shaping their trading strategies. May 2007
    Removed the up-tick rule on margin trades and borrowed shares for the constituent stocks of the Taiwan Mid-Cap 100 and Taiwan IT Indices. Corresponds to trends in the developed markets. After further exemption, the market capitalization of the exempted stocks accounts for about 84% of the total market size. November 2007

‧Enhance Securities borrowing and lending system function

  • Previous / Existing System Reform / Future Improvement Significance Date of Implementation
    Newly implemented function Implements 1-day prior notification for re-calling mechanism that enables share lenders to notify borrowers to return loaned shares the following day. Encourages share lenders to lend shares in shortened lending periods. January 2007
    Newly implemented function Permits foreign private funds to participate in the SBL market. Promotes SBL market by allowing more foreign funding to be introduced into the market. March 2007
    Newly implemented function Authorizes securities firms and securities finance companies to act as intermediary agents in SBL market Provides diversified sources of share-loaning and increases liquidity to meet the needs of investors. July 2007
    Ambiguity of taxation on manufactured dividends Eliminates double taxation on manufactured dividends. Reduce the tax burdens for both lenders and borrowers. This reform also reduces disputes over double taxation. August 2007
    Service fee of negotiated transactions is calculated by transaction basis. Modifies the method of calculation to per annum basis of SBL traded value, in effect, lowering the service fee for share lending. Normalized the service fees for negotiated transactions, and resulted in more reasonable service charges. December 2007
    Newly implemented function Pre-arrangement mechanism.
    Once the SBL transaction is arranged, the borrower is allowed to short sell so long as the lent securities can be delivered the following day.
    Enhances market efficiency and better enables borrowers to sell their shares at optimum prices. July 28, 2008

  • ‧Free and well-developed Foreign Exchange Market
    Highlights of Taiwan FX market:
    ‧ Securities buying and FX trading can be conducted separately.
    ‧ Investors may trade with counterparties of their choice.
    ‧ Securities selling and FX rate negotiation can be done simultaneously.
    ‧ Standing instruction and same day FX services are available at most of major custodian banks.
    Status Reform / Future Improvement Significance Date of Implementation
    Current Situation Permits securities firms to provide financing services. Notwithstanding the geographic and time zone challenges that many overseas investors face, the flexibility of these new functions gives these investors more options for financing investments in Taiwan, coupled with easier access to securities firms. As a result, securities firms are less inclined to require foreign investors to make early payment or supply transaction funding before it is due. July 2006
    Permits securities finance companies to provide financing services. July 2006
    Permits non-resident foreign nationals who wish to invest in Taiwan equities obtain New Taiwan Dollar loans from local banks. November 2006
    Abolishes penalties on default trade and erroneous trade. August 2005 and January 2007
    Previous Status: the investment quota of securities market for offshore overseas Chinese and foreign individual investor is limited to USD 5 million. Abolishes the limitation of investment quota for offshore overseas Chinese and foreign individual investors in securities market. In addition to be in line with international market practice, removing the limitation of investment quota facilitates more foreign individual investors to invest in Taiwan securities market. October 20,2008
    Future Plans The Banking Bureau of the FSC and the Banker’s Association are planning to discuss allowing foreign institutional investors to have overdraft facilities for settlement. To mitigate the cash upfront requests demanded by brokers and encourage the interests of foreign investors to invest in our market. Ongoing Process

  • ‧Continued Reform on Block Trades
    According to the Article 150 of Securities and Exchange Act of 1968, clearly stated that “the trading of listed securities shall be conducted on a centralized securities exchange market operated by a stock exchange”. Alternatives are available. Investors can manage price negotiation before placing orders to the TWSE system. The paired trade scheme provides investors with a trading mechanism similar to off-exchange trading in the developed market. Brokers only submit the trading report of their clients to TWSE once their clients reach the deals.
    Previous Status Reform / Future Improvement Significance Date of Implementation
    Non-paired block trading periods were:
    09:30-09:40
    11:30-11:40
    13:35-13:50
    Extends block trading periods:
    09:30-09:50
    11:30-11:50
    13:35-13:50 (unchanged)
    Extended block trading periods reduce the likelihood of lost of trading opportunities to investors caused by securities firms' failure to file within the block trading period. January 2007
    Maximum price fluctuation 2% Broadens maximum price fluctuation to 3.5% Encourages parties to execute block trades. The former narrower price fluctuation sometimes deterred investors because of the considerable differences between the ordinary and block trading prices. This reform boosts investor confidence in block trades.
    Non-paired trade system was
    1. Settlement Date: T-day
    2. Pre-collection of payment and shares
    Adjustment to non-paired trade system
    1. Settlement Date: T-day or T+2 day
    2. Securities firms now have the discretion to decide whether to pre-collect the money or shares.
    Reduces investors’ risk of loss from FX transactions by giving securities firms the discretion to decide when to require investors to remit funds for an anticipated trade. May 2007
    New function Implementation of paired trade functions in block trading system Ensures successful transactions with specified parties. May 2007
    New function Adds a pre-opening session for block trade:
    08:00-08:30
    Increases opportunities for investors outside Taiwan to conduct block trades before the opening of regular trading. April 14, 2008
    Price tick:
    The price-tick range was the same as that of regular trading
    Adjust the size of price tick: Within the day high and day low price range, the size of each price tick is adjusted to NT$0.01. The price tick for the day high and day low prices shall be in line with that of the regular trading session. Facilitates price negotiations between buyers and sellers, and increases chances of successful transactions.
    Mandate limit control:
    If the aggregated amount of valid buying and selling orders exceeds a quarter of the amount mandated on the current day, brokers are required to pay to TWSE a "Guarantee fund" equal to 50% of the foregoing aggregated amount.
    Adjusts the T day settlement control method.
    Lift restrictions on securities firms' mandate limit control. Stocks already received and earmarked will be excluded from securities firms' mandate limit on the T-day settlement.
    Provides relief on securities firms' mandate limit controls. If the block trade for sale has been earmarked for the mandate, the position will not be accounted against the limit, and the investors' transactions will not be affected by the securities firms' mandate limit. The capital cost of the securities firms will also be reduced.
    Limits on paired trade:
    Single stock: Minimum transaction volume of 1,000 units; or minimum transaction amount of NT$30 million
    Basket of stocks: at least five types of stock with a total transaction amount of at least NT$30 million
    Lowers the minimum thresholds for paired block trade:
    Single stock: Minimum transaction volume lowered to 500 units; minimum transaction amount lowered to NT$15 million.
    Basket of stocks: at least five types of stock with a total transaction amount of at least NT$15 million.
    Increases investors' participation in block trading. May12, 2008
    price fluctuation range of 3.5% Widens the price fluctuation range to 7%. Introduces consistency in the price fluctuation of block trades and regular trades, Gives the parties a greater range in price negotiation.
    SBL on block trades not permitted. Permits share borrowing to complete block trades. For investors who do not meet the minimum trading volume requirement of block trades, they can utilize the SBL system to complete the block trade transactions. Enable more investors to participate in block trade. July 28, 2008
    Block trading is limited to specific period To prolong paired trade trading session (8:00~8:30 + 9:00~17:00) & non-paired trade trading session (9:00~17:00) Remove restrictions on trading hours. January 12th, 2009
    Omnibus Trading Account is not allowed in block trade. To execute block trade through omnibus trading account. The allocated volume of single FINI needn’t meet the minimum trading size standard for block trade. May 25th, 2009
    Investors may choose to settle the trade in T day or T+2 day The settlement date of a block trade is the second business day after the transaction date(T+2). In order to maintain the market fairness, the abolishment of T day settlement may keep the investors from selling the shares which are not yet delivered to the account due to different settlement period. December 19,2011
    Statistics

  • ‧Free Delivery
    Starting from May 3, 2005, under the condition of “No Change in ultimate beneficiary” and “No violation of off-exchange transaction regulations”, FINIs are permitted to freely transfer their securities, subject to filing of the relevant transfer documents with the TWSE. On January 29, 2008, the relevant authority further eased restrictions on securities transfers to align with international practices and to meet the diversified demands of foreign investors.
    Status Reform / Future Improvement Significance Date of Implementation
    Current Situation Permits securities transfers by virtue of trust deeds. Enables securities to be transferred to trust companies where a trust contract or trust relationship exists. January 2008
    Permits securities transfers by virtue of ETF subscriptions/redemption of physical shares. Enables securities to be transferred between ETF issuers and authorized participants for the subscription/redemption of physical shares
    Permits securities transfers pursuant to a court order or judgment. Enables foreign investors to transfer securities in order to comply with a court order or judgment.
    Permits transfer of the securities from master fund of an umbrella fund to its sub-funds. If the master fund of an umbrella fund is registered as a FINI, and one of the sub-funds is subsequently also registered as the FINI, then sub-fund's securities that are entered into the books of the master fund can be freely transferred to the sub-fund.
    Documents need to be notarized before filing with TWSE Supporting documents need not to be notarized. Simplified the procedure of Free Delivery November 28, 2008
    Future plans Available for different beneficiaries within the meaning of Article 150 of Securities and Exchange Act, 1968. To streamline the procedure of free delivery for foreign investors Ongoing Process
    procedure

    Statistics


‧Clearing and settlement system

    Previous / Existing System Reform / Future Improvement Significance Date of Implementation
    Between securities firms and TWSE, the deadline for settlement of transaction payment is 10:00 a.m. on the T+2 day; the deadline for settlement of traded shares is 6:00 p.m. on the T+1 day T+2 day DVP (delivery vs. payment):
    Between securities firms and TWSE, the deadline for shares settlement is T+2 at 10:00 a.m. and for transaction payment is T+2 at 11:00 a.m. For investors, the transaction payment deadline is T+ 2 at 10:00 a.m.
    ‧Adjusts settlement day of investors towards securities firms to T+2
    ‧Increases usability of securities held by investors
    ‧Aligns with international practice.
    February 2nd, 2009
    TWSE reviews the reasons for late settlement filing.
    Securities firms shall enter the settlement information into the TWSE computer before 6:00 p.m. on the T+1 day, and shall file the relevant supporting documents with TWSE on the T+2 day.
    The settlement deadline is 6:00 p.m. on the T+3 day.
    Relax the restriction on late settlement to align to the international market practice of failed trade.
    TWSE will no longer review the reasons filed. In response to the implementation of T+2 DVP, the deadline for failed trade filing is extended to 11:00 a.m. on T+2, and the settlement deadline is 6:00 p.m. on T+3.
    ‧Alleviates issues faced by foreign investors who cannot settle on time due to time difference or communications, etc.
    ‧Reduces the need on pre-funding requirements which securities firms imposed on specified clients for compliance with its risk management.

‧Liquidity Provider for ETF

    Previous / Existing System Reform / Future Improvement Significance Date of Implementation
    Newly implemented function An ETF issuer may have three liquidity providers for each ETF. Promotes ETF SBL transactions and creates liquidity in the ETF market. As of August 1st, each of the 10 listed ETFs has 1 to 3 dedicated liquidity providers. Increased trading volume is expected. June 16, 2008

‧Simplification of changing the batch of FINIs’ trading account names
    Because bank mergers are more common, the names of custodian banks frequently change. The competitive environment means that global custodians may change relationships with local custodian banks. Therefore the custodian banks’ names on FINIs trading accounts need to be changed. The paperwork for custodian banks for checking, stamping and completing the contract for each FINI is complicated.
    As of now the procedure for changing the batch of FINIs’ trading account names becomes more efficient. The local custodian banks should enclose the following documents and then use only one stamp and one contract for all FINIs to change the account names with securities firms:
    1. If the change results from banks merger, local custodian banks just need to enclose the merger approval letter from the Regulatory Authority.
    2. If the change results from a change in partnerships, the local custodian banks shall enclose the Declaration from the global custodian bank that FINIs have agreed to the change of the local custodian bank.

‧Failed Trade (Delay Settlement)
    Offshore overseas Chinese, foreign Investors, or mainland area investors may request the broker to file the failed trade with TWSE and finish settlement before T+3, 18:00. Since 2009, brokers have not been required to report the reasons for filing failed trades with TWSE. The statistics show a growing awareness among investors about this measure as the amounts and investor numbers indicate on the following chart.

‧Omnibus Trading Account

  • Previous / Existing System Reform / Future Improvement Significance Date of Implementation
    1.  A securities firm shall submit the post-allocation transaction statement and the itemized details of the trading orders of each principal or authorized trader to the TWSE between 3 pm and 6 pm on the transaction day (T-day) in the prescribed electronic format.
     
    2.  A securities firm may report a partial allocation adjustment with respect to the transaction information by 6 pm on T+1 day and amend its reporting of information on trading orders.
    1.  A securities firm shall submit the itemized post-allocation transaction statement to the TWSE between 3 pm and 6 pm on T-day, in the prescribed electronic format. However, if the securities firm has not yet been able to complete the transaction allocation operations for an omnibus trading account with foreign principals (securities trading account number: 995555+check code), it may by 6 pm of T-day report and preserve the information not yet allocated, in the prescribed electronic format under the original omnibus trading account, and must report a partial allocation adjustment with respect to the itemized transaction information by 6 pm of T+1 day.
     
    2.  If the securities firm has not yet been able to complete the transaction allocation operations by 7 pm on T-day, the TWSE will automatically preserve the information not yet allocated, under the original omnibus trading account. The securities firm must report a partial allocation adjustment with respect to the transaction information by 6 pm of T+1 day. On T+1 day, the securities firm should complete the transaction allocation operations and cannot preserve the information not yet allocated.
     
    3.  By 6 pm of T+1 day, a securities firm may report a partial adjustment of allocation with respect to the transaction information in accordance with operational needs, and shall report the itemized details of the trading orders of each principal or authorized trader to the TWSE.
    The TWSE adjusts the OTA information reporting timeline in order to prevent securities firms’ delaying declarations that may affect the follow-up computer operations. 2012/3/26
 
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