Trading Mechanism - New Stock
Daily Price Limit Lifted for Newly Listed Stocks
In order to maintain a stable stock market, the daily price fluctuation limits of stocks, beneficiary certificates, Taiwan Depository Receipts (TDRs) and convertible bonds are set at 10% of the closing price of the preceding business day. For bonds, the limits are set at 5%. Day trade is allowed only for investors with margin accounts.
To facilitate the capital formation and price discovery procedure of newly listed companies, the Financial Supervisory Commission（FSC）has decided to remove the daily price limit of new listed shares for five consecutive trading days, after which time period the normal 10% limit will apply. On top of that, the underwriting syndicate is allowed to enter into an over-allotment agreement with the existing shareholders of the newly listed company, so as to facilitate the price stabalization process. These measures will take effect starting from March 1st, 2005 and are applicable to the shares of TWSE’s new listed companies, while those originally traded in the OTC Market do not apply.
To cope with the new measures, which is scheduled to take effect starting March 1st, 2005, the existing trading mechanism is still applicable except that volatility interruption is not applied for the first five trading days, and that the price of orders to buy and sell these new shares will be limited to the range from NT$0.01 to NT$9995.00.
Those underwriting syndicates which distribute the initial public offering (IPO) shares through book-building or call auction mechanism are allowed to enter into an over-allotment agreement, in which existing shareholders of the issuing company agree to provide their share holdings comparable up to 15% of IPO shares for the syndicate to distribute. But the syndicate, basing on the result of book building or call auction, has the discretion whether or/ and to what degree to over allot shares.
In the case where the syndicate decides to over allot shares and the market price drops below the IPO price, the syndicate can use the proceeds from over-alloted shares to buy shares in the open market to maintain the price. When the five trading days during which the syndicate is allowed for market stabalization come to an end, the syndicate should return the over-alloted shares to the lending shareholders. In the case where the syndicate decides to over allot shares and the market price goes above the IPO price, the syndicate should deliver the proceeds from over-alloted shares to the shareholders who provide shares.
The underwriting syndicate is required to disclose its price atabalization activities through designated accounts. Market participants can access this information at http://www.twse.com.tw/en/page/trading/exchange/BFT41U.html