TWSE Market Insights

＜中文版＞

Stock liquidity is a key indicator for assessing the vibrancy of the stock market. If a stock lacks liquidity, trades cannot be executed efficiently. Highly liquid stocks can be bought and sold with ease, whereas less liquid stocks—often referred to as “unpopular stocks” or “zombie stocks”—tend to record lower trading volumes due to the difficulty of execution. Although trading volumes in Taiwan’s securities market have been impressive in recent years, certain listed stocks still show relatively inactive average daily trading volumes. However, low liquidity does not necessarily indicate poor operating performance of the issuing company.

To stimulate trading in quality listed stocks with low liquidity and thereby enhance overall market turnover and momentum, the Taiwan Stock Exchange (TWSE) implemented the Market‑Making Mechanisms for Listed Stocks on June 30, 2021. Drawing on the experience of other jurisdictions in boosting market turnover and liquidity, the TWSE provides transaction fee discounts and organizes incentive competitions to encourage market makers to quote prices for selected stocks. By continuously providing reasonable quotes, the Mechanisms enable investors to execute trades in these quality but less liquid stocks, energizing overall market momentum and achieving the intended effect of market activation.

1. Legal Basis and Participation Qualifications
The legal basis for Taiwan’s Market‑Making Mechanisms for Listed Stocks is the “Taiwan Stock Exchange Corporation Rules Governing Market Makers and Liquidity Providers” and the “Taiwan Stock Exchange Corporation Standards for Granting of Transaction Charge Discounts to Market Makers and Liquidity Providers,” both announced on February 9, 2021.
Under the Regulations, a Market Maker refers to a securities proprietary trader that applies to the TWSE to provide quotes for selected stocks during designated trading hours. The selected stocks must include a certain number of Designated Stocks. A Liquidity providers refers to a securities proprietary trader that applies to actively trade Designated Stocks during specific trading hours (see Section 1.3 for differences between Market Makers and Liquidity providers).

2. Eligible Securities
The Mechanisms primarily aim to increase trading activity in quality stocks that have attracted less market attention and therefore exhibit insufficient liquidity. Each year, the TWSE identifies “quality low‑liquidity stocks” based on criteria such as profitability, trading volume, turnover ratio, and dividend distribution.
Pursuant to the Regulations and the Standards for Transaction Fee Discounts, listed stocks are categorized as: (i) Designated Stocks (i.e., quality low‑liquidity stocks), and (ii) General Stocks (stocks that are neither Designated Stocks nor deemed unsuitable for market making). When conducting market‑making business, Market Makers must select a certain number of Designated Stocks and may additionally include General Stocks as market‑making targets. Liquidity providers are limited to trading Designated Stocks. Securities firms may apply to the TWSE annually to act as either a Market Maker or a Liquidity providers.

3. Differences between Market Makers and Liquidity providers

4. Quotation Obligations of Market Makers

The core obligation of Market Makers is to continuously provide quotes during trading hours on the TWSE centralized market—from five minutes after market open until market close—for their selected stocks. The key requirements are:

• Quote Prices and Sizes: Both bid and ask prices must be submitted; quotes with “immediate‑or‑cancel” or “fill‑or‑kill” validity are not permitted. The bid‑ask spread must not exceed 3%, calculated as [(ask price − bid price) ÷ ask price]. Each buy and sell quote must be at least five trading units (lots), or have a total value of at least NT$200,000.

• Quote Duration: Quotes must be maintained for at least 50% of trading hours each day. Certain situations (e.g., limit up/down, postponed or suspended matching, securities under disposition measures) are excluded from the calculation.

• Effective Quotation Days: In a given month, the number of days in which all the above quotation obligations are met must be at least 80% of the applicable trading days.

5. Market-Making Costs

Compared with major international markets, Market Makers in Taiwan bear higher costs primarily due to the Securities Transaction Tax (STT) and transaction fees. In Taiwan, the STT rate on stock sales is 0.3% of the transaction amount, which—although it embeds the concept of a capital gains tax—is payable upon execution regardless of profit or loss. Additionally, listed stocks are subject to a transaction fee of 0.0052% of the traded value. Given this relatively higher burden, the Mechanisms include “transaction incentives” and “quotation incentives” in the form of fee discounts. Since 2022, the TWSE has also held quarterly market‑making competitions to further enhance participation and help offset the higher STT costs borne by Market Makers.

1. Compliance with Quotation Obligations
Table 2 summarizes the number of Designated Stocks selected by Market Makers and their compliance with quotation obligations in 2024. Throughout 2024, the number of selected stocks ranged from about 122 to 140, and the compliance rate with quotation obligations for Designated Stocks remained above 95% each month, indicating sustained quoting within prescribed parameters and diligent fulfillment of obligations.

2. Coverage of Selected Designated Stocks
Since the Mechanisms took effect on June 30, 2021, the TWSE has used July 1 of each year through June 30 of the following year as a complete cycle for screening and updating market‑making targets. In June each year, the TWSE provides the updated screening criteria to Market Makers and Liquidity providers to facilitate target selection for the new period.
In 2024, the coverage ratio—i.e., the proportion of Designated Stocks actually taken up by Market Makers—ranged from 87% to 95%, indicating a high coverage among quality low‑liquidity stocks (see Table 3).

3. Changes in Trading Volume and Value for Selected Stocks
For the most recent period (July 2024 to June 2025), approximately 41 Designated Stocks (quality low‑liquidity stocks) were selected by Market Makers. Comparing trading activity for these 41 stocks in the second half of 2024 with the same period in 2023, both average daily trading volume and average daily trading value increased, by 75.0% and 99.8% respectively. These growth rates outperformed those of all TWSE‑listed stocks as a whole during the same period: the average daily trading volume and value for all listed companies rose by 12.8% and 24.6%, respectively.

In addition to fee discounts under the Mechanisms, since 2022 the TWSE has introduced extra competition‑based incentives to further encourage active participation by Market Makers, updating specific award items over time. As of the second quarter of 2025 (competitions are held quarterly and rules may be updated in light of securities firms’ participation), the incentives include the following three items:

1) Excellence in Market‑Making Award — For Market Makers that, during the competition period, meet quotation obligations for 10 or more Designated Stocks: NT$50,000 per month for 10–14 stocks; NT$80,000 per month for 15–19 stocks; and NT$100,000 per month for 20 or more stocks.

2) ESG Award — For Designated Stocks covered by a Market Maker during the competition period that both meet quotation obligations and are ranked in the top 20% of the Corporate Governance Evaluation: NT$10,000 per month for 1–2 stocks; NT$20,000 per month for 3–4 stocks; and NT$30,000 per month for 5 or more stocks.

3) Price‑to‑Book (P/B) Activation Award — For Designated Stocks covered by a Market Maker during the competition period that meet quotation obligations and have lower P/B ratios: NT$50,000 per month for 1 stock; NT$100,000 per month for 2 stocks; NT$150,000 per month for 3 stocks; and NT$200,000 per month for 4 or more stocks.

In addition to incentives for Market Makers, there is also a Trading Contribution Award for Liquidity providers: During the competition period, for Designated Stocks where the participant’s monthly volume share is at least 2% or the average daily trading volume reaches 25 trading units (lots), the monthly awards are NT$40,000 for 3–4 stocks; NT$50,000 for 5–7 stocks; NT$80,000 for 8–9 stocks; and NT$100,000 for 10 or more stocks.

Given the high fulfillment of obligations by Market Makers under the Mechanisms, a Market Maker that reaches the highest tier in each of the above award items in a given quarter could receive up to NT$990,000 in competition bonuses.

The Market‑Making Mechanisms for Listed Stocks are designed to improve liquidity for quality but less liquid individual stocks. By combining reasonable quotes from Market Makers with active trading by Liquidity providers, the Mechanisms increase the likelihood that investors’ orders are executed, thereby improving stock‑specific liquidity and supporting the healthy development of the capital market. The performance indicators for 2023 and 2024 suggest that—thanks to the efforts of participating institutions—the Mechanisms have been effective in enhancing liquidity for quality low‑liquidity stocks. That said, whether a stock attracts investor interest ultimately depends on multiple factors, including company fundamentals, industry trends, and broader macroeconomic conditions. Market Makers serve as catalysts to facilitate trading activity, but they are not the sole determinant of trading volume.

Now in its fourth year, the Mechanisms have seen stable participation and high compliance by Market Makers. However, the current competition incentive program primarily awards bonuses based on the number of Designated Stocks that meet specified targets, which is relatively one‑dimensional. Given that the program has been in place for three years, adjusting the incentive design to introduce more differentiated awards or to link rewards to Market Makers’ performance may better encourage continued improvements in liquidity.

The TWSE has recently begun evaluating adjustments to the competition mechanism, with a view to enhancing differentiated incentives or adopting performance‑linked models. For example, a performance ranking system that considers factors such as quotation time coverage, bid‑ask spreads, and the number of quote entries could be used to determine different tiers of bonuses, further encouraging Market Makers to enhance liquidity.

The TWSE will continue to assess the effectiveness of market‑making activities and make rolling adjustments based on practical outcomes, as references for the continuous refinement of the mechanisms.