TWSE Market Insights

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To foster an investor-friendly environment and attract international capital to continue participating in Taiwan’s capital market, the Financial Supervisory Commission (“FSC”) allowed offshore foreign institutional investors (“FINIs”) in 2023 to use TWSE-listed and TPEx-listed stocks as collateral for offshore investment activities. This enables FINIs to use their existing Taiwan equity holdings as collateral in offshore investment activities, thereby enhancing flexibility in capital management.

To further align Taiwan’s market with international collateral management practices, and in accordance with the policy direction of the competent authority, effective March 30, 2026, the Taiwan Stock Exchange (“TWSE”) will further allow a pledge to be created over such collateral. FINIs may, depending on their transaction arrangements, choose either a general collateral arrangement or a pledged collateral arrangement, thereby enhancing the usability of Taiwan equity holdings in international financial markets.

When international capital participates in Taiwan’s capital market, investors focus not only on corporate fundamentals, industrial competitiveness and market liquidity, but also on the flexibility of asset utilization and the ease of cross-border operations. In recent years, supported by the semiconductor industry, high-tech manufacturing and a diversified range of investment products, Taiwan’s capital market has continued to attract the attention of international institutional investors. Enabling Taiwan equity holdings owned by FINIs to support investment, financing and risk management functions, while safeguarding market order and investor protection, has therefore become an important focus of ongoing regulatory enhancement.

The earlier phase of the framework, which allowed FINIs to use Taiwan stocks as collateral for offshore investment activities, has already provided greater flexibility in the use of domestic securities held by FINIs. The further opening to allow pledges to be created over such collateral is built upon the existing collateral management framework and provides a collateral arrangement that is more consistent with international financial transaction practices. As a result, Taiwan stock assets can not only retain their investment value, but also play a more complete role in offshore transactions, financing and risk management, thereby enhancing the attractiveness of Taiwan’s capital market to international institutional investors.

In international financial markets, when institutional investors enter into cross-border derivatives transactions, securities borrowing and lending transactions, or financing arrangements, they are often required under the relevant contracts to provide highly liquid assets as collateral. Given the scale of Taiwan’s equity market, its active trading and strong industry representation, Taiwan stocks are not only investment targets for international investors, but may also form part of their asset allocation and transaction risk management arrangements. After the framework was introduced in 2023, FINIs were permitted to use TWSE-listed and TPEx-listed stocks as collateral for offshore investment activities, representing an extension of the function of Taiwan stock assets from “holding and trading” to “collateralization and liquidity management.”

In practice, however, certain offshore transaction agreements or risk management policies of international financial institutions impose specific requirements regarding the receipt of collateral, creation of security rights and default disposal procedures. The creation of a pledge is a well-established legal mechanism for creating a security interest and is widely used in international financial markets. Compared with a general collateral management model, it may better meet the credit and transaction risk control requirements of certain offshore counterparties. After pledge creation over collateral is permitted in 2026, the use of Taiwan stocks as cross-border transaction collateral is expected to become more acceptable to offshore counterparties.

Accordingly, this enhancement is not merely the introduction of a new operational procedure. Rather, it enables Taiwan stock assets to carry a more complete collateral function in international financial transactions. FINIs may, depending on their counterparties, contract types and risk control needs, choose either a general collateral arrangement or a pledged collateral arrangement, thereby further enhancing their flexibility in using Taiwan stock assets for offshore investment activities.

To align with international market practices while meeting Taiwan's regulatory and market oversight requirements, the TWSE has promulgated the “Operating Rules on the Use of Domestic Securities by Overseas Chinese and Foreign Nationals as Collaterals for Offshore Investment Activities” (the “FINI Collateral Rules”), which set out matters including participant qualifications, the scope of eligible collateral, custody management, disposal procedures and information reporting. Under the framework, a collateral provider provides Taiwan securities to a collateral receiver as collateral for offshore investment activities and appoints an offshore collateral manager responsible for administering the collateral arrangement. The collateral manager, in turn, appoints a Taiwan collateral custodian to hold the Taiwan securities in custody.

With respect to participant qualifications, both the collateral provider and the collateral receiver are limited to offshore foreign institutional investors that have registered or have been approved by the competent authority to invest in domestic securities in accordance with the Regulations Governing Investment in Securities by Overseas Chinese and Foreign Nationals. If the collateral receiver is the fund provider in a foreign currency loan, it must also be licensed by the relevant offshore financial authority to operate as a bank or securities firm. The collateral manager is limited to an institution licensed by the relevant offshore financial authority to conduct banking business, and is responsible for matters such as confirmation of collateral eligibility, allocation, replacement, mark-to-market valuation, bookkeeping, notices to provide additional collateral and instructions for default disposal. The Taiwan collateral custodian must be a bank or securities firm approved by the FSC to conduct custody business, and will handle custody, receipt and delivery, and disposal of the collateral.

To ensure that the framework remains focused on offshore investment activities, the FINI Collateral Rules also set out restrictions on the use of funds. Funds obtained by FINIs using Taiwan stocks as collateral must be in a currency other than New Taiwan dollars, must be used outside the Republic of China, and must not involve any activities within the Republic of China. Eligible domestic securities that may be used as collateral are limited to TWSE-listed and TPEx-listed stocks eligible for margin trading, and stocks obtained through securities borrowing and lending transactions may not be used as collateral. By clearly defining participant qualifications, permissible use of funds and eligible collateral, the framework enhances operational flexibility for FINIs while preserving Taiwan's market oversight and foreign exchange regulatory framework.

After the framework takes effect in 2026, FINIs may, depending on the arrangements for their offshore investment activities, choose to manage Taiwan stock collateral under either a general collateral arrangement or a pledged collateral arrangement. Under the general collateral arrangement, the Taiwan collateral custodian must open a dedicated collateral custody account with the Taiwan Depository & Clearing Corporation (“TDCC”). Ownership of the securities remains with the collateral provider, no pledge is created, and title to the collateral is not transferred merely because the securities are provided as collateral. The collateral must be kept separately from the Taiwan collateral custodian’s own assets and may not be used for any other purpose. The securities remain registered in the name of the collateral provider, and title to the collateral is not transferred merely because the securities are provided as collateral. If the collateral provider defaults, the Taiwan collateral custodian, acting on the instructions of the collateral manager, must report to the TWSE before disposal and sell the collateral in the securities market through a collateral disposal account. The disposal proceeds are applied to the repayment of the agreed obligations, and any surplus is returned to the collateral provider.

Under the pledged collateral arrangement, the collateral provider acts as the pledgor and the collateral receiver acts as the pledgee, and the pledge relationship is handled in accordance with the FINI Collateral Rules and TDCC regulations. In addition, the Taiwan collateral custodian must establish a dedicated pledge account with TDCC and, in accordance with the FINI Collateral Rules and the relevant TDCC rules governing pledge creation, process pledge-related book-entry transfer operations for securities upon application by the pledgee. The pledgee must also designate the Taiwan collateral custodian as its primary or secondary custodian and open a custody book-entry depository account.

With respect to default disposal, where a pledged collateral arrangement is adopted, the collateral receiver, as pledgee, may dispose of the pledged collateral through the self-auction procedure prescribed under the applicable TDCC regulations. Under this procedure, the pledged securities are sold through the centralized securities market before the pledge is enforced. The Taiwan collateral custodian, acting on the instructions of the collateral manager, must report to the TWSE before and after the pledgee disposes of the pledged collateral, and must handle the relevant book-entry transfer operations. The proceeds from disposal of the pledged collateral must first be applied to the repayment of the obligations agreed between the collateral provider and the collateral receiver. Any surplus must be returned to the pledgor before the end of the first business day following the day on which the disposal proceeds are credited.

For the collateral framework to operate effectively, it must not only facilitate market participants but also maintain transparency and robust risk management. Under the FINI Collateral Rules, after receiving collateral, the Taiwan collateral custodian must report to the TWSE the checklist information confirming whether the collateral provider, collateral receiver and collateral manager meet the required qualifications. The collateral provider must also, within fifteen days after the end of each month, prepare information on the collateral as of the end of the preceding month and report it to the Central Bank, while also providing it to the TWSE for filing. Such information includes the names of the participants, name of the collateral, quantity, market value, collateral value, contract term and contract type. If necessary, the FSC, the Central Bank and the TWSE may require the relevant participants to provide information so that they can promptly monitor the operation of the framework.

In addition, if a collateral provider or collateral receiver violates the relevant rules, the TWSE may prohibit it from providing or receiving collateral, or require the return of collateral within a prescribed period. If a collateral manager or Taiwan collateral custodian violates the relevant rules, the TWSE may take measures such as suspending the acceptance of new collateral or requiring the transfer of collateral to another Taiwan collateral custodian. In serious cases, the TWSE may revoke the registration of the collateral manager or the approval of the Taiwan collateral custodian. Through ex ante qualification management, ongoing information reporting and ex post disciplinary measures for violations, the framework facilitates international investors while continuing to maintain market supervision.

Allowing FINIs to use Taiwan stocks as collateral for offshore investment activities, and further permitting the creation of pledges over such collateral, represents an important step in aligning Taiwan’s capital market framework with international practices. For FINIs, this measure can enhance the asset utilization efficiency of their Taiwan stock holdings, enabling them to flexibly meet the collateral needs of offshore transactions while maintaining medium- to long-term investment positions. For the Taiwan market, it can increase the incentive for international capital to hold Taiwan stocks, enhance flexibility in the use of FINI holdings, reduce the need to adjust positions solely for collateral or capital management purposes, and deepen the role of Taiwan stocks in the asset allocation of global institutional investors.

From the perspective of market development, the more diversified the functions of Taiwan stock assets become, the stronger the connection between international capital and Taiwan’s market will be. FINIs may, without selling their holdings, use eligible domestic securities as collateral for offshore investment activities, which helps improve the stability of shareholdings and efficiency of liquidity management. The introduction of the pledge creation mechanism brings Taiwan stock collateral arrangements closer to international financial transaction practices and increases the possibility that offshore counterparties will accept Taiwan stocks as collateral.

Looking ahead, the TWSE will continue to follow the policy direction of the competent authority, maintain communication with custodians, international institutional investors and other market participants, observe the operation of the framework and refine operational procedures as appropriate. Through a framework design that balances efficiency, transparency and risk control, Taiwan stocks can serve not only as important investment targets for international investors participating in the growth of Taiwan’s industries, but also as effective tools for their cross-border liquidity management and risk management. As the relevant framework continues to evolve, Taiwan’s capital market will further enhance its international connectivity and advance steadily toward the vision of becoming a leading Asian asset management center with greater depth, breadth and competitiveness.