The Financial Supervisory Commission on Sunday announced that from today, a ban on day trading on the Taiwanese market will be lifted, allowing both retail and institutional traders to buy and sell a given stock on the same day, in an effort to stimulate trading volumes.
According to the FSC, members of the investing public and institutional investors and brokers who manage company portfolios will be allowed to conduct day trading. In addition, the FSC will relax restrictions imposed on financial institutions when issuing stock warrants. For the purpose of hedging risk, financial institutions may place leveraged short-sell orders on the stock underlying the warrant it intends to issue, said the FSC. The FSC will also lift restrictions barring financial institutions from setting short-sell orders at below the previous day’s closing price.
The change is aimed at addressing the needs to hedge risk and maintain adequate liquidity
for investment instruments such as stock warrants, said the FSC. Furthermore, the FSC will allow securities brokerage companies to conduct short-selling of shares on credit for the purpose of hedging risk and conducting arbitrage relating to holding, trading and underwriting convertible bonds issued by companies abroad.
The FSC, however, will restrict brokerage companies to commence short-selling on the underlying stock only when the holder of the corporate bond exercises their option to exchange the bond for shares of the issuing company. According to reports, most convertible bonds must be held for at least one month before the conversion option may be exercised.
The FSC will also allow securities brokerage companies involved in dealing or conducting market activities for exchange traded funds (ETFs) based on the performance of foreign stock exchanges to place leveraged short-sell orders on underlying shares that exhibit high correlation to the valuation of the ETFs.
The FSC stated that recent changes are aimed at providing a greater degree of options and flexibility to security brokerage companies, allowing them to offer more avenues by which to ensure risks are hedged during the issuing and underwriting of investment instruments such as stock warrants. With trading volumes and activity expected to rise following the changes, the FSC stated that it is anticipating performance improvements across the securities brokerage sector.