TSEC to offer foreign investors a more friendly market

Taipei, Aug. 8, 2005 (CENS)--Taiwan Stock Exchange Corporation (TSEC) launched a workshop last week to acquainting market practitioners, especially foreign investors, with some important new measures regarding securities trading and settlement.

These new measures contain several topics that concern foreign investors most, including securities borrowing and lending, pre-funding, omnibus account, block trading, transfer of assets between depository accounts, and odd-lots trading.

The discussion was presided over by Chen Ming-tai, president of TSEC. Six delegates from major international securities firms and custodian banks were invited to join the discussion session and offer their suggestions. Lee Chi-hsien, deputy director of the Securities and Futures Bureau under the Cabinet-level Financial Supervisory Commission was also present at the discussion session.

Chen said his company values and welcomes every different and diversified comments and advices from all market participants. Over the past year TSEC has relaxed the rules on securities lending, allowing the return of securities by new borrowing, the rollover of transaction, the partial return of borrowed securities, the refund of excess collateral, and the acceptance of book-entry central government bonds as eligible collateral.

Recently, TSEC has abolished the requirement that the securities borrowing and lending transaction has to be in connection with a strategic purpose. The on-shore collateral requirement imposed upon a foreign borrower and a foreign lender on negotiated transactions were also removed since June 27. "Total short-selling volume limit" was adopted to ease the impact of an unrestrained short sale in large volume.

TSEC said it is in the process of introducing a Multiple Trading Securities Lending Account (MTA) system, which is expected to take effect someday in August. TSEC will soon determine if the transfer between the MTA accounts may be allowed.

When placing a purchase order, foreign investors are often asked by the brokerage to maintain a cash balance at the custodian bank to meet the settlement requirements. This practice is known as ‘pre-funding' a security purchase.

This practice stems from a variety of reasons. Largely, this is a precaution adopted by the brokerage against the potential risk that a foreign investor might fail to meet Taiwan's very strict settlement schedule. Settlement failure may subject an investor to a ban from trading in the Taiwan market for a three-year period.

On Aug. 1, TSEC abolished the three-year trading ban against investors who fail in settlement time. Under the new regulations, investors are permitted to resume ordinary trading as soon as they have resolved any settlement issue with the brokerage. TSEC said it would promptly inform the brokerage community of the result of a pending settlement dispute case.

Currently all investors in the Taiwan securities market are designated with a unique identification number. Under this system, the foreign fund management company that has a number of funds under its management will have an identification number for each of the funds, creating many different investment accounts and identifications.

To address the cumbersome caused by the existing system, TSEC is developing an initial ‘omnibus account' framework that allows the fair and equal allocation of trading results to numerous funds under management.

On April 4, TSEC revised a ‘block trade' system. Since that time, the volume of trades under the new system has been consistently on the rise, despite the calls for fine tuning and adjusting such measures as trading time, price range, settlement terms and counterparty exclusivity. In response to the calls, TSEC noted it is making amendments to the system so as to provide a more convenient ‘block trade' trading system.

Under the present securities regulations, foreign investors can only sell odd-lots shares, but not purchase. To relax odd-lots trade rules, TSEC plans to permit investors to buy as well as sell shares in odd-lots, which is expected to be implemented in mid-August.