Charting the Future of Taiwan’s Capital Markets

Healthy capital markets are vital to the functioning of an economy, generating both short-term economic output and long-term growth. As industry leaders look toward Taiwan’s financial future, they should strive to develop fair, open and efficient capital markets to sharpen Taiwan’s global competitive edge.

In the recently published 2017 Taiwan White Paper, the Capital Markets Committee of the American Chamber of Commerce in Taipei proposes a number of policy recommendations on how to bring Taiwan’s financial industry in line with international standards.

One of AmCham’s top priority issues within the 2017 Taiwan White Paper is relaxing securities investment regulations to promote wider participation in and growth of capital markets. In its position paper, the Capital Markets Committee recommends implementation of the following policy reforms to help foster a thriving and robust financial market:

  • Amend securities investment regulations to allow securities firms to provide investors with short-term trading strategies based on up-to-date market conditions and public market data. The current stipulation that securities firms must base their recommendations on research reports restricts the flow of timely information and hinders them from helping investors respond to rapidly evolving market conditions.
  • Exempt convertible bonds listed on the Taiwan Stock Exchange from the restriction imposed on foreign investors that only 30% of total net remitted-in capital can be invested in the fixed-income market. This exemption would generate much-needed liquidity and resolve existing pricing and public offering difficulties in the convertible bond market.
  • Reform the system regulating participation of Foreign Institutional Investors (FINIs) in competitive IPO/SPO auctions. As the position paper notes, “Allow them to engage in direct IPO/SPO bidding by sending instructions to their designated brokers for processing on the clients’ behalf – or alternatively create an English-language platform so that FINIs may bid directly from overseas.”

The Capital Markets Committee also suggests practical steps regulators can take to enhance market efficiencies and competitiveness: allowing brokers to outsource certain operations, eliminating Saturday trading to align with international practice and reduce settlement risk, issuing electronic tax statements to FINIs, and implementing the Virtual Matching Utility system as the market standard in trade pre-matching and affirmation between brokers and custodians.

Adopting these reforms would benefit Taiwan’s capital markets by increasing flexibility of broker-dealer cost structures, enhancing funding liquidity and better managing liquidity risk, reducing costs of market entry, and ultimately improving market efficiency.

To read the full Capital Markets position paper, click here.

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