Taiwan’s Financial Supervisory Commission announced Tuesday that it will relax credit restrictions on margin trading and short selling on the main board and the over-the-counter market.
Among the new measures, the cap on borrowing for margin trading or short selling of a single stock on the TWSE will be lifted to NT$30 million from the current NT$15 million and NT$10 million, respectively. For the Gretai Securities Market, the cap for longing and shorting of a single stock will be lifted to NT$20 million from the existing NT$10 million and NT$7.5 million, respectively. In terms of a single account, the limits will also be calculated separately for borrowing by investors to go long or short on stocks, with the former to be lifted to NT$80 million from NT$60 million now and with the latter to be lifted to NT$60 million from NT$40 million. The new rules will take effect on Nov. 10.
Joen Ray Chen, chairman of Ray Wing Research and Investment, indicated in an interview with the Economic Daily News that the previous stock market stimulus plans did bolster local stock market turnover and send the index higher over the past few months; however, with a recent bumpy ride on the global stock market, foreign and domestic investors turned bearish. This new policy is designed to boost trading volumes among domestic investors, but it is at odds with the revised capital gains tax on securities transactions for big players, which will enter into force in 2015, and is expected to discourage trading, Chen said.
Under the amendment, investors with trades amounting to more than NT$1 billion a year will have to pay a 0.1 percent tax on trades above the first NT$1 billion. "As market sentiment remained fragile after a recent sell-off by foreign institutional investors, many investors preferred to stay sidelined for the time being. I don't expect that many of them are willing to conduct more leveraged trades for the moment," Mega International Investment Services Corp. analyst Alex Huang said.
The weighted index on the Taiwan Stock Exchange ended up 11.26 points to settle at 8,966.44 points with trading volume expanding to NT$82.93 billion, larger than the poor NT$69.37 billion recorded in the previous trading session after the credit relaxation rule was announced Tuesday.
Chen said that the local bourse will hardly reflect on the new stimulus plan as it will take effect on November 10.
Mao Jen-chieh, president of Pro Standard Capital Management, said that the reform will take time to reflect the benefits and might be partially offset by the upcoming capital gains tax for big players. Currently the weak trading volume on the local bourse was also showing investors’ lack of confidence towards the global market, said Mao.