Financial stocks up on FSC’s new rules removing credit trading cap
The financial sector moved higher Friday morning after the Financial Supervisory Commission (FSC, ) decided to remove the ceiling on the value of credit trading — margin trading and securities borrowing — as part of its efforts to boost activity in the local equity market, dealers said.
While the bellwether electronics sector fell into consolidation mode, buying rotated to the financial sector in the wake of the new trading rules, lending some support to the broader market, they said.
As of 11:11 a.m., the financial sector had climbed 0.71 percent to 1,199.00 points, while the electronics sub-index had risen 0.15 percent to 363.47 points. The weighted index on the Taiwan Stock Exchange was up 0.04 percent at 9,306.02 points.
“The move to remove the restrictions on credit trading prompted investors to shift their attention to the financial sector on hopes that a boom in the local bourse would strengthen the profitability of securities companies,” Hua Nan Securities analyst Henry Miao said.
“The easing of trading rules on the local bourse is expected to give investors more flexibility and greater convenience,” Miao said.
Remove Ceiling for Credit
The FSC, the top financial regulator in Taiwan, announced Thursday the removal of the ceiling for credit trading value, starting June 29. Taiwan imposed the cap on the value of credit trading in 1980, stipulating NT$80 million for margin trading and NT$60 million for securities borrowing by retail or institutional investors. For credit trading in small or mid-cap stocks, the ceiling was set at NT$40 million, while for securities borrowing it was NT$30 million.
While market activity may expand with the removal of the restrictions, the FSC said, securities companies would have to tighten risk control to avoid losses by closely monitoring their clients’ credit records and collateral.
The balance of margin trading was NT$190.5 billion as of June 10, while the balance of securities borrowing was 395 million shares,
according to the FSC.
Liberation of the Equity Market
It said the introduction of the new credit trading rules followed the recent liberation of the equity market in a bid to stimulate trading interest and eventually boost the daily turnover on the local market.
The FSC earlier this month increased the limits for daily fluctuations of stock prices on the local main board and over-the-counter market, from 7 percent to 10 percent.
It also increased the amount of equity required for investors to maintain their margin trading accounts — known as the collateral maintenance ratio — from 120 percent to 130 percent of the amount borrowed on margin.
“Although the financial sector rebounded Friday from a fall in the previous session earlier, the broader market continued to move in a narrow range after the volatility in recent sessions,” Miao said.
He said the index was likely to continue to trade in a range of 9,250 to 9,350 points for the rest of the day.