Limits on margin trading, short sales eased from June 29
To create a more efficient market and in accordance with the easing of limits on margin trading and short sales announced by the Financial Supervisory Commission (FSC, ), starting from June 29, the amount limits of NT$80 million and NT$60 million on margin purchases and short sales, respectively, from only one securities firm for an investor are to be lifted, according to a press release from the Taiwan Stock Exchange Corporation ( TWSE, ) yesterday. The amount limits of NT$30 million and NT$20 million on one single TWSE or TPEx-listed securities for an investor are also eased. The measure not only meets an investor’s demand for amount limits and increases the convenience of operations, but also helps securities firms expand their business development, said the TWSE.
The FSC has implemented a number of significant measures to ease restrictions on margin trading to improve the trading mechanism and increase the operating flexibility of investors.
After easing limits on margin trading and short sales, the maximum limits on margin trading and short sales for an individual customer will be taken back into the securities firms’ own control so that the balance between risk management and customer needs can be achieved, the TWSE stated.
Supporting Measures and
The TWSE also announced supporting measures and regulations on June 15, including updates of conditions on the credit limits summed up to the same owner for an investor to open a margin trading account and contents that securities firms should prepare their own operating procedures governing customer line management.
According to the existing regulations, when an investor opens five or more margin trading accounts, securities firms shall sum up the limits on margin purchases in the whole market for the investor to review his/her financial statement and cumulative trade amount. After the new system is on the road, in addition to the number of accounts reaching five or more that should be summed up to the same owner, beginning from the second margin trading account opened by an investor, once the applied limits on margin purchases for margin trading plus the approved limits on margin purchases for credit accounts previously opened reaches more than NT$300 million, securities firms shall execute the mechanism to sum up the limits on margin purchases to review the customer’s financial statement and cumulative trade amount, said the TWSE.
The operating procedures governing customer line management that securities firms should prepare their own include: first, the method to evaluate the maximum limits on margin trading and short sales for an individual customer. The evaluation should take the approved limits of customers in other credit businesses into consideration and define the total amount of margin trading in funds or securities for an individual customer in overall credit businesses, which should not exceed a certain percentage of the net value, respectively. As to limits on margin trading and short sales for an individual customer reaching to NT$300 million or 1 percent of the net value of the securities firm, whichever is greater, should be approved by the Board of Directors.
Secondly, the method to evaluate the maximum limits on margin trading and short sales of one single listed securities held by for an individual customer. The evaluation should take the approved limits of customers in other credit businesses into consideration.
Thirdly, the way to identify high-risk securities or customers: For limits on margin trading and short sales of high-risk securities or customers, special procedures for monitoring and approval should be set up.
To establish a method for customers to obtain source limits of short sales in principles of fairness and reasonableness, and avoid concentrating use by one single customer. Special attention should apply for securities whose limits are allocated by TWSE or Taipei Exchange.
To enhance the risk control, securities firms shall also strengthen the control on credit limits of associated customers. The Taiwan Stock Exchange reminded investors who have the need to increase limits on margin trading and short sales that they may request limits adjustment from their securities firms. For more information, customers are recommended to visit the official website of the Taiwan Stock Exchange (www.twse.com. tw ) and link to the “Ease limits on margin trading and short sales” under the Important Topics on the homepage only under the Chinese edition, or ask for more information, said the TWSE.