Since existing regulation prohibits QFII from conducting financial trading on credit account, newly eased rules are set forth to go with the new system for accommodating QFIIs to initiate margin short at the price lower than last closing price-- yet depending only on the condition of trading, hedging or arbitraging purposes of ETF product. QFIIs' are still barred from trading straight shares on credit.
Securities eligible for lending purposes include qualified TSEC listed stocks, Gretai Securities Exchange (former OTC market) listed stocks and the new ETF. Qualified institutional market participants, including securities dealers, securities investment trust enterprises, QFII's, and futures proprietary traders, are eligible to register with the SBL as borrowers. Those who are presently eligible to become lenders are QFII's, securities investment trust enterprises, futures proprietary traders, and insurance companies. The competent authority is also considering inclusion of banks as securities lenders.
The Taiwan SBL system is set up for the purpose of strategic trading at the initial stage rather than for settlement facilitation. Currently permissible trading strategies include hedging, arbitraging and exercising. Tradable products for both domestic investors and QFII's are ETF, Taiwan 50 Index futures, ADR, GDR, CB, and ECB. Specific foreign holders of TSEC positions in the form of ADR, GDR or ECB are allowed short sale from borrowing shares form the SBL system.
Mr. Sean Chen, Chairman of Taiwan Stock Exchange, stressed that to meet with international market's practice and caters to the needs of professional investors' sophistication, this new milestone is believed to not only render the investing public greater convenience but also bring them a more active and balanced market.
