The Financial Supervisory Commission (FSC) announced late last night it would temporarily ban short selling on all stocks between today and Oct. 14 in order to shore up the market, it said on its Web site.
Under the new measure, the government will ban investors from borrowing stocks of all listed companies on both Taiwan Stock Exchange and GRETAI Securities Market for short sales, the FSC said. In addition, short-selling on stocks above their closing prices in previous session would also be banned over this period, it added.
The FSC said that during this period, it would routinely review the short-selling ban to maintain normal market operations.
PHOTO: LIAO YAO-TUNG, TAIPEI TIMES
Local investors panicked yesterday after the US House of Representatives vetoed the US$700 billion financial bailout, fearing the rejection would spell more bad news for the TAIEX, stock analysts said.
“It was shocking news to investors, who thought congressional approval would be just a matter of time,” Alex Huang (黃國偉), assistant vice president of Mega Securities Co (兆豐證券), said by telephone yesterday.
Shares dropped 3.55 percent yesterday. In early trading, the TAIEX plummeted by as much as 6 percent before slightly rebounding to close at 5,719.28 points after the government indicated it would continue to support the local bourse.
Turnover was NT$69.583 billion (US$2.17 billion), Taiwan Stock Exchange data showed.
The local benchmark is likely to continue its downward trend this week to test the 5,500-point level, Huang said, since it will take a few more days for the White House and Congress to rework the plan.
Foreign investors sold a net NT$3.682 billion in local shares yesterday, while domestic investment trust companies sold a net NT$1.112 billion and domestic proprietary traders offloaded NT$640 million.
The rebound in late trading was the result of support from the government’s National Stabilization Fund (國安基金), despite the financial regulator’s tightened restrictions on short-selling, Huang said, adding that the rules prevent short sellers from profiting when the government steps in to buy shares.
Short-selling involves betting that a stock’s price will drop: Short sellers borrow shares at one price, hoping their prices will drop so the shares can be purchased at a lower price and returned to the lender.
The Financial Supervisory Commission (FSC) said in a statement late on Monday that the daily aggregate amount of borrowed shares and credit trading that could be traded would be limited to 10 percent of a company’s listed stock until the year’s end, down from 25 percent.
Institutional investors will be limited to trading borrowed shares equivalent to no more than 1 percent of a company’s total listed shares, down from 10 percent.
The amount of short sales per day will be limited to 0.3 percent of a company’s listed stocks, down from 3 percent, the statement said.
Speaking about the drop in the TAIEX yesterday, FSC Vice Chairman Wu Tang-chieh (吳當傑) said the health of the stock market was a matter of confidence, urging investors to remain calm.
Some analysts voiced concern.
“These measures by [the] FSC are short-term solutions to boost investors’ sentiment and their impact is limited,” Dominic Lin (林東明), a fund manager at HSBC Holdings Plc in Taipei told Bloomberg. “Investors are waiting to see if the Fed will cut interest rates.”
Sherman Chan (陳穎嘉), an economist at Moody’s Economy.com, echoed the need for a Fed rate cut.
“An interest rate cut by the Federal Reserve is now a must to restore market confidence around the globe. In fact, coordinated central bank action would be a much stronger help,” Chan said in a report released yesterday.
But Huang said local investors would respond positively to measures in the US, however minor. The US has temporarily banned short-selling for hundreds of stocks.
“The TAIEX’s potential for a future rebound may be surprising,” Huang said.
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