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Overview of Securities Lending in Taiwan: Key Updates and Recent Market Reforms

This report discusses the current state and regulations of the securities lending (SBL) market in Taiwan, highlighting the TWSE SBL system, borrowing and lending processes, and recent reforms aimed at enhancing market activity. Key changes include an increase in eligible securities for short selling, the introduction of day trading for select ETFs, and modifications to collateral requirements. This document serves as a discussion piece and does not reflect official TWSE policy. Please note that the data is subject to errors and omissions.

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Overview of Securities Lending in Taiwan: Key Updates and Recent Market Reforms

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  1. Taiwan SBL Updates 2014.3.4 Disclaimer: This report can be merely considered as discussion, and does not represent the opinions, comment, statement or policy of TWSE. Data cannot be guaranteed to be error-free. TWSE is therefore not liable for any mistakes or omissions in the content of this report.

  2. Securities Lending in Taiwan • Borrow/Lend via TWSE SBL System • Fixed-rate/Competitive Bidding • Negotiated Trade • Borrow from Securities Firms securities securities Borrower Lender TWSE (CCP) fee collateral, fee securities securities Lender Borrower TWSE collateral, fee securities Lender Borrower collateral, fee

  3. Global securities lending and Repo market

  4. SBL BalanceVS TAIEX

  5. 2011-2013 Market Activity(1)

  6. 2011-2013 Market Activity(2)

  7. SBL Participants

  8. Recent market reform • Increase underlying securities eligible for short selling at prices below previous day’s close from 150 stocks to 1200+ stocks • Allow buy-and-sell day trades for 200 stocks which are major ETF composite stocks • Allowing securities dealers to buy/ sell at daily 7% ceiling price • Exempt securities dealers’ hedging activities, ETF and warrant market making from daily short selling quantity ceiling

  9. Top concerns for SBL in Taiwan • Daily SBL short selling limit • Collateral ratio of 140% for competitive bidding • Cash collateral other than USD for competitive bidding for FINIs

  10. Short selling limit • Effective from November 22nd ,2011 • Intraday limit: 3% of total outstanding shares 20% of 30-day average trading volume • Helpful for liquidity if can be removed • Consensus among broker’s community to remove the ceiling • Regarded as prerequisite of recent market reform by SFB

  11. Collateral Ratio for Competitive Bidding • 140% vs. 105% • TWSE is informed: • Too expensive for borrowers in BASEL III • Local lenders are disadvantage vis-a-vis foreign lenders • Not supported by local brokers community

  12. Cash collateral • Cash collateral other than USD for competitive bidding for FINIs is requested by some European borrowers • TWSE’s system is ready to support multi-currency collateral

  13. Thank you!

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