Taiwan Today

The ROC Executive Yuan approved a raft of measures June 26 aimed at liberalizing cross-strait securities investments and transforming Taiwan into an asset-management and capital-raising hub. Susan Chang, deputy minister of the Cabinet-level Financial Supervisory Commission, described the initiative as a "short-term measure" that would ease restrictions on ROC citizens investing in Hong Kong and mainland China, as well as enhance financial supervision between the two sides of the strait. "The new rules will be conducive to rejuvenating Taiwan's capital market and will make it more international," she said. The package, which is expected to be implemented over a period of one month, includes five measures: to abolish the requirement for foreign institutional investors to declare that their capital is not from mainland China when registering with the Taiwan Stock Exchange Corp.; open mutual listings of exchange-traded funds on the Taiwan and Hong Kong stock markets; allow companies listed on the Hong Kong Stock Exchange to realize their second listing on Taiwan's stock market and issue Taiwan Depository Receipts; loosen restrictions on investing in mutual funds with Chinese mainland capital, and permit Taiwan institutional investors to buy into mainland China's securities and futures market. Local securities firms praised the government's proposal--drafted by the FSC in consultation with the Council of Economic Planning and Development, the Mainland Affairs Council and the Central Bank of the Republic of China--saying it would have "apparent and positive effects" on long-term capital flows to the Taiwan Stock Exchange. Jih Sun Securities Investment Trust Co., one of Taiwan's leading stock brokers, noted that allowing mutual listings of ETFs in Taiwan and Hong Kong, and removing the requirement for FIIs to declare that their capital is not from the Chinese mainland, could attract more international investments to Taiwan. "Once the proposed Taiwan-Hong Kong mutual listings are actualized, foreign funds can invest in Taiwan's stock market by putting their capital in Taiwanese ETFs listed on the Hong Kong stock market," a Jih Sun spokesperson said. An ETF is an investment vehicle traded on stock exchanges much like stocks and bonds. The product appeals to investors because of its low transaction costs, diversified risks, tax-efficiency and stock-like features. Such funds provide access for foreign investors to evaluate local stocks, facilitating inflows of foreign capital to local bourses and companies. According to the FSC, several Taiwan investment companies are already showing great interest in ETFs and listing in Hong Kong. "A Taiwan ETF, with assets of US$98.8 million, is expected to list on the HKSE in the next six months," the deputy minister said. As for subsequent procedures to finalize the ETF trading plan, Chang explained that Taiwan had already signed a memorandum of understanding with Hong Kong in 1996 to execute bilateral stock investment. "Only an addendum on information exchange regarding management will be needed to make such trading workable," she stressed. On the issue of allowing companies listed on the HKSE to make their second listings in Taiwan, Chang explained that previously, the FSC only permitted companies that have listed on its register of approved stock markets from around the world--but not Hong Kong's bourse--to list on the TWSE, with a view to preventing companies that hold mainland Chinese capital from listing in Taiwan. Although permitting HKSE-listed firms to make second listings in Taiwan, companies that are registered on the Chinese mainland, foreign companies whose main shareholders are mainland Chinese, or companies with over 20 percent of their shares directly or indirectly owned by Chinese mainlanders will be excluded from the measure for the moment. Chang related that the TWSE and GreTai Securities Market, which handles over-the-counter trading in Taiwan, would modify regulations to allow companies listed in Hong Kong to list in Taiwan. The Cabinet will determine at a later date whether to relax limitations on those firms still excluded from making secondary listings in Taiwan. The decision to loosen restrictions on investing in mutual funds with mainland Chinese capital will see the ceilings lifted on investments in H shares and red chips by funds sold on the island. H shares are listed in Hong Kong and issued by a company registered and based in mainland China. Red chips are listed in Hong Kong for a company registered in Hong Kong but with most of its assets in mainland China. Currently, funds sold in Taiwan can invest up to 0.4 percent of their assets directly in Chinese mainland-listed stocks, and up to 10 percent of their assets in H shares and red chips. Chang said that all regulations on mutual funds would eventually be relaxed, but added the percentage by which the ratio would be raised had yet to be determined. The government also said it would lift a ban on local securities, futures and investment-funds management firms investing in their mainland Chinese counterparts, directly or indirectly. The FSC would revise related rules to allow Taiwanese dealers' investments to total as much as 20 percent of their net worth, doubling the previous ceiling of 10 percent.