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The Taiwan SBL Market Li-Chen,Yang Clearing Department Taiwan Stock Exchange March 13, 2008.

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Presentation on theme: "The Taiwan SBL Market Li-Chen,Yang Clearing Department Taiwan Stock Exchange March 13, 2008."— Presentation transcript:

1 The Taiwan SBL Market Li-Chen,Yang Clearing Department Taiwan Stock Exchange March 13, 2008

2 2 Outline SBL market conditions The TSEC SBL system Regulatory updates Future prospects

3 SBL Market Conditions

4 4 Market Development The TSEC SBL system launched- June 2003 Purpose test and onshore collateral requirements removed- June 2005 Ceilings set for short selling- June 2005 Price restriction removed for designated stocks- May and November 2007 Securities firms allowed to conduct SBL acting as lending principal- July 2007

5 5 Market Structure TSEC SBL System (Fixed-rate, competitive auction, negotiated) Qualified institutional investors (Principal) Securities Finance Companies (Lending principal) Direct lending to investors Securities firms (Lending agent) Investors Securities firms (Lending principal)

6 6 Statistics- SBL Trading Amounts Year Total transactions 1,311 orders1,120 orders1,455 orders2,799 orders Total volume traded 3.0 billion shares 2.3 billion shares 2.8 billion shares 5.7 billion shares Total value traded US$2.5 billion (approx.) US$2.1 billion (approx.) US$2.7 billion (approx.) US$9 billion (approx.)

7 7 Statistics- Transaction Types by Volume

8 8 Statistics- FINIs Participation FINI Trading VolumeTotal SBL Trading Volume Ratio of FINI to Total SBL Trading Volume LendBorrowLendBorrow ,0073,0490.2%98.6% ,2322,2752.0%98.1% ,6582, %96.3% 20073,4825,6845, %99.0% (FINIs, Foreign Institutional Investors) Unit:Million shares

9 The TSEC SBL System

10 10 A centralized system, launched in June 2003 Limited to qualified institutional investors Classifies SBL transactions into 3 types: * Fixed-rate - fee rate fixed at 3.5% p.a. * Competitive auction - fee rate by bids & offers * Negotiated - fee rate via negotiations Features of the TSEC SBL System

11 11 TSEC Roles in the SBL System Provides intermediary services Relays transfer requests to TDCC via network Manages collateral in fixed-rate & competitive auction transactions Acts as a guarantor in fixed-rate & competitive auction transactions

12 12 Roles of SBL Brokers Act as agents for borrowers and lenders Relaying TSEC SBL system information Relaying TSEC SBL system information Applying for SBL trades with TSEC Applying for SBL trades with TSEC Handling settlement Handling settlement

13 13 Transaction Types Transaction Types Fee RatesCollateral Rates PeriodPledgeeGuarantor Fixed-rate3.5%140% of loan value 6 months and one-time rollover permitted TSEC Competitive Auction Bids and Offers 140% of loan value 6 months and one-time rollover permitted TSEC NegotiatedNegotiable 6 months and one-time rollover permitted LenderNA

14 14 Ceilings set for total short selling volume in the whole market: Daily maximum for short selling of borrowed stocks cannot exceed 3% of outstanding shares per lending stock Daily maximum for short selling of borrowed stocks cannot exceed 3% of outstanding shares per lending stock Maximum for short selling of borrowed stocks cannot exceed 10% of outstanding shares per lending stock Maximum for short selling of borrowed stocks cannot exceed 10% of outstanding shares per lending stock The total volume of short selling borrowed stocks and margin short sales cannot exceed 25% of outstanding shares per stock The total volume of short selling borrowed stocks and margin short sales cannot exceed 25% of outstanding shares per stock Market Rules for Short Selling(1)

15 15 Market Rules for Short Selling(2) Only covered short selling allowed Up-tick rules mandatory Exemptions for up-tick rules: Warrant Issuers and Stock Option Market Makers ETFs Constituents of TW 50 Index Constituents of TW Mid-Cap 100 Index and TW Technology Index

16 Regulatory Updates

17 17 Major Reforms in 2007 Additional early recall option Price restriction removal SBL taxation reform TSEC SBL service fee revision

18 18 Additional Early Recall Option 1 An additional option for early recall: 1-day prior notice in addition to 3 & 10-day notice in fixed-rate and competitive auction transactions 1-day prior notice in addition to 3 & 10-day notice in fixed-rate and competitive auction transactions 1 Implemented on January 29, 2007

19 19 Price Restriction Removal Constituents of Taiwan 50 Index exempted 2 Constituents of Taiwan Mid-Cap 100 and Taiwan Technology Index exempted 3 Aforementioned stocks constitute 84% of total market value 3 Effective from November 12, Effective from May 11, 2007

20 20 SBL Taxation Reform 4 Item Manufactured Dividends Lending Fees Overseas Agent Fees Interest on Overseas Collateral Income Tax Yes (borrower holds) YesNo (borrower sells) Business Tax NA No (Both sides are FINIs w/out PE or agent in Taiwan) No 4 Effective from August 20, 2007

21 21 TSEC SBL Service Fee Revision 5 Charges both parties in a negotiated transaction at 0.02% p.a. of borrowed stocks trading value Switched from per transaction basis to per annum basis Reduces costs to participants for short-term transactions 5 Effective from December 3, 2007

22 Future Prospects

23 23 Future Prospects Pre-arranged negotiated transaction A borrower can short on day T though actual transfer of securities occurs on T+1 A borrower can short on day T though actual transfer of securities occurs on T+1 Find a method to solve late return of stocks for lenders selling lent stocks Streamlining of pledge procedure TDCC participants can directly get access to the pledge system to carry out the pledge

24 24 Thank you


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