Taiwan's young exchange-based stock-borrow and loan (SBL) market has thus-far been bypassed by most foreign institutional investors. A hefty layer of restrictive regulations and tax issues has made a synthetic route to securities financing more attractive. But some long-awaited regulatory changes are giving the SBL market a much-needed boost.
In Taiwan there are two separate SBL systems – one for local retail investors and one for institutions. The retail SBL market is called the margin transaction system and has been in place since 1980. The institutional SBL market is the only route for a qualified foreign institutional investor (FINI) to Taiwan SBL. It is run through the Taiwan Stock Exchange (TSEC), is four years old, and has the potential to become much larger than the local margin market.
A recent change in the market was an exemption to Taiwan's rather unique up-tick rule – that you cannot sell stock below the...
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