Download - The Taiwan SBL Market Li-Chen,Yang Clearing Department Taiwan Stock Exchange March 13, 2008
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The Taiwan SBL MarketThe Taiwan SBL Market
Li-Chen,YangLi-Chen,YangClearing DepartmentClearing Department
Taiwan Stock ExchangeTaiwan Stock ExchangeMarch 13, 2008March 13, 2008
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OutlineOutline
SBL market conditionsSBL market conditionsThe TSEC SBL systemThe TSEC SBL systemRegulatory updatesRegulatory updatesFuture prospectsFuture prospects
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SBL Market ConditionsSBL Market Conditions
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Market DevelopmentMarket Development
The TSEC SBL system launched- June 2003The TSEC SBL system launched- June 2003Purpose test and onshore collateral requirements Purpose test and onshore collateral requirements removed- June 2005removed- June 2005Ceilings set for short selling- June 2005Ceilings set for short selling- June 2005Price restriction removed for designated stocks- May Price restriction removed for designated stocks- May and November 2007and November 2007Securities firms allowed to conduct SBL acting as Securities firms allowed to conduct SBL acting as lending principal- July 2007lending principal- July 2007
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Market StructureMarket StructureTSEC SBL System
(Fixed-rate, competitive auction, negotiated)
Qualified institutionalinvestors(Principal)
Securities FinanceCompanies
(Lending principal)
Direct lending to investorsSecurities firms
(Lending agent)
Investors
Securities firms(Lending principal)
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Statistics- SBL Trading AmountsStatistics- SBL Trading Amounts
Year 2004 2005 2006 2007
Total transactions
1,311 orders 1,120 orders 1,455 orders 2,799 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.)
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Statistics- Transaction Types by VolumeStatistics- Transaction Types by Volume
0
10
20
30
40
50
60
70
80
90
%
2003 2004 2005 2006 2007
Fixed-Rate
CompetitiveAuctionNegotiated
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Statistics- FINIs’ ParticipationStatistics- FINIs’ Participation
FINI Trading Volume Total SBLTradingVolume
Ratio of FINI toTotal SBL Trading
VolumeLend Borrow Lend Borrow
2004 6 3,007 3,049 0.2% 98.6%2005 45 2,232 2,275 2.0% 98.1%2006 664 2,658 2,761 24.0% 96.3%2007 3,482 5,684 5,739 60.7% 99.0%
(FINIs, Foreign Institutional Investors) Unit:Million shares
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The TSEC SBL SystemThe TSEC SBL System
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A centralized system, launched in June 2003A centralized system, launched in June 2003Limited to qualified institutional investorsLimited to qualified institutional investorsClassifies SBL transactions into 3 types:Classifies SBL transactions into 3 types:* Fixed-rate - fee rate fixed at 3.5% p.a.* Fixed-rate - fee rate fixed at 3.5% p.a.* Competitive auction - fee rate by “bids & offers”* Competitive auction - fee rate by “bids & offers”* Negotiated - fee rate via negotiations* Negotiated - fee rate via negotiations
Features of the TSEC SBL SystemFeatures of the TSEC SBL System
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TSEC Roles in the SBL SystemTSEC Roles in the SBL System
Provides intermediary servicesProvides intermediary servicesRelays transfer requests to TDCC via networkRelays transfer requests to TDCC via networkManages collateral in fixed-rate & competitive Manages collateral in fixed-rate & competitive auction transactionsauction transactionsActs as a guarantor in fixed-rate & competitive Acts as a guarantor in fixed-rate & competitive auction transactionsauction transactions
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Roles of SBL BrokersRoles of SBL Brokers
Act as agents for borrowers and lendersAct as agents for borrowers and lenders Relaying TSEC SBL system informationRelaying TSEC SBL system information Applying for SBL trades with TSECApplying for SBL trades with TSEC Handling settlementHandling settlement
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Transaction Types Transaction Types
TransactionTypes
Fee Rates Collateral Rates
Period Pledgee Guarantor
Fixed-rate 3.5% 140% of loan value
6 months and one-time rollover permitted
TSEC TSEC
Competitive Auction
Bids and Offers
140% of loan value
6 months and one-time rollover permitted
TSEC TSEC
Negotiated Negotiable Negotiable 6 months and one-time rollover permitted
Lender NA
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Ceilings set for total short selling volume in the whole Ceilings set for total short selling volume in the whole market:market: Daily maximum for short selling of borrowed stocks Daily maximum for short selling of borrowed stocks
cannot exceed 3% of outstanding shares per lending cannot exceed 3% of outstanding shares per lending stockstock
Maximum for short selling of borrowed stocks cannot Maximum for short selling of borrowed stocks cannot exceed 10% of outstanding shares per lending stock exceed 10% of outstanding shares per lending stock
The total volume of short selling borrowed stocks and The total volume of short selling borrowed stocks and margin short sales cannot exceed 25% of outstanding margin short sales cannot exceed 25% of outstanding shares per stockshares per stock
Market Rules for Short Market Rules for Short Selling(1)Selling(1)
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Market Rules for Short Selling(2)Market Rules for Short Selling(2)
Only ‘covered’ short selling allowedOnly ‘covered’ short selling allowedUp-tick rules mandatoryUp-tick rules mandatoryExemptions for up-tick rules:Exemptions for up-tick rules:
Warrant Issuers and Stock OptionWarrant Issuers and Stock Option Market MakersMarket Makers
ETFsETFs
Constituents of TW 50 IndexConstituents of TW 50 Index
Constituents of TW Mid-Cap 100 Index and TW Constituents of TW Mid-Cap 100 Index and TW Technology IndexTechnology Index
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Regulatory UpdatesRegulatory Updates
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Major Reforms in 2007Major Reforms in 2007
Additional early recall optionAdditional early recall optionPrice restriction removalPrice restriction removalSBL taxation reformSBL taxation reformTSEC SBL service fee revisionTSEC SBL service fee revision
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Additional Early Recall OptionAdditional Early Recall Option11
An additional option for early recall:An additional option for early recall: 1-day prior notice in addition to 3 & 10-day 1-day prior notice in addition to 3 & 10-day
notice in fixed-rate and competitive auction notice in fixed-rate and competitive auction transactionstransactions
1 Implemented on January 29, 2007
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Price Restriction RemovalPrice Restriction Removal
Constituents of Taiwan 50 Index exemptedConstituents of Taiwan 50 Index exempted22
Constituents of Taiwan Mid-Cap 100 and Taiwan Constituents of Taiwan Mid-Cap 100 and Taiwan Technology Index exemptedTechnology Index exempted33
Aforementioned stocks constitute 84% of total Aforementioned stocks constitute 84% of total market valuemarket value
3 Effective from November 12, 20072 Effective from May 11, 2007
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SBL Taxation ReformSBL Taxation Reform44
Item Manufactured Dividends
LendingFees
Overseas Agent Fees
Interest on Overseas Collateral
Income Tax
Yes(borrower holds)
Yes No NoNo
(borrower sells)
Business Tax NA
No(Both sides are FINIs w/out PE or agent in Taiwan)
No No
4 Effective from August 20, 2007
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TSEC SBL Service Fee RevisionTSEC SBL Service Fee Revision55
Charges both parties in a negotiated transaction at Charges both parties in a negotiated transaction at 0.02% p.a. of borrowed stock’s trading value0.02% p.a. of borrowed stock’s trading valueSwitched from per transaction basis to per annum Switched from per transaction basis to per annum basisbasisReduces costs to participants for short-term Reduces costs to participants for short-term transactionstransactions
5 Effective from December 3, 2007
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Future ProspectsFuture Prospects
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Future ProspectsFuture Prospects
Pre-arranged negotiated transactionPre-arranged negotiated transaction A borrower can short on day T though actual transfer A borrower can short on day T though actual transfer
of securities occurs on T+1of securities occurs on T+1Find a method to solve late return of stocks for Find a method to solve late return of stocks for lenders selling lent stocks lenders selling lent stocks Streamlining of pledge procedureStreamlining of pledge procedureTDCC participants can directly get access to the TDCC participants can directly get access to the pledge system to carry out the pledgepledge system to carry out the pledge
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Thank you