The Taiwan Monthly

Nov. 2021

Market & ETP Overview

Promote Taiwan stock liquidity and maintain market trading velocity

Adhering to the mission of "developing national strength through circulation of securities" and aiming to support the development of the economy, the TWSE is committed to enhancing a high-quality and flexible trading environment, and has successively launched a number of new trading and market optimization measures in recent years to guide funds into the capital market and augment liquidity. Thanks to the reopening of major economies and the fiscal and monetary policies support around the world, Taiwan's exports and investment are strong, with export orders growing for 18 months in a row. Major research institutions have raised their economic growth forecasts of Taiwan for this year (2021), and the three major global rating institutions have raised Taiwan's sovereign rating, laying a solid foundation for the capital market performance. In addition, the balance of securities transfer deposits has exceeded NT$3.1 trillion, which has been hitting a record high for 10 consecutive months, highlighting the abundant capital momentum in the stock market.

Series of approaches to create a friendly trading environment

In order to create a favorable environment to enhance investors' participation, the TWSE has been actively studying and successively introducing products suitable for small investment such as warrants, ETFs and ETNs, and has established a fixed-term fixed-amount plan to lower the investment threshold and enable investors to select from a wider range of products. In 2014, day trading transactions were permitted to enhance investors’ intraday strategies, risk management flexibility and gradually expand the scope of applicable targets. In April 2017, the transaction tax for day trading was lowered to reduce costs, driving day trading to become more popular. After the full implementation of continuous trading in March last year, the matching efficiency and transparency have been advanced. Foreign investors may trade in a more familiar way, while domestic investors gain access to greater order flexibility, thus effectively improving the market liquidity. Then intraday odd-lot share trading was launched in October, attracting the participation of many young investors. For the first nine months of this year, the trading value of odd-lot shares increased by nine times YoY, which helped to accelerate the implementation of Inclusive Finance.

Popularity of trading reflects Taiwanese investors' confidence

In recent years, the continuous introduction of various measures to promote trading velocity has achieved results, strengthening the confidence of market participation. Despite the overselling of international investors, TAIEX continues its excellent performance from last year. From January to September this year, the index rose by 14.9%, outperforming most of stock markets in the world, with an average daily trading value of more than NT$400 billion and a turnover rate of 140%. The number of transacting investors reached a record high of 5.22 million, with nearly 70% of the trading value contributed by domestic natural persons, a new high since 2010, showing the active participation domestically. In addition, the after-tax net profit of all listed companies in the first half of the year and their revenue in the first eight months increased by 125.9% and 18.6% YoY respectively, providing a strong support for stock market.

Market making mechanism for high-quality stocks with less trading volume

As the overall market volume is improving, there are still some listed companies with stable profits that have an average daily trading volume of less than 100 lots. The lack of liquidity affects investors' willingness to invest, and prevents them from being selected as the constituent stocks of international indices. In order to promote the liquidity of such stocks, the TWSE launched the stock market making mechanism on June 30 based on the past experience of warrant and ETF liquidity providers and by referring to international practices. The target stocks are screened based on quantitative and qualitative standards, and allow securities dealers to actively participate in market making and trading.

The purpose of the market making mechanism is to increase matching opportunities through the quotation provided by market makers, but whether individual stocks can successfully attract investors still depends on their business performance, industrial prospects, and investment demand. In the past three months since the implementation, the average daily trading value of the selected stocks has increased by 42% compared with that before the implementation earlier this year, while the overall market trading value in the same period remains flat, indicating that the market making mechanism is indeed beneficial to promote the trading activity of less traded stocks. The TWSE believes that a more balanced development of stock trading can be expected under the continuous promotion of the mechanism in the future.

For further information, please contact Mr. Lin at