Taiwan’s ETP market grows 49% YOY as ‘loosed restrictions’ on leverage/inverse and commodity plays pan out

The assets under management (AUM) of Taiwan's ETF market has expanded since 2003, and reached TWD$205.5bn ($6.1bn) as of the end of 2015, a 49.13% jump compared to 2014's AUM of TWD$137.8bn. Average daily trading value for ETFs have grown from TWD$1.7bn in 2014 to TWD$6.7bn in 2015. Percentage of total market trading value has grown from 0.17% in 2003 to 1.88% in 2014, rocketing to 7.26% in 2015.

Structured products issuance in Taiwan has increased by 11.9% year on year to 1,693 products compared to 1,524 recorded in 2014. Sales of structured products have also remained strong at TWD149m, despite a 10.75% fall compared to the TWD167.4m sold in 2014.

The exchange also stated that the trading value for January of this year reached NTD$190.3bn, second only to the historic high of NTD$215.7bn in July 2015. The percentage of ETF to total market trading value has risen to 10.97%, an all-time high in monthly terms.

'Taiwan Stock Exchange Corporation has for many years worked ceaselessly with investment trust businesses in the innovation of ETF products, continuously planning and developing a broad range of ETFs to fulfill investors' needs for various asset allocation and trading strategies,' stated the exchange in its report. 'With the efforts of TWSE and the industry, 2014 saw the successful amendment of regulations and relevant supporting measures regarding leverage, inverse and commodity futures ETFs.'

Since the implementation of these regulations, the exchange has listed an additional 20 ETFs, including six original ETFs, 12 leverage and inverse ETFs, and two commodity futures ETFs. Taiwan's ETF market currently includes 39 listed ETFs that track domestic securities, gold and crude oil, and overseas markets including mainland China, Hong Kong, Japan and the United States.

According to the TWS, ETFs tracking the India market will be introduced in the first half of 2016 following qualifications for FTSE China A50 index as well as the CSI 100 leveraged 2X index and CSI100 inversed index have already been approved by the TWSE, and relevant leveraged and inversed products are scheduled to be listed this year.

The Financial Supervisory Committee (FSC) said that in line with its Market Uplift Plan, it will continue to promote Taiwan ETFs to institutional investors to expand the ETF market. The FSC has loosened restrictions on investment limits previously enforced on relevant periphery units and corporate entities in order to facilitate investment in Taiwan ETFs.

The regulator also said it will assist investment trust businesses in expanding their scope of operation and boost competitiveness while ensuring the financial stability of Taiwan's market by 'continuing to promote and augment the competitiveness of investment trust businesses, increasing AUM of investment trust businesses, and working towards a balanced development of domestic and foreign funds'.

'Through the diversification of financial products, investors will be able to select products better suited to their investment needs right here in the Taiwanese market,' stated the FSC.

The TWSE has also expanded the scope of shares used for short selling with margin trading account and lifted its current restrictions on uses of share collaterals of margin buying position which will allow unlimited day trading for all securities eligible for margin trading and short selling - almost all stocks, ETFs and warrants listed on its market.

Although existing regulations already enable investors to cover short positions with borrowed shares, they are required to deposit upfront collateral equal to 140% of the value of shares borrowed; after the short position is closed, the securities firm then returns short sale collateral back to the investor. Under current practices, investors are required to place two sets of collateral at one time if they choose to cover short position with borrowed shares. Under the new policy, investors will be given the flexibility of using their short sale collateral to secure shares borrowed at the same securities firm.