The Taiwan Stock Exchange (TWSE) on Monday eased the rules governing the cooling period for “disposition stocks,” effective from Monday next week.The cooling period for a stock placed in disposition would be shortened to five trading sessions from 10 trading sessions, the exchange said.The matching interval would be cut to two minutes from five minutes for a stock that is designated as a disposition stock for the first time, it said.
A woman looks at a phone in front of an electronic stock board at the Taiwan Stock Exchange in Taipei on June 8.
For stocks designated as disposition stocks for the second time, the matching interval would be shortened to two minutes from 20 minutes, it said.Disposition stocks are those that have shown extreme volatility and are subject to trading restrictions to cool them down. The restrictions include using manual rather than automatic matching of buy and sell offers, and increasing the matching interval, the TWSE said.
The exchange’s rules stipulate that a company’s stock must be placed on a watch list if it rises or falls more than 25 percent in six trading sessions; has an accumulated turnaround rate topping 50 percent in six trading sessions; has a single-session turnaround rate that tops 5 percent; or has a single-session turnover greater than five times the average of the previous 60 sessions.A stock is designated as a disposition stock if those conditions persist for three consecutive trading sessions, for six trading sessions in 10 trading days, or for 12 trading days within 30 trading days, the exchange said.The disposition stock regulations were put in place in 1995 to raise awareness among investors of risks in times of volatile trading, TWSE senior executive vice president Tu Hui-chuan (杜惠娟) said.The exchange expects the adjustments to continue to be a reminder of risks for investors and help maintain liquidity in the market, Tu said.The TWSE plans to set up a review mechanism in which the exchange would, in principle, review the rules every six months, she said.Critics have argued that the previous rules made it difficult for investors who wanted to trim their positions by taking advantage of technical rebounds at a time when the local stock market faced volatility.The easing of disposition rules could reduce panic-led selling in a down market and moderate losses suffered by investors holding stocks placed in disposition, Fubon Securities Investment Services Co (富邦投顧) chairman Edward Chen (陳奕光) said.However, the changes could cut both ways, as risks would increase in a volatile market in which investors are no longer protected by a 10-day cooling period, Chen said.It would also be easier for major market players to dictate the market by taking advantage of the adjustments, he added.Taiwan Securities Association chairman Joey Chen (陳俊宏) praised the TWSE for promptly responding to investors’ demands by adjusting the disposition stock rules, saying the rule changes would help investors weather market volatility.The TAIEX plunged 4,917.51 points, or 10.96 percent, in just five sessions from July 24 to Thursday last week before rebounding on Friday, when the market posted a record single-session point gain of 3,186.45.
