Rules on cooling period for disposition stocks eased

Taipei, Aug. 4 (CNA) The Taiwan Stock Exchange (TWSE) has eased the rules governing the cooling period for "disposition stocks," effective from Aug. 10.

According to the TWSE, the cooling period for a stock placed in disposition will be shortened to five trading sessions from the current 10 trading sessions.

The matching interval will be cut to two minutes from five minutes for a stock which is designated as a disposition stock for the first time.

For stocks designated as disposition stocks for the second time, the matching interval will also be shortened to two minutes from 20 minutes, the TWSE said.

Disposition stocks are those that have shown extreme volatility and are subject to trading restrictions to cool them down. Those restrictions can include using manual rather than automatic matching of buy and sell offers and increasing the matching interval.

In Taiwan, for example, a stock that rises or falls more than 25 percent in six trading sessions, whose accumulated turnaround rate tops 50 percent in six trading sessions, whose single session turnaround rate tops 5 percent, or whose single session turnover stands at over 5-fold the average in the previous 60 sessions is placed on a watch list.

A stock is designated as a disposition stock if those conditions persist for three consecutive trading sessions, for six trading sessions within the last 10 trading days, or for 12 trading days within the last 30 trading days.

Speaking with reporters, TWSE Vice President Tu Hui-chuan (杜惠娟) said Monday that the disposition stock rules were put in place in 1995 to raise awareness of risks among investors in times of volatility.

The TWSE hopes the adjustments will not only continue to serve as a reminder of risks for investors but also maintain liquidity in the market, Tu said.

Critics of the previous rules have argued that they made it difficult for investors who wanted to trim their positions by taking advantage of any technical rebound at a time when the local stock market faced volatility.

Fubon Securities Investment Services Chairman Chen Yi-kuan (陳奕光) told local media that 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.

But the changes will cut both ways, Chen said, noting that risks will increase in a volatile market as investors will no longer be protected by a 10-day cooling period.

He also feared it will be easier for major market players to dictate the market by taking advantage of the adjustments.

The Taiex, the Taiwan Stock Exchange's benchmark index, plunged 4,917.51 points, or 10.96 percent, in just five sessions from July 24 to July 30 before staging a strong rebound on July 31, when the market posted a record single-session point gain of 3,186.45 points.

Tu said that after the adjustments to the disposition stock rules, the TWSE will set up a review mechanism in which the exchange will, in principle, review the rules every six months to allow the local stock market to adapt to fast-changing market conditions.

Chen Chun-hong (陳俊宏), chairman of the Taiwan Securities Association, praised the TWSE for promptly responding to investors' demands by adjusting the disposition stock rules. Chen said the rule changes are expected to help investors get through market volatility.