2024-04-12 19:00:00
2024-04-13 03:00 Economic Daily Economic Daily Editorial TSMC.Reuters
Taiwan stocks have performed extremely well this year, with the weighted index rising by 13.8% in the first quarter. Taiwan’s national guardian TSMC has benefited from bullish factors such as the AI boom and the successful establishment of a factory in Kumamoto, Japan, soaring by 31.3%, contributing to the market’s gains. The number exceeded 60%, so the Taiwan stock market in the first quarter was jokingly called “TSMC’s one-man martial arts world.” According to information released by the stock exchange on March 29, TSMC’s share of the market has reached 31.5%, firmly ranking as the leader and far ahead of the second and third places with a huge gap.
Why does TSMC’s “one-man martial arts” bring a ray of sadness to Taiwan stocks? The main reason is that in order to protect American investors and reduce the risk of a single component stock manipulating index futures prices, the U.S. Commodity Exchange Commission and the U.S. Securities and Exchange Commission (SEC) have stipulated a number of conditions in the U.S. Commodity Exchange Act, the most important of which are: If a single component stock accounts for more than 30% of the overall index weight for more than 45 trading days in three consecutive months, it will be recognized as narrow-based security index futures (Narrow-Based Security Index Futures), and U.S. investors (including qualified institutions) will be prohibited from investing. people) transactions.
Of course, according to SEC regulations, not all narrow-based futures are prohibited from trading by U.S. investors. The conditions for exemption are: foreign individual stock securities futures and narrow-based futures contracts whose “primary market of the trading subject matter is not in the United States”, and the futures contracts If the trading, clearing, and delivery are not conducted in the United States and are settled in cash, they can become the investment targets of qualified institutional investors in the United States. For example, shipping futures listed for trading on the Taiwan Futures Exchange are exempt. of narrow-based futures.
Based on U.S. regulations, as TSMC’s share of the market has reached 31.5% as of the end of March, and TSMC has issued ADRs in the United States, Taiwan stock futures and small-cap Taiwan index futures may be classified once more as they were on April 1, 2021. This category is the fate of narrow-based futures and does not meet the exemption conditions, thus preventing U.S. investors from trading Taiwan stock futures and small-cap Taiwan index futures. According to reports, from February 15 to April 2 this year, TSMC’s share of the market has exceeded 30% for 28 trading days. As long as there are 17 more trading days before May 14, TSMC’s share of the market will exceed 30%. Then the futures exchange must notify the U.S. Commodity and Exchange Commission. Of course, the trading license will not be canceled until three months following the notification. However, judging from the current situation, the probability that Taiwan stock futures and small-cap Taiwan index futures will be classified as narrow-based futures is extremely high.
The futures contracts currently listed for trading on the Futures Exchange include electronic futures, Taiwan perpetual futures, small electronics futures and semiconductor 30 futures, because the weight of a single component stock in the underlying index of the contract exceeds 30%. In addition, the single securities futures contract of TSMC futures, small TSMC The futures are classified as narrow-based futures because they do not meet the requirement that “the main market of the trading subject matter is not in the United States.” Therefore, they are not allowed to be traded by investors in the United States.
Therefore, if Taiwan stock futures and small-cap Taiwan index futures are once more classified as narrow-based futures in the near future, U.S. qualified institutional investors will not be able to trade these futures. The most direct result is that the trading volume of Taiwan stock futures and small-cap Taiwan index futures will be reduced. Judging from the experience of April 2021, when Taiwan stock futures and small-cap Taiwan index futures were classified as narrow-based futures for the first time in April 2021, the proportion of foreign capital in the trading volume of small-cap and small-cap Taiwan index futures dropped from 40.5% in January 2021 to 2021. 35.7% at the end of April this year.
In addition, when the large and small Taiwan index futures are classified as narrow-based futures, it is also very likely to indirectly affect the willingness of U.S. institutional investors to invest in the Taiwan stock market spot market. There are three main reasons for this: First, the Taiwan index futures are institutional investors’ willingness to invest in the Taiwan stock market. It is the main tool for hedging in spot investment. The lack of hedging tools will of course reduce investors’ enthusiasm for investing in the spot market. Secondly, the Taiwan Index futures are also a tool for institutional investors to construct diversified trading strategies to match their spot investment. One of the important tools, especially Taiwan Index futures, can provide lower-cost asset allocation; thirdly, Taiwan Index futures are also an indispensable supporting product for institutional investors to execute spot futures arbitrage transactions.
In short, the rise in TSMC’s share price has made Taiwan proud of the Taiwan stock index which stands at 20,000 points. However, under the shadow of “TSMC’s one-man martial arts”, Taiwan stock futures and small-cap Taiwan index futures have once once more fallen into the category of narrow base. futures risks, which may have a negative impact on transactions in the Taiwan futures spot market. As this incident breaks out, we are eagerly looking forward to the blueprint and countermeasures of the competent authorities in response to the development of new capital. We also hope that the new countermeasures will include how to improve index compilation, thereby making Taiwan’s capital market develop more steadily.
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