Taiwan rolls out new trading system at precisely the wrong time

TAIPEI: Taiwan’s timing on rolling out a new stock trading system could have been better.
Traders in Taipei starting Monday will be able to trade stocks continuously, rather than through a five-second matched call auction that has been in place since 2014.

It’s the only major capital market which runs such auctions throughout regular trading, said the Taiwan Stock Exchange.

The move, which culminates a decade-long process, has been widely encouraged. The exchange has said continuous trading should make for more-efficient activity and provide market participants with pre-trade information in addition to current post-trade details.

But some traders worry that any snags from the change could add to recent volatility. This month’s sell-off wiped out US$340 billion of market value in two weeks.

“It’s concerning to deal with a new trading system given how volatile the market is now,” said Kidd Tu, manager at E Sun Securities. “It will be a headache if the system is unstable or something goes wrong.”

The exchange is confident it can handle the switch. “We tested the system many times to make sure everything is ready,” said Rebecca Chen, senior executive vice president.

Like markets across the world, Taiwan’s stocks are reeling from the impact of the coronavirus outbreak. The benchmark Taiex index joined the list of bear markets this month and dropped to its lowest level since mid-2016.

But it surged 6.4% Friday, the most since stock-price limits were loosened in 2015, as the Taiwan’s National Financial Stabilisation Fund pledging to back the stock market with as much as NT$500 billion (US$16.5 billion).

Meanwhile, the Financial Supervisory Commission tightened rules on short selling.

Foreigners have long been an important part of Taiwan’s stock market, and they recently owned some 40% of equities there.

But overseas investors have sold a net US$16.3 billion of stocks to start this year, which tops any end-of-year figure since at least 2000, according to data compiled by Bloomberg.

Derivatives trading in warrants and options is already done continuously, so the thinking goes that strategies for stocks and derivatives can now be more integrated.

The exchange is also expanding order types on Monday to include market orders, immediate or cancel orders, and fill or kill orders. There had been just limit orders.

“Ideally you want to run live when the situation is perfect,” said Stephen Innes, chief market strategist at Axicorp Ltd.

“But on the other hand, the regulators are confident the system is bulletproof and their liquidity measuring tools are showing a green light.”