Central authority contemplating tougher regulations on foreign exchange investments
In a move to enhance market integrity and promote a more stable currency environment, the central bank of Taiwan is considering a policy change that targets speculative currency trading by foreign investors. The proposed rule change, which is not yet public, aims to discourage speculative currency trading linked to foreign equity investments in Taiwan's stock market.
Under the current system, foreign investors can convert funds to New Taiwan dollars (NTD) on the same day of stock purchases to comply with the standard T+2 settlement cycle for equity trades. However, they are allowed to request currency conversion on the day they place orders for Taiwanese equities without providing any proof of those orders.
The proposed rule change would restrict the ease with which foreign investors transfer currency for speculative purposes linked to equity trades. This means that investors will only be allowed to convert funds into NTD after executing their stock purchases. The currency conversion would take place the day after the stock purchase, according to sources.
The adjustment aims to enhance transparency and reduce the risk of hot money flows speculating on currency movements. It could potentially impact the nation's export-reliant economy by adding complexity to foreign equity trades. Funds would no longer be allowed to remain idle in NT accounts for extended periods under the proposed measure.
The central bank is also planning to revise the rule for investors with "poor self-discipline," requiring them to shift to a tighter T+1 settlement model. This move is seen as a measure to protect the NT dollar from undue speculative pressures and support long-term foreign direct investment rather than short-term speculative flows.
The government and regulator are simultaneously working to streamline and modernize foreign investment procedures to improve transparency and efficiency overall, which might offset some operational impacts of this rule by making legitimate investment easier to conduct.
The central bank will meet with custodial banks representing foreign institutional investors next week to discuss enhanced regulatory oversight. The policy could make it harder for foreign investors to use currency transfers to speculate on the NT dollar, following its almost 14% rise against the US dollar this year.
In summary, the rule change targets discouraging speculative currency trading linked to foreign equity investments in Taiwan’s stock market by tightening currency transfer rules. While this adds regulatory burden and could dampen certain types of trading strategies, it aims to foster a more stable currency environment and encourage genuine, sustainable foreign investment in the Taiwanese equity market.
- The proposed rule change in Taiwan's central bank aims to restrict foreign investors from converting funds easily for speculative purposes linked to equity trades, forcing them to convert funds into New Taiwan dollars (NTD) after executing their stock purchases.
- The adjustment in Taiwan's currency transfer rules, which aims to reduce speculative hot money flows, could potentially impact the nation's export-reliant economy by adding complexity to foreign equity trades, but it will foster a more stable currency environment and encourage genuine, sustainable foreign investment in the Taiwanese equity market.
