Recent regulatory changes in Taiwan will likely stunt the growth of its futures market and push OTC hedging to offshore centers, such as Singapore, according to Asia-based bankers who are up in arms about the shock change. Bankers said the Securities and Futures Commission's decision to effectively ban leveraged long positions goes against the trend of market liberalization in Asia, which has been on the upswing in recent years as regulators have tried to bring more trading onshore (DW, 7/7/03).
Under the new rule, which will come into force at the end of the month, qualified foreign investors with onshore accounts will have to have enough cash to cover all their long futures positions and will only be able to short futures to the extent that they own the underlying equity. One head of equities said, "Basically, they've marched the futures exchange outside, sat it down and put a bullet in its head."
Equity professionals said Singapore is the most likely offshore destination for hedging activity because it has the MSCI Taiwan index listed on the Singapore Exchange. "This is actually a big favor for Singapore," said an equity head at a bulge bracket house, adding that hedging OTC positions had been moving more onshore, but the recent regulatory changes will breathe new life into the overseas product listed in the Lion City. Senior officials at the SGX, while noting that the MSCI Taiwan index already targets international investors, declined to speculate on a possible pick up in volumes.
