A likely deregulation of the Taiwanese warrants market may prompt international houses to start issuing warrants again, but only on small and medium sized companies. Currently issuers of warrants are not permitted to trade in stocks in which they have outstanding warrants apart from for hedging. The rule change is likely to allow the firms to trade the stocks with the exception of the first and last month of the warrant. Given the size of internal prop desks as well as large hedging positions for over-the-counter equity derivatives on Taiwanese stocks, banks have stopped warrants issuance rather than cut back on more profitable areas. Bankers said that under the proposed rule they would likely issue warrants in the small and medium sized stocks, but not in the largest names such as TSMC, the world's largest computer chip foundry and one of Taiwan's flagship listings.
Shin Chung Chen, manager of the listing department at the Taiwan Stock Exchange Corp in Taipei, who is currently drafting the changes, said, "We've heard the opinions of several foreign issuers and they want the restrictions lifted." He continued that the regulators will likely allow foreign houses to trade in stocks in which they have issued warrants, barring the first and last month of the issue. Typical maturities are six-to-nine months but may stretch up to two years. Equity derivatives officials have noted that once the regulation is amended they will likely return to the market. "If the issues around this are finally resolved there could potentially be a real resurgence," said an equity trader at a bulge bracket firm.
Chen will present his draft to the Securities and Futures Commission, which will be responsible for implementing the rule.
