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The rules will likely change how fund players do business in Taiwan, while bringing the islandÆs competitiveness on a par with other ETF hotspots such as Hong Kong and Tokyo.
Most importantly, the FSC will begin recognising foreign jurisdictions for funds that are registered overseas. Effectively that means fund houses with ETFs that are already registered abroad will no longer need to seek the FSCÆs nod before offering their products to Taiwan investors.
The FSC has also simplified trading rules for overseas-listed ETFs. A master agent is no longer needed for onshore subscription and redemption activities.
Meanwhile, master agents representing the issuing houses will be waived from payments of guarantee deposits and the provision of translated copies of fund prospectus to the Taiwan stock exchanges. However, master agents will be required to make half-yearly reports available to investors from now on, and are still forbidden from offering ETFs linked to gold, commodities or real estate.
According to the international division of the FSC in Taipei, the regulator is close to signing a memorandum of understanding with Hong KongÆs Securities & Futures Commission (SFC) in declaring mutual recognition of the SFCÆs rulings. ETFs already approved by the Hong Kong regulator will be given automatic visa-free status in Taiwan.
Today, there are 11 ETFs available to Taiwanese investors, with total assets of about $2.3 billion. Considering TaiwanÆs fund market is a $63 billion business, it accounts for just under 4% of the entire market û a small figure when compared to other neighbouring hubs, such as Japan which has $33 billion in ETFs or Hong Kong which has $11.3 billion.
Xav Feng, head of research for Taiwan and China at Lipper in Taipei, says the revision will be a key step in bringing TaiwanÆs ETF development up to speed, in line with other Asian financial centres. Yet most importantly, he sees the deregulation as a further step in the normalisation of cross-strait relations and a tool to attract TaiwanÆs offshore investments back to the island.
Joseph Ho, head of ETFs at Lyxor Asset Management in Hong Kong, anticipates the rules will bring much needed change to TaiwanÆs ETF market. He says growth in cross-listing activities has been stifled by regulatory complications in the past. He says while most institutional investors on the island are already consummate users of ETFs, the retail market remains the biggest untapped market in Asia.
Taiwan is set for a more vibrant scene, but Ho notes settlement differences between Taiwan and other fund markets can be a challenge. As an example, he says Hong Kong operates on a T+3 settlement cycle, whereas Taiwan operates on a shorter timeframe of T+2. This makes settling a cross-listed fund impossible, and is a small but important detail that needs to be worked out.
Overall, he does not see overseas fund houses posing a threat to local fund businesses in Taiwan. Local players are the best at offering Taiwanese products, he says, while offshore players will be competing in a different niche.
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