Taiwan’s securities regulator is set to announce new regulations to allow local fund managers to launch alternative ETFs, including inverse and leveraged products.
The Financial Supervisory Commission (FSC) is expected to reveal details of the liberalisation imminently, after which the Taiwan Stock Exchange (TWSE) will revise its rules to allow them to list.
Chen Shin-chung, senior vice-president of TWSE’s Corporate Planning and Strategy Department, tells AsianInvestor the first such products look likely to be launched on the local exchange by September.
Inverse and leveraged exchange-traded funds have gained traction in Korea, where they comprise just 15% of ETF assets overall yet account for 50% of average daily ETF trading volume.
Chen expects the products to be similarly well received in Taiwan. “Taiwanese and Korean investors’ behaviour and demographics are quite similar,” he says.
Risk control has been a concern for Taiwan’s FSC. Investors will likely be required to take a suitability test before being permitted to access these products.
“Investors have to monitor the performance of the leveraged and inverse ETFs on a daily basis as they are more volatile,” Chen points out.
The FSC wants to limit the products to professional and institutional investors who actively trade and are able to take risk.
The majority of Taiwan’s 19 ETFs are equity products. Chen says three to four fund managers have expressed interest in developing inverse and leveraged ETFs.
ETFs comprised 1.4% of TWSE’s trading volume last year.
The bourse is building a trading platform that would allow investors to trade securities in non-Taiwanese currencies. It is expected to be completed by the end of this year.
TWSE initially intended to make available renminbi-denominated securities available on the platform. However, the island’s legislature has yet to ratify the Cross-Strait Service Trade Agreement.
The accord was signed in June last year and would permit implementation of the renminbi-denominated foreign qualified institutional investor (RQFII) scheme as part of closer economic ties with mainland China.
Chen says the yen and US dollar are also commonly used in Taiwan.
Taiwanese authorities are striving to diversify the available product range. In February, the FSC allowed fund managers to list commodity ETFs.
Yuanta Securities Investment Trust says it is planning to launch ETFs tracking gold and crude oil in September and December, respectively.