Taiwan to Allow Foreign Institional Investors to Use Local Shares as Collateral to Obtain Funds

Taiwan's FSC (Financial Supervisory Commission) has announced plans to allow foreign institutional investors to use local equities as collateral for their overseas investments.

The change would only apply to foreign securities companies or banks designated as foreign institutional investors, allowing them to borrow funds from domestic financial institutions using local shares as collateral.

Proposed by the American Chamber of Commerce, the measure is aimed at providing foreign institutional investors an incentive not to sell local equities to fund overseas investments. As of last Friday, foreign investors had sold TWD 1.2 trillion (USD 39 billion) of shares since the beginning of this year, a record high.

Foreign institutional investors still currently hold TWD 19.6 trillion of local equities, accounting for about 39% of total market cap in Taiwan.

"After the implementation of the opening-up measures, if foreign capital needs funds to engage in overseas investment activities in the future, they can use Taiwan listed stocks as collateral to obtain funds without selling their holdings," the FSC said.

The measure will help increase flexibility for foreign investors, promote domestic market liquidity, and strengthen the stability of the stock exchange, the regulator added.

The TWSE (Taiwan Stock Exchange) and TDCC (Taiwan Depository and Clearing Corp) will work on finalising supporting rules to implement the change by year-end.