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Taiwanese Financial Supervisory Commission Issues New Broker-Dealer Proposals

(中央社訊息服務20201016 15:56:59)As the Taiwan Capitalization Weighted Stock Index (TAIEX) fluctuates near all-time highs, foreign investors continue to express interest in the Taiwanese stock market. The Taiwan Semiconductor Manufacturing Company (TSMC), a staple in the Taiwanese stock market and a leader in the semiconductor industry, reached an all-time high stock price and reported record Q3 earnings per share of $5.30 NTD, growing 35.9% from Q3 of last year. As TSMC continues to expand and exceed investor expectations, foreign investors will continue to express interest in the Taiwanese equity market.

In a report to the Finance Committee of the Taiwanese Legislative Chamber filed by the Chairman of the Taiwanese Financial Supervisory Commission (FSC), Tien-Mu (Thomas) Huang pointed to future developments on the deregulation of lending to foreign investors. The following are his proposals on regulatory changes:

1. Foreign institutional investors starting to use foreign currency as collateral for financial investments denominated in New Taiwanese Dollars (NTD);
2. Offshore Securities Units (OSU) applying for itemized loans without purpose restrictions;
3. Taiwanese investors being able to grant broker-dealers full discretion in consummating securities transactions on their behalf.

The FSC expressed that, if its suggestions are approved by legislators, broker-dealers will be allowed to use certain foreign currencies as collateral for NTD. According to the FSC, foreign institutional investors own almost 40% of the Taiwanese stock market in market value, accumulating $196 billion US dollars’ worth of investments. Thus, this new measure will likely have an immediate effect on the stock market and foreign exchange markets. Because foreign institutional investors will no longer need to purchase NTD to invest in the Taiwanese stock market, the cost to invest will be substantially reduced. As foreign exchange transactions decrease, fluctuations in the NTD’s exchange rate are likely to also decrease. The following is a summary of the FSC’s proposal:

1. Foreign investors explore financing options in Taiwan: Foreign investors use of foreign currency as collateral
Anticipated Benefit:
(1) Increases broker-dealer services
(2) Reduces foreign exchange costs and increase foreign investment in Taiwanese equity markets
(3) Reduces foreign investors’ reliance on foreign exchange to enter and exit investments; thereafter, the NTD exchange rate stabilizes

2. Offshore Securities Units (OSU): OSUs may now borrow in Taiwan without a specific usage limitation on the borrowed funds
Anticipated Benefit:
(1) Increases broker-dealer services
(2) Allows clients to finance flexibly, increasing OSU’s appeal to Hong Kong and other offshore clientele

3. Broker-dealer discretionary services: Opens the possibility of transacting foreign securities and fundraising on clients’ behalf
Anticipated Benefit:
(1) Increases broker-dealer services
(2) Makes foreign securities more accessible to Taiwanese investors

“Foreign institutional investors investing in Taiwan mostly invest in securities of publicly listed companies. When these listed companies pay dividends, foreign investors pay hefty withholding taxes. In practice, when foreign institutional investors have retained earnings, they often go through a lengthy process to transfer funds out of Taiwan to determine whether any additional income taxes are due. This creates exchange rate uncertainty for these investors as they await regulatory procedures to transfer funds internationally. If foreign institutional investors are able to borrow NTD using their home currency, investing in Taiwan would become substantially more streamlined,” claims KEDP CPAs Group (www.kedpcpa.com) Chairman Peter Lu.

Peter Lu added, “it is possible that the proposal would increase the responsibility placed upon tax agents in Taiwan who guarantee the income tax liabilities of their clients; however, more operational and regulatory details would need to be formalized for this matter to be further analyzed.”

According to Max Lu, CEO of CL Family Consulting in the U.S., a Massachusetts registered investment advisor, “the Taiwanese FSC’s move to allow foreign investors to use select foreign currencies as collateral will allow investments in Taiwan’s equity market to proceed more smoothly. The current proposal, if passed as is, would allow foreign investors operating in different countries to invest without the hassle of exchanging their currency to NTD. The current list of approved currencies includes the US dollar, Euro, Japanese Yen, British Pound, Australian dollar and Hong Kong dollar.”

As Taiwanese regulators seek to improve foreign investors’ experiences, the strategic consequences will more than likely affect investors. It is also likely that the proposed law would increase both the activity in the stock market and the need for trusted broker-dealers and tax advisors.

訊息來源:KEDP CPAs Firm
  

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