The Committee expresses its appreciation to the government for its attention to the suggestions outlined in the 2024 White Paper and further acknowledges the communication and assistance provided by the National Development Council. We understand that certain suggestions may involve complex considerations or require coordination among multiple authorities, which may extend the time needed to reach consensus. Nevertheless, the Committee firmly believes that continued public-private collaboration is essential to advancing the development of Taiwan’s capital market.

This year we maintain our focus on enhancing information security and improving market efficiency. We hope to see progress on key issues raised in the 2024 White Paper, while also submitting new proposals to support the development of the warrant market and facilitate the introduction of innovative warrant products.

The Financial Supervisory Commission (FSC) is actively pursuing the development of Taiwan as a regional asset management center in Asia. In support of this objective, and with the aim of further optimizing Taiwan’s investment environment and promoting the coordinated growth of its capital market and asset management industry, the Committee respectfully offers the following specific suggestions:

Suggestion 1: Enhance fairness and competitiveness for foreign warrant issuers and market makers in Taiwan.

Foreign warrant issuers and market makers in Taiwan are subject to certain regulatory constraints that reduce their competitiveness compared to domestic participants. This regulatory disparity impacts market fairness and limits the ability of foreign participants to compete on equal terms.

We urge the government to review and amend the regulatory framework that differentiates between domestic and foreign warrant issuers, particularly with respect to the transaction fee structure administered by the Taiwan Depository and Clearing Corporation (TDCC) for listed warrants. Specifically, the Committee recommends:

• Revising the fee structure to eliminate one of the two transaction fees currently applied between a foreign warrant market maker’s in-house brokerage and custody accounts to avoid the imposition of double charges amounting to NT$0.15 per transaction. For larger players or during periods of high activity, the resulting costs scale substantially.
• Allowing foreign warrant market makers to open short-selling accounts with other brokerages to better manage risk by hedging their positions.
• Removing the restrictions on shareholding limits for foreign warrant issuers when such shares are held only for hedging purposes. These holdings are not strategic investments and do not give the issuer any control over the company, yet they are still subject to the same limits as regular investments.
• Permitting foreign warrant issuers to conduct warrant business through their Taiwan branches. A foreign issuer that is a major international bank with an established Taiwan branch should be allowed to apply via its branch to qualify as a warrant issuer. The branch may manage reporting and settlement procedures, while market-making and hedging activities may be carried out either by the branch itself or delegated to other licensed brokerage firms.

Finally, the Committee recommends that the Central Bank of the Republic of China revisit the capital computation rules to ensure they do not unintentionally impede efficient capital flows, particularly in modern cross-border financial markets.

By enhancing fairness and creating a level playing field for domestic and foreign market participants, Taiwan will foster a more competitive, transparent, and inclusive financial environment. Equal treatment of foreign and domestic warrant issuers will attract a greater pool of international investors and issuers, potentially increasing the depth and liquidity of Taiwan’s financial markets and ultimately contributing to Taiwan’s goal of becoming a regional financial hub, supporting economic growth and innovation.

Suggestion 2: Approve the introduction of 3X Daily Leverage Certificates, U.S. stock warrants, and warrant day trading in Taiwan.

As Taiwan advances its efforts to position itself as a global financial hub, it is essential that the regulatory environment fosters innovation in financial products. At present, the financial market faces limitations concerning the issuance of Daily Leverage Certificates (DLCs), warrants linked to U.S. underlying stocks, and the day trading of warrants. These regulatory constraints hinder Taiwan’s capacity to offer diversified and innovative financial products, limiting its appeal to both domestic and international investors.

We urge the government to approve and encourage the following innovations:

• 3X DLC Products. DLCs allow investors to take leveraged positions on an underlying asset, such as stocks or indices, for a single day. In particular, 3X DLCs enable retail investors to gain exposure to market movements with a constant leverage of three times, making them a useful instrument for both hedging and speculative purposes. These products feature a simple structure, transparent fee arrangements, and no margin call requirements. Additionally, the maximum loss for investors is limited to the initial capital invested. Such characteristics provide investors with a manageable risk profile and facilitate straightforward performance tracking.
• U.S. stock warrants. Many domestic investors have a strong interest in trading U.S. assets but face barriers due to existing regulatory restrictions. Allowing the issuance and trading of U.S. stock warrants during Taiwan’s trading hours would help bridge the gap between U.S. and Taiwan market hours, providing investors with greater access to international markets. Expanding the range of available products would offer investors more diversified investment instruments, support portfolio diversification and risk management, and encourage broader participation from global issuers in Taiwan’s capital market.
• Warrant day trading. Current regulations prohibit investors from buying and selling the same warrant on the same day in Taiwan. The Committee recommends that the FSC lift this restriction, allowing investors to manage and mitigate the risks associated with holding warrant positions overnight, when market conditions could change unexpectedly. Permitting day trading of warrants would provide investors with greater flexibility, enhance market liquidity, and attract short-term investors, thereby enhancing market dynamism. This measure would also improve price discovery and market depth, leading to higher trading volumes and liquidity, which could contribute to increased tax revenues.

We believe that the proposed regulatory adjustments will not only benefit individual market participants but also contribute to the overall strengthening of Taiwan’s financial ecosystem. A more competitive and open market environment would encourage both domestic and international firms to introduce innovative financial products, thereby enhancing market efficiency, improving risk management options, and providing investors with a broader range of investment choices.

By implementing these changes, Taiwan will foster a more dynamic, efficient, and attractive financial market. These reforms will support Taiwan’s economic development, improve market liquidity, and attract global investors, all of which are critical to achieving the government’s objective of positioning Taiwan as a leading financial hub in the region.

Suggestion 3: Adopt a principles-based supervision method for the information security and resilience of international securities firms.

Information security and business operation resilience have become key priorities for financial institutions in recent years. The Committee acknowledges and appreciates the government’s efforts to remain aligned with international trends and to provide regulatory guidance on these important matters. To further enhance the adaptability and effectiveness of information security and operational resilience standards in the financial sector, the Committee recommends the adoption of a principle-based supervisory approach, rather than relying on detailed procedural requirements and prescriptive rules.

Under the current regulatory framework, financial institutions in Taiwan are subject to specific and detailed requirements, including password control mechanisms and a maximum tolerable period of disruption set at two hours. While these measures aim to strengthen market stability, their prescriptive nature may expose international financial institutions to potential compliance risks, particularly when their global group policies differ in operational details.

The rapid pace of technological advancement has made it increasingly difficult for rule-based regulations to keep pace with emerging threats and evolving global best practices. Prescriptive security requirements, such as mandatory account lock-out after a specified number of incorrect password attempts, may create unnecessary obstacles for foreign financial institutions seeking to align with their global group security standards. International regulatory trends have gradually shifted toward the adoption of advanced and flexible security frameworks to address evolving risks and operational realities.

The Committee strongly recommends that the current regulations be amended to allow for alternative control mechanisms, provided that such controls effectively address the underlying objectives of the regulatory requirements and reflect the size and operational complexity of the institution. This approach would offer operational flexibility to securities firms operating in Taiwan as branches or subsidiaries of foreign financial institutions. It would also enable these firms to comply with domestic regulatory expectations without deviating from their group-level information security and resilience standards.

Suggestion 4: Take concrete steps to improve the efficiency of Taiwan’s capital market.

1. Abolish or extend the tenor limit from 6 months to 18 months for securities borrowing and lending (SBL) transactions and permit foreign institutional investors (FINIs) to pay SBL fees to brokers monthly as a commercial arrangement. On October 31, 2019, the FSC responded to the Taiwan Stock Exchange (TWSE) indicating that it agreed in principle with proposed amendments to the SBL rules. However, implementation was subsequently delayed due to the Covid-19 pandemic. The FSC issued similar responses to TWSE in 2021 and 2022. On April 30, 2024, TWSE submitted a revised draft of the SBL amendments for FSC review, and on August 13, 2024, received notice that the FSC would revisit the matter once international market conditions had stabilized.
   More than five years have passed since the initial response in 2019, during which time the TAIEX Index has fluctuated between 11,358 and 24,390 points. The Committee believes that current market conditions present a timely opportunity to revisit and finalize the proposed amendments in 2025. Advancing this effort would support a fair and competitive investment environment and benefit all market participants.
2. Abolish the pre-delivery and pre-funding requirements applicable to FINIs when trading in securities classified as “Full Delivery Securities.” The Committee acknowledges and appreciates the efforts of the FSC and TWSE in permitting FINIs to adopt the new system functions provided by the TDCC as an alternative mechanism to replace the actual movement of cash and securities on the trade date for Disposition Securities.
   However, the current mechanism does not apply to Full Delivery Securities, resulting in a continued requirement for FINIs to pre-deliver securities or pre-fund cash to their execution brokers when trading in such stocks. Although this requirement applies to all investors, it imposes a disproportionate burden on FINIs, as their assets are typically held with a custodian bank that must transfer the relevant shares or funds to the execution broker for pre-delivery or pre-funding. This process requires additional time and operational effort compared to domestic investors. The Committee therefore urges the FSC and TWSE to extend the TDCC earmarking function to cover Full Delivery Securities, thereby enhancing efficiency and facilitating a level playing field for all investors.
3. Allow overseas custodian banks to participate in the blockchain platform operated by the Financial Information Service Co. (FISC) for the issuance of audit confirmations to Certified Public Accountants (CPAs) in Taiwan. The FISC currently operates a blockchain platform that enables domestic financial institutions and CPAs to conduct auditor confirmations of client assets, including cash and securities. This platform has improved the efficiency of the audit confirmation process and supports environmental sustainability objectives.
   However, in cases where CPAs appointed by domestic investment trust funds require audit confirmations for assets held in overseas securities markets, confirmations from overseas custodian banks are still provided in paper form and delivered by international mail. This process is time-consuming and inefficient. The Committee recommends that the FSC extend access to the FISC blockchain platform to overseas custodian banks. Doing so would enhance process efficiency, reduce administrative burden, and further support environmental protection efforts.

Suggestion 5: Address unresolved issues raised in the 2024 White Paper.

1. Enable electronic tax payment transfers. The Ministry of Finance (MOF) confirmed in 2024 that it is studying the feasibility of allowing e-transfers for tax payments. The Committee requests a progress update and stresses the need to move forward expeditiously. At present, withholding tax payments by FINIs, including those related to depositary receipt reissuance and securities lending, must be settled by check. This process is operationally burdensome for custodian banks, settlement institutions, the Taiwan Clearing House, and the tax authorities. Moreover, the statutory requirement to retain paper records for five years creates unnecessary costs and environmental concerns.
   While the MOF previously proposed debit card use for non-resident taxpayers, that option is impractical given the volume of foreign clients and the associated fraud and operational risks. Instead, the Committee recommends developing a dedicated tax settlement platform. Such a system would securely store non-resident data and facilitate tax payments through authorized proxies, streamlining operations and improving audit traceability.
   The existing Paytax Platform already provides a digital payment option for domestic taxpayers. A similar mechanism should be extended to non-resident taxpayers acting through authorized domestic entities. Doing so would reduce reconciliation burdens, promote transparency, and align with the efforts of the Executive Yuan and FSC to promote increased digital and non-cash payments.
2. Remove the Foreign Investment Approval (FIA) requirement for FINIs holding delisted shares. While both the Securities and Futures Bureau (SFB) and the Ministry of Economic Affairs (MOEA) have expressed support for amending this requirement, the issue has remained unresolved since 2022. Under current rules, FINIs holding delisted shares for more than one year must reapply for FIA status, even if the shares were originally acquired as exchange-listed securities under the Regulations Governing Investment in Securities by Overseas Chinese and Foreign Nationals. This practice adds unnecessary regulatory complexity and cost and is seen by investors as punitive. The Committee urges authorities to finalize this regulatory change in 2025, in line with Taiwan’s broader objective to simplify investment procedures and attract long-term foreign capital.
3. Standardize shareholder entitlement calculations. The Committee recommends that the SFB and MOEA formally delegate the TDCC to work with the Taiwan Stock Affairs Association (TWSAA) to establish consistent rules for calculating shareholder entitlements and administering payments.
   Currently, inconsistency in how companies round shareholder entitlements (whether up, down, or to the nearest whole number) creates confusion and inequity. These disparities affect dividend and rights issue distributions, complicate corporate actions, and potentially negatively impact shareholder trust. The Committee urges the MOEA to issue a public statement or formal ruling to standardize calculation methods across all issuing companies. In support of this recommendation, the Committee in 2024 provided regulators and TWSAA with examples of inconsistent corporate event practices.