Taiwan Rolls Out New Trading System at Precisely Wrong Time

(Bloomberg) -- Taiwan’s timing on rolling out a new stock trading system could have been better.

Traders in Taipei starting Monday were able to trade stocks continuously, rather than through a five-second matched call auction that has been in place since 2014. It was the only major capital market which ran such auctions throughout regular trading, said the Taiwan Stock Exchange. The move culminated a decade-long process.

While at least two brokerages experienced slowness, trading got off to a comparatively smooth start even as market participants adjusted to speedier updates to stock prices and trading volumes. Three traders, who asked not to be named as they’re not authorized to speak to media, said they saw no errors in the system Monday. The benchmark Taiex index closed down 3.7%, tracking strong selling across much of Asia.

The exchange has said continuous trading should make for more-efficient activity and provide market participants with pre-trade information in addition to current post-trade details. But some traders worry that any snags from the change could add to recent volatility. This month’s sell-off wiped out $340 billion of market value in two weeks.

“It’s concerning to deal with a new trading system given how volatile the market is now,” said Kidd Tu, manager at E Sun Securities. “It will be a headache if the system is unstable or something goes wrong.”

The exchange was confident it could handle the switch. “We tested the system many times to make sure everything is ready,” Rebecca Chen, senior executive vice president, said last week.

Like markets across the world, Taiwan’s stocks are reeling from the impact of the coronavirus outbreak. The Taiex last week joined the list of bear markets globally and dropped to its lowest level since mid-2016. But the index surged 6.4% Friday, the most since stock-price limits were loosened in 2015, as the Taiwan’s National Financial Stabilization Fund pledging to back the stock market with as much as NT$500 billion ($16.5 billion). Meanwhile, the Financial Supervisory Commission tightened rules on short selling.

Foreigners have long been an important part of Taiwan’s stock market, and they recently owned some 40% of equities there. But overseas investors have sold a net $17.1 billion of stocks to start this year, which tops any end-of-year figure since at least 2000, according to data compiled by Bloomberg.

Derivatives trading in warrants and options is already done continuously, so the thinking goes that strategies for stocks and derivatives can now be more integrated. The exchange also expanded order types on Monday to include market orders, immediate or cancel orders, and fill or kill orders. There had been just limit orders.

“Ideally you want to run live when the situation is perfect,” said Stephen Innes, chief market strategist at Axicorp Ltd. “But on the other hand, the regulators are confident the system is bulletproof and their liquidity measuring tools are showing a green light.”

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