First Leveraged ETF and Inverse ETF Launched on Taiwan Stock Exchange

Listed derivatives trading in Taiwan continues to gain traction among users as the main trading venue in the country extends its offerings of Exchange Traded Funds (ETFs). The Taiwan Stock Exchange (TSE) has increased its current supply of ETFs available to retail and institutional investors. The move highlights the importance of diversified investment products as investors look beyond single stock instruments.

The TSE reported that it has launched two new ETFs that will provide investors with Leverage and margin. The bourse welcomed the debut of the “Yuanta Daily Taiwan 50 Bull 2x ETF” and “Yuanta Daily Taiwan 50 Bear -1x ETF”, the two mark a new wave of offerings for the region as they are the first leveraged and inverse ETFs available in the Greater China region.

Lee Sush-der, pictured, Chairman of the exchange, commented in a statement: “We are delighted to be introducing the first leveraged and inverse ETFs in the Greater China region just months after the Financial Supervisory Commission unveiled its regulations governing the sector."

ETFs are regarded as useful add-ons to traditional investments as they give investors exposure to a basket of products, thus limiting individual instrument risk. The new products add further variety to Taiwan’s growing ETF landscape. The TSE is currently home to 23 ETFs, including 7 ETFs which track offshore benchmark indices for markets including Hong Kong, Shanghai and Shenzhen. The combined traded value of ETFs on bourse reached $1.8 billion in September 2014, up 110% compared to the same period last year.

The exchange is collaborating with local and international providers in order to ensure its products are viable for investors. One of the key differentiators against traditional instruments is the opening up to foreign investors, the exchange stating that overseas investors will not be required to pay capital gains tax on the new ETFs.

New ETF Conditions

In addition, the exchange outlined in the official notification that in order to facilitate the trading of leveraged and inverse ETFs, TSE has adopted the following trading measures:

• Daily Price Limit: The upper and lower price limit will be adjusted in-line with the leveraged multiple of the corresponding leveraged and inverse ETF e.g. if the leverage is 2x, the daily price limit will be 14%. ETFs that track offshore indices are not subject to existing daily price limits.
• Liquidity provider: The revamped liquidity provider program took effect in September 1, 2014, and mandated that there must be at least one liquidity provider per ETF.
• Market transparency: Investors can access TSE’s new MIS system for the latest information on the NAV, estimated premium and discount, etc. of a leveraged and inverse ETF.

  

Taiwan has been battling against rivals, Hong Kong and Singapore to be recognised as the preferred destination for offshore Chinese financial trading. However, in October, Hong Kong benefited from a spike in ETF assets, the figures jumped due to the political unrest in the region, ETFs saw $200 million added during the first ten days after the problems commenced.

Mr Sush-der concluded: "This event represents a huge advance in Taiwan’s ETF and alternative investments market. We look forward to supporting the future debut of more innovative products that can meet the evolving needs of investors.”

Taiwan’s latest addition adds a new layer of sophistication to its growing financial trading environment, the new products will require investors to understand the greater risks associated with leveraged ETFs, thus impacting other financial derivatives, such as margin FX or CFD trading.