Jan 14, 2017 Culture Comments Off on Small investment scheme has loopholes: brokerages
Taipei-A newly announced small investment scheme to make expensive stocks and other securities more accessible to retail investors could have loopholes, according to brokerages.
Securities sector insiders said ill-intentioned majority shareholders of a listed company could take advantage of the loopholes to dump their shares.
To be launched on Jan. 16, the small investment scheme allows retail investors to own expensive stocks such as smartphone camera lens supplier Largan Precision Co. (???), which closed at NT$4,240.00 on the Taiwan Stock Exchange (TWSE) on Friday.
Stocks in Taiwan are usually sold in minimum blocks of 1,000 shares, meaning investors would have to spend at least NT$4.24 million (US$134.200) to buy Largan stock, an amount often out of the reach of most individuals.
Under the new program, retail investors can invest fixed amounts at regular intervals in stocks and exchange traded funds buy high-priced stocks in small volumes.
Brokerages warned, however, that majority shareholders could abuse the system to unload their shares on a large scale.
To enable investors to buy less than a minimum block of 1,000 shares under the program, a securities firm needs to take orders from different retail investors to reach the 1,000-share minimum.
But if the 1,000-share minimum is not met, the securities fund has to use its own funds to buy the remaining amount to reach the 1,000-share requirement.
An ill-willed majority shareholder of a listed company that is not favored by most investors could place an order to buy 10 or fewer shares of the stock with several brokerages, and because of weak demand for the stock, the brokerages would have to buy shares on their own.
That would give the majority shareholder a chance to dump shares on a large scale, securities insiders cautioned.
To prevent losses resulting from such loopholes, brokerages said they will only take orders from retail investors to buy large-cap stocks favored by many investors so that it will be easy for them to meet the 1,000-share requirement.
The small investment program was one of several measures unveiled by the Financial Supervisory Commission to increase market turnover after the Executive Yuan proposed a bill to cut the transaction tax on day trading to 0.15 percent, from the current 0.3 percent. The tax cut is pending legislative approval.
The small investment program will be similar to a regular savings plan for investors who put their money into mutual funds. The system, called the dollar-cost averaging method, is expected to offset market risk over the long run on the market.
The TWSE, which operates the local main board, said that the method is appropriate for investors who are keen to hold a stock for the long term.
Source: Focus Taiwan News Channel
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