Taiwan Considers Tougher FX Rules for Foreigners Buying Stocks

(Bloomberg) — Taiwan’s central bank is seeking feedback on a plan to tighten currency purchases by foreign stock investors, according to people familiar with the matter, a move that may limit speculative bets after a surge in the local dollar this year.

The central bank is mulling a policy that requires international investors wanting to buy the island’s stocks to show proof of orders before they can purchase the Taiwan dollar, said the people, who asked not to be identified as they aren’t authorized to speak publicly. The currency conversion would then take place the following day, the people said.

The proposal is Taiwan’s latest attempt to push back at the local currency’s almost 14% rise against the greenback this year, which has squeezed insurers and hurt its export-reliant economy. Last month, it told foreign investors to exit currency bets taken through exchange-traded funds.

The proposed rule change would make it harder for foreign investors to use currency transfers to speculate on the Taiwan dollar. But it could also add a layer of risk to equity trades, creating a lag between when foreign funds agree to buy securities and when they actually have the local currency to pay for them. 

The current rule is that foreign investors are allowed to request currency conversion on the day they place orders for Taiwanese equities, and they don’t need to provide any proof of those orders, according to the people. The proposed rule change is possible because local stock trades have a settlement period of two days, they said.

The central bank has asked foreign custodian banks for feedback on the rule and will hold a meeting with a group of banks next week, the people said. Taiwan’s central bank didn’t respond to requests for comment.

Taiwanese officials have taken various steps to ease the surge against the dollar, including instructing some banks to delay exporters’ dollar sales. Earlier this week. the government announced a task force to help exporters and small-and-medium sized companies mitigate the fallout of the currency move.

More stories like this are available on bloomberg.com