Futures and Options on Foreign-Component ETFs to Adopt 3-Stage Price Limit Mechanism

(CNA, Taipei, 21st) Taiwan's Financial Supervisory Commission (FSC) stated today that to reduce excessive reactions in the futures market, it plans to change the current single-stage 15% price limit for futures and options on foreign-component security ETFs to a three-stage dynamic price banding mechanism. When a limit is triggered, a 5-minute cooling-off period will commence, contributing to market stability. The new rules are expected to be implemented from July 6 this year. Huang Chung-Hao, Deputy Director-General of the FSC's Securities and Futures Bureau, stated that the underlying assets for futures and options include commodities, securities, and exchange rates. The securities category further includes individual stocks, indices, and ETFs. The adjustment this time targets products where foreign-component ETFs are the underlying assets for futures and options. The plan is to change the current single-stage 15% price limit to a three-stage mechanism. Huang pointed out that considering the recent high volatility in domestic and international markets and sudden events causing large price swings, especially since the underlying assets in the futures market are inherently volatile, coupled with timing differences with other markets, the existing 15% price limit on ETF futures could still allow for abnormal price fluctuations. Therefore, the Taiwan Futures Exchange (TAIFEX) plans to introduce the three-stage mechanism to enhance risk management on the trading side. Huang said that considering bond-type assets are less volatile, futures and options on foreign bond ETFs will adopt a three-stage price limit of 5%, 10%, and 15%. Futures and options on foreign equity ETFs will adopt a three-stage limit of 7%, 10%, and 15%. He further explained that when a relevant product hits the first or second stage price limit, it will first enter a 5-minute cooling-off period. During this time, trading can continue within the existing price limit. After the cooling-off period ends, the price limit will be expanded to the next stage. Regarding the subsequent process, Huang said that considering system adjustments, TAIFEX also needs to educate investors. Including testing and regulatory amendments, the plan is to launch on July 6. Currently, there are 5 foreign bond ETFs from 4 asset management companies serving as underlying assets for futures or options, including Yuanta U.S. Treasury 20-Year Bond ETF, Yuanta U.S. Treasury 1-3 Year Bond ETF, CTBC High-Rated Corporate Bond ETF, Capital ESG 20+ Year Investment Grade Corporate Bond ETF, and Cathay 20-Year U.S. Treasury ETF. There are 8 foreign equity ETFs from 5 asset management companies, including Fubon SSE 180 ETF, Yuanta SSE 50 ETF, Cathay FTSE China A50 ETF, Fubon SZSE 100 ETF, Capital SZSE SME ETF, Fubon Vietnam ETF, Cathay Global Autonomous and Electric Vehicles ETF, and Uni-President FAN