From: cy.huang@dds.com (Cy Huang)
Newsgroups: news.misc
Subject: TAIWAN'S FINANCIAL MARKET
Date: 6 Oct 92 22:46:00 GMT
Reply-To: cy.huang@dds.com (Cy Huang)
Organization: DayDreamer Service * Taipei * Taiwan * R.O.C




                            WEEKLY FUTURES MARKET
                        Sept. 24 - Oct. 1 Review Period


          Futures Contract                          Profit/Loss %*
          12/92 Crude Oil                                    +0.80
          12/92 Gold                                        -14.62
          12/92 Silver                                      -35.71
          01/93 Platinum                                    -20.00
          12/92 Copper                                      -97.42
          12/92 British Pound                               +38.61
          12/92 Canadian Dollar                             -81.48
          12/92 DMark                                      +108.20
          12/92 Swiss Franc                                +148.06
          12/92 Yen                                         -25.00
          **    Taiwan Dollar                               +22.90
          12/92 U.S. Dollar Index                           -48.25
          12/92 Nikkei Stock Index                          -35.56
          12/92 S&P 500                                     -13.54
          **    Taiwan Stock Index                           +7.27
          12/92 U.S. Treasury Bond                          +60.19
          12/92 U.S. 10 year Treasury Notes                +131.94
          12/92 Cocoa                                       +70.00
          12/92 Coffee                                      +12.19
          12/92 Cotton                                      +17.40
          02/93 Pork Bellies                                +22.29
          10/92 Sugar                                        +8.96
          11/92 Soybean                                     -31.86
          10/92 Soybean Meal                                -16.05
          10/92 Soybean Oil                                 +51.11
          12/92 CRB Index                                   +21.00

               Source:  Taiwan Institute of Finance, Taipei.  The firm
          specializes in economic-financial consulting, Chinese-English
          translation and training for professional financial licenses.
          Tel & fax:  (02)729-0603.

               ** These "equivalent contracts" are included here for
com-
          parative purposes.
               * Profit/Loss calculations are changes in Thursdays' clo-
          sing prices relative to the respective exchange's initial
          margin deposit requirement of one futures contract.

                                ____________________

         Policy reforms
         Taiwan's financial markets are in dire needs of constructive
         policy reforms as evidenced by the recent massive payment
         defaults in the local stock market and failure in the China
         Steel's underwriting.  The common thread underlying the two
         incidents was the abusive use of credit.  Moreover, the present
         daily trading limit also needs some modifications.

         China Steel's underwriting
         First, consider the case of China Steel's underwriting.  When
         the underwriting firms were soliciting orders, the demand for
         shares was more than the total supply.  So the underwriting
         firms used the conventional lottery system in distributing the
         shares. However, because of a declining market trend, many
         potential investors forfeited their rights and defaulted on
         payments for shares.  A constructive reform would be to require
         the investors to put up a margin deposit when joining the
         lottery program; in case of forfeiture, the investor would
         loose the deposits.  This is a slight variation from the U.S.
         or HongKong system where the investor is required to prepay in
         full the value of the order.

         Another aspect of the reform would be to allow the underwriters
         to overallot -- selling additional shares that they do not own.
         Then, during the so-called stabilization period, the
         underwriters would put in market bids to cover their short
         positions.  This would help to prevent the price of the shares
         from dropping below the original syndicated level.

         The massive stock-default scandal
         The recent nearly NT$10 billion stock-default scandal of the
         local market points to another weakness of our credit policies
         in the financial markets.  Under the current system, an
         investor may order shares for next-day settlement without
         having appropriate margin deposit in his account.  In a
         volatile and declining market, the temptation to default on
         payments is always present.  An improved policy would be to
         require the investor to have at least say, a 20% margin
         deposit, prior to entering of orders.

         Daily limit of price movements
         The Formosan Rubber Group shares dropped from an intraday high
         of 370 on September 8 to a low of 110 on October 1.  More
         significantly, after the outbreak of the scandal and the
         knowledge that the stock exchange had nearly 10,000 unwanted
         shares became widespread, the shares dropped its daily trading
         limit of 7 percent in consecutive days without any significant
         volume changing hands.  A constructive reform would be to treat
         such default condition as a "special case" where the daily
         trading limit of the share would be expanded from 7 percent the
         first day to 14 percent the second day and without limit the
         third day, and back to 7 percent the fourth day.  The objective
         would be to let a sufficiently-fast drop in price to encourage
         buyers and discourage sellers coming into the market.  Many
         futures contracts traded around the world use various versions
         of this technique to bring the market quickly into balance.
         Without these reforms, Taiwan will be further away from being
         a financial center of internationally recognized standards.

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Newsgroups: news.misc,news.admin