Law passed to increase scrutiny of market stabilization fund

The Legislative Yuan has approved an amendment to the Statute for the Establishment and Administration of the National Financial Stabilization Fund (???????????????) to allow for stepped up monitoring of government use of a fund meant to stabilize the local stock market.

Under the law revision to the rules governing the financial stabilization fund, which was passed by the Legislative Yuan on Friday, the fund’s managers will have to report to the legislature on its interventions in the stock market.

This is aimed at allowing the Legislative Yuan to better scrutinize the fund’s operations.

The NT$500 billion (US$15.77 billion) stabilization fund was set up by the government to serve as a buffer against unexpected external factors disrupting the local bourse.

The fund, which was created in February 2000, intervenes in the market when it receives authorization from the fund committee, which is normally managed by a vice finance minister. The current manager is Vice Finance Minister Su Jain-rong (???).

According to the revised law, the stabilization fund should submit a report to the Legislative Yuan within three months after it enters into and exits the market, and the report should include issues about its decision on market intervention and the amount it used for the intervention.

Kuomintang lawmaker Tseng Ming-chung (???), who used to serve as the chairman of the Financial Supervisory Commission and the manager of the financial stabilization fund before he became a legislator in February, said that the passage of the law is expected to ensure the transparency of the stabilization fund.

Tseng said that tighter supervision of the stabilization fund by the Legislative Yuan is expected to prevent the fund from becoming a tool for the ruling party to gain political benefits by doling out massive amounts of money to support the market to win the hearts of equity investors.

The lawmaker said that the newly passed rules are also expected to avoid a long duration of market intervention by the stabilization fund, which could hamper market mechanism and lead to a loss of the effect of the fund’s intervention.

The last intervention by the stabilization fund was from Aug. 25, 2015 to April 12, 2016. The entry of the fund into the market was because of a plunge in the Chinese yuan in August 2015, which sent ripples through the global financial market.

The fund decided to stay in the market through April since there had been worries over non-economic factors resulting from the presidential election on Jan. 16, when the pro-independence Democratic Progressive Party won the vote, unseating the China-friendly KMT.

Earlier this month, the Ministry of Finance said that the stabilization fund raked in about NT$1.2 billion after disposing of all of the shares of large-cap stocks, such as Taiwan Semiconductor Manufacturing Co. (TSMC, ???), which it had bought during the intervention. TSMC is the most heavily weighted stock in the country.

The MOF said that the presence of the stabilization fund did protect local equities from adversary impact during that period, which saw the weighted index on the main board rise 856 points or 11.15 percent to close at 8,531 points on April 12.

Meanwhile, lawmakers also passed an amendment to the Futures Trading Act (?????) to tighten monitoring of insider trading in the futures market.

Under the new rules, company insiders will be kept from trading futures, which track shares of the company, within 18 hours before and after material information is released.

The new rules have also increased the punishment on insider trading to a jail time of three to 10 years, from the previous period of up to seven years, and have raised the fine to NT$10 million-NT$200 million from the previous level of up to NT$3 million.

Source: Focus Taiwan News Channel