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Taiwan: Proposed Consolidation of Securities Exchanges, New Shariah Index

(Dec. 4, 2008) On October 20, 2008, the Finance Committee of Taiwan's Legislative Yuan approved going ahead with amending the Securities Exchange Act (promulgated on Apr. 30, 1968; last amended on May 30, 2006, in force on July 1, 2006). One significant step would be the revision of article 128, which restricts the conveyance of stocks on the Taiwan Stock Exchange (TWSE) to domestic chartered securities firms. If approved by the legislature, the TWSE will merge, under one holding company, with the secondary bourse (GreTai Securities Market) as well as the Taiwan Futures Exchange and the Taiwan Depository & Clearing Corporation. The merger would be executed in two phases: the formation of the holding company over a period of six months and then the consolidation of the four entities' operations and establishment of an independent market monitoring center. The new company would be listed as a public share offering, according to Chi Schive, TWSE Chairman, with the entire process taking one to three years. (Meg Chang, Bourse Merger Nears Completion, 25:45 TAIWAN JOURNAL (Nov. 13, 2008), available at; Securities Exchange Act [in Chinese], Legislative Yuan Laws System database, (last visited Nov. 28, 2008); Securities and Exchange Act [in English translation], Law Source Retrieving System of Stock Exchange and Futures Trading website, (last visited Nov. 28, 2008).)

The aims of the merger, which was first proposed in early 2006 by the Cabinet-level Financial Supervisory Commission (FSC), are to attract more overseas investment and facilitate cross-shareholdings with foreign bourses; reduce domestic companies' listing abroad; provide securities investors with 'one-stop' services, and “create such synergies as higher efficiency and lower costs.” Overall, an enlarged exchange is viewed as likely to increase the Taiwan capital market's global competitiveness. (Chang, id.) The merger has been described as “the missing piece of Taiwan's investment puzzle” after the government announced on July 17, 2008, a higher permissible ceiling on investment in mainland China for most Taiwan companies – now 60 percent, as opposed to formerly no more than 40 percent. (New Course for Bourse Widens Investment Net, 25:46 TAIWAN JOURNAL (Nov. 21, 2008), available at

In addition to promoting the merger, the TWSE has already been seeking out foreign partners, having signed memoranda of understanding with the Tokyo Stock Exchange and the Osaka Securities Exchange. Adoption of the amendments to the Securities Exchange Act would permit foreign investors to buy shares in the new holding company, according to a TWSE spokesperson, allowing the Taiwan exchange to more aggressively seek foreign partnerships. The world's largest stock exchange group was reportedly formed in 2007 by the union of Euronext (the third largest exchange) and the New York Stock Exchange. (Chang, supra.)

Another recent measure aimed at enhancing TWSE's ability to attract foreign capital was its launch of the Taiwan Shariah Index on November 13, 2008. The index, arranged in partnership with the FTSE group (a London-based index company jointly owned by THE FINANCIAL TIMES and the London Stock Exchange), will list 68 of Taiwan's leading Shariah-compliant companies that are found in FTSE's Global Equity Index, among a total of 712 companies comprising the TWSE. “The new index excludes businesses in industries such as banking, gambling, pork processing or arms production which are considered unacceptable or not conforming to Shariah, the Islamic law.” (Eric Chao, Stock Exchange Launches Shariah Index, 25:46 TAIWAN JOURNAL (Nov. 21, 2008), While other Asian countries, including Japan, Malaysia, Singapore, and South Korea, have introduced Shariah indexes, only the Malaysian, Singapore, and Hong Kong stock exchanges offer related investment products, according to the TWSE. (Id.; New Course for Bourse Widens Investment Net, supra.)