A Research of the Interactive Relationship between Taiwan's Political Economic Structure/Stock Market System Design and Investors

• Main Authors: Hong-Yi Cheng, 鄭弘儀
• Other Authors: 林基煌
• Format: Others
• Language: zh-TW
• Published: 2002
• Online Access: http://ndltd.ncl.edu.tw/handle/01628385008631970581

碩士 === 國立政治大學 === 經營管理碩士學程 === 90 === There were only approximately 100 publicly listed companies in Taiwan in 1987, however, the total number of companies publicly listed and traded over-the-counter, by year 2001, was already over 900. Meanwhile, the speed of the money supply increasing dropped far behind the speed of stock printing in this period. That is, the growth of capital could not keep pace with the growth of stock chips, not even mention the capital that was rapidly transferred to Mainland China in the past decade. As such, with the circumstance that the rapidly growing volume of stocks was chased by limited amount of money, how can we expect that stock prices will go up easily? Next, Taiwan's stock market suffers deeply from insider trading, Securities & Futures Commission (SFC) is somehow not authorized with the investigation power, all insider trading cases are transferred to the judiciary. However, the inside traders are hardly prosecuted in general, due to the fact that the judiciary is either fearful of those who have the authority and influence power, or not familiar with the manipulating gimmicks in the stock market. Therefore, individual traders always take the worse of it. In Taiwan's stock market, under the control and manipulation of institutional traders, in terms of the potency or real strength of capital size, sources of information, speed of capturing information, quality of research and professionalism, individual traders are all falling far behind. Naturally these are the people who can be cut easily. Besides, the cost of stock trading is also horrible in Taiwan, the cost of each transaction is as high as 0.6% of the trading value, it may be the most expensive one in the world. A thick layer of skin is peeled off in each transaction, somehow individual traders even hardly feel it. The turnover rate in Taiwan's stock market, as the figure shows, is the highest in the world, in terms of the number of individual traders, it also ranks the first in all nations. It can be seen that the skin peeled off from individual traders in Taiwan is extremely serious. Speculation and manipulation of stock market is another big problem in Taiwan. The situation is that the market is not only full of big traders, fund providers and stags, but also rampant with so called "winning stocks" - information often provided by advisers in some investment consulting firms, individual traders frequently take these words and are usually wounded heavily. Political interference and control of stock market is a scene that is commonly seen in Taiwan. Some measures adopted in the stock market system are also not in favor of individual traders, such as no short selling when the offering price is below yesterday's closing price - a measure causing traders hard to hedge; limits of up and down are not relaxed - a measure causing the market easier to be manipulated. On the other hand, high ranking government officials, who have the power on hands but do not understand the stock market, frequently use the ups and downs of stock prices as the tool to interfere the market. The market is then trapped into abnormal fluctuation and reflected with unrealistic economic fundamentals. As a result, individual traders are puzzled and do not know how to follow. With the economic development in Taiwan, the change of people's concept of fund management, and the opening of foreign investment, abundant capital flows into the securities market. Other than individual traders, enterprises are also actively trying to collect capital from the market for their on-going investment and expansion of business. According to the statistics of Taiwan Stock Exchange, in terms of total capital, Taiwan's stock market only ranked at 18 among all nations in 1998, however, the total value of trade took the third position, the turnover rate even stayed at the top. It can be said that quite a few people treat Taiwan's stock market as a gold mine. Somehow, most of the time it seems that Taiwan's stocks are not appropriate for individual traders to buy. Only when stock prices suffer from heavy and over decline, the moment when nobody is willing to buy, then it is the time for individual traders to jump in. It is because that the structure of this stock market is not in the advantage of individual traders. But ironically, figure shows that individual traders make up 90% of total traders in Taiwan's stock market. Therefore, after long time observation and analysis, it is found that most likely over 90% of individual traders are losing money, only very few - may be 5% - is making money, others may just break even in their trading. It is also found that, in general, only those who make money are dare to show off, those who lose money do not want to say a single word. Why? It is the human nature. One is afraid of being teased when losing money; but wants to show off when wining money. So that it is quite possible that the ratio of individual traders who lose money is even higher the percentage demonstrated. Additionally, for those investors in the securities market, the capture of information, the trustworthiness of information, the functionality and meaning of information, etc., are all important factors in making investment decisions. When public investors are in the process of making decisions of buying or selling stocks, they are heavily relying on the open information published by enterprises. Therefore, the flow of information in the securities market is naturally very much concerned by public investors, whoever can obtain more, faster and more accurate information than others stands better chance in the market to earn higher gains on the investment. Sources of information in enterprises are primarily from items that will affect the future development of the business, such as business operation, finance, investment, etc. The general individual traders, in this regard, are in a bad position as far as the obtaining of information. Since whether board directors and supervisors, managers, major shareholders or investment trust companies, stock brokers, foreign investors, even media, they all have much better advantage in obtaining the associated information and undertake trading by using these advantages. To other investors, under the circumstance where they are not able to immediately learn the information that will affect the company value, the market is situated at the information imbalance status. It is obviously not fair to public investors and also violating the justice of securities market trading. Furthermore, factors affecting Taiwan's stock market are frequently not normal economic ones, quite often they are associated with political issues, market rumors, improper internal operation within publicly listed companies, news manipulated by media and even whispering words among private traders groups. With these factors and the disadvantage of obtaining information and the designed system of Taiwan's stock market, most individual traders in Taiwan's stock market can really be classified as a disadvantaged group. The situation has caused not only the general investors losing their faith to the securities market, but also chaos in trading orders. A local financial crisis was taken place in Taiwan two years ago. Whether it was the enterprises that broke out the financial crisis or the financial institutions that were implicated and broke out the squeeze wave, the owners or top managers mostly had the strong background associated with civil representatives or important political party figures. The fraud of "politic interferes with professionalism" was already exposed at the time. The lesson from this crisis is still vividly demonstrated. With the emerging trend of globalization and liberalization, business operation in enterprises may have to face challenges not only from domestic rivals but also from overseas competitors. Top executives and their top management team responsible for the operation of enterprises all have critical influence power to the success of the operation. Therefore, if the government puts inappropriate people into state-run businesses solely for rewarding or other purposes, it may affect or hinder the supervising function in the business as a minimum, or on the serious side, it may even cause malpractice such as abuse of authority, delivery of interest. Public shares owned by state-run businesses or the government are the shares commonly owned by general public, it is the government's duty to select and send the right people to state-run businesses. Moreover, since we are still situated in the global economic depression, the pulses of operation in large enterprises are tightly linked with the overall economic growth of our nation. Taking some important financial institutions for instance, three major domestic commercial banks (First Commercial, Hua Nan Commercial, Chuang Hua Commercial) are all publicly listed companies, in case that if any incident occurred in any one of them, the scope of impact is really beyond the imagination. Theoretically, political parties in Taiwan have finished with the ruling power alternation, it is perfectly justified that the current government has the supervision right to state-run businesses. All state-run businesses were also in "blue" (KMT color) during the period of KMT party's ruling. The ruling power is now handed over to DPP party, changing personnel arrangement in state-run businesses is also a way of dissolving the gross interest sharing network built by the long time collusion between KMT politicians and business sectors. However, after the alternation of ruling party, general public naturally will have new expectation to the new government, they do not want to see the collusion between politicians and business sectors happened anymore. If the bad tradition of politics mingled with business as well as the interest delivery can be completely cut off, no one will ever care whether it is in "blue" or in "green" (DPP color), as long as it is not in "corruption". But if it is corrupted again, the outcome may be even worse than what was happened to KMT. This paper is divided into three parts after chapter 2, the first part covers "insider trading", the second part deals with "political and economic structure", and the third part continues with "stock market system". Each of the three parts will be discussed in detail, supported with real cases and facilitated with associated critical legal articles. With the in-depth study of each part, it is hoped that the paper can present a clear view of the chaos in Taiwan's securities market, and provide some help to general investors in having a better understanding of stock trading in Taiwan.