The Taiwan Stock Exchange (TWSE) has signaled it is preparing for a significant upgrade of its trading infrastructure to keep pace with its rapid ascent.
This move comes as no surprise, given the market's explosive growth. Fueled by the global AI boom, Taiwan's stock market, led by the semiconductor giant TSMC, has shattered records, briefly becoming the world's fifth-largest equity market. Since its introduction in 2020, odd-lot trading has seen explosive growth, with the number of accounts quadrupling by 2024. This incredible surge in both value and participation has put immense pressure on the existing market systems, making modernization a necessity rather than a choice.
The reasons for this reform are clear and interconnected. First, the AI-driven rally concentrated enormous value and trading activity in a few key stocks, most notably TSMC, which now accounts for over 40% of the entire market. Second, this attracted a wave of investment from both large foreign institutions and a rapidly growing base of local retail traders. Daily turnover frequently soared to near-record levels, testing the limits of the exchange's matching engines. Third, this highlighted frictions in the system, particularly in odd-lot trading. Currently, these smaller trades begin matching at 9:10 a.m., ten minutes after the main market opens, creating a disconnect for retail investors.
To address this, the TWSE is considering several key changes. The most immediate priority is reforming the odd-lot system, with a goal to complete it this year. This involves starting its trading at 9:00 a.m. to align with the main market and shortening the matching interval from the current 5 seconds. The goal is to make the experience seamless for small investors. Additionally, the exchange is exploring extending its overall trading hours, a move partly influenced by competitive pressure from South Korea's exchange, which is planning a 12-hour trading day. Other potential upgrades include reducing the minimum price increment, or tick size, to improve price discovery.
Ultimately, these reforms are about more than just technical adjustments. They represent a strategic effort to upgrade Taiwan's market microstructure to match its newfound global stature. By improving efficiency, liquidity, and accessibility, the TWSE aims to create a more resilient and competitive marketplace that can effectively serve all participants, from global funds to the everyday investor.
- Odd-lot trading: The practice of trading stocks in quantities smaller than the standard "round lot" (often 100 or 1,000 shares), which is popular among individual retail investors.
- Market Microstructure: Refers to the underlying mechanics of a trading market, including its rules, processes, and technologies that determine how prices are formed and trades are executed.
- Tick Size: The smallest possible price movement of a security. A smaller tick size can allow for more precise pricing.