introductiontocontinuoustradingofwarrants.docVIP

Introduction to Continuous Trading of Warrants Contents I. Preface II. A Comparison: Call Auctions vs. Continuous Trading III. Benefits of Continuous Trading 1. High-Efficiency Trading 2. Greater Reference Value of Information on Unexecuted Order Prices and Volume 3. Better Execution Price Continuity 4. Trading System Scalability I. Preface During regular trading sessions the Taiwans stock exchange market employs the periodic call auction method to determine executing prices. However as the continuous trading method has been adopted in major securities markets around the world such as the United States, United Kingdom, Euronext, and Hong Kong, and to allow investors to enjoy more efficient trading and enhance real-time information transparency, the Taiwan Stock Exchange (TWSE) is launching a continuous trading system. Rules for conducting continuous trading and call auctions differ in a number of ways, including the frequency of matching and the principles for deciding execution prices, and these differences will require that market participants make extensive adjustments to their trading systems. The transition to continuous trading will therefore be made gradually, beginning with the implementation of continuous trading of warrants from 28 June 2010. II. A Comparison: Call Auctions vs. Continuous Trading 1. Call Auctions The call auction system is currently employed during TWSEs regular trading sessions. Orders are first collected over a specified period of time. At the end of that period orders are matched by price priority, with those orders with the same price being matched according to time priority (orders placed before market opening are randomly sequenced by computer). The selected execution price allows the greatest number of orders to be executed, and only one execution price is selected per call auction. After the execution price and volume are posted, with the prices and volumes of both the five highest unexecuted bid quotes and