Stock prices experience a skyrocketing / surge followed by trading restrictions? Understanding the thresholds for buying and selling disposed shares

When stocks experience extreme volatility in the short term and trading activity becomes abnormally intense, you may find that you cannot execute trades as quickly as with regular stocks, and margin trading may be temporarily disabled. This usually indicates that the stock has been placed on the Disposal Stock list. Many investors are confused about the rules for buying and selling disposal stocks—can they be traded at all? What are the trading restrictions? Is there still room for these stocks to rise?

Starting with Abnormal Trading: Causes of Disposal Stocks

The Taiwan Stock Exchange issues special alerts for stocks exhibiting abnormal trading behavior. When a stock’s price fluctuation exceeds normal limits, turnover rate is far above average, or trading volume suddenly multiplies, a warning mechanism is triggered.

The process of a stock entering abnormal observation typically involves three stages. First, it is classified as a Notice Stock, during which trading is unrestricted but investors are alerted. If abnormal conditions persist, the stock is upgraded to a Warning Stock. When trading performance over several consecutive days meets abnormal standards, the stock enters the Disposal Stock stage, where trading is subject to explicit restrictions.

Specific Restrictions on Buying and Selling Disposal Stocks

Stocks on the disposal list can still be bought and sold, but the operation methods differ significantly from those of regular stocks.

In the first stage of disposal, trades can only be matched once every 5 minutes. If a single transaction exceeds 10 lots or total transactions reach over 30 lots, a “collateralized trading” method must be used— the system will first freeze the investor’s prepayment in their account, and only after confirming sufficient funds will the trade be executed. Compared to the normal T+2 payment cycle for regular stocks, this method demands stricter liquidity requirements.

If volatility remains uncontrolled, the stock enters second-stage disposal, where matching intervals extend to 20 minutes, and all trades are conducted via collateralized trading regardless of volume. These measures cause trading volume to drop sharply, making quick entry and exit difficult.

The disposal period usually lasts for 10 trading days. However, if intra-day offset transactions account for more than 60%, the disposal period extends to 12 trading days. During this time, margin trading and securities lending are fully suspended, and leverage operations are completely prohibited.

Are There Investment Opportunities in Disposal Stocks?

The future performance of disposal stocks varies. Some continue to rise despite restrictions, while others fall into a slump. The key factor is whether the company’s fundamentals remain solid.

When evaluating the trading value of disposal stocks, investors can consider two dimensions:

Fundamental Analysis—Deeply understand the company’s core business, product competitiveness, and financial health. Examine key indicators such as revenue growth rate, gross profit margin, and net profit to assess whether the company has long-term profitability potential. Also, observe financial trends to confirm whether the company maintains stable performance.

Capital Flow Insights—During the disposal period, with margin trading and securities lending disabled, the movement of major funds becomes more transparent, allowing investors to better track institutional capital flows. Look for signs of continuous buying to determine if it’s worth following.

A crucial tip: if the stock has already started to decline significantly during the disposal period, avoid entering at this time. Conversely, if the stock price is consolidating and valuation is reasonable, it may be a better entry point.

Is Long-term Holding Suitable for Disposal Stocks?

This depends on a comprehensive assessment of multiple factors. Disposal stocks carry higher risks compared to normal stocks, and abnormal trading often indicates operational issues or market risks. If the company faces significant challenges, long-term holding may be risky.

The macro environment is also important. During periods of overall stock market growth and a friendly economic environment, holding fundamentally stable disposal stocks can be advantageous. Conversely, in a declining market, risks are further amplified.

An investor’s risk tolerance is also a key consideration. Those with high risk tolerance may consider holding fundamentally sound disposal stocks long-term, waiting for a rebound after restrictions are lifted. However, for more conservative investors, the high volatility of disposal stocks may not meet their needs.

It’s worth noting that short-term traders, unable to perform same-day offset transactions, will face higher costs when trading disposal stocks. Conversely, long-term investors are less affected and may even benefit from lower entry prices due to reduced liquidity.

Final Recommendations

Being classified as a disposal stock is only a temporary abnormal trading state and does not necessarily indicate a decline in the company’s quality. If thorough research confirms that the company still has investment potential and valuation is reasonable, engaging in trading of disposal stocks can be acceptable. However, always ensure your risk tolerance is sufficient to handle the high volatility of these stocks, and be prepared for long-term holding.