Is there still hope for full delivery stocks? An in-depth analysis of Taiwan's unique settlement system in the stock market

What Are Fully Settled Stocks

In the Taiwanese stock market, fully settled stocks are a special settlement mechanism. When investors buy these stocks, they must pay the entire purchase amount upfront, without using margin trading or securities lending. This system originated from situations where listed companies face operational difficulties, financial deterioration, or are subject to regulatory measures due to major violations.

Generally, stocks with a net asset value below NT$5 per share or involved in significant violations are designated as fully settled stocks. This serves as a risk warning mechanism aimed at protecting the public from excessive speculation.

Can Fully Settled Stocks Turn Around

Many investors want to know whether companies listed as fully settled stocks have a chance to return to normal. The answer is yes—being classified as a fully settled stock is not an irreversible judgment.

When a listed company’s operations improve, there is indeed an opportunity to lift the restrictions on fully settled stocks and re-enter the regular trading mechanism. However, this requires meeting strict conditions:

Standards for listed companies to achieve:
Two consecutive quarterly financial reports with net asset value per share exceeding NT$5, and shareholder equity maintaining above NT$300 million for two consecutive quarters.

For OTC (Over-the-Counter) companies, the requirements are slightly different:
A single quarter’s financial report showing net asset value per share over NT$5, and evidence of shareholder equity growth, can be submitted for application.

The entire review process is relatively standardized. After the Taiwan Stock Exchange (TWSE) receives all quarterly reports from listed and OTC companies, it conducts a preliminary review on the first business day. Once the review announcement is published, the company that has its fully settled stock restriction lifted can resume normal trading on the second business day.

How to Check the List of Fully Settled Stocks

Investors seeking the latest information on fully settled stocks can check through official channels. After entering the Taiwan Stock Exchange website, click on “Trading Information,” then go to the “Change of Trading” page, where the complete list of fully settled stocks and related explanations are available.

What Are the Special Features of Buying and Selling Fully Settled Stocks

Since fully settled stocks cannot be traded via margin, their trading process differs significantly from ordinary stocks. Investors need to cooperate with brokers for special procedures.

Buying Procedure:
Investors must first transfer the full purchase amount (including fees) into a designated escrow account specified by the broker. Then, provide the broker with the stock code and quantity to buy. To avoid order failures due to insufficient funds, investors usually transfer a higher amount as a buffer. If not all funds are used on the day, the excess is generally automatically refunded to the investor’s account by 3:30 PM.

Selling Procedure:
Investors wishing to sell fully settled stocks need to proactively contact their broker to register the stocks they hold (pre-register the stocks intended for sale). The broker will record this via a recording process as proof; some brokers allow self-service registration through an app. Once registered, investors can place sell orders themselves. If the stocks are not sold by the market close on that day, they need to re-register the next day to sell.

Risks and Precautions When Investing in Fully Settled Stocks

Investing in fully settled stocks involves risks that are significantly higher than those of regular stocks:

Nature of the Risks:
Being classified as a fully settled stock usually indicates the company is facing operational crises, financial difficulties, or legal compliance issues. This means the investment target inherently carries higher risk.

Large Price Fluctuations:
Stocks with net asset values near the NT$5 threshold tend to experience extreme volatility. Whether the stock maintains its fully settled status depends on surpassing this threshold. If the company fails to meet the requirement, the stock may hit the daily limit down repeatedly, leading to substantial short-term losses for investors.

Lack of Dividend Mechanism:
Unlike regular stocks, which often have stable dividends and rights issues, fully settled stocks do not distribute dividends or offer rights during the restriction period. Investors can only hope that the company eventually turns around and reverts to ordinary stock status.

Significantly Reduced Liquidity:
The trading mechanism for fully settled stocks involves transactions every 30 minutes, with limited trading volume. This can lead to a lack of counterparties, wider bid-ask spreads, increased transaction costs, and reduced trading efficiency.

Before considering investment in fully settled stocks, investors should thoroughly assess their risk tolerance and be prepared for long-term holding or potential principal loss.