證券櫃檯買賣中心於IPO市場之挑戰 - 政大學術集成

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(1)國立政治大學商學院國際經營管理英語碩士學位學程 International MBA Program College of Commerce National Chengchi University. 政治大. 學. ‧ 國. 立碩士論文. Master’s Thesis. ‧. io. sit. y. Nat. 證券櫃檯買賣中心於 IPO 市場之挑戰 er. n. The Challenges of Taipei Exchange in a iv l C n h e nMarket IPO gchi U. Student: Yi-chun Chen Advisor: Professor George Kuo. 中華民國 107 年 7 月 July 2017. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(2) 證券櫃檯買賣中心於 IPO 市場之挑戰 The Challenges of Taipei Exchange in IPO Market. 研究生：陳怡君. 立指導教授：郭維裕教授. 政治大Student: Yi-chun Chen Advisor: George Kuo. ‧. ‧ 國. 學國立政治大學. Nat. 碩士論文. n. al. Ch. eAnThesis gchi. er. io. sit. y. 商學院國際經營管理英語碩士學位學程. i n U. v. Submitted to International MBA Program National Chengchi University in partial fulfillment of Requirements for the degree of Master in Business Administration 中華民國 107 年 7 月 July 2018. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(3) Abstract. The Challenges of Taipei Exchange in IPO Market By Yi-chun Chen According to World Federation of Exchanges statistics, 2017 was a comeback year for IPOs since 2007. However, the stock markets in Taiwan had opposite results to the global IPO performance. For the period from 2011 to 2017, the number of IPO on Taipei Exchange. 治政大tried to analyze the causes to the from NT $9,448 million to NT $6,340 million. This report 立 shrank by 55%, from 51 to 23 companies, and the amount of IPO proceeds shrank by 33%,. declining IPO number and propose some recommended solutions.. ‧ 國. 學. The causes to the weak IPO activities includes the levying of capital gains tax, the slowing. ‧. down of SMEs growth, the private firms unwilling to go public, and the competition from. Nat. sit. y. Greater China. As to the main strengths in terms of IPO, Taipei Exchange has advantages of. n. al. er. io. high transparency, high turnover rate and P/E ratio, lower listing costs and the industry. i n U. v. clustering. The weakness lies in the limited market scale compared to other emerging stock. Ch. engchi. markets. One major opportunity is the high potential of foreign companies in South-Eastern Asian countries and Mainland China which have tight linkage with Taiwanese. The greatest threat facing Taipei Exchange is the rapidly rising stock markets of Greater China. Any of new policy launched in the competitor markets will inevitably impact on Taipei Exchange.. Taipei Exchange should take actions to turn challenges into opportunities. It can collaborate with Taiwan Stock Exchange and make use of the well-established multi-layer markets to encourage SMEs enter the capital market. In addition, Taipei Exchange has to enhance the cooperation with other global exchanges, strengthen the IPO ecosystem, find IPO incentives of private companies, and loosen regulation of listing rules and on-going requirements. 2. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(4) TABLE OF CONTENTS 1.. Introduction ……………………………………………….......... 5. 1.1 Introduction to Taipei Exchange………………………......... 5. 1.2 Overview of listings on Taipei Exchange............................... 8. 2. Highlights and Trends of Global IPO Market.............................. 16. 3. Analysis of the declining IPO numbers in Taipei Exchange........ 18. 4. 24. 政治大 SWOT Analysis 立of Taipei Exchange in terms of IPO................... ‧ 國. 學. Recommended Solutions.............................................................. 34. 6. Conclusion.................................................................................... 42. ‧. 5. 45. n. al. er. io. sit. y. Nat. Reference................................................................................................. Ch. engchi. i n U. v. 3. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(5) List of Figures and Tables Figure 1:. The number and proceeds of global IPO activities (2008-2017). 16. Table 1:. Overview of the listed companies as of end of March 2018. 13. Table 2:. Number and proportion of the listed companies categorized by industry sectors, as of end of March 2018. 14. Table 3:. Number and proportion of the listed companies categorized by the paid-in capital, as of end of March 2018. 14. Table 4:. Number and proportion of the listed companies categorized by the market capitalization, as of end of March 2018. 15. Table 5:. Number and proportion of the listed companies categorized by the market capitalization (defined by WFE), as of end of March 2018. Table 6:. IPO number and proceeds of Taipei Exchange in 2011-2017 a l iv. 立. 政治大. ‧. ‧ 國. 學. Nat. n. er. io. sit. y. 15. n U engchi P/E Ratio of major Asian stock exchanges as end of. 19. Ch. Table 7:. 25. 2017 and 2016 Table 8:. Turnover Velocity of major Asian member exchanges of WFE in 2017 and 2016. 26. Table 9:. Investors Structure in terms of Trading Value on Taiwan Stock Exchange and Taipei Exchange; Average Proportion in 2017. 30. 4. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(6) 1. Introduction 1.1. Introduction of Taipei Exchange: Taipei Exchange is an integrated and multifunctional exchange established on November 1st 1944, in accordance with the provisions of the Securities and Exchange Act. Taipei Exchange’s initial funds were contributed by Taiwan Securities Association, Taiwan Stock Exchange and the Taiwan Depository and Clearing Corporation. It was originally named "GreTai Securities Market" as an over-the-counter (OTC) securities trading center for the. 政治大. purpose to enhance the OTC trading functions in Taiwan.. 立. market. that offers platforms. 學. multifunctional. ‧ 國. As the business expanded, GreTai Securities Market has remained dedicated to grow into a for both. centralized trading. and. over-the-counter negotiated trading of a wide variety of products, including stocks, bonds,. ‧. ETFs, TDRs, and derivatives to meet the diverse needs of investors. It has also endeavored. y. Nat. io. sit. to foster emerging and high-tech industries, small-and-medium enterprises and. er. micro-enterprises by providing a viable channel for public listing and capital raising.. al. n. v i n C h as a full-fledged performance e n g c h i U exchange,. Because of the outstanding. GreTai Securities. Market became an Affiliate Member of WFE (World Federation of Exchanges) 1 in April 2010, and later in October 2011, it got the approval as a member of WFE. In April 2013, GreTai Securities Market became the member of Asian and Oceanian Stock Exchanges Federation (AOSEF). In order to make precise market positioning and international identification, GreTai Securities Market was renamed as the “Taipei Exchange” in 2014.. 1. About the World Federation of Exchanges (The WFE): Established in 1961, the WFE is the global industry association for exchanges and clearing houses. Headquartered in London, it represents over 200 market infrastructure providers, including standalone CCPs that are not part of exchange groups. Of the members, 36.8% are in Asia-Pacific, 42.6% in EMEA and 20.6% in the Americas. .. 5. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(7) Taipei Exchange has been guided by the goal of building up a robust and efficient capital market for the small-and-medium-sized Enterprises (SMEs) with the mission to further promote the domestic economic growth. Fostering the SMEs became the core business of Taipei Exchange because the SMEs, which are the driving motors of the economic growth in Taiwan, need to be provided with equal access to the capital for growth. According to a statistics report by the Small and Medium Enterprise Administration, Ministry of Economic Affairs, 2016, there were over 1,400,000 SMEs in Taiwan, accounting for 97% of all companies in this country2. In addition, SMEs account for nearly 31% of total sales value. 政治大 employed over 8.8 million employees as of the end of 2016, representing 78% of the total 立. created by all companies. Moreover, SMEs play a significant part in job creation. SMEs. employment in Taiwan, while large companies and the public sectors hired 12% and 10% of. ‧ 國. 學. employees, respectively. Despite of the economic importance of SMEs, most of them are. ‧. struggling in capital financing because of small business scale and low credit. SMEs need to. sit. y. Nat. raise sufficient funds from the capital market to invest in their business as the business. io. al. n. the SMEs and public capital.. er. expands. That is the reason why Taipei Exchange plays an essential role as a bridge between. Ch. engchi. i n U. v. To encourage the small-and-medium-sized companies to go public, Taipei Exchange allows the companies with paid-in capital no less than NT$50,000,000 to apply for listing on the Main Board. It also facilitates the companies in emerging industries, such as high-tech, bio-tech, culture and creation, and characteristic industries to enter into the capital market. The mission and positioning of Taipei Exchange is much different from that of the other 2. The term of "small and medium enterprise" (SME) mean an enterprise which has completed company registration or business registration in accordance with the requirements of the laws, and which conforms to the following standards: (1) the enterprise is an enterprise in the Manufacturing, Construction, Mining and Quarrying industry with paid-in capital of NT$80 million or less; (2) the enterprise is an enterprise in the industry other than any of those mentioned above and had its sales revenue of NT$100 million or less in the previous year, according to the Standards for Identifying Small and Medium Enterprises. As to the scale of employees, SMEs are defined as firms in the Manufacturing, Construction and Mining and Quarrying industries with less than 200 regular employees and firms in other industries with less than 100 regular employees. 6. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(8) stock exchange in Taiwan, Taiwan Stock Exchange, which is an exchange for large and developed companies with paid-in capital in excess of NT$ 600 million.. With experiences in supporting SMEs and emerging companies to go public, Taipei Exchange established the Emerging Market Board (ESB) in 2001, which is the preparation market for the Main Board. The ESB provides a market for the registered companies to disclose information to the public investors. Their shares are traded at the negotiated prices between securities firms and investors. As a result, it helps the registered companies to discover their reasonable and acceptable stock prices before doing Initial Public Offering. 政治大. (IPO). It is regulated that a company should be registered on the ESB for at least 6 months. 立. before applying for IPO on either Taipei Exchange or Taiwan Stock Exchange. The. ‧ 國. 學. establishment of ESB is fundamental to the strong and sound development of IPO market in Taiwan.. ‧. sit. y. Nat. In 2014, Taipei Exchange started a new board, Go Incubation Board for Startup and. io. er. Acceleration Firms (GISA), specializing in incubating the start-up companies. The GISA registered companies have the free access to the resources offered by Taipei Exchange, such. al. n. v i n C h accounting andUlegal advices, and sales matching as training lessons, consulting services, engchi opportunities. The GISA registered companies can raise capital either via the GISA platform. or from the private investors. However, the GISA platform does not provide securities trading function. Stocks of the registered companies can only be traded in private. Once the registered companies grow from start-ups to the established companies, they are applicable to transfer to ESB.. The Main Board, Emerging Stock Board, and GISA Board have formed the multi-layer markets of Taipei Exchange.. 7. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(9) Taipei Exchange also operates as a bond market. It established the regulatory framework for the listing and trading of a variety of bonds, including the government bonds, financial bonds, international bonds (i.e. bonds issued by foreign issuers and denominated in foreign currency), corporate bonds and convertible bonds. The government bonds and international bonds are the largest and second largest sectors by issuance volumes and by outstanding values, respectively. The international bond market was grown rapidly since 2013 because of the regulation relaxation which has significantly eased the burden of issuance and placement of shares and subsequently encouraged more listings on Taipei Exchange.. 政治大. To sum up, Taipei Exchange is an exchange with comprehensive function. It offers. 立. alternative ways for companies raising capital from the public and provides a variety of. ‧ 國. 學. products for investors, such as stocks, ETFs, TDRs, (calls and puts) warrants, bonds and open-ended funds and golds.. ‧. sit. y. Nat. The discussion in this report focuses on the IPO function and aims to analyze the challenges. io. er. facing Taipei Exchange, despite of the wide range of products and diversified services provided by Taipei Exchange.. n. al. Ch. ngchi 1.2 Overview of listings on TaipeieExchange. i n U. v. 1.2.1 Listing Requirements The requirements for listing on the Main Board of Taipei Exchange vary for different types of the applicant companies, the domestic companies, the foreign companies and the Technology-based Enterprises. The Main Board listing requirements are as follows:. 1.2.1.1 For the domestic companies:. I. Required advisory/Trading period 8. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(10) The issuer's stock should be traded on the ESB for more than 6 months.. II. Duration of Corporate Existence. The issuer shall have been incorporated and registered in accordance with domestic or foreign laws for at least 2 completed fiscal years.. III. Company Size. The paid-in capital should be more than NT$50,000,000 dollars.. IV. Profitability. 立. 政治大. ‧ 國. 學. The ratio of income before tax to paid-in capital should meet one of the following requirements, and the income before tax of the most recent year should not be less. ‧. than NT$4,000,000:. y. Nat. sit. i. For the most recent fiscal year: the ratio shall be more than 4%, and there shall be no. n. al. er. io. accumulated deficits.. i n U. v. ii. For the last 2 fiscal years: the ratio shall be more than 3% in each year; or an average. Ch. engchi. of 3% over the 2 years and the ratio for the more recent year is better.. V. Recommending Securities Firms. The issuer should receive written recommendations from 2 or more Recommending Securities Firms (RSFs). One of which is designated as the lead RSF.. VI. Lockup of the shares. The directors, supervisors, and the shareholders holding 10% or more of the issued shares of the issuer should deposit all their shareholdings in central custody. One half 9. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(11) of those shares deposited in the central custody may be withdrawn after the lapse of 6 months period starting the listing date; the remaining shares may be withdrawn after the lapse of 1-year period starting the listing date thereof.. VII. Dispersion of shareholders. Excluding company insiders, the number of registered shareholders should be at least 300 people/entities, and the total number of shares they hold should be 20% or greater of the total issued shares.. VIII. Compensation committee. 立. 政治大. ‧ 國. 學. The issuer should have a compensation committee in place.. 1.2.1.2 For the foreign companies:. ‧ sit. y. Nat. The requirements for the foreign companies are almost the same as those for the domestic. io. al. n. size are different.. er. companies, except for the standards of required advisory/trading period and the company. Ch. engchi. i n U. v. The foreign issuers may choose either one of the following steps to apply for Main Board Listing, (i) to have their stocks being traded on the ESB for at least 6 months; or (ii) to have the Recommending Securities Firms conduct listing advisory continuously for at least 6 months. If the foreign company adopts the way other than registration on the ESB, it should contract with the lead RSF to file the advisory progress and submit the "Advisory Progress Checklist of the Main Board Listing" to Taipei Exchange every month. Besides, three months before applying for the Main Board listing, the lead RSF should summit the "Financial and Operational Material Event Checklist" to Taipei Exchange. After submitting the "Advisory Progress Checklist of the Main Board Listing" or the "Financial and 10. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(12) Operational Material Event Checklist" on a monthly basis for 6 months, the foreign issuer shall apply for the Main Board listing. As to the company size, the foreign registrants are required to have total shareholders’ equity audited by a CPA at no less than NT$100,000,000 for the most recent year.. Besides that, the foreign registrants should designate at least a litigious and non-litigious agent who shall serve as the registrants' responsible person under the Securities and Exchange Act in the ROC. They are also required to engage a lead RSF from the listing date. 政治大. to the end of the 2 subsequent fiscal years to assist it in compliance with ROC securities. 立. 1.2.1.3 For the Technology-based enterprises:. 學. ‧ 國. laws and related regulations.. ‧. Considering the emerging companies in the early stages with technology capabilities and. sit. y. Nat. potentials are not capable of meeting the listing requirements of Main Board, Taipei. io. er. Exchange offers another channel for such companies, called the Technology-based. al. enterprises listing, based on the listing rules amended in 2000. Before applying to Taipei. n. v i n Exchange, the company needs to C apply opinion which recognizes it as a U h efornang assessment i h c Technology-based Enterprise with successful and marketable products or high-end technologies. The assessment opinion shall be provided by the Ministry of Economic Affairs or other Government institutions engaged by Taipei Exchange. With this opinion, the Technology-based Enterprises are not required to meet the standards of profitability and duration of corporate existence. The assessment opinion is valid for 1 year since the release date. There are additional requirements for the Technology-based Enterprises in the concerns with protection of the public investors. The book value of the applicant companies should be no less than 2/3 of the paid-in capital while applying for listing. As to the dispersion of 11. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(13) shareholders, excluding company insiders, the number of registered shareholders is required to be at least 300 people/entities, and the total number of shares they hold is required to be 20% or greater of the total issued shares, or no less than 10,000,000 shares. Moreover, the requirements of lockup of the shares are stricter for the Technology-based Enterprises. The directors, supervisors, CEO, personnel in charge of R&D, shareholders holding 5% or more of the total issued shares, and the shareholders providing patent rights or technical know-how as capital contribution, holding a position in the company, and holding 0.5% or more of shares issued or at least 100,000 shares are required to deposit all their. 政治大 custody cannot be withdrawn until after the lapse of one year starting the date of listing; the 立. shareholdings in the central custody. One half of those shares deposited in the central. remaining shares cannot be withdrawn until after the lapse of 2 years period starting the. ‧ 國. 學. listing date thereof.. ‧. 1.2.2 Listing Procedures. sit. y. Nat. io. er. The listing procedures for the Main Board start from the applicant companies submitting of listing application and related documents to Taipei Exchange. Once receiving the application,. al. n. v i n C h reviews to check Taipei Exchange commences the document whether the applicants meet all engchi U. the listing requirements and conducts on-site examination as well to verify the authenticity. Then Taipei Exchange holds a Securities Review Committee, formed by internal and external experts from the industry to determine whether the applicant can get the approval or not. After the approval by the Securities Review Committee, the new listing should be ratified by Taipei Exchange's Board of Directors. The procedures from application to Securities Review Committee discussion take around 6 weeks in principle3. It the pre-listing period on the ESB (or, for foreign companies, the advisory progress) and time for public. 3. To accelerate the examination procedures, Taipei Exchange has shortened the process from 2 months to 6 weeks, effective to the listing application since April 20, 2018. 12. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(14) underwriting are included, the whole timeline may take about 4.5 months or so for a company to schedule an IPO plan in general.. 1.2.3 Components of listed companies As of the end of March 2018, there are 752 listed companies on the Main Board of Taipei Exchange. The total paid-in capital and the market capitalization of all the listed companies were NT$ 727,837 million and NT$ 3.4 trillion, respectively. Since the establishment of Taipei Exchange Main Board, the accumulated listed companies were 1,260 companies, of. 政治大 companies had delisted from Taipei Exchange for some other reasons (such as being merged 立 which 324 companies had transferred to the Main Board of Taiwan Stock Exchange and 184. or acquired, executing business-reformation, and encountering financial difficulty or fraud).. ‧ 國. 學. Table 1. Overview of the listed companies as of end of March, 2018. io. al. 727,873. Ch. Average P/E. capitalization (NT million). turnover rate (Jan-Mar. 2018). y. ratio. 3,485,355. n. 752. Trading value. sit. capital (NT million). Total market. er. Nat. companies. Total paid-in. ‧. Number of listed. engchi U. Data source: Website of Taipei Exchange. v ni. 60.52%. 32.82. ＊Turnover ratio = Total Trading Value in Jan.-March 2018 / Average Market Value of. Jan.1st and March 31st, 2018. ＊P/E ratio = stock price of per share / EPS. The following Tables 2, 3 and 4 display the breakdown of the listed companies categorized by industry sectors, capital scales, and the market capitalization.. Table2. Number and proportion of the listed companies categorized by industry sectors, as of end of March, 2018 Electronic. Bio-tech &. Semiconductor. Opto-. Tele-. Computers. parts and. medical. Technology. electronic. communica. Peripheral. Others. 13. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(15) components. care. tion. Equipment. Network. 112 (14.9%). 82 (10.91%). 76 (10.1%). 54 (7.19%). 50 (6.65%). 50 (6.65%). 328 (43.6%). Data source: Website of Taipei Exchange ＊ ”Others” sums up the Traditional business, IT Services, Cultural and Creative, Distribution, E-commerce, Electronic-others, Financial, and Agricultural technology.. Table3. Number and proportion of the listed companies categorized by the paid-in capital, as of end of March, 2018 <100. 100~500. (NT$ million). (NT$ million). ‧ 國. 286 (38%). (37.3%). 173 (23%). 學. 3 (0.4%). 立 280. 治 1,000~5,000 政500~1,000 大 (NT$ million) (NT$ million). >5,000 (NT$ million) 10 (1.3%). Data source: Website of Taipei Exchange. ‧. ＊The minimum requirement of paid-in capital for listing on Taipei Exchange Main Board is. Nat. sit. y. NT$50,000,000. In this table, two of the three companies with paid-capital less than. n. al. er. io. NT$100,000,000 are above the NT$50,000,000 minimum criteria, and the only one below the. i n U. v. criteria is a foreign biotechnology company, TAIGEN Biopharmaceuticals Holdings Limited,. Ch. engchi. which has paid-in capital at NT$20,908,000. (For the foreign company, instead of required paid-in capital, the minimum requirement of capital scale is the shareholder’s equity of NT $100,000,000.). Table 4. Number and proportion of the listed companies categorized by the market capitalization, as of end of March, 2018 <1 (NT$ billion). 1~10 (NT$ billion). 10~50 (NT$ billion). 50~100 (NT$ billion). >100 (NT$ billion). 199 (26.5%). 486 (64.8%). 58 (7.8%). 4 (0.5%). 3 (0.4%). 14. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(16) Data source: Website of Taipei Exchange ＊The total number of the companies is 750 due to there were 2 companies under suspended trading period.. For comparison, the market capitalization (market cap) segments of the listed companies defined by the WFE official thresholds are as follows: ➢. Large market cap segment: market cap>USD$1.3 billion. ➢. Mid-size market cap segment: USD$1.3 billion>market cap> USD$200 million. ➢. Small market cap segment: USD$200 million >market cap> USD$65 million. ➢. Micro market cap segment: market cap<USD$65 million. 政治大. The number in the Table 5 indicates that a majority, about 84%, of Taipei Exchange listed companies are in micro and small market cap segments under the classification of global standards.. 立. ‧ 國. 學. Table5. Number and proportion of the listed companies categorized by the market. ‧. capitalization (defined by WFE), as of end of March, 2018 Small market cap segment (USD$65 million~USD$200 million). Mid-size market cap segment (USD$200 million~USD$1.3 billion). sit. n. er. io. al. y. Nat. Micro market cap segment (<USD$65 million) ≒(<NT$1.89 bil). Ch. i n U. i e n g c h≒(NT$5.8 bil ~. ≒(NT$1.89 bil ~. 387 (51.6%). v. NT$5.8 bil). NT$37.8 bil). 240 (32%). 111 (14.8%). Large market cap segment (> USD$1.3 billion) ≒(>NT$37.8 bil). 12 (1.6%). Data source: calculated by this report. 2. Highlights and Trends of Global IPO Market For the companies in the growth stages of business life cycle, one way to get sufficient funds is to go public by offering shares traded in a central market in exchange of public capital, this is what so-called IPO. Going public strategically is very important for business 15. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(17) sustainability. That is why the IPO activities are taking place all over the world in spite of the downturn or turbulence of the economy. According to the statistics report from the Earnest & Young Co., in the post-financial crisis era, global IPO number rebounded to a record high at 1,365 in 2010 because of the easing of market uncertainty. In 2017, the global IPO number reached 937 in the first 7 months thanking to the stock indices trending upward. The Quantitative Easing (QE) policy of the European Union countries and well-performed economy of the U.S. also facilitated the liquidity in European and North American markets. Although the pace of listing in the fourth quarter of 2017 slowed down, the overall global. 政治大 US $188.8 billion, compared with 1,093 IPO deals raising US $134.5 billion in 2016. Global 立 IPO surged both by the number of deals and proceeds in 2017 with 1,624 IPO deals raising. IPO activities for 2017 is the most active year since 2008 by deal number.. ‧ 國. 學. Figure 1. The number and proceeds of global IPO activities (2008-2017). 565. 100. 839. Ch. 50 101.2. 120.4. 2008. 2009. 284.6. 2010. 170.2. 2011. engchi U. 128.6. 2012. Proceeds (US$b). sit. y. al. 896. 1258. v ni. 174.4. 260. 197.1. 2013. 2014. 2015. 1093. 134.5. 2016. 188.8. 1750 1500 1250 1000 750 500 250 0. Number of IPOs. 758. 1240. 1243. n. 200. 1624. er. 1365. io. Proceeds. 250. 0. ‧. Nat. 300. 150. Global IPO Activities (2008-2017). 2017. Number of IPOs. Data Source: http://www.dealogic.com/; ey.com/ipo Regarding to the region, all the regions recorded an uptick in IPO activity and capital raised4. the Asia-Pacific region has returned into the engine of global IPO markets in terms of both the number and proceeds. In 2017, the Asia-Pacific region had accumulated 935 IPO deals, a. 4. Please refer to WFE "2017 Full Year Market Highlights Report", Feb. 15 2018. 16. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(18) 44% annual growth in number, which accounted for 58% of total IPO deals worldwide. As for the IPO proceeds, Asia-Pacific region had raised US $73.2 billion through IPOs, a 0.2% increase from previous year, which accounted for 39% of global IPO proceeds. The growth of IPO in Asia-Pacific region was mainly powered by new listings in Greater China via the three stock exchanges, the Hong Kong Stock Exchange Group (HKEx), the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE). The accumulated number of new listings on these three exchanges in 2017 was 578, a 68% increase on 2016, which accounted for 62% of total IPO number and 67% of all IPO proceeds in Asia-Pacific region.. 政治大 36% of IPO deals worldwide. The boost of IPO activities in Greater China was attributed to 立. In the same year, the number of IPO deals in Greater China outstandingly accounted for. full pipeline of the companies ready to list5 and the market attraction featured with high. ‧ 國. 學. capital aggregation and the raising domestic demands. Therefore, in 2017, the Shenzhen. ‧. Stock Exchange became the busiest exchange in the world completing 217 IPO deals with. sit. y. Nat. US$13.1 billion of funds raised by IPOs. The Shanghai Stock Exchange ranked the second. io. er. with 212 IPO deals raising US$20.2 billion in the same year. The HKEx was in the third place, recording 149 IPO deals raising approximately US$ 15.5 billion of funds. Hong Kong,. al. n. v i n as an important financial center C in Asia, still has theUattractiveness to the issuers from hengchi. overseas, with 24 cross-border IPO deals in 2017, the highest record ever. In addition, Japan, Australia and ASEAN6 all turned in strong performances in IPO. In 2017, the total IPO number of these three jurisdictions was 95 (a 8% rise), 101 (a 28% rise) and 104 (a 35% rise), respectively. Turning to American region. America's share of total global IPOs also improved in 2017 by number of deals and proceeds. There were 220 IPOs in the America raising US$ 51.6 billion, a 122% increase in IPO deals and a 68% increase in proceeds. 5. As of end of 2017, there are more than 530 companies that have already received approval from the Chinese Securities Regulatory Commission are on the waiting list to float their stock in the A-shares market. 6 Association of Southeast Asian Nations, including 10 members: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. 17. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(19) compared with the prior year. In 2017, American markets accounted for 13% of global IPO deals and 27% of proceeds. The prosperous IPO activities were driven by strong performance of the capital market, reflecting the resurgence of investor's confidence and demands. In particular, the cross-border listings on the US exchanges has fueled the activity. The NASDAQ and the NYSE recorded 22 and 19 cross-border listings in the whole year. The cross-border listings of foreign companies accounted for 24% of all the IPO deals in US and 25% of total proceeds, showing US remains the top destination of the issuers all over the world. As to EMEIA (Europe, Middle East, India and Africa), there were 469 new listings. 政治大 In comparison with 2016, the new listing number rose by 50% and the IPO proceeds rose by 立 raising US$64 billion in 2017, accounted for 29% of global IPO deals and 34% of proceeds.. In 2017, EMEIA region also saw the highest number of IPO deals since 2007, partly. 學. ‧ 國. 67%.. because London Stock Exchange had completed 72 IPOs raising US$14.8 billion despite the. sit. y. Nat. deals and proceeds.. ‧. uncertainty of Brexit and the Indian exchanges also recorded the highest numbers both in. n. al. er. io. From the statistics mentioned above, it is very obvious a trend that the global IPO activities. i n U. v. were vigorous and prosperous in 2017. In many regions, 2017 saw the highest IPO numbers. Ch. engchi. and proceeds on record. The trend, however, is an opposite to the performance of Taiwan stock markets.. 3. Analysis of the Declining IPO Numbers in Taipei Exchange The IPO activities in Taipei Exchange has been slowing down in the recent 7 years as shown in Table 6.. Table 6: IPO number and proceeds of Taipei Exchange in 2011-2017. 18. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(20) Year. 2011. 2012. 2013. 2014. 2015. 2016. 2017. 51. 42. 29. 33. 34. 36. 23. Growth Rate(%). 88.9. -17.6. -30.9. 13.8. 3.03. 5.88. -36.1. IPO proceeds (NT$ million). 9,448. 9,953. 9,757. 14,533. 16,782. 11,956. 5,726. Growth Rate(%). 44.4. 5.34. -1.96. 48.9. 15.47. -28.8. -52. IPOs number. Data source: http://www.tpex.org.tw/web/regular_emerging/statistics/fund_raising/list.php?l=zh-tw. In 2011, the IPO number of Taipei Exchange was 51 and the accumulated IPO proceeds were NT$ 9,448 million. However, the IPO number declined by 17.6% to 42 in 2012, while. 政治大. the proceeds slightly grew by 5.34%. In 2013, the IPO number went down to 29, a 30.9%. 立. decline, with the proceeds declining by 1.96%. From 2014 to 2016, the IPO number stayed. ‧ 國. 學. steady at a low level, ranging from 33 to 36. On the contrary, the proceeds in 2014 and 2015 climbed up by the spectacular amount but drop back again in 2016. When it came to 2017,. ‧. both the IPO number and proceeds sharply dropped, by 36% and 52%, respectively. Overall,. Nat. sit. y. for the seven-year period from 2011 to 2017, the number of IPO deals shrank by 55%, from. n. al. er. io. 51 companies to 23 companies, and the amount of IPO proceeds shrank by 39%, from NT $9,448 million to NT $5,726 million.. Ch. engchi. i n U. v. Taipei Exchange is not the only one that has encountered systematic challenges in luring new IPOs and attracting capital. Taiwan Stock Exchange has also faced the same situation. The IPO activities were less active in Taiwan than in most of other countries. Noticing this downward trend and inconsistent result with other regions, the Taiwanese capital market gets alerted by the biggest challenges than ever before.. Pointing out here are the main causes that may directly or indirectly lead to the downward trend of IPO market performance in Taipei Exchange.. 3.1 Levying of capital gains tax on securities 19. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(21) The levying of capital gains tax on securities was implemented since January 1th, 2013, even though arguments and disagreements about this tax remained unsolved. Shortly after implementation, the market recognized that the negative impacts of the tax were greater than expectation. The legislators decided to repeal the controversial tax in 2015 due to its negative impacts on the stock market in terms of liquidity, stock indices performance, and the IPO incentives. According to the analysis report of Taiwan Securities Association, the levying of capital gains tax had severely harmed to the capital market of Taiwan even earlier since Ministry of Finance started discussing about re-introducing this tax. The capital gain. 政治大 trading values had rapidly decreased, the capital outbound had speeded up, and the 立. tax directly affected the domestic IPO market, including that the IPO market had shrunk, the. supervision costs had risen. From the aspect of IPO incentives, the stockholders of private. ‧ 國. 學. companies and the ESB-registered companies hesitated to offer their shares to the public. ‧. through IPO because of the additional tax burden. Under the Income Tax Act effective. sit. y. Nat. during 2013 to 2015, the capital gains on selling IPO shares should be deemed as the taxable. io. er. incomes of the shareholders. The shareholders of new IPO companies (which went public during year of 2013 to 2015) were imposed up to 40% tax on capital gains of those shares in. al. n. v i n C This the year when they sold their shares. led to unlisted companies holding back on h etaxation ngchi U their decisions to go public or postpone the IPO planning in Taiwan. Some of the companies. attempted to turn to the overseas markets as the IPO destination for raising their needed capital. As to the trading of stock market, the average daily trading value sharply declined below NT$ 100 billion since Ministry of Finance considered to tax on capital gains of stocks during 2012. It was about 30% decline in trading value in daily average. As a consequence, huge amount of domestic capital turned to the securities market abroad. According to the statistics of Taiwan Securities Association, the trading value of sub-brokerage, namely, domestic investors contracting securities firms to buy securities abroad, had grown 37.2% after the levying of capital gains tax. Moreover, many high-wealth individual investors had 20. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(22) re-arranged their investment structure so that they could be deemed as foreign investors in order to avoid high tax rate. This had resulted in the increased supervision costs of the competent authorities and the problem of tax rate differentiation between domestic and foreign investors. All the impacts on the capital market mentioned above can explain the dropping IPO number since 2013. The adverse impacts on the domestic stock markets have been lasting longer than expected. How to regain the confidence of the issuers participating in the capital market and encourage investors to bring capital flows back is a big challenge.. 政治大. 3.2 The slowing down of SMEs growth. 立. The growth of domestic SMEs was highly connected to and influenced by macroeconomic. ‧ 國. 學. factors. Global economic changes inevitably affect the business activities and the. ‧. performance of any enterprise in different regions. In general, the companies of smaller. sit. y. Nat. scale take higher risks in their operations, from the credit risks, and interest rate risks to the. io. er. exchange rate risks. Also, the severe competition of the global business environment has a direct impact on the performance of the companies. This results in the unpredictable. al. n. v i n C hSMEs. When it is U fluctuation of the bottom lines of the the case that the growth slows down engchi. or profits turn into losses, the management team and the Board of Directors of the company need to quickly adjust the corporate strategy and might postpone its IPO planning. Take the situation in 2017 as an example. There were many companies unable to properly react to the sudden volatility of exchange rate of New Taiwan Dollars versus US dollars. Most of them are small-and-medium-sized, lack of experiences and capability in hedging the exchange rate risks. Therefore, they suffered from great foreign exchange losses in that year. As a consequence, they had to postpone the IPO planning until the fiscal financial results show profits in order to meet the listing requirements. As the forecast in 2018, the IPO activities in Taiwan is expected to be affected by key global elements, such as the interest rate hikes by 21. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(23) the Federal Reserve, the US's tax reform, reduction in the QE policies of European Central Bank, and trading conflicts between China and the US. The challenges facing Taipei Exchange will be how to prepare for and react to the inevitable impacts on the IPO market.. Another factor related to the growth of domestic SMEs is the gap between traditional industry and new economy industry. Over the past decades, many Taiwanese SMEs in manufacturing industry had moved to South-eastern countries and Mainland China due to cheaper labor and materials. The outward trend of industry took away millions of job opportunities and growth energy of SMEs in Taiwan. The transformation of domestic. 政治大. industry was a must-do to make up the industrial gap. Unfortunately, Taiwanese economy. 立. has not successfully overcame the problem in industrial transformation, which results in the. ‧ 國. 學. weak IPO needs.. ‧. 3.3 Most private firms unwilling to go public. y. Nat. sit. According to "PWC 2016 global family business survey", the definition of a family firm. n. al. er. io. includes that the founder and his/her spouse and children jointly hold more than 50% of the. i n U. v. voting shares, and at least one of the family members has seats in the management board. In. Ch. engchi. Asian countries, family firms remain a vital part of economies contributing the bulk of GDP in many regions. It is estimated that 85% of Asian companies are family-owned firms. The percentage is considerably high in Taiwan as well. At the end of 2016, among 1,624 Taiwanese listed companies, 75% were owned and ran by families. As for the unlisted companies, surely there is a larger proportion of companies owned and ran by families.. The most concerned issues for these private family firms include the succession problem and sustainability of the enterprises. Given the fruitful business built by the first generation, the second or third generation successors should take the responsibility to "keep it in the family", 22. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(24) at least to preserve the control within the founding families. This is a typical mindset of Asian corporate culture. When in the need of additional funds for expanding the business, the owners may think of issuing commercial notes or applying for short-term loans from the banks. They tend to be conservative and reluctant about issuing new shares to the public for raising capital partly because of the fear of losing control and voting majority of their family prestige. Going public results in the companies’ shares being held by diversified investors, meaning the dispersion of shares to the outside parties. The listing rules of Taipei Exchange requires each issuer to complete shareholders dispersion before applying for listing. The. 政治大 holding 20% or 10 million shares or greater of the total issued shares . That is the main 立. required number of registered shareholders, excluding company insiders, is at least 300, 7. reason for most of the private firms to keep stay private.. ‧ 國. 學. In addition to the fear of the risks of losing control in the founding companies, the concerns. ‧. of listing burden and opened data to outside parties, such as their competitors or suppliers,. y. Nat. sit. are also major reasons for companies staying private. WFE also concluded similar reasons in. al. er. io. its survey report in 2017 about why private companies keeping unlisted8.. n. v i n C hprivate companiesUdo not fully understand why going To some extent, the owners of many engchi. public and how listing benefits their companies. For example, succession planning is essential to the sustainable growth of the companies. Going public could be a strategic option in a succession planning because of compliance with higher level of corporate governance and advantages in recruiting talents. According to the report of Taiwan Institute of Director in 2016, the Taiwanese family firms are encountering many challenges in the operation. The overall fortune of the family shareholders has declined in recent years. This report indicates that family firms need to introduce corporate governance and talents for 7. Please refer to Paragraph 2, Article 3, Taipei Exchange Rules Governing the Review of Securities for Trading on the TPEx. 8 The joint report on SME exchanges published by WFE and Milken Institute, July 18 2017. 23. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(25) business transformation to catch up the competitiveness. Given too less knowledge about being a public company, most of private firms do not actively pursue listing.. 3.4 Competition from Greater China The dramatically rising power of China has crucial effects on Taiwan in many respects, especially the economic and industrial development. China has been leveraging its advantages of economic scale to expand its influencing power. For the past couple of decades, the capital market in China has grown overwhelmingly in listing scales, trading. 政治大 spectacular market scales. It has started the plan and action about the dynamic development 立. volumes, and the capital flows. The Government of China was not satisfied with the. of its stock market by imposing higher level of supervision, connecting stock and bond. ‧ 國. 學. markets with Hong Kong and London, and relaxing some limits on the Qualified Foreign. ‧. Institutional Investors (QFII) and Renminbi Qualified Foreign Institutional Investors. sit. y. Nat. (RQFII). These methods combined had resulted in the vibrant IPO activities in 2017 in. io. er. Shanghai and Shenzhen stock markets. Now, Shanghai Stock Exchange, Shenzhen Stock Exchange, and Hong Kong Stock Exchange are positioned as the fund-raising hubs in Asia,. al. n. v i n Cnumber ranked top three in the world by the deals both in 2016 and 2017. Moreover, U h e n ofg IPO i h c the Shanghai Stock Exchange and HKEx are ranked as top two and three largest IPO. funding venues in terms of proceeds from IPOs. The amazingly huge money aggregation makes Greater China markets attractive to many companies for capital raising. As to the trading turnover and average P/E ratio, Shanghai and Shenzhen enjoy nearly the highest trading turnover rate and highest P/E ratio among global exchanges. The daily trading value of A-shares in Shanghai and Shenzhen combined is approximately RMB $200 billion. It thanks to the Stock Connect Program implemented in 2014, facilitating the inter-flow of capitals between Hong Kong and Shanghai, and between Hong Kong and Shenzhen, to boost the market liquidity and internationalization of Chinese markets. The Stock Connect 24. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(26) Program allows the international investors to trade securities in Mainland China via Hong Kong with the existing trading and clearing facilities. Same as the converse direction. The collaboration between the stock exchanges in China and Hong Kong has made the Greater China capital market more robust and connective to global capital than ever before, which has made the Greater China market a magnet for international capital and potential issuers.. 4. SWOT Analysis of Taipei Exchange in terms of IPO 4.1 Strength. 政治大. There are several strengths of Taipei Exchange in IPO market thanks to the well functional. 立. and developed market structure. Taipei Exchange market has the advantage of impressively. ‧ 國. 學. high P/E ratio and turnover ratio compared to most other global exchanges. According to the annual statistics of WFE, Taipei Exchange was ranked the second highest shares turnover. ‧. rate in 2017 among all the WFE members, following the Shenzhen Stock Exchange. High. y. Nat. sit. turnover rate shows active trading in the stock, which is an indicator of higher liquidity. The. n. al. er. io. statistics also shows that Taipei Exchange enjoyed the second highest P/E ratio among other. i n U. v. exchanges, while Shenzhen Stock Exchange was the top one. High P/E ratio is an important. Ch. engchi. feature attractive to the shareholders of the new listing companies because the prices of initial listing shares are referred to the P/E ratio of the same industry. High P/E ratio also presents high company value assessed by the market. Table 7. P/E Ratio (price to earning ratio) of main board of major Asian stock exchanges as end of 2017 and 2016 Taipei Taiwan Hong Japan Korea Shanghai Shenzhen Singapore Exchange Stock Kong Exchange Exchange Stock Stock Exchange Exchange Exchanges Group Exchange Exchange 2017 Year-end. 29.32. 15.66. 16.34. 19.4. 12.99. 18.16. 36.21. 11.66. 25. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(27) 2016 Year-end. 27.69. 16.51. 10.53. 18.6. 13.92. 15.94. 41.21. 12.47. Data source: Monthly Summary of World’s Major Securities Markets from TWSE http://www.twse.com.tw/zh/statistics/statisticsList?type=06&subType=229. Table8. Turnover Velocity of major Asian member exchanges of WFE in 2017 and 2016 Taipei Taiwan Hong Japan Korea Shanghai Shenzhen Singapore Exchange Stock Kong Exchange Exchange Stock Stock Exchange Exchange Exchanges Group Exchange Exchange 236.9%. 69.5%. 49.2%. Ave. 196.0%. 75.7%. 65.0%. 立. Ave.. 121.9%. 治政 113.8% 149.8% 大. 161.6%. 264.5%. 28.8%. 449.7%. 518.6%. 30.9%. Data source: World Federation of Exchanges Annual Statistics from the members, including the. ‧ 國. 學. alternative and SME boards.. ＊Turnover velocity is the ratio between EOB (Electronic Order Book) turnover of domestic shares Monthly EOB domestic shares turnover. ‧. and their market capitalization. The formula is:. *12. Nat. y. Month-end market capitalization. io. sit. 2016. 103.9%. Another strength of Taipei Exchange is that the listed companies on the Main Board have. n. al. er. 2017. Ch. i n U. v. already formed the industry clusters. The listed companies belong to a variety of industry. engchi. categories, within which the emerging high-tech industry and the bio-tech & medical care industry have taken up 70% of all. The well-known industry clusters of Taipei Exchange are emerging high-tech industry, bio-tech & medical care industry, e-commerce industry, online-gaming industry (sub-industry of information service industry), and golf club industry (sub-industry of manufacturing industry). The newly-listed companies can benefit from the clustering of industry because they will receive higher visibility and better comparability. The investors in Taipei Exchange can get familiar with these industry clusters due to better availability of industry research reports or the analysis on the individual company in these industries. Therefore, the industry clustering becomes an important 26. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(28) incentive to the companies while choosing the destination for listing.. One more strength of Taipei Exchange lies in the transparency of the market. For the companies and shareholders, the requirements of pre-listing disclosure and continuous disclosure after listing are clear and informative. In addition, the IPO application process is highly transparent with a full listing guide published and thus the listing examination procedure is predictable so that the IPO issuers are more comfortable to executing the fund-raising schedules. Taipei Exchange keeps improving market transparency with clearly defined. regulation. and. investors. education. programs.. 政治大. Transparent. market. and. well-established regulatory regime are the base of competitiveness of Taipei Exchange in. 立. comparison with other markets, such as Shanghai and Shenzhen market.. ‧ 國. 學. At last, the listing costs on the Main Board of Taipei Exchange are comparably low and. ‧. re-financing after listing is easier. The listing relevant costs can be varied at a very wide. sit. y. Nat. range depending on the regions and the IPO scales. Generally, they include intermediary. io. er. fees, stock exchange fees and promotional and auxiliary fees. The intermediary fees are professional fees charged by the intermediaries, such as external auditors, legal advisors,. al. n. v i n C h agents. The stock brokers, underwriters, and some financial exchange fees are initial listing engchi U fees and annual fees. The promotional and auxiliary fees include printing fees, promotional. fees, public media and road show expenses. Of all types of listing fees, intermediary fees account for the major portion in the listing cost structure. The average intermediary fees for an IPO on Taipei Exchange are estimated at NT$30,000,000, which are less than 15% of the amount on Shanghai Stock Exchange or the Shenzhen Stock Exchange9. As to the exchange fees, Taipei Exchange charges listing examination fees at NT$500,000 for an IPO case and annual listing fees based on the par value of total listed shares with a fee ceiling at. 9. No formal statistics about services fees are available, but there is an approximated range calculated by the industry. See Deloitte & Touche, <Insight to the Chinese tax and market>, by Partner Joy Lin. 27. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(29) NT$450,000 for each issuer. Other stock exchanges in Asia charge much higher listing fees. Take the Shenzhen Stock Exchange Main Board as an example, it charges very much higher of initial listing fees, post-IPO annual listing fees and the share registration fees from the issuers. The share registration fee is a one-time payment calculated based on the par value of the listed shares, subject to a maximum payment at RMB$3,000,000. The initial listing fees and annual listing fees are charged based on the paid-in capital of the issuers; the former is ranged from RMB$300,000 to RMB$650,000, and the later is ranged from RMB$50,000 to RMB$150,000. For the comparison, the initial listing fees on the Main Board of Hong Kong. 政治大 from HK$145,000 to HK$1,188,000. In summary, the overall relevant costs to prepare and 立 Stock Exchange range from HK$150,000 to HK$650,000, and the annual listing fees range. maintain the listing on Taipei Exchange are favorably low while the costs are rising with. ‧ 國. 學. IPO proceeds in other major stock markets. Moreover, what is more efficient for the issuers. ‧. is the lower re-financing costs. Taipei Exchange provides a convenient platform for listed. sit. y. Nat. companies to equity finance by means of issuing new shares (subsequent public offering;. io. er. SPO), issuing corporate bonds or convertible bonds. The refinancing processes are simple and time-saving. It helps the listed companies expand capital sizes with lower costs and less. al. n. v i n C h loans from the U collaterals in comparison with long-term banks. engchi 4.2 Weakness. The weakness of Taipei Exchange facing the global competition is the limited domestic market scale. The market scale, referred to the volume of capital flow, is an essential factor to the listing destination determination especially when cross-border IPO is considered. For the companies pursuing cross-border IPO, listing in a market with sufficient capital provision would be more than likely to satisfy them with needed proceeds from IPO.. In the competition of luring new listings, Taiwan has been gradually losing the advantages 28. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(30) because of certain bans on foreign investments and free flow of foreign capital10. The globally free capital flow could be a booster or on the contrast a pull-down to the stock market, that is why many governments are cautious in handling the foreign capital investment policy. However, a sound capital flow into a country could cause the money gathering effect which helps the stock market become a "deep-pocket" market. Taipei Exchange, smaller and younger than Taiwan Stock Exchange, is short in plentiful capital flows which at some level limits the scale of market and the possibility of future development. With limited foreign investment and worldwide capitals, Taipei Exchange. 政治大 domestic funds, continuously outward flow and uneven allocation of domestic capital have 立 could not be able to support the capital needs of international companies. Speaking of the. been current issues in recent years. In 2015, nearly NT$ 600 billion of Taiwanese funds flew. ‧ 國. 學. out toward abroad by sub-brokerage of the securities firms. The accumulated amount. ‧. invested in the abroad mutual funds amounted to NT$3 trillion. It has proved the strong. sit. y. Nat. demand and good appetite of the domestic investors for the foreign securities market,. io. er. instead of the domestic market. The unhealthy capital outbound and wealth misallocation in Taiwan have remained for many years, which is weakening the capital aggregation function. n. al. of Taipei Exchange.. Ch. engchi. i n U. v. In addition, the stock market of Taipei Exchange is formed with a large proportion of individual investors. As shown in Table 9, The individual investors participation weights over 80% of the total trading value. Less than 20% of trading value is contributed by institutional investors. Given high volatility of the market incurred by high proportion of individual investors, the supervisory authority has to take investor protection enforcement as the first priority. Taipei Exchange, which is an authorized exchange, has to conduct high. 10. Currently, the Taiwan Government has constrained the amount and proportion of capital directly or indirectly invested from Mainland China, and it results to the authorities examining procedures of the foreign investment, taking time and costs. 29. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(31) level of supervision in credibility and transparency of the information disclosed by the listed companies to avoid information asymmetry. Some unlisted companies, especially the small-and-medium companies, therefore perceive the examination procedures and disclosure requirements as burdensome and have little incentives to go public.. Table 9. Investors Structure in terms of Trading Value on Taiwan Stock Exchange and Taipei Exchange; Average Proportion in 2017. Taipei Exchange. Taiwan Stock Exchange. 政治大. Type of Individual Domestic Foreign Individual Domestic Foreign Investors Investors Institutional Institutional Investors Institutional Institutional Investors Investors Investors Investors. 立. 10.4%. ‧ 國. 80.9%. 8.7%. 59.4%. 學. percentage. 14.7%. 25.9%. Data source: Indicators of Securities and Futures Market, Securities and Futures Bureau of Financial Supervisory Commission. ‧ sit. y. Nat. 4.3 Opportunity. n. al. er. io. The main opportunity of Taipei Exchange IPO market lies in the potential companies which. i n U. v. are located and operated in the Southern-Eastern Asian countries and Mainland China.. Ch. engchi. Over the past decade, the economic development of the Southern-Eastern Asian countries has grown rapidly and promoted the economic position of this region in the world trade market. In 2016, the “New Southbound Policy” was launched by Executive Yuan of Taiwanese Government based on the trend that the emerging economies in Southern-Eastern Asia are surging in quick path and becoming more important. Since then, the Taiwanese government. fully. supports. the. collaborative. relationship. between. Taiwan. and. Southern-Eastern Asian countries in many aspects. The substantial cooperation in capital market activities is also an important goal of the policy. The new policy can strengthen the regional importance of Taiwanese market and help Taipei Exchange promote its Main Board 30. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(32) listing to the overseas companies. At the end of April 2018, there were 34 foreign companies listed on the Main Board, among them are 13 companies from Southern-Eastern Asian area, such as Malaysia, Thailand, and Singapore. These 13 Southern-Eastern Asian listed companies take up 38% of total foreign listed companies and merely 1.7% of all the listed companies. These numbers show that the foreign listed companies from Southern-Eastern Asia stand for a small portion of Taipei Exchange Main Board listing. Taipei Exchange could make more efforts in advertisements targeting on the potential companies in developing Southern-Eastern Asian countries. For example, to visit the successful local. 政治大 and direct linkage with Taiwan in respects of capital, technology, know-hows, talents, supply 立 companies which are owned in majority by Taiwanese. These group of companies have tight. chains and markets. They have successful business in early stages but gradually face the. ‧ 國. 學. challenges of raising additional funds in the growth period. Taipei Exchange holds the. ‧. opportunity to approach these South-Eastern-Asia-located companies and encourage them to. sit. y. Nat. apply for listing backing home in Taipei Exchange. There are many advantages of listing on. io. er. Taipei Exchange for this type of foreign companies, such as high investor acceptance, commitment to Taiwanese management team, and efficient capital raising procedures. Once. al. n. v i n such overseas companies get full C knowledge of listing on h e n g c h i U Taipei Exchange, the new listing number is very likely to increase.. As to the subsidiaries of Taiwanese companies which located in Mainland China, they have preference to list on Chinese capital market because that the existing regulations bar them from list in Taiwan and when the localization in China market is taken into account. However, these Chinese companies are highly connected with Taiwanese and under the control of Taiwanese companies, they would take listing in Taiwan as the first choice as long as the listing application procedures and listing regulations are eased for them.. 4.4 Threat 31. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(33) The big threat to the development of Taipei Exchange comes from the competition of Greater China. The capital market of China is huge in the scale and vigorous in market liquidity. The Shanghai Stock Exchange and Shenzhen Stock Exchange have been booming in the IPO activities since the “IPO control” has been loosened by China Securities Regulatory Commission (CSRC) in 2015. Besides this, the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect basically completed the convergence of Greater China capital market. The super huge economy intentionally keeps attracting global money and investors to participate in Greater China stock markets. With 30 years. 政治大 just behind U.S market in terms of the total market capitalization of listed companies. This 立. development, Greater China has become one of the leading markets in the world, which is. market in neighborhood inevitably imposes certain pressure to Taiwanese market, even to. ‧ 國. 學. the rest of Asia-Pacific markets. For example, the index provider MSCI has introduced. ‧. A-shares into the MSCI Emerging Market Index since June 2018. This might energize IPO. sit. y. Nat. activities in Mainland China by increasing international capital inflows into its stock market.. io. er. In fact, before the MSCI Index adjustment went effective, there are some rumors and warnings about de-listing tide in Taiwan, indicating some currently listed companies might. al. n. v i n move to the Main Board in ChinaCor some might prefer h e n g c h i Uto list their subsidiaries in China. Even though there are still some obstacles in legal framework for Taiwanese companies. searching for listing on stock exchanges in Mainland China, the threatening competition from Greater China cannot be overlooked.. For Taipei Exchange, in particular, there are two major threats induced from the Greater China market in terms of getting new IPOs. One is that CSRC has intentionally opened a special channel for China-based subsidiaries of Taiwanese listed companies entering the Main Board of Shanghai or Shenzhen. Foxconn Industrial Internet Co. (FII), the subsidiary company of Foxconn Group, is the most remarked case. On March 8th 2018, FII gained 32. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(34) approval from the CSRC to list on the Shanghai Stock Exchange merely a month after it published a prospectus outlining its plans to raise RMB$27.3 billion (US$4 billion). The warning raised was about that the FII IPO deal came amid a Chinese push to attract Taiwanese capital and talents and some other Taiwanese firms would be lured by the accelerated approval as a consequence. The competent authority in Taiwan, which is FSC, responded promptly that the real effect on the Taiwan stock markets need to be observed and assessed in a practical way. However, worries about competing with Mainland China were triggered and had imposed negative impacts on the public confidence toward the domestic capital market.. 立. 政治大. The other big threat lies in the newly-announced policy of HKEx aiming at high valued. ‧ 國. 學. biotechnology start-ups. On April 23th 2018, the HKEx released its new listing rules for bio-tech companies with market capitalization over HK$ 1.5 billion but are yet not reported. ‧. in profits. The new listing rules ambitiously target at the qualified large bio-technology. y. Nat. sit. companies in spite of bio-technology has never been a mainstream sector of HKEx. But for. n. al. er. io. Taipei Exchange, on the opposite, the bio-technology industry is as important sector as. i n U. v. semiconductor industry. The bio-technology industry accounts for 11.54% and 16.3%, of all. Ch. engchi. listed companies in terms of trading value and market capitalization, respectively. Given the importance of bio-technology industry, Taipei Exchange should take the Hong Kong new listing rules seriously to avoid negative impacts on the development of Taiwanese bio-technology industry.. 5.Recommended Solutions The declining IPO number and IPO proceeds in recent years shows the IPO activities performance in Taiwan was pale in comparison with other markets. No one would consider the challenges facing Taipei Exchange as a short-term issue. This situation reflected the loss 33. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(35) of momentum to the stock market of Taiwan which would be harmful to the economic growth and industrial development. Even worse, it would possibly make the Taiwanese stock market marginalized in the global capital market. The competent authority should be cautious to this trend and take tactic measures in turning challenges into opportunities.. What matters is how to strengthen the function of the capital market in Taiwan, especially in facilitating the capital flow efficiency, creating a friendly fund-raising environment, and speeding up the industrial transformation. It is urgently important for the policy makers and regulators to discuss through the problems and find solutions. The inter-departmental. 政治大. mechanism should be enhanced and therefore the attention could be drawn to the key. 立. elements. Competent authorities, such as Financial Supervision Commission, Ministry of. ‧ 國. 學. Economic Affairs, Ministry of Finance, Central Bank, and National Development Council are all responsible for the capital market development. Taipei exchange, being a platform. ‧. focusing on bridging the small-and-medium companies and the public capital, should play a. y. Nat. er. io. competent authorities.. sit. role to collect all suggestions to the market and facilitate the communication within the. al. n. v i n C work, Besides the governmental authority suggestions are actions that Taipei U h e nthegfollowing i h c Exchange should take in specific.. 5.1 Enhance cooperation with other exchanges Under the current structure, Taiwan Stock Exchange and Taipei Exchange are operated separately and both are under the supervision of FSC. The cooperation between both is necessary since the domestic market scale is not big enough to allow full competition. Clearly different market positioning and missionary roles of the two stock exchanges in Taiwan is a better strategy. As mentioned above, Taipei Exchange is an exchange aiming at 34. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(36) smaller enterprises and it has established multi-layer markets of Main Board, Emerging Stock Board, and GISA board for innovative startups. Taiwan Stock Exchange has established the Main Board for larger companies and conglomerates. The threshold of paid-in capital for listing in Taipei Exchange is at least at NT$50,000,000, while Taiwan Stock Exchange is NT$ 600,000,000. The target markets and missionary goals are different between two stock exchanges until Taiwan Stock Exchange probably will lower its listing requirements of company scales as a solution to its IPO declining problem. If in that case, the overlap of resources devoted by two exchanges in luring new listings and the conflicts of. 政治大 recommended to keep different market positioning and allow each exchange build up the 立 interest would be greater, which is not favorable to the whole market. Therefore, it is. features and strengths of their own. As a result, Taipei Exchange can contribute more. ‧ 國. 學. resources in fostering the GISA board for incubating more growth start-ups in the future. In. ‧. short, the collaboration of Taipei Exchange and Taiwan Stock Exchange will maximize the. sit. y. Nat. benefits to the whole market and create the win-win situation to both.. n. al. er. io. The international cooperation with global markets is also crucial to the IPO markets. Taipei. i n U. v. Exchange has signed the Memorandum of Understanding (MoU) with 24 stock exchanges. Ch. engchi. so far. Based on the international relationship, Taipei Exchange should enhance the interaction for further cooperation with foreign exchanges in the aspects of introducing new products, new trading models, and stock connect or concurrent listings. Taipei Exchange can also learn from other exchanges about the experiences to attract new listings. For example, KOSDAQ, the Alternative market in Korea, had the same challenges in IPO market since 2016. It was ambitious to lure foreign listings to become a reginal hub for tech start-ups and had set the goal of attracting 10 new foreign firms listing. The activities KOSDAQ took included finding the differentiation with other markets, easing the listing rules for foreign tech start-ups, taking top 10 listed companies or newly listed groups on a roadshow abroad, 35. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(37) introducing new derivative products based on its index to meet foreign investors’ hedging needs, and aiming at lowering the portion of retail investors from 90% to 60% or so. In the western, NYSE also had made a lot of efforts in luring new tech listings in competition with NASDAQ, HKEx and London Stock Exchange. It had offered many promotional programs to the potential companies, especially the tech start-ups located in Silicon Valley, by the ways of newspaper advertisements, billboard, marketing campaigns and face-to-face pitching and meeting. It has also marketed itself to NASDAQ-listed companies and encourage them to switch to the NYSE. NYSE was reported that it had doubled the size of. 政治大. its Silicon Valley department or team in order to facilitate the tech IPOs.. 立. Taipei Exchange already has a handful of experiences of encouraging new IPOs. While the. ‧ 國. 學. global competition raising, it should speed up the path and learn the lessons from the stock exchanges worldwide in order to maintaining the global competitiveness.. ‧ sit. y. Nat. 5.2 Strengthen the IPO ecosystem. n. al. er. io. The IPO ecosystem means the structural system with cross-industry cooperation and. i n U. v. services involving in the IPO activities. The engaged parties in the IPO ecosystem are. Ch. engchi. financial intermediaries including the securities firms, CPA firms, law firms, private equities and venture capital firms. As to their function, the securities firms take roles as a recommender, an advisor, an underwriter, and a market maker (or liquidity provider). The CPA firms also engage deeply in their customer companies' IPO procedures early from the pre-IPO planning to post-IPO financial auditing. The roles of both securities firms and CPA firms are important because they keep searching and approaching many potential companies. The intermediaries closely interact with the potential companies to see if they are willing and eligible to go public. For Taipei Exchange, stronger partnership with the intermediaries is essential in luring new listings. What Taipei Exchange could do is providing more 36. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(38) incentives for the intermediaries so that they would involve more in recommending companies to apply for listing on Taipei Exchange. As the recommendation of OECD proposed in a report in 2016, ensuring the existence of an SME IPO ecosystem does support SMEs in the IPO and post-IPO environment11. Enhancing the good partnership within the IPO ecosystem can help Taipei Exchange in the development of its multi-layer market and incubate more promising companies grown in the capital market.. The private equity and venture capital firms (PE/VC) can be important partners to Taipei Exchange as well. They are early investors of the companies with high growth potential.. 政治大. Typically, PE/VC provides financing to a startup company in the interest of generating a. 立. spectacular return through an eventual "exit". Venture capital exit often takes place when the. ‧ 國. 學. invested company sells shares to the public for the first time in an IPO or complete a merger and acquisition (also known as a "trade sale"). Taipei Exchange could approach PE/VE in. ‧. Taiwan, or in Asia region, to work together to help the VC-backed companies become listed.. y. Nat. sit. For Taipei Exchange, a strong ecosystem and networking can make the IPOs accomplished. n. al. er. io. in an efficient way by precisely allocating resources, shortening the timeline of IPO procedures, and reducing the communication costs.. Ch. engchi. i n U. v. 5.3 Find incentives of private companies and motivate them to go public In Taiwan, there are about 420,000 enterprises with paid-in capital between NT$1,000,000 and NT$10,000,000 and 120,000 enterprises with paid-in capital between NT$10,000,000 and NT$50,000,000 on December 31, 2017. Most of such domestic SMEs are remain private. For the private companies, they need motivation to go public. The World Federation of Exchanges has jointly published a report with the Milken Institute on exchanged-based financing of Small and Medium Enterprises in July 2017. This report aims to give. 11. OECD report "Opportunities and limitations of public equity markets for SMEs", February 3, 2016. 37. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.

(39) exchanges practical views when it comes to creating and assessing SME initiatives. What to notice in this survey is that among unlisted firms, the reasons for not listing varied, ranging from concerns about the cost of listing, meeting regulatory requirements, losing control of the company, to not knowing enough about listing to make a decision. Indeed, 60% of surveyed firms responded, “raising capital at lower cost” was an important reason for listing. From a financing perspective, the cost of equity capital can be lower than other financing tools because of the access to a wider potential investor base. Beyond the financial reasons, SMEs list their shares in order to position the firm for growth and to enhance brand reputation.. 立. 政治大. The report concludes that more stock exchanges are performing the very important function. ‧ 國. 學. of providing SMEs with access to cost-effective financing. It comes with two pieces of suggestions for the exchanges that could make listing more accessible. One is containing. ‧. costs to listing; and the other is improving firms’ understanding and ability to meet the. y. Nat. sit. listing requirements. These findings are particularly meaningful for Taipei Exchange whose. n. al. er. io. mission is to help the SMEs access to equity capital. As mentioned above, the costs of. i n U. v. listing on Taipei Exchange are much lower than those of other Asian exchanges. Therefore,. Ch. engchi. Taipei Exchange can pay more attention on the latter suggestion of WFE report, to improve firms' understanding of listing and help them to meet the listing requirements.. Taipei Exchange has to educate these private companies about why IPO matters and help them identify their problems, or the pain points. For example, the succession problem is getting an issue for many family-owned private companies. According to the survey published by PwC’s in 2014, there were approximately only 5% of Taiwanese private companies ready for succession to the next generation. The latest survey published in 2017 by Global Views Magazine warned that nearly 27.3% of private enterprises were lack of workable succession planning. To solve the succession problem, the private companies have 38. DOI:10.6814/THE.NCCU.IMBA.038.2018.F08.