Taiwan Financial Supervisory Commission (FSC) has extended short-selling restrictions indefinitely to curb extreme volatility in the stock market. This decision comes after the United States imposed heavy import tariffs on Taiwanese goods earlier in April 2025. The FSC introduced these measures on April 6 and, after observing the market’s fragile behavior, decided to keep them in place to prevent further market disruption.
The extension reflects the regulator’s proactive approach to protect investors and restore confidence. Taiwan’s stock market experienced sharp declines after the U.S. tariffs announcement. Traders reacted with panic selling, and foreign investors pulled out significant capital. The government stepped in quickly to calm the storm and has now doubled down on its efforts by reinforcing these restrictions.
The Tariffs That Triggered the Market Instability
On April 2, 2025, the United States implemented a 32% tariff on a broad range of Taiwanese imports. These included semiconductors, electronics, and machinery — the lifeblood of Taiwan’s export economy. The news shook investor sentiment and drove the benchmark Taiex index into a tailspin.
Investors viewed the tariffs as a direct attack on Taiwan’s trade competitiveness. The island nation earns a major share of its GDP from exports, with semiconductors playing a critical role in its economic engine. When the U.S. — one of Taiwan’s largest trading partners — imposed steep duties, investors quickly sold off their holdings in tech and manufacturing stocks.
The FSC observed this immediate reaction and took rapid action. It aimed to prevent panic selling from escalating into a full-blown financial crisis. The short-selling restrictions formed a core part of its defensive strategy.
The Specifics of the Short-Selling Curbs
The FSC introduced a three-pronged framework to limit short-selling activities. First, it drastically reduced the daily limit for short-selling borrowed securities. Before the restrictions, investors could short-sell up to 30% of a stock’s average daily volume. The new rule lowered that figure to just 3%. This cut-off limited the scope for speculators to pressure stocks downward.
Second, the FSC increased the minimum margin requirement for short selling. Previously, short sellers had to deposit 90% collateral to execute their trades. Now, they must maintain a 130% margin. This tighter rule makes short selling more expensive and discourages excessive use of leveraged bearish bets during uncertain times.
Third, the commission offered flexibility to long investors by expanding the types of assets accepted as collateral. By doing so, it eased liquidity constraints for retail and institutional players who may have faced margin calls or capital pressure. This move helped reduce the psychological stress investors typically experience during volatile market phases.
These three measures, taken together, signal a clear stance: the Taiwanese government refuses to let speculative forces destabilize its markets.
How the Market Responded
The impact of these restrictions became evident in the following days. After a brutal 8.31% drop in the week ending April 11, the Taiex index slowed its descent. During the next week, it declined only 0.68%, suggesting that the panic had subsided. The volatility, though still present, no longer dominated investor behavior.
This easing of the downward spiral also came with help from Taiwan’s National Financial Stabilization Fund. The government activated this NT$500 billion (around US$15 billion) fund on April 9 to intervene directly in the stock market. It began purchasing large volumes of equities to create a floor under falling stock prices. This decisive action worked as a confidence booster and helped counteract the damage caused by the sudden withdrawal of foreign capital.
By putting both regulatory and financial support into motion, the Taiwanese authorities displayed a coordinated response to one of the biggest market shocks in recent years.
Corporates Join the Stabilization Efforts
Private companies did not stay on the sidelines during the turmoil. As stock prices plunged, many companies saw their own valuations shrink dramatically. In response, over 125 publicly listed Taiwanese firms launched share buyback programs. This number marked a significant jump from the 82 companies that initiated buybacks just a week earlier.
Corporate buybacks serve two purposes. First, they signal that management believes its stock is undervalued. Second, they provide upward pressure on the stock price by reducing the number of shares available in the market. As companies purchased their own shares, they helped slow down the price decline, especially in the most heavily affected sectors like semiconductors and manufacturing.
These buybacks also reassured institutional investors, who often look for confidence signals from internal stakeholders during times of uncertainty.
Why the FSC Extended the Restrictions Indefinitely
While some expected the short-selling curbs to last only a few weeks, the FSC announced an indefinite extension. This move acknowledges the deep uncertainty still looming over Taiwan’s economic outlook.
Taiwan’s regulators understand that the trade war with the U.S. may stretch far beyond April. New tariffs, retaliatory measures, or even sanctions could emerge over the coming months. In this volatile environment, the FSC refuses to risk the possibility of another wave of panic selling.
By keeping the restrictions in place, the commission buys time for investors to assess the long-term implications of the trade conflict. It also gives room for potential negotiations or adjustments in international policy that could reduce market stress in the future.
Market Analysts React
Analysts in Taiwan and abroad support the FSC’s actions. Many believe that short-selling, while essential for market efficiency in normal conditions, often magnifies panic during geopolitical events. By limiting speculative trades, the FSC has reduced the immediate risk of a market crash.
Financial institutions now advise clients to take a cautious approach. They suggest focusing on fundamentally strong companies, maintaining diversified portfolios, and staying updated on trade-related developments. They also believe that the restrictions could attract long-term investors looking for stability and protection against speculative forces.
Analysts agree that Taiwan remains fundamentally strong. Its tech ecosystem, especially in semiconductors, still leads the world. The current volatility arises from external shocks, not internal weaknesses.
Investors Must Stay Alert
Despite the relative calm following the FSC’s intervention, investors must remain vigilant. The global economic landscape continues to shift rapidly. The United States could tighten trade policies further. Other countries might follow suit. Supply chains may experience new disruptions.
In such an environment, investors should resist the urge to overreact. They should evaluate each investment based on fundamentals and avoid herd behavior driven by headlines. Taiwan’s economy has weathered many storms in the past, and its strong export infrastructure gives it resilience.
However, no policy can eliminate all market risk. Investors must prepare for a wide range of scenarios and adjust their strategies accordingly.
Final Thoughts
Taiwan’s decision to extend short-selling restrictions underscores its commitment to market stability. The FSC, supported by the government and corporate sector, has created a multi-pronged defense against panic-driven volatility. While these measures cannot erase global uncertainties, they provide a buffer that protects both retail and institutional investors.
With these actions, Taiwan’s regulators send a clear message: in times of external aggression and market stress, they will not sit idly by. They will act quickly, decisively, and strategically to protect the nation’s financial foundation.
Investors who understand this proactive stance and align their strategies accordingly will stand better equipped to navigate the challenges ahead.
