First yuan-denominated ETF begins trading on Taiwan Stock Exchange

Aug 16th, 2016 | By | Category: Equities

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Taipei-headquarted Fubon Asset Management has become the first exchange-traded fund issuer to launch a dual currency denominated ETF on the Taiwan Stock Exchang (TWSE). The move to allow dual currency-denominated ETFs is a first for the country which is seeking to provide investors with a greater amount of securities trading options and greater leeway in adjusting their foreign currency investment portfolios. 

First yuan-denominated ETF begins trading on Taiwan Stock Exchange

The Fubon SSE180 ETF (006205) has become the first Taiwan-listed ETF to be offered with a yuan denomination.

The Fubon SSE180 ETF (006205), previously trading only in Taiwan dollars, has been granted a beneficiary certificate to trade in Chinese yuan.

According to the TWSE, the Taiwan dollar-denominated ETF and its corresponding beneficiary certificate will be traded at the same time, based on the same gains and losses in prices, and in the same number of trading units.

The ETF and its corresponding beneficiary certificate are exchangeable at a ratio of 1:1. After any exchange, investors are allowed to immediately sell the stock, which is expected to give investors more leeway to map out investment strategies.

Investors will not however be allowed to use yuan-denominated ETF beneficiary certificates to conduct margin trading, short selling, or day trading, and such beneficiary certificates will not be acceptable as collateral for loans.

Taiwan’s central bank does not allow more than 20,000 yuan (US$3,012) to be exchanged for the Taiwan dollar in one day, so Taiwanese brokerages have to make sure investors will have sufficient yuan funds to settle accounts to prevent defaults. Furthermore, investors will have to pay stock delivery fees and other costs related to yuan-ETF transactions in yuan.

The Fubon SSE180 ETF tracks the SSE180 Index, consisting of the 180 largest and most liquid A-share stocks listed on Shanghai Stock Exchange. The index aims to reflect the performance of the Shanghai blue chips.

As of the end of June 2016 the index has significant exposure to the financials (51.9%), industrials (15.4%) and consumer staples (6.8%) sectors. The largest constituents are Ping An Insurance (6.0%), China Minsheng Banking Corp (3.6%) and Industrial Bank (3.5%). Year-to-date, as of the end of June, the index is down 15.8%.

The fund has a total expense ratio of approximately 1.09%.

Fubon also offer two ETFs providing leveraged or inverse exposure to the SSE180 Index – the Fubon Shanghai Stock Exchange 180 Leveraged 2X Index ETF and the Fubon Shanghai Stock Exchange 180 Inverse Index ETF.

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