Taiwan's tough new limits on short selling take effect today, Monday 9 November, as the island's financial regulators move to steady a stock market that lost more than a tenth of its value in a single week.

The Financial Supervisory Commission (FSC) has cut the maximum volume of intraday orders to sell borrowed shares from 30% to 3% of a stock's average daily trading volume over the previous 30 sessions. The minimum margin requirement on short positions rises from 90% to 130%, making it considerably more expensive to bet against shares.

The measures were announced on Friday 6 November, after the benchmark Taiex index suffered its largest intraday point fall on record. The index plunged as much as 3,737.67 points, or about 9%, during Friday's session before recovering some ground to close down 4.51% at 39,701.64. Over the week the Taiex lost 12.19%, and it now sits about 20.55% below its 2026 high of 49,968, putting it in bear-market territory.

$15 billion fund authorised to intervene

Alongside the trading curbs, Taiwan's National Financial Stabilization Fund has been authorised to buy shares to support the market. At an emergency meeting on Friday afternoon, the fund's management committee empowered its executive secretary to deploy money as needed. The fund can draw on up to NT$500 billion, about US$15.1 billion, although officials have announced no specific amount or timetable for purchases.

The fund, established in 2000 to calm severe market turbulence, has intervened nine times before. This is its tenth authorisation. Officials said on Friday that market confidence was clearly insufficient in the short term and vowed to take the necessary steps to restore order.

The regulator has also encouraged listed companies to consider share buybacks and to hold investor briefings to rebuild confidence.

AI sell-off behind the rout

The sell-off was driven by a sharp reassessment of the artificial intelligence trade. After the Democratic Party won control of both chambers of the United States Congress in last week's midterm elections, investors began to worry that tighter regulation could slow the AI infrastructure buildout, cutting demand for the chips and equipment Taiwan produces.

Foreign investors sold heavily through the week, and officials cited the continued selling as a sign of a significant lack of confidence. Taiwan's market is dominated by high-technology stocks and closely tracks the United States Philadelphia Semiconductor Index, the fund noted on Friday.

Taiwan occupies a critical place in the global semiconductor supply chain as home to TSMC, the world's largest contract chipmaker. The island has been one of the biggest beneficiaries of the AI investment boom, with its stock market scaling record highs and exports surging. That same concentration has now made it one of the most exposed markets to the AI sell-off.

South Korea, Asia's other chip-making powerhouse, also stepped up efforts on Friday to steady its battered market after a week of heavy losses.

Curbs are not a ban

The new rules do not amount to a ban on short selling. Traders can still take short positions, but the volume they can sell in a day is sharply restricted and the cost of holding those positions is higher. Whether that is enough to calm the market will become clear in Monday's trading, when the curbs are tested for the first time and traders watch for any sign that the stabilisation fund has begun buying.

Officials stressed that Taiwan's economic fundamentals remain sound. The longer-term question for investors is whether the AI spending boom that powered the market to record highs is slowing, or whether last week's rout was a sharp but temporary correction.