The Reluctant State Policy and the Development of the Futures Trading Industry in Taiwan
AbstractThis research aims to tackle the issue of development of the futures trading industry in Taiwan. In spite of being praised as a model of the developmental state, the Taiwanese government was very conservative in its financial policy, and usually put a high priority on stable growth in its decision making. As a result, it took an ambivalent attitude toward the opening of the futures market, which was believed to be highly speculative and subversive to the financial system. However, an underground futures market came into de facto existence and caused social concerns, and the state was forced to legalize the new industry. Even so, instead of following a big push model the state adopted a gradualist approach and opened the trading market step by step. This led to creation of a market dominated by individual investors and little foreign capital participation. The market was characterized as decentralized and price sensitive to service charges, and at the same time, required brokers to bridge the knowledge gap for individual investors, rather than institutional ones, in complex financial transactions. Under such circumstances, it was the extent of social networks, rather than the sophistication of trading skills, that was critical in the business. In other words, reluctant state policies led to a decentralized market structure, which further shaped an under-developed professional community in Taiwan's futures trading industry.
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