## Sudden Suspension of Stocks? Understanding Trading Restrictions and Investment Opportunities in Disposed Stocks

Have you ever encountered this situation: a stock surges over 100% within just a few weeks, seeming like a great opportunity, but when you try to place an order, you find you can't execute it as quickly as usual, and margin trading is outright disabled. These stocks are likely flagged by the Taiwan Stock Exchange as "disposal stocks" or colloquially called "stocks in jail" by investors.

## Under what circumstances are stocks classified as disposal stocks?

Disposal stocks refer to stocks exhibiting abnormal trading fluctuations and are specially marked by the Taiwan Stock Exchange. According to the exchange's standards, phenomena such as rapid price swings within a short period, soaring turnover rates, and abnormal trading volumes can trigger this mechanism.

Before being officially designated as disposal stocks, there is usually a transitional phase. The exchange first places the abnormal stocks on a "Watch List," alerting investors to risks but not restricting trading methods. If the stock continues to meet the watch list criteria over several trading days, it is escalated to a "Warning Stock," and eventually, it may be added to the disposal stock list.

As of December 2023, multiple stocks such as Evergrande, Lishan, Hongguang, Huangchang, and Rongchuang were disposed of due to abnormal trading activities. The purpose of this mechanism is to curb overheated trading by increasing trading difficulty, giving investors time to reassess.

## How strict are the trading restrictions on disposal stocks?

Once a stock is on the disposal list, trading is still permitted but with significant limitations. The specific restrictions depend on the stage of disposal.

**First-stage disposal** involves manual control, allowing trades to be matched only once every 5 minutes. When a single buy or sell order exceeds 10 lots or accumulates over 30 lots, a "collateralized trading" process must be performed (meaning investors must ensure sufficient funds in their accounts to execute the trade), and margin trading services are also suspended.

If the stock's price remains volatile and unrestrained, it progresses to **second-stage disposal**, which is even more stringent. The matching frequency drops to once every 20 minutes, and regardless of trade size, full collateralization is required, significantly increasing the difficulty of executing trades. These measures often lead to a sharp decline in trading volume.

The typical duration of disposal restrictions is 10 trading days. However, if during this period, day-trading volume exceeds 60%, the restriction period is automatically extended to 12 trading days. After the period ends, the stock is automatically removed from the disposal list.

## Do disposal stocks tend to rise or fall?

Predicting the future trend of disposal stocks requires specific analysis, as their performance can be entirely opposite.

For example, in June 2021, Wavetech (6756) was classified as a disposal stock and went through both first and second-stage restrictions, yet its stock price still increased by 24%. Conversely, Yang Ming (2609), which was also flagged for large gains and high turnover during the same period, was later reclassified after a 6-day plunge and performed poorly in the long term.

Generally speaking, when a stock is classified as a disposal stock, trading volume often shrinks significantly due to restrictions on matching times and payment methods, leading to decreased liquidity. In a generally bullish market environment, it is usually not recommended for investors to engage with these restricted stocks, especially short-term traders, as it increases trading costs.

However, there is a market saying: "The more they are restricted, the bigger the tail." This suggests that during the restriction period, chips (ownership stakes) tend to stabilize, and liquidity is low. Once restrictions are lifted, a big rally may occur again. But this also carries risks—if short-selling forces are active during the disposal period, exiting positions can become even more difficult for investors.

## How to determine if disposal stocks are worth investing in?

Disposal stocks are merely a temporary abnormal trading state and do not directly reflect the company's quality. If investors conduct thorough research and believe the company's fundamentals remain solid, they can consider positioning during the restriction period.

When evaluating the investment value of disposal stocks, consider two aspects:

**Fundamental Analysis** — Deeply understand the company's core business, market position, financial statements (such as revenue growth rate, gross profit margin, net profit), and assess whether the company's finances are stable.

**Chip (Ownership) Analysis** — Since margin trading and short selling are restricted during disposal, trading difficulty increases, making the movement of major funds easier to observe. Post-market fund flow data can clearly reveal institutional buying and selling intentions, aiding in decision-making.

Key checklist before investing: check if the stock price is consolidating sideways during the disposal period (avoid if it starts to decline sharply); evaluate whether the current price is within a reasonable valuation range; if undervalued, consider opportunistic entry during the disposal period.

## Is it suitable to hold disposal stocks long-term?

Whether disposal stocks are suitable for long-term holding depends on a comprehensive assessment of the company's fundamentals, market environment, and personal risk tolerance.

Abnormal trading may hide risks—if the company has operational issues or financial concerns, long-term holding could be risky. Additionally, consider the overall market environment; during bear markets or economic downturns, disposal stocks carry higher risks. Conversely, in a bullish market with a friendly economic outlook, holding may be more favorable.

Personal risk tolerance is also crucial. If you can accept significant price fluctuations and have strong risk appetite, holding fundamentally stable disposal stocks long-term might be appropriate. But for conservative investors, engaging with disposal stocks may not be suitable.

For long-term investors, the extended matching times and trading restrictions have limited impact. Interestingly, the exchange's requirement to publish the latest financial reports for disposal stocks allows investors to stay updated on company operations more promptly. Short-term traders are more affected by the inability to day trade.

In summary, if you have confidence in the company's prospects and believe its future development is promising, being temporarily classified as a disposal stock is not a major concern—ultimately, it still comes down to fundamental analysis.