In Taiwan’s capital market, the biotech and pharmaceutical sector is a corner full of dreams—but also one of the most fragile. From new drug development and medical devices to cell therapies, every step is long and arduous, often taking a decade and requiring investments of billions of dollars.
Yet in recent years, we repeatedly see the same scenario play out: a company enters a critical clinical stage or drug approval process, and suddenly foreign investors or specific accounts engage in concentrated short-selling. Stock prices plunge in a short period, investor confidence collapses, and the painstaking achievements of R&D companies vanish almost overnight.
Biotech Stocks Are Not Ordinary Stocks: They Are a Long-Term Game
In biotech, “time” is the greatest cost. From Phase I to Phase III clinical trials, and eventually regulatory approval, every step is governed by oversight, review, and scientific validation.
For investors, these stocks are not short-term speculative targets but a long-term bet on national innovation. Yet current market rules treat these high-risk, high-investment, low-liquidity companies the same as mature blue-chip stocks. Daily short-selling limits can reach 30% of trading volume, enabling short-sellers to trigger panic even under low liquidity conditions.
Such a system effectively makes biotech stocks “the easiest place to profit from short-selling,” while simultaneously making them “the easiest place for innovation to be destroyed.”
Imbalance in Short-Selling: Market Mechanisms vs. Policy Goals
The short-selling system designed by Taiwan’s Financial Supervisory Commission (FSC) aims to increase market liquidity and enhance price discovery. But for R&D-driven industries, the mechanism has created a practical “perverse incentive.” Foreign investors and certain accounts exploit short-selling around clinical or regulatory review periods, causing stock crashes. Worse, some pseudo-foreign accounts leverage information asymmetry and related-party transactions, creating a quasi-legal insider channel.
This situation not only undermines investor confidence but also raises corporate financing costs, creating a “regulatory paradox”: financial market efficiency ends up crushing real-economy innovation.
Policy Recommendations: From “One-Size-Fits-All” to “Precision Regulation”
To truly allow the market and industry to coexist, short-selling regulations must enter an era of “precision oversight”:
- Differentiated Limits – For biotech and pharmaceutical companies approved by the Ministry of Economic Affairs, daily short-selling limits should be reduced from the current 30% to 10%, reflecting the sector’s high risk and long return cycle.
- Sensitive Period Controls – During clinical trials or regulatory review, if abnormal trading occurs, temporary measures should lower short-selling limits to 3% and strengthen real-time monitoring.
- Transparency for Foreign Accounts – Regulators should enhance beneficiary identification to prevent pseudo-foreign accounts from shielding manipulative operations. Event-study models should be used to detect abnormal short-selling behavior from data.
These measures will not hinder market operation but will help restore trading order and allow finance and industry to truly “coexist.”
Innovation and Regulation Are Not Opposites, But Coexist
Many believe restricting short-selling distorts market mechanisms. But a truly healthy market must be built on trust and fairness. When investors see foreign accounts shorting R&D companies without constraints, and without equivalent disclosure, confidence in the capital market erodes.
The nature of biotech demands “higher-level regulatory intelligence,” not laissez-faire market self-destruction. If Taiwan aims to cultivate the next semiconductor-grade strategic industry, biotech must be institutionally protected.
Conclusion
Biotech is not a mere investment theme; it is a national strategy.
Financial regulations are not meant to short innovation—they are meant to provide a safety net for it. If we allow foreign investors to exploit market gaps and erode tomorrow’s industrial trust today, the result tomorrow is not only disappointed investors but a collapse in national competitiveness.
The short-selling system needs reform—and the time to act is now.
Resource: 【生策評論】放空生技股的制度缺口：當金融工具凌駕創新價值
