Public Offering Stock Disposal Investment Guide: From Being "Locked Up" to Opportunities After Unlocking

What Happens When Stocks Encounter Abnormal Trading?

In the Taiwan securities market, when a stock exhibits abnormal trading phenomena in a short period—such as drastic price swings, surging trading volume, or unusually high turnover rates—the stock exchange will place it under a special management mechanism. These restricted stocks are colloquially called “locked up” stocks, while industry professionals refer to them as listed disposal stocks.

According to statistics from the Taiwan Stock Exchange, in December 2023, ten stocks including Evergrande, Lishan, Hongguang, and Huangchang entered this state simultaneously. Many investors find that these stocks cannot be traded as quickly as normal stocks, margin trading and short selling are suspended, and even day trading becomes impossible.

Graded Control System for Disposal Stocks

Listed disposal stocks are not uniformly treated but are categorized into different levels based on the severity of abnormality.

Level 1 Disposal: When a stock first triggers abnormal conditions, the exchange adopts relatively mild measures. At this stage, trades can only be matched once every 5 minutes, and if a single order exceeds 10 lots or the total exceeds 30 lots, a full prepayment (full deposit) method must be used—margin trading and short selling are not available.

Level 2 Disposal: If the abnormal situation persists without improvement and the stock again meets disposal criteria within 30 days, the restrictions are intensified. The matching frequency drops to once every 20 minutes, and all trades must use the full deposit method regardless of volume, sharply reducing liquidity.

Generally, the disposal period lasts for 10 trading days, but if the intraday offset volume exceeds 60% of total trading volume, it extends to 12 trading days.

Actual Differences Between Normal Stocks and Listed Disposal Stocks

From Abnormal Trading to Regulatory Classification: An Advanced Overview

The transition of a stock from normal to restricted trading is a gradual process, not an abrupt event.

Watchlist Stage: The stock is first flagged as a watchlist stock. Investors receive risk alerts, but trading remains unrestricted, with no difference from normal stocks. Trigger conditions include a 100% increase over 30 trading days, a daily turnover rate exceeding 10%, etc.

Warning Stage: If abnormal trading persists, the stock is upgraded to a warning stock and simultaneously included in the disposal stock list, beginning to face trading restrictions.

Disposal Stage: When a stock meets the watchlist criteria for 3 to 5 consecutive trading days or meets warning standards, it officially enters the disposal list, and all trading restrictions are fully enforced.

Do Disposal Stocks Really Rise? Two Cases Explain All

Rising Case: V-Force Electronics (6756) entered first-level disposal in June 2021. Despite this, its performance remained strong, and after being upgraded to second-level disposal, it ultimately rose by 24% before the restrictions were lifted.

Falling Case: A-Ming (2609), also on the disposal list at the same time, was flagged due to large gains and high turnover. However, after a significant decline over the next six days, it was re-entered into disposal status, and its stock price remained sluggish afterward.

The comparison of these two stocks shows that the subsequent trend of listed disposal stocks varies depending on company quality; being restricted does not necessarily mean the stock will continue to decline.

The Logic Behind the “越關越大尾” Phenomenon

There is a saying in the investment community that “the more restricted, the bigger the tail” (越關越大尾)—meaning the more a stock is limited, the more it may surge. This reflects certain characteristics:

• Stocks that previously surged due to good fundamentals or market hype enter the disposal phase with relatively stable chips (ownership), and liquidity is artificially restricted. Once restrictions are lifted, they may attract new funds, triggering another rally.
• However, this phenomenon is not guaranteed. Factors to consider include:
  • Whether short-selling forces are suppressing the stock during restrictions
  • Whether the company discloses unfavorable information during the restriction period
  • Whether the overall market environment supports a rebound

How to Judge if a Disposal Stock Is Worth Investing In?

Fundamental Analysis: Assess the company’s core competitiveness, revenue growth, gross profit margin, and net profit trends from financial statements. Disposal status is merely an abnormal trading condition and does not reflect company quality; investment decisions should be based on operational fundamentals.

Chip (Ownership) Analysis: Since disposal stocks cannot be used for margin trading or short selling, major fund movements are relatively transparent. Investors can observe institutional buying and selling intentions from closing data to decide whether to follow in.

Valuation and Risk Assessment: Confirm whether the stock price is within a reasonable valuation range. If undervalued, it may be an opportunity to enter during restrictions and wait for future gains. Conversely, avoid chasing after sharp declines during disposal periods.

Sideways Consolidation Signals: Before entering, check if the stock price shows sideways consolidation during restrictions, indicating relatively stable chips.

Is Long-term Holding Suitable for Disposal Stocks?

Risk Considerations: Disposal stocks generally carry higher risks than normal stocks. Abnormal trading behaviors may indicate underlying issues. If the company faces operational difficulties or financial risks, long-term holding could lead to significant losses.

Market Environment Impact: The overall market trend is crucial. In a bull market, holding fundamentally sound disposal stocks offers better chances; in a bear market, risks increase substantially.

Investment Style Compatibility: Short-term traders are more affected by the inability to day trade; long-term investors are less impacted by matching time restrictions and can leverage regulatory requirements for timely financial disclosures to better understand operational status.

Personal Risk Tolerance: If investors can accept large stock price fluctuations and have confidence in the company’s prospects, long-term holding may be considered; otherwise, it’s better to avoid.

Final Recommendations

The trading restrictions on disposal stocks are temporary market protection measures, not permanent investment bans. The key points are:

1. Do not be misled by the stereotype that “being restricted = necessarily falling.”
2. Make rational decisions based on dual analysis of fundamentals and chips.
3. Combine personal risk tolerance and investment horizon to decide whether to enter.
4. Be cautious of sharp declines during restrictions and wait for more stable entry points.