Can stocks still be traded after disposal? Three key questions investors must understand

The True Face of Disposed Stocks: From Trading Abnormalities to Temporary Restrictions

When a stock experiences large short-term price swings, a surge in trading volume, or an increase in turnover rate, the Taiwan Stock Exchange (TWSE) will place it under a special observation mechanism. These stocks are called “disposal stocks,” which are essentially risk management measures taken by regulators to curb excessive speculation.

Rather than viewing disposal stocks as a “punishment,” it is better to see them as a “cooling-off period.” Through manual adjustments of matching frequency and mandatory full payment, the TWSE aims to guide market participants toward rational decision-making. According to publicly available data from the TWSE, in December 2023, dozens of stocks such as Evergrande, Lishan, Hongguang, Huangchang, Rongchuang, and Yingguang experienced such restrictions.

Can You Sell Disposal Stocks? How Does the Trading Mechanism Work?

The answer is yes, but the trading experience will be significantly different.

Stocks on the disposal list can still be traded normally, but they will face two levels of restrictions. In the initial phase (first disposal), the matching frequency is reduced to once every 5 minutes. When trading exceeds 10 lots or accumulates 30 lots, a circle deposit transaction (full prepayment) is required; if the stock price remains volatile and triggers abnormal standards again within 30 days, it will enter the second phase, with matching frequency extended to every 20 minutes, and all trades must be circle deposited.

These seemingly complicated rules have their logic. The core of circle deposit trading is to require investors to ensure sufficient funds in their accounts to complete transactions, preventing speculative margin operations. In contrast, normal stocks enjoy a T+2 payment grace period, which is the biggest difference between the two.

The disposal period usually lasts for 10 business days, but if intra-day offset ratios exceed 60%, the period is extended to 12 days. After the disposal period ends, restrictions are automatically lifted.

The Evolution Path of Stocks from Normal to Abnormal

Investors should understand the entire classification system to avoid confusion. The progression of abnormal stock behavior follows four stages:

Normal Stock → No restrictions, T+2 settlement, margin trading allowed

Watchlist Stock → Triggered by conditions such as a 30-day increase of over 100%, daily turnover rate over 10%, but trading remains unrestricted

Warning Stock → Continues abnormal behavior, added to the warning list

Disposal Stock → Meets the criteria for watchlist for 3 to 5 consecutive business days or directly meets warning standards, officially entering trading restrictions

This progressive grading system provides early warning opportunities. During the watchlist stage, there are no trading barriers, similar to a “yellow card warning.”

Investment Value Judgment Framework for Disposal Stocks

Whether disposal stocks can be bought depends not on their restriction status but on the quality of the underlying asset.

Take WeiFeng Electronics (6756) as an example. This stock was classified as a disposal stock in June 2021 and even entered the second phase of restrictions. However, due to sustained market enthusiasm, its price still increased by 24% during the disposal period. In contrast, Yangming (2609) was also classified as a disposal stock due to excessive gains but was later restricted again after a significant decline, and its stock price remained sluggish for a long time.

The differing fates of these two stocks illustrate that: disposal status only reflects trading performance, not company quality.

Investors should evaluate disposal stocks from two perspectives:

Fundamental Analysis: Deeply understand the company’s core business, market competitiveness, financial statements (revenue growth, gross profit margin, net profit trends, etc.). If the company’s fundamentals remain solid, the disposal period can be an opportunity to intervene.

Shareholding Analysis: Observe the flow of major funds. During restrictions, margin trading is unavailable, making institutional trading more transparent. Post-market data can reveal institutional buying and selling intentions, which can be advantageous for savvy investors.

Operational Suggestions:

• Before investing, confirm whether the stock price is consolidating during the disposal period to avoid entering during a downward trend
• Verify current valuation levels to prevent chasing high prices
• If the stock is undervalued, consider building positions when liquidity decreases and retail participation wanes

The market saying “The bigger the restriction, the bigger the tail” has some truth—hot stocks entering disposal tend to stabilize their chips, and upon unlocking, are prone to rise again. However, this logic can break down when short-selling forces intervene.

Is Holding Disposal Stocks Suitable for Long-Term Investment?

Long-term holding decisions should consider multiple factors:

Risk Characteristics: Compared to normal stocks, disposal stocks often hide abnormal trading behaviors, which may indicate operational issues, financial risks, or other potential crises. Investors with low risk tolerance should be cautious.

Market Environment: During overall market downturns or economic slumps, disposal stocks can amplify risks; during rising cycles and stable economies, opportunities may be greater.

Investor Type: Short-term traders may be hindered by the inability to day trade, while long-term holders are unaffected by matching frequency. In fact, regulatory requirements for listed companies to increase financial disclosures during disposal periods can facilitate long-term investors’ understanding of operational dynamics.

Core Judgment: If investors have confidence in the company’s medium- to long-term development, temporary restrictions should not be a reason to abandon the stock. Disposal stocks are short-term trading anomalies and do not reflect the company’s intrinsic value.

Overall, disposal stocks can be bought and sold or held long-term, but only based on solid fundamental research and reasonable valuation judgment.