Encountering the Disposal of Shares Dilemma: Essential Trading Traps and Strategies Investors Must Know

There is a special category of stocks in the stock market that tend to experience astonishing fluctuations in the short term but cannot be traded flexibly like ordinary stocks, and their margin trading and securities lending functions are also frozen. These stocks are called Disposal Stocks, which are listed on the Taiwan Stock Exchange’s Special Observation List. For investors, understanding the mechanism of Disposal Stocks is crucial.

How does a stock become a Disposal Stock?

The formation of Disposal Stocks is not an overnight process. Stocks go through an evolution from normal to abnormal.

Criteria for abnormal trading conditions include: price fluctuations exceeding expected ranges within a short period, abnormal high turnover rates, sudden surges in trading volume, etc. When a stock triggers these conditions, it is first classified as a Watch Stock. The system issues a warning signal but does not impose trading restrictions.

If the stock continues to perform abnormally, and multiple consecutive trading days meet the Watch Stock criteria, it will be upgraded to a Warning Stock. Finally, when abnormal trading behaviors persist or specific trigger conditions are met, the stock officially enters the Disposal Stock stage, at which point trading is subject to systematic restrictions.

The following table illustrates this hierarchical progression:

How strict are the trading restrictions for Disposal Stocks?

Once a stock is on the Disposal Stock list, it faces two levels of trading controls.

Initial Restrictions (First Disposal)

At this stage, the matching time changes from continuous trading to once every 5 minutes. When a single order exceeds 10 lots or cumulative orders reach 30 lots, circulating deposit trading must be used—that is, investors need to pre-deposit sufficient funds into their accounts, and only then will the system allow the trade to be executed. Margin trading and securities lending functions are suspended during this period.

In contrast, ordinary stocks enjoy the convenience of T+2 delayed payment.

Enhanced Restrictions (Second Disposal)

If price volatility remains unresolved and the stock triggers disposal standards again within 30 days, it enters a more stringent second phase. The matching frequency drops to once every 20 minutes, and all buy and sell transactions must be conducted via circulating deposit trading, regardless of the transaction size. Such controls often lead to a sharp decline in trading volume.

The disposal period typically lasts for 10 trading days, but if the day’s offsetting volume exceeds 60% of the total trading volume, the disposal period extends to 12 trading days.

Can Disposal Stocks still be bought and sold?

The answer is yes. Disposal Stocks can still be traded, but with significantly reduced convenience. The most direct consequence is deteriorated liquidity—investors may face difficulties in quickly offloading or building positions.

This design aims to cool down the market and encourage investors to think calmly rather than follow the herd blindly.

Historical Cases Revealing Investment Traps

Wefeng Electronics (6756) was classified as a Disposal Stock in June 2021, undergoing a complete cycle of first and second phases. Surprisingly, this stock accumulated a 24% increase during the disposal period and eventually escaped the restrictions.

However, not all stories have a happy ending. During the same period, Yang Ming (2609) also entered the Disposal Stock list for similar reasons. Initially, trading was hot, but shortly after, due to a “cumulative decline over the past 6 days,” it was reclassified as a Disposal Stock. Since then, the stock has performed poorly for a long time, causing investors to suffer losses.

The differences between these two cases illustrate that: the subsequent performance of Disposal Stocks is highly uncertain.

Key Question: Do Disposal Stocks still have investment value?

This is the most concern for investors. The core of the judgment lies in distinguishing “abnormal trading” from “company quality.”

Disposal Stocks only reflect abnormal trading behavior and do not directly indicate the company’s fundamentals. Therefore, investment decisions should return to the company’s core:

Fundamental Analysis — Study the core business competitiveness, financial statement trends, and profit growth ability. A well-managed company being classified as a Disposal Stock is just a temporary setback.

Shareholding Structure Analysis — Because margin trading and securities lending are restricted, the movement of major funds will be relatively “clean,” making it easier to identify whether institutions are accumulating or offloading shares. This actually provides a valuable observation window for keen investors.

Three checkpoints before entering

1. Sideways movement check: Is the stock price maintaining a consolidation pattern during the Disposal Stock period? If there has already been a significant decline, it should be avoided.

2. Valuation reasonableness check: Is the current stock price in an undervalued range? If investors believe the price is attractive, they can take advantage of the liquidity drought during the Disposal period to enter.

3. Market environment check: Is the overall market in an upward cycle? Is the macroeconomic environment friendly? An unfavorable macro environment will amplify the risks associated with Disposal Stocks.

Are Disposal Stocks suitable for long-term holding?

It depends on the investor’s risk tolerance and investment horizon.

Impact on short-term traders is significant — they cannot perform same-day offsetting, trading costs increase, and flexibility is lost.

Impact on long-term investors is limited — longer matching times do not prevent holding the stock, and regulators require Disposal Stocks to disclose financial reports promptly, allowing investors to better track company developments.

Risk tolerance is the key factor — if investors can accept large price fluctuations and firmly believe in the company’s bright prospects, holding high-quality Disposal Stocks for the long term is feasible. Otherwise, avoidance is recommended.

Ultimately, the valuation judgment of Disposal Stocks is no different from that of ordinary stocks: Focus on the company, base decisions on solid research, and consider personal risk preferences. Do not be intimidated by the “abnormal” label of Disposal Stocks, nor be misled by market rumors of “more restrictions.” Rationality is the foundation of investing.