Complete Guide to Stock Disposal: From Rules to Practice, the Three Key Issues Every Investor Must Know

Have you ever encountered such a strange situation— a stock doubles in just a few weeks, trading volume skyrockets, but when you try to enter the market, you find buying and selling are blocked, and margin trading and securities lending are suddenly closed? This often indicates you’ve encountered Stock Disposal.

Disposing of stocks is not a new phenomenon. By the end of 2023, Taiwan’s Stock Exchange has gradually added more than ten stocks, including Evergrande, Lishan, and Hongguang, to the disposal list. However, many investors are still unfamiliar with this system, or even unaware of why their purchased stocks are suddenly “locked up.” This article will address three key questions from a practical perspective.

First Question: Why Are Stocks Disposed?

Stock disposal is essentially a regulatory measure by Taiwan’s Stock Exchange to monitor abnormal trading phenomena. When a stock exhibits extreme volatility within a certain period, the exchange gradually escalates control measures.

Specifically, the process is divided into three stages:

Stage 1: Attention Stock. When a stock’s price increases by more than 100% within 30 trading days, or its daily turnover rate exceeds 10%, or trading volume has been abnormally high over the past six days, it is marked as an Attention Stock. However, at this stage, there are no trading restrictions; buying and selling remain free.

Stage 2: Warning Stock. If the stock continues to exhibit abnormal trading behavior, it is upgraded to a Warning Stock.

Stage 3: Stock Disposal. When a stock repeatedly triggers the Attention Stock criteria over 3 to 5 consecutive trading days, or directly meets the Warning Stock conditions, the exchange will officially add it to the disposal list. Trading restrictions are then activated.

In simple terms, a disposed stock is “punished for excessive trading activity.” The exchange’s goal is clear—by increasing the difficulty of buying and selling, it aims to cool down excessive speculation.

Second Question: Can Disposed Stocks Still Be Traded? How Strict Are the Restrictions?

The answer is: Yes, trading is possible, but with limitations.

Stocks under disposal are categorized into two levels based on severity, with significantly different restrictions.

Level 1 Disposal: Trades can only be matched every 5 minutes, greatly reducing trading frequency. Additionally, if a single buy or sell order exceeds 10 lots or accumulates to 30 lots, a “circle deposit transaction” must be used—that is, full prepayment. You must freeze the full amount of money corresponding to the shares you want to buy, and no longer enjoy the T+2 deferred payment convenience. Margin trading and securities lending are also closed.

Level 2 Disposal: If Level 1 measures do not suppress abnormal trading, the stock enters Level 2. At this stage, the matching interval extends to 20 minutes, and all trades must use circle deposit transactions, further reducing liquidity. In practice, many investors find that trading volume rapidly shrinks during this phase, often resulting in unfilled orders.

The disposal period usually lasts for 10 trading days. However, there is an exception—if the volume of intraday offset transactions during the disposal period exceeds 60% of total trading volume, the disposal period extends to 12 trading days.

Compared to normal stocks, the difference is obvious: regular stocks trade freely at any time, with T+2 payments, and can be margin traded; disposed stocks require waiting, full prepayment, and have margin trading closed. That’s why stocks under disposal are often jokingly called “prison stocks” by investors.

Third Question: Will Disposed Stocks Still Rise? Do They Have Investment Value?

This is the most practical question. The answer is: It depends on the situation.

Historical cases provide two very different references. WeiFeng Electronics (6756) was listed for disposal in June 2021, even experiencing an upgrade from Level 1 to Level 2, yet its stock price increased by 24% during the entire disposal period, successfully turning around. In contrast, Yangming (2609), although also listed for disposal due to large gains, was subsequently re-disposed after a sharp decline, and then remained sluggish for a long time.

Why such a difference?

The main reason is that stocks listed for disposal are often hot gainers before being disposed of. During the disposal period, trading restrictions lead to relatively stable chips, and decreased liquidity makes the movements of major funds more transparent and traceable. If the company’s fundamentals are not deteriorating, the stock may rally again after the disposal is lifted. Conversely, if the stock faces short-selling pressures or the overall market declines, timely stop-loss becomes difficult.

How to judge whether a stock is worth buying after disposal?

It is recommended to analyze from two dimensions:

Fundamental Dimension: Whether the core business remains competitive, whether financial statements are healthy, and whether revenue and profit trends are stable. Disposal only reflects abnormal trading, not the company’s intrinsic quality. If thorough research confirms the company is still good, disposal stocks might present an entry opportunity.

Chips (Ownership) Dimension: Since disposed stocks cannot be margin traded, the buying and selling activities of major funds are relatively “clean” and easier to identify. Observing block trades, major fund inflows and outflows, etc., can provide signals. Also, be cautious if the stock starts to decline sharply or remains sideways during disposal, as risks increase.

Another practical tip: before entering, check if the stock’s valuation is reasonable. If the current price is at a historical low or within a reasonable valuation range, the liquidity shortage during disposal might have led to undervaluation. Taking advantage of this opportunity to buy low and wait for a rebound after disposal is a feasible strategy.

Are Disposal Stocks Suitable for Long-term Holding?

It depends on three factors:

Whether the company’s fundamentals are stable. Disposal stocks tend to carry higher risks, and the hidden abnormal trading may reflect operational issues. Long-term holding requires ensuring the company has no hidden problems.

Market environment. If the overall market is in an upward cycle and the economic environment is friendly, holding disposal stocks carries relatively manageable risks; otherwise, it’s better to avoid.

Your risk appetite. Short-term traders may be hurt by the inability to day trade, but long-term investors are less sensitive to trading delays. The impact of disposal stocks varies greatly among different investor types.

In summary: Stock disposal is just a temporary trading state, not a mark of company quality. If you believe the company will perform well in the future, temporary trading restrictions should not cause excessive concern. But if you are a short-term trader or have low risk tolerance, it’s better to stay away from disposal stocks.

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