The truth behind abnormal stock fluctuations: Understanding the conditions for delisted stocks and watchlist stocks

Have you ever encountered this strange situation in the stock market—a stock surges over 100% in a short period, seeming like a great opportunity, but when placing an order, you find it can’t be executed at all, and margin financing and securities lending are frozen? Behind this lies an important mechanism: the Disposal Stock mechanism.

Why Are Stocks “Locked Down”? Understanding the Logic Behind Disposal Stocks

When a stock exhibits abnormal trading behavior in a short period, the Taiwan Stock Exchange will take action. These abnormal behaviors include excessive short-term price swings, soaring turnover rates, and abnormal trading volume increases. If certain conditions are met, the stock will be placed on a special watch list and then enter the disposal stock phase.

It’s important to note that stocks do not immediately enter a disposal status. Usually, they are first classified as Attention Stocks, which serve as a warning mechanism. When a stock repeatedly triggers attention stock conditions over several days and meets specific criteria, it will be upgraded to a disposal stock, at which point trading methods will be significantly restricted. Attention stock conditions include a price increase of over 100% in 30 trading days, a daily turnover rate exceeding 10%, or abnormal trading volume increases over the past 6 days.

The purpose of this mechanism set by the exchange is straightforward: reduce trading convenience to cool down overheated market sentiment.

The Reality of Trading Disposal Stocks: How Severe Are the Restrictions?

Stocks that enter the disposal list can still be bought and sold, but the trading experience is markedly different. Restrictions vary depending on the stage of disposal.

Stage One Disposal Restrictions

At this stage, the stock can only be matched once every 5 minutes. If a single transaction exceeds 10 lots or the total exceeds 30 lots, a “circle storage” trading method must be used. Circle storage means the system will first freeze your funds, and only after confirming sufficient funds in your account can the transaction proceed—unlike normal stocks, which allow T+2 deferred payment. Additionally, margin financing and securities lending are suspended, and leverage operations cannot be performed.

Stage Two Disposal Impact

If the stock continues to experience severe volatility and triggers abnormal conditions again within 30 days, it enters the second stage. The matching interval extends to once every 20 minutes, and all transactions must be fully funded with no partial payments, greatly reducing trading convenience. Trading volume usually shrinks sharply.

The disposal periods for these two stages typically last 10 trading days, but if day trading volume accounts for more than 60%, the period extends to 12 trading days.

From Attention Stocks to Warning Stocks to Disposal Stocks: The Complete Process of Abnormal Stock Behavior

Abnormal stock behavior is rarely an overnight event; it usually follows a clear progression.

Normal stocks have no restrictions, with free trading and T+2 payment.

When a stock triggers attention stock conditions, it enters the Attention Stock stage. At this point, it’s just a warning to investors; trading remains unrestricted and operates like normal stocks.

If abnormal conditions persist and worsen, the stock is upgraded to a Warning Stock and simultaneously classified as a Disposal Stock, at which point trading restrictions are truly activated.

Conditions for triggering disposal include continuous 3 to 5 trading days meeting attention stock standards or any warning stock indicators. The exchange publicly discloses the specific conditions for triggering attention and disposal statuses, and investors can refer to official announcements.

Price Movement Predictions for Disposal Stocks: No Absolute Answers

The price performance of disposal stocks during their restricted period is unpredictable; each case can be entirely different.

For example, 威鋒電子 (6756) was classified as a disposal stock in June 2021. After entering the first stage, the stock remained hot and then moved into the second stage. During the entire disposal period, the stock price increased by 24%, and after regulatory relaxation, it continued to rise.

In contrast, 陽明 (2609) was also classified as a disposal stock due to excessive gains and high turnover rates. In July, it was reclassified as a disposal stock again due to “large cumulative decline over the past 6 days,” and subsequently, its stock price remained sluggish, trapping investors.

Generally, during the disposal period, due to longer matching times and stricter payment methods, trading volume shrinks significantly, liquidity deteriorates, and short-term trading becomes more costly. It is usually not advisable to intervene in restricted stocks during periods of overall market strength.

However, there is a popular saying that “disposal stocks tend to grow bigger the more they are restricted,” based on the logic that: stocks that surged earlier and entered disposal tend to stabilize their chips and lock in liquidity during the disposal period. After restrictions are lifted, they may restart an upward trend. But if such stocks are suppressed by bears during the disposal period, selling becomes difficult.

Framework for Judging Whether Disposal Stocks Have Investment Value

Disposal stocks are merely temporary abnormal trading states and do not reflect the company’s quality. If thorough research indicates that the company has investment value, then being classified as a disposal stock is just a temporary obstacle, not an investment ban.

The decision to invest should follow the same fundamental analysis as normal stocks:

Fundamental Analysis: Deeply understand the company’s core business, product competitiveness, and market position; analyze financial statements focusing on revenue growth, gross profit margin, net profit, etc.; observe whether financial trends are stable and upward.

Chip Flow Analysis: Pay attention to capital inflows and outflows. During the disposal period, financing and securities lending are unavailable, but trading restrictions make the movement of major funds more transparent. Institutional buying and selling intentions become clearer, which can be advantageous. After market close, data can show how much large funds have bought or sold over consecutive days, aiding follow-up decisions.

Practical advice: Before entering, confirm whether the stock price is in a sideways trend during the disposal period; avoid stocks with large drops. Also, assess whether current valuations are reasonable—if undervalued, consider entering during the disposal period and waiting for the lift after unlocking.

Should Disposal Stocks Be Held Long-Term?

This depends on a comprehensive assessment of multiple factors.

First, disposal stocks generally carry higher risks than normal stocks. Abnormal trading may hide operational issues, financial risks, or major adverse events. If the company’s fundamentals are questionable, long-term holding is risky.

Second, macroeconomic environment is crucial. In a bear market, disposal stocks face double pressure; in a bull market, unlocking may trigger rebounds.

Third, an investor’s risk tolerance determines suitability. High-risk tolerant investors optimistic about the company’s prospects can consider long-term positions in fundamentally stable disposal stocks; conservative investors should stay away.

Finally, short-term traders face the greatest impact—no day trading, longer matching times significantly increase transaction costs. But long-term holders are less affected—trading restrictions do not severely impair the holding experience, and regulations often require periodic financial disclosures, helping investors stay updated on company developments.

Disposal stocks are not a forbidden zone; success depends on your confidence in the company and your own risk appetite.