The Financial Supervisory Commission has approved the TSMC clause: Listed and OTC companies can issue dividends in US dollars starting from 2027, reducing foreign exchange friction.

The Financial Supervisory Commission (FSC) has greenlit listed and OTC companies to distribute cash dividends in US dollars, with the earliest implementation expected in the 2027 dividend season. The market has dubbed this the "TSMC clause." Central Bank Governor Yang Chin-long stated in the Legislative Yuan that under the current system, companies must first sell US dollars for New Taiwan dollars to pay dividends, and then foreign investors buying back US dollars when repatriating, effectively requiring "two currency conversions."

(Previous: Central Bank's Yang Chin-long softens stance: "Housing market controls stop here." Has Taiwan's government ended its housing crackdown? 12 construction stocks hit daily limit up.) (Background: Foreign investors go all in on US assets, buying a record $884 billion, with net inflows nearly tripling from 2025.)

On July 9, Central Bank Governor Yang Chin-long delivered a special report to the Finance Committee of the Legislative Yuan. When asked about the NT dollar breaking the 32 mark and its correlation with foreign investors withdrawing dividend payouts, he pointed to a not-yet-implemented policy: allowing listed and OTC companies to distribute cash dividends in US dollars.

The problem lies in the two-step process under the current system. Under existing rules, companies distributing NT dollar-denominated dividends must first sell their US dollar income into NT dollars. After foreign shareholders receive the dividends, if they decide to repatriate, they must buy back US dollars. Yang stated in the Q&A that this process involves "two currency conversions," each leaving a footprint of buying and selling pressure on the foreign exchange market, which can amplify exchange rate volatility.

At the end of April this year, the FSC amended the Regulations Governing Investment in Securities by Overseas Chinese and Foreign Nationals, allowing listed and OTC companies to distribute USD-denominated cash dividends to foreign shareholders. The market has dubbed this the "TSMC clause." System construction is expected to be completed in the third quarter, with the 2027 dividend season officially launching the mechanism. If dividends are originally paid in USD, theoretically the "sell first, buy later" step is eliminated, reducing back-and-forth friction in the forex market.

Who benefits?

This policy truly applies to heavyweight stocks with a high proportion of foreign ownership. TSMC's foreign ownership is approximately 72%, and foreign investors collectively hold nearly half of the Taiwan stock market's market capitalization. The concentrated currency conversion during the annual dividend season has always been a fixed schedule for seasonal NT dollar depreciation pressure.

TSMC's 2026 dividend scale hit a record high, with a single dividend payout reaching the level of NT$100 billion. This is also the origin of the "TSMC clause" name. The companies that can truly wait and utilize the USD dividend mechanism are mainly those with extremely high foreign ownership and massive dividend payouts.

Electronics giants such as UMC (2303), which frequently receive and pay in US dollars, have also expressed a positive outlook. Their reasoning is straightforward: US dollars in, US dollars out – cash management and hedging costs can both save one step.

The willow tree cannot withstand a typhoon

But describing this policy as "saving the NT dollar" is an overstatement. Yang Chin-long's original words were, "It should help stabilize the exchange rate." The wording is conservative and precise: it stabilizes volatility, not reverses trends.

The first limitation is the object: This mechanism only applies to foreign shareholders. Domestic shareholders will continue to receive NT dollar dividends, and retail investors are completely unaffected. This essentially shifts the "timing" and "subject" of currency conversion from the public market to companies and foreign investors themselves, rather than eliminating USD demand. When foreign investors ultimately need to repatriate, they still must convert US dollars back to their own currency. The conversion step is merely moved from Taiwan's forex market to the distribution point, making the operation even cleaner in practice.

The second limitation is scale. The truly benefiting companies are concentrated among a few heavyweight stocks with very high foreign ownership. Most listed and OTC companies have no need to change their dividend structure and may not have the capacity to follow suit.

The third point, and one easily overlooked in Yang's Q&A, is that foreign investors do not necessarily repatriate immediately after receiving dividends. They may "take profits" based on their investment strategy and reallocate funds back into the stock market. This is itself a normal investment operation and has no direct relation to which currency the dividends are paid in.

The NT dollar's weakness this year is mainly due to the US-Taiwan interest rate differential, global capital flows, and structural forex demand from Taiwan's capital market. The ex-dividend season is just one of many seasonal factors. Recently, lawmakers have focused on the NT dollar breaking the 32 mark, but at the same time, some life insurance firms have stopped renewing currency swap transactions, which may have an impact on the spot forex market no less than dividend-driven currency conversion.

Yang used the "willow tree theory" to describe the central bank's intervention principle: allowing the exchange rate to sway moderately like a willow tree, stepping in to adjust when necessary, but "the willow tree's amplitude of movement is not large, unless there is a typhoon." In other words, USD dividends are at most a trim of a few seasonal strong winds. The real typhoon – interest rate differentials and capital flows – the central bank currently has no clear intention to block.