* Morgan Stanley, AT&T have sold US$ bonds in Taiwan
* Says to launch ETF on Formosa bond index next year
* Says sees US$ - and yuan-bonds growing by $5 - $10 bln for rest of 2015 (Adds details in paragraphs 8-9)
By Faith Hung and Emily Chan
TAIPEI, July 6 (Reuters) - Taiwan is aiming to set up its first exchange to list U.S. dollar-denominated bonds issued by foreign firms, in its latest effort to boost its capital markets and keep in line with global trends, the top financial regulator told Reuters.
Morgan Stanley and AT&T are among those global names that have sold U.S.-denominated bonds in Taiwan, mostly to local insurance firms. However, the Financial Supervisory Commission (FSC) says a bond exchange is necessary to make capital markets more active.
"We're studying proposals to have insurers take a certain portion of their bond positions to trade... We're aiming to reach a conclusion late this year," the FSC chief William Tseng said in an interview late on Friday.
"The point in the future is to set up a secondary market," he said, adding London already has such a bond exchange.
Taiwan, once criticized for not being open enough to foreign investors, has eased some major financial regulations since Tseng became the FSC chief in 2013.
Keen to build Taiwan into a wealth management hub in Asia, regulators have made it easier for bonds to be issued by foreign companies and Chinese banks and raised the limit for insurance firms to invest overseas.
Taiwan's yuan-denominated "Formosa bonds," which are sold by Chinese banks here and the equivalent of Hong Kong's "Dim Sum bonds," have also been growing thanks to the improved business ties with China.
Trade ties across the Taiwan Strait have gathered steam since President Ma Ying-jeou took office in 2008. For example, Taiwan is now the world's second-biggest offshore yuan market after Hong Kong, with more than 300 billion yuan in deposits.
The FSC is planning to launch an EFT (exchange-traded fund) on a Formosa bond index next year, said the top financial regulator, without elaborating.
China Development Bank, the mainland's biggest development bank, will sell Formosa Bonds in the second half of 2015, a source told Reuters last month.
When being asked if the FSC would approve that, Tseng said "We welcome them (China Development Bank)."
Currently, Bank of China and other big mainland banks have sold Formosa bonds, using their offshore branches.
The top financial regulator expects new issues of U.S. dollar-denominated and yuan bonds to increase by $5 billion to $10 billion by the end of 2015, compared with the current outstanding level of around $40 billion. (Reporting by Faith Hung and Emily Chan; Editing by Kim Coghill)