Singapore industry players won a victory on Monday from the Singapore Exchange (SGX), which acceded to calls from bankers, broker and Remi sires to reverse or cut back on some recent rules and proposals.
In trying to boost market liquidity, SGX is seeking public feedback on its plans to Widen the tick size for stocks in the S$1.00 to S$1.99 range from 0.5 cent to one cent;
Introduce a mid-day trading break from noon to 1 pm; and Raise the threshold at which trades trigger an error trade warning, also called the forced order range, from the current 20 bids to 30 bids in either direction.
Hoping to improve retail access to new listings and following an earlier consultation, SGX is also requiring that Mainboard new listings (with mandates awarded after May 2, 2017) allocate at least 5 per cent or S$50 million, whichever is lower, of their initial public offerings (IPOs) for public subscription. The first IPO to be affected is not expected to launch until the second half of 2017.
The changes address issues that have been raised by industry players. The tick size and lunch break proposals would reverse changes that SGX had imposed in 2011; the proposed minimum public allocation is lower than initial plans for a 10 per cent floor.
SGX has long tried to significantly increase liquidity in its securities market. Its two-month average daily turnover of S$1.2 billion (as at the end of last month) is about 30 per cent below the S$1.8 billion average over the same period in 2011.
A number of initiatives aimed at raising liquidity and market quality – continuous all-day trading, narrower ticks, smaller minimum board lots and a minimum trading price just to name a few – have met opposition among many market participants.
Monday’s announcements were SGX’s signal that it is listening and willing to make accommodations. The impact of changing tick sizes is especially uncertain. The theory goes that narrower tick sizes tend to reduce bid-ask spreads and volatility, which imply better efficiency and attractiveness to traders.
But those changes also make it harder for very short-term retail traders, who try to flip out of positions as quickly as possible and so want larger tick sizes that can cover trading costs.
SGX acknowledged that widening ticks could hurt some segments of the market, but sought to contain the impact by limiting the change to 67 companies whose share prices fall within S$1.00 and S$1.99. The average daily turnover of those stocks have fallen by an unusually steep 32 per cent a year since July 2012, to S$90 million in the year ended June 2016.
Chew Sutat, SGX head of equities and fixed income, said The bottom line, really, is that efficiency may be lost for some participants, but we think a targeted approach on a S$1-to-S$2 range narrows it to only 60-odd stocks in the market.
We hope that for some of the shorter-term retail traders with a higher cost structure, the increased activity with that segment could overall increase and attract other institutional participants to come in as well.
But the Securities Association of Singapore (SAS) says that the tick adjustment “does not go far enough.Association president Melinda Sam said: “The SAS feels it should cover securities from the $0.50-to-S$1.99 range, in order to see significant retail investor interest.
Aberdeen Asset Management Asia director Nicholas Hadow described the proposal, which he supports, as a matter of striking a balance. Over the last few years, SGX has been trying to narrow spreads across the board to increase liquidity. It is now moving to a much finer level of calibration.
The proposed break also matches the period when trading on SGX is thinnest only about 5.1 percent of daily turnover last year occurred during that hour.
Beyond trading-related issues, SGX also announced that it will require a 5 percent minimum allocation in Mainboard IPOs for public subscription, with unsubscribed shares in the public tranche eligible for reallocation to other tranches.
The floor, lower than an initial proposal for 10 percent, matches the historical average allocation. Mr Chew said that, after receiving feedback, the exchange decided that 5 per cent would not overly burden issuer, especially when interest is low in weak market conditions.
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