SGX announced major changes to share trading

On 01 August 2014, the Monetary Authority of Singapore (MAS) and Singapore Exchange (SGX) announced major changes to the securities structure and practices. The rule changes are aimed at reducing highly speculative trading, in light of the penny stock rout in last year. Below are the four major changes quoted from MAS’ media release which may impact Singapore investors:(i) Minimum trading price. To introduce a minimum trading price of S$0.20 as a continuing listing requirement for issuers listed on the SGX Mainboard. This is to address risks of low-priced securities being more susceptible to excessive speculation and potential market manipulation. A transition period of 12 months will be given to affected issuers to undertake corporate actions to meet the new requirement. This proposal will, over time, improve the quality of issuers listed on the SGX Mainboard.
(ii) Collateral requirement for securities trading. To require securities intermediaries to collect minimum 5% of collateral from their customers for trading of listed securities to promote financial prudence. This will help mitigate the risk of excessive leverage assumed by investors. It will also reduce reliance on remisiers to manage the credit risk exposures of customers. Institutional investors, trades settled through delivery-versus-payment mode, and funds from the Central Provident Fund and Supplementary Retirement Schemes will be exempted from the collateral requirement.(iii) Short position reporting requirements. To implement aggregate short position reporting to further enhance transparency of short selling activities in the securities market. The value threshold has been adjusted upwards such that only short positions that exceed the lower of 0.05% or S$1 million of issued shares will have to be reported. Aggregated information will be released on a weekly basis.

(iv) Minimum size lots reduction. To improve retail investors’ access to a broader range of listed securities, particularly blue-chip stocks, SGX will reduce the board lot size for securities listed on SGX from the existing 1,000 shares to 100 shares in January 2015. SGX will announce details of this initiative by end August 2014.

My opinion is that all the initiatives can help to protect retail investors and would raise the quality of Singapore shares. Indeed, you can make a lot of money from shares, but you can also lose your pants from shares trading if you are not careful. Over the years, there were too much speculative activities in the Singapore’s stock market, especially for the penny stocks. This caused many investors who are new to the game to lose money in October last year when several penny stocks crashed in prices. With a minimum trading price, the risk of potential market manipulation would hopefully be reduced. This is a right move as some of the stocks can currently be traded at ridiculously low price – $0.001, which is fundamentally unacceptable. The “dead woods” shares should not be allowed to continue to be listed in SGX Mainboard if they are loss-making businesses.

One of the measures is to curb speculative trading in the market. From mid-2016, SGX will replace contra trading with a collateralised trading system called Post-Trade System. With this proposal, an investor need to post at least 5 per cent collateral on unsettled positions by end of a trading session. This means that traders can still do contra but will need to put up collateral. On the other hand, more information relating to short selling would be disclosed on a weekly basis. This is a good move as I believe short selling is still valid because such practice, if not abused, can help to reflect the true value of a stock and restore market equilibrium.

The move to reduce lot size to 100 shares is widely seen to improve market liquidity. This would allow more retail investors to enter the market and access various blue chip stocks in SGX, thereby bolstering the market volumes. Investors should applaud this move as this means that they can have more diversified portfolios by investing in blue chip stocks and build their wealth. The above initiative would be implemented in phases over the next 24 months to ensure industry operational readiness.

Magically yours,
SG Wealth Builder

2 thoughts on “SGX announced major changes to share trading

  • August 7, 2014 at 9:30 am

    Many students will come in and “invest” in those blue chip because of the relative affordability.

  • August 7, 2014 at 9:41 am

    Well blue chips would definitely be more accessible to retail investors, thereby allowing them to diversify their portfolio. Nonetheless, I hope that this lot size system would be abolished in the long term and shares can be traded at one share per lot. But given the quality of the stocks in SGX, I don’t see it happening in the next 5 years.

    SG Wealth Builder

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