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Jun 1, 2011
Penny stock trading may get a boost

SGX's move to cut bid size could encourage more participation
By Goh Eng Yeow, Senior Correspondent

TRADING in penny stocks could ignite next month after Singapore Exchange (SGX) rule changes slash dealing costs.

The SGX will cut the bid size - the minimum difference between a buyer's bid and a seller's offer - for stocks priced below 20 cents to just 0.1 cent from 0.5 cents now.

The bid size for stocks priced between $1 and $1.99 will be cut from one cent to 0.5 cents, while it will go from two cents to one cent for stocks costing $10 or more.

In practical terms, the changes - which kick in on July 4 - mean stocks will move up in smaller gradations, which saves investors money when they buy while providing more options when selling.

Take a penny stock like Artivision Technologies. It ended six cents lower at 15.5 cents on a volume of 73.3 million shares yesterday.

Under existing rules, if it moved up one bid during the trading day, it would rise to 16 cents, as the minimum bid now is 0.5 cents.

But under new rules it would go up to just 15.6 cents so an investor would save $40 if he bought 10,000 Artivision shares under the new regime.

The SGX, which has been mulling over the changes for almost two years, said tightening bid sizes will result in an estimated $1.7 billion in annual savings, based on last year's market turnover.

Its head of securities, Mr Chew Sutat, said yesterday: 'Tighter spreads will encourage investors to increase their participation in the SGX. This will enhance liquidity in Singapore.'

The local stockbroking community has also welcomed the move.

Phillip Securities managing director Loh Hoon Sun said: 'It will promote trading in penny stocks and improve market liquidity... With the reduction in the bid size, a day trader will not have to wait as long for a stock to go up in order to sell.'

Many dealers also believe the reduced trading costs will offer another incentive to attract high-frequency traders - or algos - to the local bourse. The SGX plan to launch what is believed to be the world's fastest trading engine later this year has already raised hopes that this group of highly sophisticated dealers will make a beeline for Singapore.

Algos employ lightning-fast computers to try to make money on millions of swiftly executed trades.

Having a low bid size is crucial as they can use their computers to issue, then cancel, orders almost simultaneously in order to get the best pricing.

But trader Peter Ong is unhappy with the SGX's move. 'Currently, if I buy a stock which costs one cent apiece, I can try to sell it at 1.5 cents. I will make 50 per cent profit if the order is executed. With the revamp, I do not have this fat margin anymore.'


Business Times - 01 Jun 2011

Reducing securities minimum bid size may backfire

IT was announced yesterday that the Singapore Exchange (SGX) would reduce the minimum bid size for securities with effect from July 4.

For securities below 20 cents, the new bid size would be 0.1 of a cent; for securities from 20 cents to $1.99, the new bid size would be 0.5 cent; and for securities from $2 onwards the new bid size would be one cent.

The rationale is that this would improve cost efficiency and provide more trading opportunities.

The general feeling among industry participants is that this new policy might actually do otherwise, by further reducing trading volumes.

Fewer people will be inclined to trade as it will be much harder to break even or make money due to tighter spreads. Retail participation is already quite low. This new policy might exacerbate the problem.

Perhaps, if SGX is really interested in reducing trading costs, it could reduce its clearing fees from 0.04 per cent to 0.0025 per cent and do away with the trading access fees of 0.0075 per cent.

The Australian Exchange is currently charging clearing fees of only 0.0025 per cent.

In recent years, the Singapore Exchange has introduced new products such as Extended Settlement Contracts and Depository Receipts. So far, the market response to these products has been rather lukewarm.

Again, without adequate consultation with the industry, the Singapore Exchange decided to do away with the lunch-break, though this has not been implemented yet.

It would have been wise to follow the Hong Kong Exchange's policy of gradually reducing the lunch break instead of removing it at one go.

After the recent general election, the government has stated that it would communicate more with and listen more to its citizens.

Likewise, the Singapore Exchange should adopt a more consultative approach with industry participants as well as the investing public to establish a robust Singapore market.

S Nallakaruppan
I want smaller lot size, or no lot size.....

for illiquid counters, bid spread will be as wide as before....
haha. we will then see many penny stocks that are now 0.005 become 0.001
Quote:The SGX, which has been mulling over the changes for almost two years

Good grief. This change is long overdue. A simple rule change takes almost 2 years? And yet a major acquisition like buying ASX was proposed less than 1 year after Magnus Bocker became CEO. One has to wonder whether the SGX management team actually does any trading on SGX at all. Do they ever eat any of their own cooking? If they did they would have realized that:

a. the SGX website is poorly organized and very slow;
b. the bid sizes are broken;
c. the lot sizes are broken;
d. all the local brokers' internet platforms are terrible

The first 3 are internal issues and much easier and cheaper to deal with than any ASX acquisition. The last one is a question of forcing the brokers to upgrade, either by directive (upgrade or lose membership) or by developing a common platform for all investors to use (commoditising the brokers and driving down commissions).

I will give credit that SGX now stores 5 years of data instead of 2. But I don't see why they can't store everything that was ever submitted. Data storage is cheap, after all. There is no reason to block access to data just because it gets old.

Quote:But trader Peter Ong is unhappy with the SGX's move. 'Currently, if I buy a stock which costs one cent apiece, I can try to sell it at 1.5 cents. I will make 50 per cent profit if the order is executed. With the revamp, I do not have this fat margin anymore.'

Mr Ong may be unhappy, but many investors will be happy because they will no longer have to exclude the low-priced stocks from their investment universe.

A 0.1 cent spread is much more sensible for a 5 cent stock (2% spread). The previous 0.5 cent spread effectively made investing in any stock priced below 10 cents impractical. No sensible investor can invest in the stock market with a spread of 10% (5% paid both ways) and hope to make money.
This goes to show that no matter what we do, there will be people who will oppose:

"To every action there is always an equal and opposite reaction"

I would have thought that anyone who has been investing or trading for sometime would love to have as small a spread as possible.
Trader Peter Ong is interesting.... How to set a stop loss if one bid down we will have a 50% loss!? Or course it's much better compared to casinos - each betting loss is 100% Smile