SGX trading liquidity and orderly trading

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#1
Appreciate any comments on the following points raised....thanks

The Singapore Exchange (SGX) has introduced measures since the beginning of this year to improve trading liquidity, market transparency and promote orderly trading and responsible investing.

While the intentions to improve market conditions are good, they do not address certain issues and the underlying problems behind the low market volumes and retail participation rates.

Trading liquidity and market transparency
The following is a summary of the measures introduced by SGX:

1. The standard board lot size of securities will be reduced from 1,000 to 100 units from 19 January 2015 and eventually to 1 unit to improve affordability for retail investors.

2. The clearing fee will be reduced from 0.04% to 0.0325% of contract value. The cap of S$600 on this fee for contracts of S$1.5 million, or more, will be removed.

3. Transfer and onward settlements pursuant to on-exchange transactions on SGX-ST will be standardised to a charge of S$30 per settlement instruction.

4. Settlement fees for all settlements not pursuant to transactions on SGX-ST (i.e. not pursuant to an on-exchange transaction) will be standardised to a charge of 1.5 basis points of the settlement value (min S$75) per settlement instruction.

5. SGX introduced incentive schemes to facilitate the participation of market makers and liquidity providers since June 2014. Market makers and liquidity providers are incentivized through clearing fee rebates and depending on if they are price-taking/making in nature. Rebates can potentially reduce clearing fees to zero for market makers (more stringent criterions and commitment) and up to 75% for liquidity providers.



Promoting orderly trading and responsible investing
The following is a summary of the regulations in response to the penny stock meltdown to be introduced as proposed by SGX and the Monetary Authority of Singapore (MAS):

1. Introduce a minimum trading price of S$0.20 as a continuing listing requirement for issuers listed on the SGX Mainboard.

2. 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.

3. Shorten the settlement cycle from T+3 to T+2 days by 2016.

4. 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.

5. The Securities Association of Singapore (SAS) will take the lead to develop industry guidelines for the dissemination of information on trading restrictions imposed by their members to prevent information asymmetry.

6. SGX will establish three independent committees, namely Listings Advisory Committee, Listings Disciplinary Committee and Listings Appeals Committee. They will introduce a wider range of sanctions for breaches of listing rules.



Underlying problems for the lacklustre market trading volumes

1. Quality of the companies listed on SGX matters, not the absolute share price
SGX's chief executive Magnus Bocker claims that a minimum share price on mainboard-listed companies will address the risks associated with penny stocks which have little research coverage and are avoided by institutional investors.

However, this overlooks the main reason that penny stocks represent low quality companies with consistently poor financial performance e.g. several of the S-chips listed on the SGX and the constant need to do dilutive equity fund raising results in their penny stock status.

Forcing such companies to consolidate their outstanding number of shares such that their absolute share price is at or above S$0.20 does not eliminate the problem. Instead, SGX should impose more stringent criteria on such low quality companies so that they are delisted if they are unable to turn around their financial performance.

In addition, Institutional investors do not select their investments based on absolute share price but instead focus on the market capitalisation, trading liquidity, quality and valuations of the underlying stocks.

Finally, good quality companies which enjoy strong share price appreciation often undertake stock splits and bonus issues to improve trading liquidity and affordability so having a low absolute share price does not mean the company is of poor quality.

2. Lack of big cap listings with strong structural growth stories in the FTSE Straits Times Index (STI)
The STI is dominated by banks, oil & gas, property, REITs, and commodity traders.
As these sectors, other than the banks, are largely out of favour amongst investors especially with the expected increase in US interest rates and the strengthening US dollar, it is no surprise that the STI has underperformed its regional peers such as Indonesia and the Philippines whose listed companies are riding on the coat-tails of the strong domestic economies.

SGX should look to attract listings that are riding on strong structural growth stories that will attract more institutional investors to the Singapore bourse.
These could include companies operating in sectors such as cloud computing, e-commerce (Alibaba), environmental/pollution control, factory automation, infrastructure plays in emerging markets and renewable energy.

SGX's tie-ups with regional exchanges are a good start but it should forget about secondary listings of US and European stocks as trading liquidity is very poor and investors tend to buy such stocks in their primary listing market due to differences in trading hours.


Issues to be addressed

1. Declining commission income for the securities intermediaries will hurt SGX in the long-run
Brokerage commissions for securities intermediaries have been on a downtrend since the liberalisation of the industry over a decade ago especially with the advent of Internet trading and with a double whammy from lacklustre trading volumes, many remisiers have been calling it a day as their commissions dwindle.
http://www.businesstimes.com.sg/stocks/s...e-dries-up

SGX needs to address the declining trend of commission income as it has been proven that lowering brokerage rates does not result in higher market volumes.
Similar to what agents are to insurance companies, remisiers represent the front-line sales force for SGX in attracting new clients and servicing existing clients.
With remisiers being forced to leave the industry due to unsustainable low commissions, it is no wonder that trading volumes are dwindling.
Imagine what the growth of the insurance industry would be like without insurance agents!

Unlike SGX which is a monopoly with the ability to increase its income by revising its annual listing fees (the most recent revision for Mainboard companies was on 1 January 2014), securities intermediaries have no such means available to them to boost their income.

SGX also needs to address what should be the floor for brokerage rates when the standard board lot size is eventually reduced to 1 unit.
It does not make financial sense for an investor to buy 100 units of a stock trading at S$0.20 i.e. S$20 with the current minimum brokerage rate of approximately S$25.

The reduction in standard board lot size may also lead to lower market volumes as investors buy in smaller quantities and will lead to lower income for the securities intermediaries.

2. Improve investor education to raise retail participation rates
SGX head of securities Nels Friets mentioned his desire to raise retail participation rates in equities investments.
Currently, the proportion of the population who make at least one trade every three months is at 8 per cent in Singapore, compared to 17 per cent in Australia and 24 per cent in Hong Kong.

He suggests that the reduction in standard board lot size will result in change in behaviour from trading pennies to buying and holding of the blue chips.
However, if all retail participants adopt a buy and hold strategy and engage in less trading, this will result in lower market volumes!

SGX should consider increasing its efforts to improve investor education about investing in equities as part of holding a diversified investment portfolio.
As mentioned earlier, the key is to increase the number of good quality companies listed on the SGX which will make investors comfortable with increasing their exposure to equities.

[/align]
Trading volumes suggest that the switch to full-day trading on the SGX has not increased volumes.
In fact, bourses with shorter trading hours such as Korea and Taiwan generate significantly higher trading volumes.
This is attributable to the depth of their financial markets and their strong niche in technology offerings.

SGX should improve the welfare of personnel working in securities intermediaries and restore the lunch break or shorten its trading hours.
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#2
I moved the thread out from "Other", since it is more relevant in the "Singapore listed companies"

Thanks

Regards
Moderator
“夏则资皮,冬则资纱,旱则资船,水则资车” - 范蠡
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#3
I think I have already said enough and many had said enough... SGX just have to show that they are listening by adopting changes that industry players are looking for...

If they appreciate that brokers and retail investors are important partners, they should once and for all implement the wishlist on most market participants lists.

They have been in their ivory towers for way too long.

Quality of listings have been a big issue since CLOB days where legacy punting stocks dominated retail investors lists. Subsequently the flood gates of dot.gone counters alongside with rampant listings of conned S chips and the latest being high risks E&P counters will go a long way to deplete the limited resources of retail investors.

Timely policing of stock market manipulation like what it used to be in the 90s will do mkt orderliness a good mileage. Already there are rampant speculation of heightened insider activities whenever high profile corporate actions take place. We are still awaiting the outcome of the fallen Msian trio that wipe out another chunk of wealth of innocent investors. 13 months and still counting is totally unheard of in effective and efficient Singapore financial industry. In the first place, an effective police force on SGX would have prevented the steep rise and the sharp falls.

Frustrated Over Continued Wayang
Not a Proud Odd Lot Holder
SGX
GG

(03-11-2014, 07:57 PM)Gallen Wrote: Appreciate any comments on the following points raised....thanks

The Singapore Exchange (SGX) has introduced measures since the beginning of this year to improve trading liquidity, market transparency and promote orderly trading and responsible investing.

While the intentions to improve market conditions are good, they do not address certain issues and the underlying problems behind the low market volumes and retail participation rates.

Trading liquidity and market transparency
The following is a summary of the measures introduced by SGX:

1. The standard board lot size of securities will be reduced from 1,000 to 100 units from 19 January 2015 and eventually to 1 unit to improve affordability for retail investors.

2. The clearing fee will be reduced from 0.04% to 0.0325% of contract value. The cap of S$600 on this fee for contracts of S$1.5 million, or more, will be removed.

3. Transfer and onward settlements pursuant to on-exchange transactions on SGX-ST will be standardised to a charge of S$30 per settlement instruction.

4. Settlement fees for all settlements not pursuant to transactions on SGX-ST (i.e. not pursuant to an on-exchange transaction) will be standardised to a charge of 1.5 basis points of the settlement value (min S$75) per settlement instruction.

5. SGX introduced incentive schemes to facilitate the participation of market makers and liquidity providers since June 2014. Market makers and liquidity providers are incentivized through clearing fee rebates and depending on if they are price-taking/making in nature. Rebates can potentially reduce clearing fees to zero for market makers (more stringent criterions and commitment) and up to 75% for liquidity providers.



Promoting orderly trading and responsible investing
The following is a summary of the regulations in response to the penny stock meltdown to be introduced as proposed by SGX and the Monetary Authority of Singapore (MAS):

1. Introduce a minimum trading price of S$0.20 as a continuing listing requirement for issuers listed on the SGX Mainboard.

2. 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.

3. Shorten the settlement cycle from T+3 to T+2 days by 2016.

4. 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.

5. The Securities Association of Singapore (SAS) will take the lead to develop industry guidelines for the dissemination of information on trading restrictions imposed by their members to prevent information asymmetry.

6. SGX will establish three independent committees, namely Listings Advisory Committee, Listings Disciplinary Committee and Listings Appeals Committee. They will introduce a wider range of sanctions for breaches of listing rules.



Underlying problems for the lacklustre market trading volumes

1. Quality of the companies listed on SGX matters, not the absolute share price
SGX's chief executive Magnus Bocker claims that a minimum share price on mainboard-listed companies will address the risks associated with penny stocks which have little research coverage and are avoided by institutional investors.

However, this overlooks the main reason that penny stocks represent low quality companies with consistently poor financial performance e.g. several of the S-chips listed on the SGX and the constant need to do dilutive equity fund raising results in their penny stock status.

Forcing such companies to consolidate their outstanding number of shares such that their absolute share price is at or above S$0.20 does not eliminate the problem. Instead, SGX should impose more stringent criteria on such low quality companies so that they are delisted if they are unable to turn around their financial performance.

In addition, Institutional investors do not select their investments based on absolute share price but instead focus on the market capitalisation, trading liquidity, quality and valuations of the underlying stocks.

Finally, good quality companies which enjoy strong share price appreciation often undertake stock splits and bonus issues to improve trading liquidity and affordability so having a low absolute share price does not mean the company is of poor quality.

2. Lack of big cap listings with strong structural growth stories in the FTSE Straits Times Index (STI)
The STI is dominated by banks, oil & gas, property, REITs, and commodity traders.
As these sectors, other than the banks, are largely out of favour amongst investors especially with the expected increase in US interest rates and the strengthening US dollar, it is no surprise that the STI has underperformed its regional peers such as Indonesia and the Philippines whose listed companies are riding on the coat-tails of the strong domestic economies.

SGX should look to attract listings that are riding on strong structural growth stories that will attract more institutional investors to the Singapore bourse.
These could include companies operating in sectors such as cloud computing, e-commerce (Alibaba), environmental/pollution control, factory automation, infrastructure plays in emerging markets and renewable energy.

SGX's tie-ups with regional exchanges are a good start but it should forget about secondary listings of US and European stocks as trading liquidity is very poor and investors tend to buy such stocks in their primary listing market due to differences in trading hours.


Issues to be addressed

1. Declining commission income for the securities intermediaries will hurt SGX in the long-run
Brokerage commissions for securities intermediaries have been on a downtrend since the liberalisation of the industry over a decade ago especially with the advent of Internet trading and with a double whammy from lacklustre trading volumes, many remisiers have been calling it a day as their commissions dwindle.
http://www.businesstimes.com.sg/stocks/s...e-dries-up

SGX needs to address the declining trend of commission income as it has been proven that lowering brokerage rates does not result in higher market volumes.
Similar to what agents are to insurance companies, remisiers represent the front-line sales force for SGX in attracting new clients and servicing existing clients.
With remisiers being forced to leave the industry due to unsustainable low commissions, it is no wonder that trading volumes are dwindling.
Imagine what the growth of the insurance industry would be like without insurance agents!

Unlike SGX which is a monopoly with the ability to increase its income by revising its annual listing fees (the most recent revision for Mainboard companies was on 1 January 2014), securities intermediaries have no such means available to them to boost their income.

SGX also needs to address what should be the floor for brokerage rates when the standard board lot size is eventually reduced to 1 unit.
It does not make financial sense for an investor to buy 100 units of a stock trading at S$0.20 i.e. S$20 with the current minimum brokerage rate of approximately S$25.

The reduction in standard board lot size may also lead to lower market volumes as investors buy in smaller quantities and will lead to lower income for the securities intermediaries.

2. Improve investor education to raise retail participation rates
SGX head of securities Nels Friets mentioned his desire to raise retail participation rates in equities investments.
Currently, the proportion of the population who make at least one trade every three months is at 8 per cent in Singapore, compared to 17 per cent in Australia and 24 per cent in Hong Kong.

He suggests that the reduction in standard board lot size will result in change in behaviour from trading pennies to buying and holding of the blue chips.
However, if all retail participants adopt a buy and hold strategy and engage in less trading, this will result in lower market volumes!

SGX should consider increasing its efforts to improve investor education about investing in equities as part of holding a diversified investment portfolio.
As mentioned earlier, the key is to increase the number of good quality companies listed on the SGX which will make investors comfortable with increasing their exposure to equities.

[/align]
Trading volumes suggest that the switch to full-day trading on the SGX has not increased volumes.
In fact, bourses with shorter trading hours such as Korea and Taiwan generate significantly higher trading volumes.
This is attributable to the depth of their financial markets and their strong niche in technology offerings.

SGX should improve the welfare of personnel working in securities intermediaries and restore the lunch break or shorten its trading hours.
Reply
#4
BT journalist oso echo GG view... I think any logical man will think that way...

http://www.businesstimes.com.sg/companie...ive-market

SGX needs to engage brokers in bid to revive market
By
Ven Sreenivasan
singapoexvchnge0411.jpg THE Singapore Exchange (SGX) must be applauded for trying to revive a somewhat moribund equity market. PHOTO: SPH
4 Nov5:50 AM
THE Singapore Exchange (SGX) must be applauded for trying to revive a somewhat moribund equity market.

Cutting board-lots, boosting minimum trading price for mainboard stocks, providing value-added products such as SGX Stockfacts and even adding market makers/liquidity providers will go...

more extracts...

Yet key officials maintain that the market is healthy.

"We have a better quality market, actually, today than we did one year ago," SGX's CEO Mr Magnus Bocker said on the sidelines of SGX's latest results briefing recently.

SGX's head of sales and clients Chew Sutat said: "We think the market actually has a lot of interest, opportunity. And it's our job to go out there and help our trading representatives get a little bit more confident, give them the content, give them tools."

One cannot fault the exchange and its officials for trying to put a positive spin on the state of affairs. And one has to remember that macroeconomic factors and sentiment do impact the Singapore market.

But some wounds are self-inflicted.

If one were to ask the folks working in the "boiler-room" everyday - the trading representatives and dealers - they would blame, among other things, the slew of regulations that have raised the costs for speculative trades and cut spreads and commissions for stockbrokers.

A visit to any of the trading rooms would reveal an eerie stillness, with phones largely silent and most brokers either missing or disengaged.

The number of trading representatives has halved from what it used to be five years ago as more exit the industry than come in. In fact, with incomes now half of what it used to be just three years ago, this is a career few ambitious young people would want to embark upon.

Stockbroking has become a sunset industry.

The malaise that afflicts the Singapore market has its roots in the penny stock fiasco of October last year. The general consensus amongst market watchers is that this episode was precipitated by a combination of greed and inadequate regulatory monitoring. But one would have thought that a year on, the market should have recovered.

But with the investigations still ongoing, there is no closure and continuing uncertainty.

Meanwhile, the cut in bid-offer spread and the heavy hand of the regulators on any activity which remotely smells foul has wiped out the speculative element which has always underpinned interest in this market.

While the SGX is right and correct to stamp out the kind of greed and manipulation that led to the penny stock crash a year ago, it has to allow for some speculative fervour. Without it, there is no fizz in the market. And without this fizz, there will be few who would want to dabble in stocks.

While every market desires "value investors", how does one define a value investor in today's market? Someone who only trades in blue chips and index stocks? Someone who buys to hold? Someone who does heavy research before buying?

There always is room for "value investors" but in a world where trading is increasingly controlled by algorithms, bourses will have to depend on traders and speculators and technology for volume, while newsflows and fundamentals will determine the direction.

While the securities side is struggling, the SGX is winning accolades in derivatives trading. Last week, Singapore Exchange won the industry endorsement as the "Derivatives Exchange of the Year" at the prestigious Asia Risk Awards ceremony held in Hong Kong.

That is good.

But traditionally, equities form the bedrock of any exchange. And if that assumption still holds, SGX needs to find the solution, and soon. It needs to seriously engage the industry players - predominantly the brokers - to find ways to restore health and vibrancy to the market.
Reply
#5
(03-11-2014, 07:57 PM)Gallen Wrote: 1. Declining commission income for the securities intermediaries will hurt SGX in the long-run
Brokerage commissions for securities intermediaries have been on a downtrend since the liberalisation of the industry over a decade ago especially with the advent of Internet trading and with a double whammy from lacklustre trading volumes, many remisiers have been calling it a day as their commissions dwindle.
http://www.businesstimes.com.sg/stocks/s...e-dries-up

Should SGX focus on security intermediaries' interest, over the investors'? It is a fact that the liberalization of industry with the popularity of online trading, has hurt the interest of the security intermediaries' interest, but it has benefited the investors by reducing transaction cost via DIY. I reckon it is an unstoppable trend, not only in SGX, but everywhere.

(03-11-2014, 07:57 PM)Gallen Wrote: 2. Improve investor education to raise retail participation rates
SGX head of securities Nels Friets mentioned his desire to raise retail participation rates in equities investments.
Currently, the proportion of the population who make at least one trade every three months is at 8 per cent in Singapore, compared to 17 per cent in Australia and 24 per cent in Hong Kong.

He suggests that the reduction in standard board lot size will result in change in behaviour from trading pennies to buying and holding of the blue chips.
However, if all retail participants adopt a buy and hold strategy and engage in less trading, this will result in lower market volumes!

SGX should consider increasing its efforts to improve investor education about investing in equities as part of holding a diversified investment portfolio.
As mentioned earlier, the key is to increase the number of good quality companies listed on the SGX which will make investors comfortable with increasing their exposure to equities.

I agree with the point. Investor education is important. I noticed that SGX did quite a bit with its SGX Academy portal. I didn't participate, but a glimpse on the event list, seems pretty comprehensive.

http://www.sgxacademy.com/
“夏则资皮,冬则资纱,旱则资船,水则资车” - 范蠡
Reply
#6
As a small retail investor, I feel the minimum of 25$++ trading fee is a pain in the neck. While the income of most of the local brokerage houses declines significantly, the trading activity on the platform of standard chartered banks has steadily increases over the past 2-3 years (before which I was not a customer so no access of the data).
   
[Image: Untitled.png?dl=0]
As shown in the attached picture, based on some back of the envelope calculation, the average numbers of executed orders on SCB has increased from 1179/day in 2012, to 2071/day in 2013, and to 2248/day this year so far. I believe some kind of restructuring will happen sooner or later in the brokerage industry.
Reply
#7
(04-11-2014, 03:44 PM)CityFarmer Wrote: Should SGX focus on security intermediaries' interest, over the investors'? It is a fact that the liberalization of industry with the popularity of online trading, has hurt the interest of the security intermediaries' interest, but it has benefited the investors by reducing transaction cost via DIY. I reckon it is an unstoppable trend, not only in SGX, but everywhere.

That is also true.
I was thinking along the line of balancing the interests of both parties.

Online investors/traders who don't need a broker to service them will be most happy with the lowest transaction costs.
However, those who require remisiers probably won't mind paying a bit more rather than have their favoured remisier going out of business and being allocated to an unknown remisier.

This will inevitably lead to lower trading volumes as a client might not be comfortable trading with an unknown remisier.

(04-11-2014, 03:44 PM)CityFarmer Wrote: I agree with the point. Investor education is important. I noticed that SGX did quite a bit with its SGX Academy portal. I didn't participate, but a glimpse on the event list, seems pretty comprehensive.

http://www.sgxacademy.com/

Thanks for these links, besides these courses, maybe SGX can do more publicity for equities investment through the media or outdoor events etc.

You probably would have the read the weekly interview on the Sunday Times' "Me & My Money" section and most of the time, the interviewees will say their worst investment is some equities investment and their best is their business or property.

It is no surprise that Singaporeans' mentality will be influenced that property is a sure-win investment while equities will be shun.
Reply
#8
(04-11-2014, 05:26 PM)zf87 Wrote: As a small retail investor, I feel the minimum of 25$++ trading fee is a pain in the neck. While the income of most of the local brokerage houses declines significantly, the trading activity on the platform of standard chartered banks has steadily increases over the past 2-3 years (before which I was not a customer so no access of the data).

[Image: Untitled.png?dl=0]
As shown in the attached picture, based on some back of the envelope calculation, the average numbers of executed orders on SCB has increased from 1179/day in 2012, to 2071/day in 2013, and to 2248/day this year so far. I believe some kind of restructuring will happen sooner or later in the brokerage industry.

Brokerages are being forced to merge and smaller players are acquired as commission rates maintain their downtrend so more economies of scale is required just like private banks.

There has to be a floor on commission rates though when no incremental economies of scale can be achieved with further cost cutting.

You are right in that the minimum brokerage is a headache although it is a necessity to cover the cost of processing a transaction.

The problem is that SGX has not addressed this minimum brokerage issue with its proposal for a smaller standard board lot size, what is the point of making stocks more affordable but still have brokers' maintaining this minimum brokerage rate?
A small investor buying 1 share or 100 shares will not be able to breakeven on their investment with the current minimum brokerage rate!
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