SGX Finally Wises Up

How long have I been harping on this issue? SGX have seen their volume traded, market activity and its robustness being sharply curtailed for more than 7 years. The problem started when you have TOO MANY LAWYERS and TOO MANY MBAs at SGX. What is textbook rules and MBA playbook may not work as well in real life. SGX or any market exchanges need to have a substantive number of advisors who are "market savvy" because if there are no trades, the exchanges will not be able to fulfil its main KPI. Yes, there are other KPIs such market fairness, biased trading, other prejudicial front running or trading based on insider information ... but they all run a poor second to market robustness. Without that, why have an exchange, because the main aim of an exchange is twofold: a) allow public and investing institutions  to participate in the growth of a company, b) to raise capital for a company's growth prospects. Any other aims are secondary at best.

The lunch trading trade-through rule was such a bothersome thing. To allow for seamless 8 hour trading seems the "right thing to do" according to MBA playbook - less fuss, no wastage of resources by not having a stop-start mentality, allowing the local market to "react" to market moving news from other exchanges during the day. Now, all that is fine and dandy but its a pretty silly thing really. No markets need to be live 24-7, if that was the case no markets can close then. Even COMEX and US exchanges close on weekends - things happen over the weekend as well you know.

When you institute a no break, the dealers and remisiers are put at risk as they are the ones getting the "no breaks". They have to have someone watching, key in stupid orders that are out of scope just in case they get done, etc... In reality the bulk of trading is done in specific periods of most markets: 40-50% of the days trades are done in the first hour, and another 20-30% probably done in the last hour.  Hence its quite pointless to have a no-break rule. Even if there were market moving news during the lunch break, the market will digest and adjust according when it resumes. No exchanges can do 24-7.

The wider bids are a must ... the usual MBA rule book will have you believe that the narrower the bid-ask prices, the higher will be the resultant volume. I believe that adage only works for very short term oriented markets such as commodities and their futures contracts. For stock trading, it is pertinent to be able to get in and out at a profit. If the bid-ask gaps were so narrow that I might have to wait for 3 bids up before breaking even, that is a deflating concept for most traders/investors. 

SGX now that you have done it for stocks over S$1.00 ... the more pressing thing is to revise the penny stocks' bid-ask. It is so silly to trade at 0.001 of a cent spread. Follow Malaysia's lead and trade at 0.005 sen spreads. Why do you think the penny stocks scene in Bursa is so much more active than SGX?



SGX proposes lunch break revival, wider bids
BY ANDREA TAN
SINGAPORE: Singapore Ex- change Ltd (SGX), which runs the city’s stock market, is pro- posing to bring back a lunch break and boost minimum bid sizes as it seeks to boost trading.
The exchange operator is consulting the public on the plans, which it said will ad- dress market conditions and balance the diverse objectives of participants, according to a statement released yesterday.
It is proposing to introduce a midday trading break from noon to 1pm. SGX plans to raise the tick size for stocks and relevant securities trad- ing in the S$1 (RM3.15) to S$1.99 range, to one Singa- pore cent from half a cent. It also plans to widen a forced order range, which helps to prevent error trades.
SGX also said it will man- date that companies aiming to list on its main exchange must allocate at least 5% of their stock offering, or S$50 million, whichever is lower, to small investors. The ruling will kick in on May 2 and is aimed at having greater retail participation. The exchange in 2016 proposed a minimum of 10% or as much as S$100 million be distributed to re- tail investors.
SGX in March 2011 scrapped the break, which lasted from 12.30pm to 2pm every day, say- ing it could help add as much as 10% to volumes. The pro- posed midday halt is now seen to have minimal impact with only 5.1% of trading done dur- ing the hour, SGX said.
The daily value of shares traded this year have climbed 10% to US$839 million (RM3.73 billion) from 2016, according to data compiled by Bloomberg as of Tuesday. An average of US$1.18 billion shares changed hands each day in 2010, before the intermission was abolished, the data show. Singapore’s stock market has the longest trading day among major ven- ues in Asia. — Bloomberg


Below was my posting back in March 2014:


Wednesday, March 12, 2014


What is ailing the Singapore broking industry? My comments alongside the Bloomberg article in blue.

Singapore’s shrinking brokerage industry is set to get even smaller as trading restrictions planned by regulators dent profits, according to a body that represents individual brokers.
The average daily value of shares tradedin the city, which slumped 40 percent in the first two months of 2014 from a year earlier, will decline further should rules be implemented that include requiring collateral for some trades and shortening the settlement period, said the Society of Remisiers, which represents dealers who work entirely on commission. Singapore Exchange Ltd. and the Monetary Authority of Singapore proposed the changes after a penny-stock rout in October erased $6.9 billion in market value of three companies over three days.
“More people will leave the industry as they’ll get less business,” Jimmy Ho, president of the Society of Remisiers, said by phone. “Once they cut the settlement period, there will be less speculative trading and it will drag overall volumes.”
The number of stockbrokers in Singapore fell 8.4 percent percent to 3,973 at the end of last year from 4,336 in 2011, according to data from the bourse, as the industry was buffeted by declining trading volumes and commissions as well as competition from online trading platforms. The city’s benchmark Straits Times Index trailed all its major developed-market peers in the past 12 months and slid 1.2 percent this year through yesterday.
Even after Singapore Exchange teamed with Singapore Management University and CIMB Group Holdings Bhd. (CIMB) in April 2012 to provide training programs for the industry, traders’ ranks continued to thin. This year, the bourse partnered with the National Trade Union Congress’s Employment & Employability Institute to bolster interest in the profession.

Comment: SGX made the first boo-boo which killed market velocity, that is making the trading in penny stocks into decimal places. In Malaysia it is still minimum 0.005 sen per bid. Obviously when you staff SGX with more MBAs and legal heads, you are not going to get rules that promote trading. They went by the textbook rule in that the smaller the bids, the bigger the volume. Here is where textbook fails to understand market participants' psychology. In Singapore, there are too many penny stocks, and I mean really pennies ... those under 20 cents. When the bid and offer looks like this 0.033-0.034 it does not make for more attractive trading compared to Malaysia's 0.030-0.035 ... the psychology is that in a single bid traders and punters are already making money and able to cover comm, that makes it "attractive" to big punters or syndicates to move a stock a few bids. In Singapore, you would see huge volumes at every bid and offer thus making it arduous to move stocks. Penny stocks are by nature speculative and you have to make it more conducive for them not make it harder for them to make (and lose) money. Though your propensity to lose money would also shrink in Singapore penny stocks, that is not the aim of punters (minimise losses), its to make the big gains.

Industry Adjustment
“Brokerages are able to cope with fewer dealers because trading volumes are lower,” Society of Remisiers’ Ho said. “That’s a natural adjustment for the industry.”
It will be hard to draw young people, given the high risk and low commissions, said Yeo Aiqi, 28, who left Phillip Securities Pte, the city’s biggest brokerage by clients, in 2011 after working three years there.
“Stockbroking appears to be a sunset industry,” Yeo, who now sells women’s apparel at her online store www.clothingcandy.com, said by e-mail. “Trading volumes are low and commission rates are falling.”
The average value of shares traded on the Singapore bourse tumbled 40 percent to about S$1.06 billion ($836 million) in the first two months of 2014 from S$1.77 billion a year earlier, according to data compiled by Bloomberg. Transactions in Hong Kong fell 11 percent in the same period, while those on Japan’s Topix index increased 17 percent.

Shrinking Commissions
To make the profession more appealing, SGX needs to address dwindling volumes to counter the decline in brokerage commission rates, which have fallen to 0.1 percent of the value of shares traded from 1 percent 10 years ago, according to Yap.
“Brokers have nothing exciting to recommend to their clients these days,” Yap said. “Trading was buoyant before I left the industry due to the influx of Chinese listings and now investors are avoiding such companies after a number of them got embroiled in accounting or stock manipulation scandals. SGX promoted the listing of real estate investment trusts in the past decade but interest in them is starting to wane.”
At least 28 Chinese firms on the exchange have been suspended or delisted since 2008. There were 144 China-based firms listed in Singapore at the end of February, according to the exchange. The FTSE Straits Times China Index of 31 mainland stocks sank 7.3 percent in the past 12 months.

Comment: Lack of cowboy-ness in SGX. When you sanitise the markets too much, it becomes boring. Every exchange needs a certain element of cowboy-ness (including markets like S&P500 and Nasdaq) to maintain relevance and interest. They way SGX is headed, you might as well list all boring ETFs and kill off the broking industry. When you shrivel the market into mainly blue chips that move, you institutionalise the entire industry. When the speculative counters do not present trading opportunities, investors and punters will just ignore and shy away. Casinos are there on the pretext that you can make supernormal gains, if that is not present, even casinos will close shop. What SGX has been doing for the past 7 years is like a casino which limits your gains, e.g. if you make S$10,000 then your bets are halved, etc... In protecting the investors, you can somehow err on the side of caution. There is little to justify the big salaries at SGX and the trading fees collected by SGX. They way they clamped down on "cowboy-ness" and the proliferation of REITs are just examples of going the "wrong way" unless what they want is to shrink the industry.


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