New SGX proposals to drum up interest among retail investors

One proposal requires new firms listing on the SGX mainboard to set aside at least 5 per cent or $50 million of the IPO for retail investors.
One proposal requires new firms listing on the SGX mainboard to set aside at least 5 per cent or $50 million of the IPO for retail investors.ST PHOTO: KUA CHEE SIONG

New efforts are under way to try to increase flagging retail participation in some segments of the stock market. The proposals range from making it easier to buy lightly traded stocks to giving mom-and-pop investors more opportunities to get a slice of new initial public offerings (IPOs).

This measure in particular addresses one of the biggest gripes retail investors have - that they are shut out of high-profile IPOs.

Under the new proposal, new firms listing on the Singapore Exchange (SGX) mainboard would have to set aside at least 5 per cent or $50 million of the IPO, whichever is lower, for retail investors.

"Giving retail investors access to at least 5 per cent of each mainboard IPO will encourage more to consider equity investing," said Mr Chew Sutat, SGX's head of equities and fixed income, yesterday.

The new rule is expected to kick in from May 2.

Corporate lawyer Robson Lee believes this will create a more level playing field for retail investors to participate in hotly watched listings like that of NetLink Trust, Singtel's fibre broadband network unit.

He noted: "For many years, retail investors have raised the concern that the practice of placing out almost 100 per cent of the offer shares have made the IPOs of popular companies more like an initial private offering."

Another proposal involves increasing the minimum bid size for stocks priced in the $1 to $1.99 range. This means buyers will have to make bids at intervals of one cent instead of the 0.5 cent now.

This may encourage short-term investors who do not find the returns of these stocks attractive due to the narrow margins they make.

Mr Chew said stocks in the $1 to $2 range are being targeted because "this is where you see a decline (in retail participation) that is over and above the market".

He noted that the wider spread could raise retail interest in the 60 or so shares that fall in this range, and which account for about 11 per cent of total market turnover.

Sembcorp Marine, Yangzijiang Shipbuilding, Creative Technology and Genting Singapore are among stocks trading between $1 and $2.

Some remisiers hope the move could raise market volatility and liquidity, and in turn attract more interest from funds.

"Widening the spread could speed up a stock price's rise or fall," remisier Desmond Leong said. "For example, for a $1 stock, the next available bid is $1.005, and then the next bid is $1.01. If the spread is widened to one cent, it takes only one bid to get to $1.01.

"For day traders, if they can make more money in fewer trades, they will do it."

Another move that will likely be welcomed is the proposal to reinstate the midday lunch break.

The break was axed amid much controversy in 2011 in a bid to lift trading activity but has remained a bone of contention. The change would see the market close for an hour from midday, allowing trading to resume at the same time as that of key markets such as Hong Kong.

Another proposal is to adjust a trading rule that aims to improve order entry efficiency.

SEE BUSINESS: SGX traders may get lunch break back soon

A version of this article appeared in the print edition of The Straits Times on March 09, 2017, with the headline 'New SGX proposals to drum up interest among retail investors'. Print Edition | Subscribe