SGX consults public on smaller board lot size

The SGX is inviting the public to comment on its intent to reduce the board lot size of shares to 100 and eventually to 1 unit share. The objective is reasonable, to allow small retail traders to trade the higher value blue chips that would be too costly and beyond them. With this move, the small retail traders with $1000 can technically strategise their investment portfolios like the big fund managers, with a spread of the blue chips in their stable of shares to spread the risk.
 
Theoretically it makes a lot of good sense. This is similar to the many good measures implemented by the SGX in recent years to boost market liquidity and trading activities. The extension of trading hours would theoretically increase trading volumes, and so is the removal of the lunch break. More and longer trading hours mean more trading. Perfectly sound, theoretically.
 
The move to reduce the lot size too should facilitate trading furiously with more retail participation, in theory. And this is especially friendly to the big funds and their computers plugged into the system, to trade more and improve liquidity. Instead to buying 1000 shares in one go, they can trade 1000 times by buying 1 share at a time.
Overall liquidity in the SGX has improved, more than double even on a bad day, and several folds on a good day in the last few years.
 
There is another change that SGX has introduced, lowering and freeing of commission rate. Theoretically this is another great move to improve market liquidity. The lower the commission, the higher will be the trading volume as the cost is lower. Many brokerages are still trying very hard to lower the commissions further to compete for more businesses. There have been unconfirmed rumours that some banks are charging their clients near to zero commission for stock tradings. Business must be very good to these banks and brokerages when commission rate is practically at a level that it makes no business sense and is difficult to support the overheads of the business.
 
The SGX is being rewarded handsomely with the increase volumes through its clearing fees and system fees. Some brokerages are also improving their revenues from the increase in liquidity while some are not. One particular market participant, the remisiers, are seeing their commissions reduced drastically that it is no longer viable as an occupation. Many are taking less than $3k commissions and with many less than $2k monthly. This is a far cry from the heydays of the 1990s when an average remisier could bring home $30k monthly in a good month or easily $10k in an average month.
Something has changed and the SGX too must have noted it too, the lack of retail participation in the market. Theoretically all the changes introduced by SGX are retail friendly and should attract greater retail participation in the market. In reality it is the reverse. The retail participation today has reached a level that it is anaemic. The trading rooms of the brokerages are as quiet as a cemetery. The phones are no longer ringing. Getting a couple of calls from retail clients is becoming a norm and more than 5 calls daily is a big event.
During the height of market activities in the 1990s, trading volumes were hardly near the billion shares on a good day. But the trading rooms were in a state of frenzy. Each remisiers had 3 or 4 lines and all the lines were ringing nearly non stop daily. Remisiers were hard put just to answer the calls. Retail participation and trading in the market were furious and everyone was happy. The retail traders were happy, the remisiers were happy, the brokerages were happy, the backroom staff were happy, the SGX must be equally happy and employing more and more staff to cope with the higher volume of activities. And the peripheral industries, the restaurants and service providers, the gift shops etc etc were all doing roaring businesses as there were plenty of money generated and circulating in the market and the economy.
 
Why were the market so lively and vibrant and with full retail participation then? Where have the retail investors gone today? The trading hours were shorter, there was the long lunch break, board lots were in 1,000 shares, bid size was bigger in 1c, 5c, 10c and more. And the best part, the retail traders were not complaining about the 1% commission rate! As long as there was money to be made, the traders and investors were willing to pay the higher commissions.
 
Today, the SGX has done everything to please the retail investors by reducing cost to a bare minimum, but the retail investors are fleeing the market. The retail investors are a dying breed. Why?
 
Does the SGX know why? The SGX has also made several changes other than the above. Big funds were encouraged to bring in their super computers to plug into the exchange to avail themselves of real time trading information in super fast time that retail investors did not have access to. Is there an unfair advantage that contravenes the SGX trading regulations? Could this unfair advantage in access to real time information and technology give the big funds an edge over the retail traders and making trading profits a rare thing of the past for the latter? Could the retail investors be losing to the big funds in a big way and finding it futile to trade in the stock market unlike the past when there were better chances of making some quick gains?
 
Could the changes to the trading system by allowing the big funds to maximise the advantages of computers, algos, big capital and trading strategies to gain an upper hand against the retail traders and investors kill the retail investors? Do the retail traders stand a chance against machines? Even the casinos forbid gamblers from bringing in their computers and technology to gamble. The unfair advantage is obvious.
 
There are now more derivative products, ETFs etc that were written using the stock prices as the basic building blocks. These could have diverted interests and funds from trading in stocks directly and making stock trading a secondary activity in support of the derivatives. The net effect is the lacklustre interests and trading of stocks per se.
 
Something is seriously wrong to the stockmarket. A stock market without or with little retail participation is unlikely to be viable in the long run. A small stock market like the SGX will find the dearth of retail traders more critical to its business as a stock exchange. The SGX is in the best position to know what is going on, the health of the market and industry. How long can the stock market be kept alive while in a state of limbo with little retail participation?
 
Why are all the positive changes to enhance and facilitate stock trading and retail participation not working? Is there some serious systemic flaw in the stock market that small cosmetic changes will not be able to revive the dying trading activities? SGX must have the numbers to show the real volume of retail participation and the trend it is heading.
 
Unless the real sickness is addressed, the little treatments here and there will not work. The stock market is like in a stage four cancer condition. Treating it for colds, flu, measles, virus infection or dengue will be totally irrelevant and ineffective. A cancer must be treated like a cancer, chemotherapy, major ops to hack off parts, organs or malignant growths, if the cancerous growth is to be stopped.
 
As a remisier with 20 years of experience in the market and sensing that something is drastically wrong, something must be really wrong. What is lacking in my comments is the lack of empirical data and also confidential information on what the real happenings and going ons in the system that brought the stock market to the present pathetic state. There is a clear and present danger that the stock market industry is heading towards a stand still due to the lack of real trading activities by real investors, big and small, to support the computer tradings of the big funds, to keep them alive and profitable.
 
The SGX with all the data and information available should be in a better position to know how long more before a cathartic collapse sets in. The little changes that it is making, reducing board lot size, are side issues that will not do any good to revive a dying market. Bringing in another 1000 traders to buy 100 shares of DBS or SIA or 1 or 2 shares of Jardine C&C will not even create a little ripple in the market. Whether the public supports or be against the reduced board lot size is scratching at the wrong tree. There is a lost of confidence in the stock market by the retail investors.
 
Whither the stock market? Or is there a problem? If the SGX does not see any problem then there is no problem and nothing needs to be done. The remisiers can continue to sleep or swap mosquitoes in the trading room and waiting for the phones to ring.
Is there an elephant in the class room?
 
PS. If there is anything that can be done to save the dying stock market, think of rewinding the clock to return the market to its original form ie, trading stocks and not gambling. And one thing to do is to level the playing field by unplugging the computers of the funds from the SGX, no more programme trading, algos, by taking advantage of the computers to trade with information from the system. Also ensure a level playing field by not allowing the funds to bulldoze their way with unrestrained and unlimited war chest.

PS. This is my comments submitted to SGX following their request for feedback.