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Proposal to reduce board lot size to 100 units will make blue chips more accessible[SINGAPORE] In a move that might improve liquidity and entice retail investors back into the market, the Singapore Exchange (SGX) is proposing to reduce the standard size of securities traded from 1,000 units to 100 units, and one unit eventually.文件倉This means investors currently priced out of established, financially strong companies like the local banks and the Jardine conglomerates will now be able to easily include them in their portfolios. These blue chips, as they are known, can sell for $10 a share or more on the market, meaning that an investor would need to spend at least $10,000, or 1,000 units of $10, per buy transaction.With the change, the minimum needed to buy a $10 stock falls to $1,000, or 100 units of $10.Currently, eight out of the 30 stocks in the benchmark Straits Times Index (STI), a collection of the most stable and liquid stocks, trade at $10 or higher. Another three trade between $5 and $10. SGX's move will potentially broaden the investor base for these companies, but might lead to them incurring higher costs to handle more investors.SGX launched a public consultation on the matter yesterday evening and plans to implement the change to a lot size of 100 units by the first three months of 2014, pending regulatory approval.It will then evaluate the change for a year before embarking on another year-long process to change the lot size to one unit. This means investors might be able to trade in individual units of securities as early as 2016."We think equities need to be part of a person's total portfolio. This move will increase the affordability of blue chips for many retail investors, who can then diversify their portfolios," said SGX head of securities Nels Friets at a briefing yesterday afternoon.He mentioned his desire to raise retail participation. Currently, the proportion of the population who make at least one trade every three months languishes at 8 per cent in Singapore, compared to 17 per cent in Australia and 24 per cent in Hong Kong."Maybe there will be a change in behaviour from trading pennies to a buy and hold of the blue chips," he added.The proposed standard board lot size of 100 units will apply to most securities traded on the market like ordinary shares, real estate investment trusts (Reits), business trusts, company warrants, structured warrants, extended settlement contracts and shares on GlobalQuote.Existing board lot sizes of less than 100 units will remain unchanged - namely SingTel 10, Creative 50, and Lonza 10 shares.What will also not be affected by the change are board lot sizes for most exchange traded funds (ETFs), American Depository Receipts (ADRs) and fixed income存倉instruments like Singapore Government Securities and preference shares. The change only affects two ETFs: the SPDR STI ETF tracking the benchmark index, and the ABF Singapore Bond Index Fund.The proposed board lot size changes have been talked about for many years. In 1995, SingTel, then Singapore Telecom, introduced 10-share trading lots to allow investors with less capital to take part in the company's growth. This was followed by Singapore Airlines, which currently allows trading in 200-share lots.Odd lot trading was introduced in 2003 to help retail investors get rid of anywhere from one to 999 shares that they were stuck with after rights issues or scrip dividend payments. While one can theoretically buy 100 shares of any stock from this market right now, this incurs higher-than-usual trading costs in practice. The market is also illiquid with large bid-ask spreads, and one can only find out the price after asking a dealer or remisier.Many calls have been made by journalists and forum letter writers through the years to do away with the 1,000-share lot size. But it was only a year ago that SGX started seriously considering the proposal, Mr Friets said, noting that many stakeholders like brokers and companies have to be consulted first."Listed companies worry about higher costs and the printing of annual reports, though they are working on e-distribution. Brokers are concerned about partial fills. As for minimum commissions, this is an economic decision by the brokers," he said.Other than improving the investor base and facilitating price discovery, the move also aligns Singapore with other well-known exchanges around the world. The New York Stock Exchange, Nasdaq, and the Australian Securities Exchange have a board lot size of one. Board lot sizes at the Hong Kong and Tokyo exchanges are non-standard, to be determined by the issuer.But the change is not spurred by competition, Mr Friets said. SGX arrested a two-year earnings decline in its last financial year due to investor sentiment picking in the first half of 2013.Separately, mainboard and Catalist listing rules will also be amended, including the addition of a provision to track shareholders who hold less than 100 shares.Mr Friets said the change will also benefit institutional investors, allowing them to have more precision in trading, hedging, arbitraging and portfolio management. For example, tracking error in Singapore MSCI (SiMSCI) futures contracts can be reduced from 53 basis points to 4.8 basis points with a board lot of 100 units, he said.The consultation paper is available at .sgx.com/wps/wcm/connect/sgx_en/Misc/regulations/PCMarket participants and members of the public can submit their comments and suggestions until Sept 6, 2013.自存倉