Trading shares: Do away with 1,000-unit lots

Trading shares: Do away with 1,000-unit lots

When facing up to challenges, the Singapore Exchange (SGX) can be counted on to meet them head on, quickly and decisively.

This applies to competition from other exchanges and trading pools, technological advances or product development.

The same goes for local stockbrokers. They have proved to be adept at harnessing technology in the trading of stocks and shares.

In the past, one had to make a trip to the broker's office to collect share scrip, and to make or receive payments.

No longer. There is no need to leave home to dabble in the stock market today.

One can simply key in sell or buy orders online and make or receive payments electronically.

But for some reason, the exchange and its stockbroking members have been very cautious in addressing a perennial bugbear of retail investors - the difficulty of trading in non-standard board lots.

This is all the more surprising as other major bourses from Sydney to London do not require investors to buy shares in standard board lots.

In Singapore, a board lot usually means 1,000 units.

There are some issues that trade in smaller board lot size due to their high absolute price.

For instance, Jardine Matheson Holdings shares, which ended at US$64.81 last Friday, are traded in board lots of 400 shares, while many of the preference shares of the local banks are denominated in multiples of 100, owing to their face value of $100 a share. But most stocks are traded in multiples of 1,000.

In this respect, we have made little progress from the days when I was a teenager shuttling paper between home and the broker's office on behalf of my parents to make or take delivery of shares.

Understandably, one could not trade in odd lots with paper scrips. But 30 years on, the situation has improved only marginally.

In 2003, SGX introduced the unit share market that allowed trading in as few as one share, after studying the issue for more than a year.

On the face of it, the move closed a gap and allowed shareholders with odd lot shares arising from rights issues, bonus issues, stock splits and restructuring by companies to monetise these shares.

In practice, it is an inefficient market that allows investors to sell the odd share only at a high cost.

The unit share market invariably offers a worse deal than the broader ready market, whether one is buying shares to round up an odd lot or getting rid of them.

Due to the wide bid-ask spread, a buyer will often have to pay a higher price while a seller will have to offer a discount.

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