SGX plans to cut lot size to 100 shares

SINGAPORE - Shares could soon be traded in board lots of 100 shares under a proposal from the Singapore Exchange (SGX) unveiled on Monday - a ground-breaking move that would bring many more retail investors into the market.

Pricey blue chips, which are out of reach for many smaller investors given they now have to buy at least 1,000 shares at a time, would suddenly be affordable.

The move to reduce the lot size from 1,000 now to 100 shares could occur by as early as the first quarter of next year.

There is even a longer-term plan to get lots down to just one share but this will take at least another two years after the 100-share lot is implemented.

Mr David Gerald, president and chief executive of the Securities Investors Association (Singapore), hailed it as a "brilliant move".

"It's good for the capital market and it will increase liquidity... Investors have been asking for this for a long time," he added on Monday.

Local investors have indeed been complaining about lot sizes for many years.

Most shares trade in lots of 1,000, making some blue chips prohibitively expensive for retail investors.

Buying just one lot of 1,000 shares of United Overseas Bank, for example, would cost more than $21,000 based on its $21.44 closing price on Monday.

The only option for investors who want to trade less than a complete lot is the odd-lot market.

But this is a very illiquid market, where a buyer will often have to pay a higher price, while a seller will have to offer a discount.

Reducing lot sizes under the SGX plan announced on Monday will make stocks more affordable, especially blue chips, without investors having to endure the illiquid nature of the odd-lot market.

About 40 per cent of shares on the Straits Times Index require a minimum investment of $5,000 - which means their unit price is $5 or higher, said SGX securities head Nels Friets on Monday.

Cutting lot sizes will also allow institutional investors to more precisely fine-tune their portfolios, Mr Friets added.

The move will bring the SGX more in line with global stock exchanges, which have been reducing lot sizes.

Most recently, Indonesia's exchange said it would reduce lot sizes to 100 shares in December from 500 now.

SGX's proposed 100-lot will apply to ordinary shares, real estate investment trusts, business trusts, warrants, extended settlement contracts and shares on GlobalQuote, where some international stocks are traded.

Shares that already have board lot sizes of fewer than 100 units - such as Creative Technology with a 50-share lot size - will remain unchanged.

The lot sizes for American Depository Receipts, bonds, preference shares and most exchange-traded funds will remain unchanged.

One key question is whether broking houses will reduce their minimum commissions, which for most houses stand at $25 for online trades and $40 for those done through a remisier.

Unless this is cut, investors who buy smaller lot sizes will find themselves paying relatively more in brokerage fees when calculated as a percentage of the trade value.

Broking houses did not comment on Monday on whether minimum commissions will shrink.

A DBS Vickers spokesman and OCBC Securities vice-president Tan Shen-Lin both said that the move will make high-value shares more accessible to retail investors.

Market participants have until Sept 6 to give feedback to the SGX proposal, which also needs regulatory approval.

jonkwok@sph.com.sg

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