Singapore Exchange (SGX: S68), or SGX for short, is planning to reduce the standard board lot size of securities listed on SGX from 1,000 to 100 units. It will be introduced as early as first quarter of 2014, subject to approval from regulators. In the longer term, SGX may change the lot size to 1 unit, after assessing the market.
The benefits of such a move are manifold. For one, the reduced board lot size will ensure retail investors can have a pie of the blue-chip shares that are usually priced higher, instead of limiting themselves to penny stocks. In the Straits Times Index (SGX: ^STI), 8 out of 30 component stocks are priced above $10 per share. For example, one of the 8 stocks is Keppel Corporation Limited (SGX: BN4) and it is currently trading at $10.31. With the new move that is slated to occur by March 2014, investors can buy shares in Keppel Corporation with a minimum sum of $1031 instead of $10,310 now (assuming the price remains the same and no commission is incurred).
Other benefits include enabling investors to more easily build balanced and diversified portfolios, improving market liquidity and aligning to practices in other global bourses.
Currently, the only option for investors who want to trade less than the board lot of 1000 shares is the odd-lot market. However, one major drawback is that it is a very illiquid market, with a wide bid-ask spread.
The proposed standard board lot size of 100 units will apply to ordinary shares, real estate investment trusts, 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 – such as SingTel (10 shares per lot) and Creative (50 shares per lot).
The board lot sizes for exchange traded funds, American Depository Receipts and fixed income instruments, including Singapore Government Securities and preference shares, will also remain unaffected. An exception to the above is the SPDR STI ETF (SGX: ES3) and the ABF Singapore Bond Index Fund (SGX: A35), which will be traded at the new lot size of 100 units.
SGX is currently seeking the views of the public and market participants on this proposal. The consultation will close on 6 September 2013.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.