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Why Investors Should be Rejoicing Over SGX’s New Trading Rules

new sgx trading rules

Mark Cheng

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We thought the day would never come, but SGX has finally decided to do something about some of their most archaic trading rules. The beauty of the new direction with regulations is that it doesn’t just affect big investors, but also smaller retail investors such as ourselves that want to get in on the game. So what’s the first big major change? We take a quick look here:

The Backstory

On the back of a large penny stock crash in October 2013, changes proposed by the Monetary Authority of Singapore (MAS) and the Singapore Exchange (SGX) aim to minimize excessive speculation as well as to lower the barrier to entry and level the playing field for smaller investors.

This is perhaps also a reflection of the increasing popularity amongst individuals to get in on investing, and also a concerted push by SGX to increase awareness and responsibility when it comes to retail investing.

The first measure to be implemented, which takes effect from 19 Jan 2015, is the downsizing for board lot size. This is something which many people have been calling out for and expecting, and Singapore is certainly not the first country to adjust board lot sizes.

 

What Does This Mean?

When you purchase shares of SGX-listed securities, you basically have to buy them in “lots”. The original lot size was 1,000 shares. With the new measures, the lot size has been reduced to 100 shares.

What this essentially means is that an individual can get exposure to investment products like blue chip stocks without having to dump in a huge amount of money. Let’s say you’re sick of SingTel (SGX: Z74) taking all your money and decide you want to invest in them and benefit from their profits.

Previously investing in just one lot of SingTel shares would cost you $3,940 if we were to take the price they closed at yesterday. Now, with a minimum lot size of 100, you could easily invest in SingTel for $394 and then slowly build up your portfolio.

 

How Does This Benefit You?

The very obvious immediate effect is that with this new change, investors can now build up a more diverse portfolio without needing a massive outlay of capital. If you’ve been reading our series of investing articles, you’ll know that we are huge advocates of starting your investing journey as early as possible. With this new measure, you can get exposure to the market without having to magically find a winning Toto ticket underneath your pillow.

Also, where odd lots previously had to be traded in the odd-lot market, where prices are discounted from the market value, investors can now sell their shares in the regular market.

 

What Else Is Next?

Apart from adjusting the lot sizes for shares, MAS and SGX are also now looking to downsize lots for bonds as well. Currently, bonds typically start at a minimum of $250,000, which puts them out of the reach of most small-time investors. Bonds tend to be more popular for retirees who want an alternative income stream, and this new measure would certainly help more people with that.

Also, from March next year, mainboard-listed firms will need to have a minimum trading price of 20 cents. This is a big move in an effort to curb speculation on low-priced securities. However, for most of us, you would need to seriously do your homework before going into the market and looking at lower-valued penny stocks.

We’re going to be keeping a keen eye on the upcoming changes, so stay tuned with us on Facebook!

Do you think these new measures are sufficient? What else do you think needs to change? Share your thoughts with us here!

 

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Mark Cheng

I rant and rave a lot, but when I'm not busy doing that, I'm managing the content for MoneySmart. I love Singapore, but I also believe in helping it to improve bit by bit, and that's where MoneySmart comes in. Have some thoughts? Drop me an email at mark@moneysmart.sg.