Reply to PQ on Odd Lot Trading
REPLY TO PQ ON ODD LOT TRADING
Date : For Parliamentary Sitting on 24 May 2002
To ask the Deputy Prime Minister and Minister for Finance (a) if there are plans to merge the odd lot trading market with the main board of the Singapore Exchange; (b) if there are, when; and (c) if there none, will the Minister enlighten the House and the investing public the rationale for continuing to keep the odd lot market separate.
SGX does not currently have any plans to merge the odd lot trading market with the main market.
2 Currently, SGX sets a minimum board lot size for every company listed on the Exchange. The usual board lot size is 1,000 shares, although smaller board lot sizes are normally allowed for counters with a share price of more than $10. In the case of SingTel, board lots of 10 shares and 100 shares have been provided so that Singaporeans who received shares during SingTel's initial public offer in 1993 can trade those shares and the resulting bonus shares easily.
3 Standardised board lots facilitate trading among investors. Otherwise, it would be difficult to match buyers and sellers of odd numbers of shares. SGX has received feedback that abolishing minimum board lots could increase the cost of trading as investors may then have to enter into multiple transactions to effect a single sale or purchase.[Take the example of an investor X who wants to sell 1,000 shares at $1.00 apiece. If a buyer Y puts in an order for 543 shares at that price and this order is the first in the queue, Y would acquire 543 shares from X. X would then have to find another buyer Z for his remaining 457 shares. If Z is next in the order queue with a buy order for 800 shares at $1.00 per share, he can now buy only 457 shares from X and has to look to other seller(s) to fill his remaining 343 shares. This example illustrates that Y's odd-numbered order caused X and Z to have to enter into two or more transactions instead of just one.]
4 Further, abolishing minimum board lots could result in listed companies having large numbers of shareholders each holding a small number of shares. This could increase the cost of shareholder communication (e.g. printing and sending annual reports and shareholder circulars) for our listed companies significantly.
5 Other major exchanges, such as the New York Stock Exchange and NASDAQ, also prescribe minimum board lots [100 shares].
6 Given that a large number [390 out of 505] of our listed companies trade at less than $1.00 per share, the usual board lot size of 1,000 shares is not likely to prevent the investing public from participating in the stock market.
7 Nevertheless, SGX recognises that investors may sometimes receive odd lots, for example, as a result of a bonus issue or rights issue by the listed company. To enable investors to trade their odd lots, SGX provides an odd lot market. Currently, the odd lot market lacks liquidity because it is difficult to find an exact match between buyers and sellers of odd numbers of shares. This is unlike the odd lot markets on NYSE and NASDAQ where there are market makers and specialists who stand ready to buy up odd lots to form round lots for subsequent sale. Further, the introduction of a minimum commission of $30 has made trading of odd lots of small numbers of shares uneconomical. SGX is currently holding discussions with industry practitioners with a view to overcoming these difficulties.