Hearing this is fantastic news for investors and the market as a whole. It will allow greater liquidity in the market and allow more investors to start investing earlier. Many early investors do not have much to invest with, probably couple of thousand dollars, which only allows them to buy a counter or two. By reducing lot size to 100, they can get more diversified portfolio even with a few thousand dollars.
For example if you wanted 1 lot each for a portfolio based on 1000 shares
CMT – 1000 x $1.90 = $1900
FCT – 1000 x $1.80 = $1800
Keppel Corp – 1000 x $10.30 = $10,300
Semb Corp – 1000 x $4.90 = $4,900
ST Engineering 1000 x $4 = $4,000
OCBC – 1000 x $10 = $10,000
Starhub – 1000 x $4.20 = $4,200
The total required just for 1 lot per counter is already $37,100
If the lot size were to reduce to 100, then you would only need $3,710 to achieve a portfolio like that.
It also allows investors to buy blue chips which are very high value per lot. Examples include:
UOB – 1000 x $21 = $21,000
Jardine Matheson – 1000 x $54 = $54,000
Jardine Cycle & Carriage – 1000 x $37 = $37,000
Even mid level investors may find it difficult to own these stocks due to the value per lot. This will change substantially with this new proposal.
Having lower values per lot also makes it easier to practice averaging strategies such as dollar cost averaging, averaging down/up etc. as you will be able to buy in smaller quantum. This will work very well with my investing methods as well as for my clients. Also, if SGX manages to bring trading down to per share basis, it will make scrip dividend schemes more attractive as you no longer end up with odd lots.
The timing is as early as first quarter next year. However, the minimum commissions which brokerage charge at $25 may be quite expensive if trading in small value lots like say buying 100 shares of CMT at $190. Also, it would be interesting to see how Standard Chartered trading platform, the only platform which has no minimum brokerage charge reacts to this.
A drawback is the cost of informing, processing corporate actions, statements etc. especially if everybody starts buying a lot more counters due to the smaller quantum. Also, while it allows greater market participation, it also opens the gates to more investors, many of which may not be investment savvy and introduce more market volatility in the process.
Overall, I am still excited at the prospect and can’t wait for this to be introduced.
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