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The Capital Markets Cooperative Research Centre (CMCRC) has released analysis showing that the move by Singapore Exchange (SGX) to lower the minimum board lot earlier this year has had no detrimental impact on market quality. The minimum board lot was lowered from 1,000 shares to 100 shares on 19 January 2015 with the aim to make trading more attractive and affordable for retail investors.
Professor Mike Aitken, CEO, CMCRC has used the Market Quality Dashboard (MQD) to evaluate whether the change in board lots has made any discernable difference to market quality. The analysis showed that stocks with higher prices have experienced significant declines in their average trade size whereas stocks with lower prices exhibited almost no change. This result was unsurprising given that higher priced stocks are more likely to be impacted by the minimum board lot.
The analysis also showed an increase in the number of trades per day with the majority of these being of a smaller size. Professor Mike Aitken said, “The question is whether this change has actually led to an increase in trading. However, we saw little discernable evidence of an increase in trading value. This suggests that the increase in trade count has been driven by the reduction in trade size rather than the entry of more retail traders.”
Professor Aitken also used the MQD to examine proxies of market efficiency and integrity and found that there had been no significant changes since the lowering of the minimum board lot occurred.
“Overall, our analysis showed that while retail traders have had their access to the market improved, this has happened without any impact on market quality. Unfortunately, without client identifiers, we cannot address the question of whether the change has been effective in encouraging retail traders to participate more fully in the market.”
See Professor Aitken demonstrate the analysis using the MQD at https://www.youtube.com/watch?v=h6mtwxKv_yw&feature=youtu.be.
The MQD is was developed by the CMCRC to enable market professionals, especially policy makers, to get a quick overview of important attributes of market quality and how they change in the wake of market design changes.
