All-day trading may not lift volumes much
Analysts say immediate effect may not be significant given the greater, continued drag from global uncertainties
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Analysts say immediate effect may not be significant given the greater, continued drag from global uncertainties
By TEH SHI NING
30 July 2011
With the imminent start of all-day trading on the Singapore Exchange (SGX), analysts say that the lift to trading volumes may not be immediately significant, given the greater, continued drag from global uncertainties which have dampened trading activity in recent months.
Postponed twice amid lukewarm reactions from brokerages and brokers, the plan to do away with the 90-minute midday break for SGX’s securities market will finally take effect on Monday, resulting in continuous trading from 9am to 5pm.
But the impact of this on average daily turnover is not expected to be significant, with analysts looking more to the roll-out of Reach - SGX’s new $70 million securities high-speed trading engine - for greater impact.
Theoretically, said OCBC investment research head Carmen Lee, assuming even trading throughout the day, the additional 90 minutes of trading can add up to 20 per cent in daily trading volumes.
But as ‘most people do stick to the regular lunch hours’, she estimates a more likely increase to be in the region of 10 per cent. This is not unlike the 6 to 12 per cent boost to trading volumes SGX itself has said the move could yield.
However, weak market sentiment due to uncertainties such as the US and Europe debt situations will likely diminish further the initial impact of the move.
‘When markets have a strong directional view, we believe that the impact will be greater. When the market mood is lacklustre, longer trading hours are akin to pushing a string,’ said Kenneth Ng, CIMB research head.
Which has been the case in recent months. ‘The daily trading volume has come off quite sharply on the Singapore bourse,’ noted Ms Lee. From a high of 1.9 billion shares traded in January, volumes have declined to an average of about 1.3 billion in the months since February, she said.
Of course, though higher volumes would lift securities clearing fees and SGX’s revenues, they are not the only reason behind the move.
Continuous trading would mean greater overlap in trading hours with key regional markets such as Tokyo, China and India, SGX said earlier. Both Hong Kong and Tokyo’s exchanges also cut their midday trading breaks this year.
Credit Suisse head of advanced execution services product for Asia-Pacific Murat Atamer also sees the move as ‘very positive’ and especially beneficial to algorithmic trading.
‘I do believe that SGX wants more electronic trading. Long-term cash clients are starting to move to electronic trading too, and electronic orders work best in markets with fewer market imperfections such as breaks in trading sessions,’ he said.
It also reduces the ‘gap risk’ for investors as the higher volatility when the market reopens after lunch is reduced and news is reflected in the time of trading, he added.
There are longer term benefits too, said Mr. Ng. ‘Globally, investors are trading cash equities and other instruments on a 24/7 basis.
‘Companies are choosing to list out of their home markets, if it makes sense for them. The longer trading hours will cater to an international investment community and more investor participation will only attract more quality listings onto SGX,’ he said.
One side-effect, Mr. Atamer notes, is that Singapore will now have one of the longest trading sessions in the region. ‘This may thin liquidity for any given five minute interval in the market. What this means is that if there’s a large order, it may have more impact than before,’ he said.
Perhaps, he suggests, shortening overall trading hours could alleviate potential dilution and emphasised intra-day impact of large orders somewhat.
But he admits that impact on this front could be minimal since ‘in Singapore you generally see thicker order books and the bid/offer spread tends to be quite large’.