System shortcomings for SGX to fix
The Singapore Exchange (SGX) has spent a large amount of money upgrading its computer trading system in the past year, adding new features while enhancing trading speed.
More, however, can be done. Based on feedback from dealers and remisiers - who interact with SGX software every minute of each trading day - here are some of them.
More, however, can be done. Based on feedback from dealers and remisiers - who interact with SGX software every minute of each trading day - here are some of them.
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More, however, can be done. Based on feedback from dealers and remisiers - who interact with SGX software every minute of each trading day - here are some of them.
First (and arguably the most important), a revival of the cash market.
This was a segment that existed for years throughout the 1980s and early 1990s, running in tandem with the 'ready' and 'odd-lot' markets. It was a segment where scrip could be obtained at very short notice if cash was paid upfront. So where the ready market initially operated on (T+5) delivery before it was shortened to the present (T+3) in the year 2000, delivery in the cash market was (T+1) - with T being the transaction day.
Having a cash market readily on hand offers many advantages. Perhaps the most relevant is that investors and dealers with outstanding short-sold positions at the end of each day would not have to worry about the exchange forcibly filling those positions via its 'buying-in' - a daily exercise which has been criticised as being outdated, cumbersome and occasionally opaque.
With a cash market, anyone who had oversold a position on date T could immediately fill it the next day and thus avoid being caught short on (T+3) - and thereby escape a potentially large loss when the exchange's buying-in was done.
It is important to note that a cash or immediate-delivery market would only complement - not replace - the exchange's buying-in process, because the latter would still be needed for positions that might not be covered via cash market purchases.
In addition, having a segment on hand where settlement and payment are based on (T+1) offers investors greater choice and flexibility in managing their daily trading and finances - which are undeniably advantageous features of any capital market.
Yet, despite the obvious advantages, the cash market was scrapped in 1994 when scripless trading was introduced, much to the chagrin and puzzlement of the broking community. Its reintroduction would surely be welcome.
A second area in which the bourse is lacking relates to thinly traded stocks. According to market feedback, if a stock is not traded on a particular day, then the trading system does not display the last- done price the following day. So if there is trading of a counter on, say, Monday but not on Tuesday, the system on Wednesday does not show Monday's last price. For a system touted as world-class, this is surely an oversight - the correction of which is made all the more pressing by the fact that hundreds of stocks are not traded every day.
Third: the classification of structured warrants on SGX's website under the heading 'loans and debentures' and the inclusion of these warrants in the summary 'gainers/losers' statistic that appears on the home page.
Structured warrants are high- risk, short-term, derivative, equity-based products while loans and debentures are long-term, fixed-income, debt-type instruments that may or may not possess equity-like features. The two could not be more different; yet, for some unfathomable reason, the exchange has chosen to lump them together.
It is also wrong to include warrants in the daily rises and falls because not only are there multiple warrants for individual underlying assets like the Straits Times Index or CapitaLand - which means dozens of instruments rise or fall when one asset moves, thus distorting the figures - there are warrants expiring and new ones being launched every day. This makes a day-to-day comparison of the gainers/losers statistic meaningless and possibly misleading.
The proper treatment of structured warrants is (a) not classify them as 'loans and debentures', and (b) to exclude them when showing the market's total rises and falls. In the name of proper and accurate disclosure, the faster this is addressed, the better.