Big revamp of SGX’s Central Depository system under way
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SGX to allow stock broking firms access to clients’ accounts
By Goh Eng Yeow
15 December 2011
The Singapore Exchange (SGX) is embarking on a radical overhaul of its Central Depository (CDP) system, which holds the shares of some 1.4 million individual investors here.
The revamp, which will take three years to complete, will make big changes to the way shares are bought and sold here and hopefully, raise the quality of advice given by stockbrokers.
One key change will be to enable Singapore’s stock broking firms to gain access to a client’s CDP account to find out exactly what stocks are in his portfolio - if he gives them the permission to do so.
With this information, brokers will be in a better position to advise clients how to tweak their portfolios in response to market movements.
The move will reverse a longstanding policy which was first introduced in 1987 when stock trading went paperless.
The rationale then was to offer assurances to investors that their shares would be safe with a central depository specially set up to hold them, rather than with a broking firm that might trade the shares without clients’ knowledge, or lend their shares out and expose clients to unnecessary risks.
But this system has since gone out of sync with the practice in most developed stock markets worldwide, said SGX chief Magnus Bocker, revealing details of the revamp to The Straits Times in an exclusive interview.
‘In most other countries, you keep your stocks with the broker, so that your broker can see what you have and tell you what to buy and what to sell,’ he explained.
‘In our market, if our shares are kept in the CDP, the broker doesn’t know. This is negative for the equities market.’
The CDP’s overhaul will also see the introduction of computer hardware and software that will cut down the considerable paperwork generated each time an investor buys or sells shares.
Currently, an investor receives at least two mailers from the CDP each time he makes a transaction. In future, he can choose to get the statements online.
Mr Bocker said he hoped the revamp will allow investors to develop much closer relationships with their brokers and allow them to assess whether dealers were offering good advice.
‘I also think there is an opportunity to grow the retail participation in the stock market,’ he added.
‘Out of the 1.4 million accounts, we only have 200,000 doing one transaction per quarter and 20,000 doing a trade a day. Stocks should be a natural part of anyone’s long-term savings.’
The investment in a new CDP system also marks a further step in SGX’s efforts to boost its ageing infrastructure. The CDP uses technology which is already more than 20 years old.
In August, SGX installed a new $250 million trading engine - reputedly the world’s fastest - that can execute trades 3,000 times faster than the blink of an eye.
Phillip Securities’ managing director Loh Hoon Sun said the overhaul will be good for both investors and dealers.
His view was echoed by veteran stock investor Denis Distant, who pointed out drawbacks of the current system
‘In the United States, you will know right away if you key in a sell order whether you have the shares or not,’ he explained.
‘Here, with all shares kept in the CDP, you have to remember exactly how many shares you own. Otherwise, you may end up over-selling and the mistake can be costly.’