SGX needs to engage brokers in bid to revive market
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Ven Sreenivasan
04 November 2014
THE Singapore Exchange (SGX) must be applauded for trying to revive a somewhat moribund equity market.
Cutting board-lots, boosting minimum trading price for mainboard stocks, providing value-added products such as SGX Stockfacts and even adding market makers/liquidity providers will go some way towards shoring up a market where liquidity is at a multi-year low, interest is sagging, commissions are suffering and brokers are either looking for other sources of income or simply moving on.
The SGX’s own figures tell a dismal story.
Securities market turnover fell 21 per cent in the financial year ended June 30, 2014, to S$286 billion - the lowest turnover since fiscal 2006, when the size of the total market was less than what it is worth today. Meanwhile, the average turnover velocity in FY2014 was just 40 per cent, compared with 71 per cent back in FY2007.
And the trend continued to end-September, with SGX’s first-quarter numbers showing securities revenue plunged 29 per cent to S$49.1 million from S$69 million a year earlier and accounted for 29 per cent of total revenue in the quarter, down from 38 per cent. The total traded value of securities was S$63 billion in the three months, down 26 per cent, while the daily average traded value (SDAV) slid 27 per cent to S$1 billion. The SDAV of stocks priced below 20 cents recorded the steepest percentage decline, plunging 66 per cent or S$100 million during the quarter compared with a year earlier.
While SGX’s net profit slumped 16 per cent to S$77.6 million on the back of an 8 per cent drop in revenue to S$168.9 million for the three months to Sept 30, UOB-Kay Hian Holdings - Singapore’s largest broking house - posted a 31.8 per cent decrease in first-half commission income this year, to S$113 million. DBS Group Holdings’ brokerage income for the first half of 2014 fell 29 per cent to S$85 million. OCBC Bank matched DBS’s decline, with brokerage income dropping to S$26 million.
Yet key officials maintain that the market is healthy.
“We have a better quality market, actually, today than we did one year ago,” SGX’s CEO Mr Magnus Bocker said on the sidelines of SGX’s latest results briefing recently.
SGX’s head of sales and clients Chew Sutat said: “We think the market actually has a lot of interest, opportunity. And it’s our job to go out there and help our trading representatives get a little bit more confident, give them the content, give them tools.”
One cannot fault the exchange and its officials for trying to put a positive spin on the state of affairs. And one has to remember that macroeconomic factors and sentiment do impact the Singapore market.
But some wounds are self-inflicted.
If one were to ask the folks working in the “boiler-room” everyday - the trading representatives and dealers - they would blame, among other things, the slew of regulations that have raised the costs for speculative trades and cut spreads and commissions for stockbrokers.
A visit to any of the trading rooms would reveal an eerie stillness, with phones largely silent and most brokers either missing or disengaged.
The number of trading representatives has halved from what it used to be five years ago as more exit the industry than come in. In fact, with incomes now half of what it used to be just three years ago, this is a career few ambitious young people would want to embark upon.
Stockbroking has become a sunset industry.
The malaise that afflicts the Singapore market has its roots in the penny stock fiasco of October last year. The general consensus amongst market watchers is that this episode was precipitated by a combination of greed and inadequate regulatory monitoring. But one would have thought that a year on, the market should have recovered.
But with the investigations still ongoing, there is no closure and continuing uncertainty.
While the SGX is right and correct to stamp out the kind of greed and manipulation that led to the penny stock crash a year ago, it has to allow for some speculative fervour. Without it, there is no fizz in the market. And without this fizz, there will be few who would want to dabble in stocks.
While every market desires “value investors”, how does one define a value investor in today’s market? Someone who only trades in blue chips and index stocks? Someone who buys to hold? Someone who does heavy research before buying?
There always is room for “value investors” but in a world where trading is increasingly controlled by algorithms, bourses will have to depend on traders and speculators and technology for volume, while newsflows and fundamentals will determine the direction.
While the securities side is struggling, the SGX is winning accolades in derivatives trading. Last week, Singapore Exchange won the industry endorsement as the “Derivatives Exchange of the Year” at the prestigious Asia Risk Awards ceremony held in Hong Kong.
That is good.
But traditionally, equities form the bedrock of any exchange. And if that assumption still holds, SGX needs to find the solution, and soon. It needs to seriously engage the industry players - predominantly the brokers - to find ways to restore health and vibrancy to the market.