SGX answers the shrill voice of remisiers
The Singapore stock market is continuously evolving, and all its stakeholders need to adapt to survive and thrive.
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Chan Chao Peh
16 February 2015
The Singapore stock market is continuously evolving, and all its stakeholders need to adapt to survive and thrive. Chew Sutat ought to know. As an eight-year old boy, he helped his remisier father handle the flood of phone calls at 4pm from investors who wanted to know the closing prices of their favourite counters. Chew would answer the phone, and read the prices off a chalkboard. The only alternative investors had to calling their brokers for the prices back then was to wait for the following day’s newspaper, Chew explains.
Now, in the Internet age, Chew’s father – who, at age 78, still works as a remisier – no longer needs his son to help answer the phones. Luckily for Chew, he has managed to move on to better things. A graduate of Oxford University, he held positions at DBS Bank, OCBC Securities and Standard Chartered Bank. Today, Chew, 42, is executive vice president of sales and clients at the Singapore Exchange. And, he has become a point-man of sorts in responding to increasingly shrill criticism that the local stock market no longer serves the interest of remisiers and their clients.
“We are acutely aware that in a market place, it is extremely rare to have 100% agreement on everything. There are so many different stakeholders; and, by virtue of where they are sitting, often their views will disagree. But, any single constituency or stakeholder can't be bigger than the market,” says Chew, during a meeting with reporters on Jan 16. “The stock market is an ecosystem. There are a lot of diverse stakeholders in the market. They have their own needs.”
The way Chew sees it, the complaints about the market had grown louder recently partly because the brokerage business has become less lucrative and more competitive. He also counters the grouse that investors haven’t been making money in the market. Last year, the STI generated 6.2% price return, and 3.3% dividend return, which brings the total to 9.5%, according to Chew. The Hang Seng Index, Dow Jones, FTSE100 and Nikkei 225 generated total returns of 6.6%, 5.7%, 3% and 2.2%, respectively, in Singapore dollar terms.
“A lot of people don’t realise but safe, boring Singapore actually does well on a long-term return basis,” Chew says. He also points out that trading volumes today are much higher than back in the 1990s, a period that brokers and remisiers remember with nostalgia. “In the glossy rose-tinted view of the past, that market which many hanker after, was $300 million a day. Today, we are $1.2 billion.”
At any rate, periods of high trading volume that enriches brokers and remisiers aren’t always good for investors. In 2008, when the STI crashed to a level that’s about a third of where it is now, volumes were higher than last year, Chew says. “Do you see in 2008 complaints from the community? They had a good market.”
Chew’s comments came almost exactly a month after some 1,225 individuals, many of them remisiers, petitioned Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam for action to rebuild confidence in the local market. Among other things, the letter asserted that small investor feel the playing field is tilted against them, because of the small number of shares allocated to them during initial public offerings and the introduction of market makers and liquidity providers that seem to dominate volume.
The letter went on to criticise several SGX initiatives and accuse the exchange of not consulting market participants on various matters. The letter also called for a return of the archaic Teletext service, recommended that Singaporeans be allowed to invest more of their CPF savings in stocks and demanded that lunch breaks be brought back.
Emphasising that he isn’t speaking on behalf of the Ministry of Finance, Chew says that the criticisms were unfounded, and that the broking community should recognize that new investors are coming into the market, trading instruments other than plain vanilla stocks and getting their information from a wider range of sources. He adds that the “big consternation” over high frequency trading, algorithm trading and other high-tech trading capabilities are feared because of a lack of understanding of their purpose.
“It’s like Terminator, there’s this fear of computerisation -- men versus machines,” Chew says. In reality, much of what is called “algo-trading” in the Singapore market is about using computers to manage certain types of orders. For example, an investor might want to switch from holding United Overseas Bank to owning Oversea-Chinese Banking Corp, in order to profit from a perceived valuation difference. “I can do it one at a time, and potentially the price moves and I lose out on my advantage of the spread that I imagine,” Chew explains. Or, the investor can use a platform, already offered by CIMB, which allows pre-programming so that both orders can go in at the same time, he says.
Another example of algo-trading is when a fund manager wants to sell 100,000 shares in DBS Group Holdings at a so-called volume-weighted average price. Without the use of computers, a dealer would have to sit at a terminal all day, pacing the market. “There’s a lot of utility in why some orders need to be done that way and why some investors actually can benefit from it,” says Chew. At any rate, such trading has a “very low presence” in the market here, he adds, unlike the US, Japan and Australia, where up to half the trading volume is due to computer-based trading.
How do ordinary investors benefit from this? According to Chew, among the biggest users of these trading platforms are market makers, who need to frequently update their prices within as tight a spread as possible. “The worst thing a retail investor can face is to want to sell but no one’s buying at the other side.”
As for the lunch break issue, Chew responds with an often-quoted statistic from SGX: on average, only 10% of a day’s trading happens between 12.30 pm and 2.00 pm, the 90-minute period when the market used to close for lunch. So, why stay open for lunch? The key reason, Chew says, is that the Tokyo and Shanghai markets would be open while Singapore closed for lunch, and there would be a “gap risk” when trading resumes for the afternoon session. Furthermore, there are certain retail investors who could only trade during their own lunch breaks.
Meanwhile, Lawrence Wong, head of listings at SGX, also defended the strategy of drawing foreign companies to list in Singapore, which some critics say resulted in the arrival of S-chips, many of which later proved to have poor corporate governance.
Noting that Singapore has no hinterland of its own, and that PSA and Singapore Power are really the only two major government-linked companies that aren’t listed, SGX has little choice but to look for listing candidates in the Asean region and China. “China is too big to ignore,” says Wong, who will be relocating to China, taking on additional responsibilities in advancing the exchange’s interest there. He will remain as head of listings.
SGX has also been making its presence felt in markets like India, Japan and Korea, where Wong is touting Singapore as a hub for certain sectors, like shipping. “You are among the giants, you are in a land where people don’t know you well, so what do we do? We don’t have a loud voice there but we want to have a shrill voice so people can hear me,” says Wong.
For now, however, it is the shrill voice of remisiers complaining about the local market that’s being heard. Will SGX succeed in bringing them into the modern age? Chew’s father, who has been in the business since 1969, apparently is comfortable using modern devices like an iPad to conduct his business, according to Chew. But he hasn’t given up his lunches, which can last for a few hours.