SGX clarifies need for continuous all-day trading
I refer to Mr Natarajan A’s letter, “SGX, do elaborate on rationale for continuous trading” (BT, 4 March).
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06 March 2015
I refer to Mr Natarajan A’s letter, “SGX, do elaborate on rationale for continuous trading” (BT, 4 March).
As the writer mentioned, continuous all-day trading (CAT) was implemented only after a public consultation, with the support of various stakeholders, including retail investors and industry associations. Therefore, the “common perception that CAT was to assist algorithmic traders and HFT” is inaccurate. As the market operator, SGX has to serve all participants, from retail and institutional investors, to traders, and intermediaries like banks, brokers and remisiers.
No investment is risk-free and SGX cannot predict if investors will make or lose money. However, it is SGX’s responsibility to minimise any potential risks for investors. After all, we are a stock exchange, not a casino.
CAT is one of various measures SGX introduced to mitigate investment risks, a priority for investors. Specifically, the aim of removing the midday trading break was to give investors more opportunities to trade and to manage “gap risks”. Such risks can occur when stock prices change significantly between two moments in time when there is no trading in between, e.g., the last traded price at 1230 hours and the opening at 1400 hours. Aligning our market hours to other Asian exchanges allows our participants to respond immediately to any news that may impact stock prices, thus reducing gap risks. Since then, extreme volatility from 1230 to 1400 hours has been reduced.
The chart shows that price changes on the Straits Times Index were generally spread across the day, while the Hang Seng Index showed volatility spikes at the post-lunch hour opening, with the natural exception of the opening and closing periods in both markets. The reduction of gap risks benefits all investors, who can better manage their outstanding trades or investments in the stock market and correspondingly reduce their risks.
CAT was introduced in August 2011, when stock markets globally fell due to contagion fears of the European sovereign debt crisis. From August 2011 to October 2013, stock markets globally showed increased market volatility and correspondingly high turnover, including the Singapore market. The decrease in daily trading was not related to CAT, and over the past year, SGX has introduced several initiatives to improve market efficiencies across governance, providing market information and investor education. The decision for CAT is specific to individual exchanges, but we note that other major markets including the US, UK and Australia operate CAT.
To continue thriving as a global financial centre, Singapore also needs to continuously improve the connectivity between its stock market and those of other key markets in Asia and the rest of the world. We constantly engage with all market participants to review the operating hours of our stock market to other Asian markets. However, SGX has no current plans to introduce pre and post-market, 24-hour trading for the cash equity market as suggested by other market participants, even though our derivatives markets supports global investors for 18 hours.
Chew Sutat
Executive vice-president
Singapore Exchange