The Singapore Exchange Securities Trading Limited (“SGX-ST”) is conducting a public consultation, from 19 August 2013 to 6 September 2013, on its proposal to reduce the standard board lot size of securities listed on the SGX-ST from 1,000 units to 100 units (“Proposal”), with a view to reducing the standard board lot size to 1 in the longer term.
Presently, save for the Unit Share Market and particular individual counters, trading on the SGX-ST is conducted in standard board lots of 1,000 units. The Proposal, if implemented, will apply to company shares with a board lot size of more than 100, real estate investment trusts (REITS), business trusts, company warrants, structured warrants, Extended Settlement Contracts and shares on Globalquote.
In its public consultation paper (“Public Consultation Paper”) issued in connection with the Proposal, the SGX-ST explained that the Proposal is expected to bring about the following key benefits: (i) greater accessibility of the general population to equity investments (especially in large companies with high-priced shares) as the ability to purchase such equity investments in smaller quantities will help make them within the means of more retail investors; (ii) enhanced risk management for institutional and retail investors as a smaller board lot size will allow investors greater precision in the positions that they take vis-à-vis their investment; and (iii) improve the market liquidity and price discovery as the reduction in board lot size is expected to increase trading volumes.
Potential Increase in Administrative Costs to Issuers
The SGX-ST also discussed, in the Public Consultation Paper, the potential impact of the Proposal. These impacts include, inter alia, the potential increase in administrative costs for listed issuers (“Issuers”). The Proposal is expected to result in a larger number of shareholders for an Issuer, this may in turn increase the administrative costs to Issuers, arising from, inter alia, the distribution of annual reports and circulars, processing of corporate actions and/or the holding of general meetings.
In the Public Consultation Paper, the SGX-ST explained its belief that the impact on administrative costs to an Issuer would be limited because: (i) it is not expected that the reduction in standard board lot size would materially increase the number of shareholders for smaller companies, and (ii) the potential increase in administrative costs for larger companies is expected to be manageable considering the scale of their businesses, as well as the associated benefit to marginal compared to the size of their business. Further, greater flexibility for Issuers to disseminate electronic notices and documents to shareholders (as proposed by the Steering Committee for Review of the Companies Act) may help to address the potential increase in administrative costs.
Review of Mainboard and Catalist Listing Rules
Consequential on the Proposal, the SGX-ST proposed the following amendments to the Mainboard and Catalist Listing Rules: (i) the introduction of a new category in Rule 1207 to the distribution schedule of each class of equity securities which must be contained in the annual report of an Issuer with the object of tracking holders of less than 100 units of a security; and (ii) the removal of the requirement under Rule 508 to stipulate the board lot size for different categories of structured warrants.
It is noted that the SGX-ST did not propose a change to the existing requirements on minimum initial shareholding spread and distribution guidelines at initial public offerings and minimum float requirements after listing. This is because the SGX-ST was of the view that such requirements continue to be appropriate as preventive measures against concentration of shares, disorderly trading and market manipulation.
It the Public Consultation Paper, the SGX-ST explained that the reduction of the standard board lot size will be a move towards closer alignment of the local market with global practices adopted by other developed exchanges. The SGX-ST also expressed its belief that the market improvements afforded by the Proposal would serve to position Singapore as a prime capital market and listing venue of choice.
The Public Consultation Paper was issued on 19 August 2013 and may be retrieved from the SGX-ST’s website at www.sgx.com.
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