Sunday, 5 October 2014

The Reductions in Board Lot. What It Means and Should It Affect You?

I'm sure many people are aware by now of this date. 19 January 2015.


Singapore Exchange (SGX) will reduce the standard board lot size of securities listed on SGX from 1,000 to 100 units from 19 January 2015. A smaller board lot size will make it more affordable for retail investors to invest in a wider range of equities, including blue chips, and enable them to build more balanced and diversified portfolios.

The reduction will apply to ordinary shares, including shares traded on GlobalQuote, real estate investment trusts, business trusts, company warrants, structured warrants and extended settlement contracts. Existing counters with board lot sizes of 100 or less units will remain unchanged.
The board lot sizes for exchange traded funds - except for SPDR Straits Times Index (STI) ETF and ABF Singapore Index Bond Fund for which the board lot size will be reduced to 100 units - American Depositary Receipts and fixed income instruments, including retail bonds, Singapore Government Securities and preference shares will remain unchanged.

What does this means for Investors? More shares will become accessible as their prices drop. For example, 1 lot of Starhub costs $4,100 for 1000 shares. From 19 January 2015, the price would be $410 for 100 shares, which is impossible to do so now.

However, what can we expect? More people will rush to buy shares. Will the share price rise?

After all, when learning Economics in Business, I learned that naturally when demand increases, price increases as well. Might not be good news for newbie investors who have not enough capital.

However, no point thinking so much! After all, as long as nothing is confirmed, it's essentially

"No Man's Land"




After all, this move to decrease board lots have been talked about since 2013. The plans to introduce in the first quarter of 2014 never happened, as we all know.

See this article in 2013: http://sbr.com.sg/markets-investing/news/see-why-sgx-planning-reduce-board-lot-size


What are your strategies? From a few financial blogs, I gathered that some are preparing their funds to purchase REITs, various Banks as well as stocks basically.

What do I feel about this? The drop in board lot may mean more investors can join in. But at what cost?

Let me try and paint a scenario:

Investor A has been purchasing Stock X at $3/share at 1000 shares / lot.

So he invests $3000 each time he buys 1 board lot.

Come 19 Jan 2015, if the stock prices doesn't change. Everything's good. Right?

Investor A still invests either $300 for 100 shares or $3000 for 1000 shares. Doesn't make a difference.

Ah, but what if the share price changes? Maybe now it's $4 or even $5 per share.

Essentially, it's still relatively affordable right? Since it costs $400 - $500 for 1 lot of 100 shares.

Investor B is happy. He can now purchase Stock X at $400 compared to $3000.

Is Investor A happy? He now pays $4000-5000 if he wants to purchase 1000 shares.


My point is, buying in bulk may not be as cheap compared to the past for Investor A. Investor B is happy because he can now invest in a more affordable way.

So, this is how the change in board lot will affect various categories of Investors. It's not as dramatic a change as most people in the general public assume.

What about me? It might be beneficial for me as I have access to more stocks with the decreased board lot. But ETFs are not really affected, so it may not affect me as much as others.

Signing off,
Teenage Investor

12 comments:

  1. "Ah, but what if the share price changes? Maybe now it's $4 or even $5 per share.
    //////
    But ETFs are not really affected, so it may not affect me as much as others."
    Unquote:-
    How come ETF not affected?
    My maths is very basic only.

    ReplyDelete
    Replies
    1. Hi temperament, I got this information from the news.

      This particular sentence. Existing counters with board lot sizes of 100 or less units will remain unchanged.The board lot sizes for exchange traded funds - except for SPDR Straits Times Index (STI) ETF and ABF Singapore Index Bond Fund for which the board lot size will be reduced to 100 units.

      So the way they phrased it, is ABF SG and STI ETF reduced to 100 units and the rest unchanged...? Or does it mean something else? Not quite sure.

      Delete
    2. Hey TI,

      From what I understand, the ABF and STI ETF will be dropped to 100 shares per lot, while the rest will remain as they are. It would be good since now there would be a very simple way to get basic exposure in bonds.

      Delete
    3. Hi MH!
      If so, it's good! ABF SG Bond is more accessible even at 1000 shares because unit price is about $1++ but STI ETF was at $3++ forcing a minimum sum of $3k++ therefore people like myself had to choose Nikko AM. The change in STI ETF will be very welcome to me if so!

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  2. Personally think that it is a positive move for small retail investor like me (as I have more options especially for the Blue Chips). Also, I personally don't think it will sway the price of the stock that much since those new investors coming into the scene because of the reduction of Board Lot size would not be have huge holding.

    In fact, I have also written a post on this topic, if you are interested, can view it here : http://www.investopenly.com/2014/09/infographic-6-key-points-you-need-to.html

    Cheers!

    ReplyDelete
    Replies
    1. Hey Richard! Wow you have your own website! I wasn't aware. I'll take a good read through your blog! Linked you already :)

      Personally, I feel that it's beneficial retail investors. Hopefully the price doesn't change much. Most likely all eyes will be on brokers if they will reduce commission rates.

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  3. Doesn't seem logical that the smaller lot sizes will necessarily lead to easier trade. It wouldn't make sense pay a trading fee of say $30 against a $300 (10%!) transaction compared to $3,000 (1%)?

    I think this has a certain sweet spot and hence bearing for those shares where the price per unit is high - maybe those above $5 per share?

    ReplyDelete
    Replies
    1. Hi Lizardo, what do you mean by easier trade?

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    2. That is if the commissions stays the same! :)

      I sure hope the sales commissions will drop together with the lot size! Only time and competitiveness will tell!

      - The IA

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    3. hi TIA! I hope so too! Yeah you're right only time will tell :/

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  4. Hi Teenage Investor,

    By "easier trade", I meant that it wouldn't cost as much to buy.

    ReplyDelete
    Replies
    1. Ohh, then i think it's all about the commissions right now

      Delete