SGX's proposed regulatory measures feared to dampen retail interest

But only in the short-term.

SGX and MAS has released a joint consultation paper on 7 Feb 2014, setting out a series of proposed regulatory measures in a bid to strengthen the securities market.

According to Phillip Securities Research, it sees these set of measures as (1) long-term beneficial in improving market transparency (2) curbing speculative activities in the retail securities market (3) overall strengthening the health of our securities market.

The downside risk is in the short-term where by some of these measures might discourage retail participation and consequentially, retail trading volumes.

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Again, we emphasize that the proposed regulatory measures are a long term play which is still undergoing consultation.

Therefore, holding a longer term view, the measures proposed will serve to promote a healthier securities market and the interest of investors. Some of these measures might help cement Singapore as a high quality securities market and address some long time debates on SGX’s supposed conflict of interest as a lister and regulator.

The minimum trading price proposed and collateral requirements together with measures to increase transparency will also aid in curbing speculative manoeuvres, likely a response to the penny stocks saga. The downside issues are that the proposed minimum trading price will result in reverse stock splits (share consolidation for about 130-230 issuers) and collateral requirements might dampen retail interest.

We believe that the potential flattening of volatility in low priced securities due to these measures, standard board lot size reductions (1000 to 100 units) and market-making incentives will promote more liquidity in the market and mitigate a drop in retail interest in the long-term.

In a shorter-term view assuming these measures are rolled out, we believe a slight dip in retail volumes is imminent as punters in the securities market might be driven out.