SGX

Minimum bid size reduction to help liquidity (BUY, S$7.57, TP S$8.90)

SGX will reduce the minimum bid size for securities on 4 July 2011. The initiative is expected to lead to a tightening of bid-ask spreads by as much as 80%. Based on 2010 stockmarket turnover, SGX estimates $1.7b in annual savings. SGX expects this initiative to lead to more liquidity in Singapore. We maintain our BUY call on SGX, with target price of S$8.90. This is derived from 22x FY13 EPS, and premised on FY13 average daily turnover of S$2.02b.

To cater to the narrowing of the bid sizes, SGX will widen the Forced Order Range for all securities to +/-20 bids from +/- 10 bids across all price ranges. Forced Order Range is a preexecution mechanism which helps investors to avoid error trades when entering prices of orders.

The revised Minimum Bid Size and wider Forced Order Range will apply to all securities traded on SGX except exchange traded funds, loan stocks and bonds.

We note that the reduction of the minimum bid size on 24 Dec 2007 corresponded with increased trading volumes in Jan 2008, but this could be partly attributed to the seasonal factor in play. Nonetheless, we believe this current initiative could contribute marginally to increased trading volumes.