From 4 July, Singapore Exchange (SGX) plans to reduce the tick sizes it uses for bids on securities from next month, which it claims will save market participants S$1.7 billion (US$1.38 billion) annually.
The reduction in size will depend upon the value of the security. For example, for stocks priced at S$0.20 the minimum bid size will be reduced to S$0.001 from S$0.005, while shares valued at S$10 or over will see the minimum bid reduced to S$0.01 from S$0.02. SGX expects this to tighten bid-ask spreads for affected securities, which excludes exchange-traded funds, loan stocks and bonds, by as much as 80%. The exchange says the initiative will help it offer one of Asia's most cost-competitive trading environments.
To cater for narrower bid sizes, SGX will adjust its forced order range system for preventing erroneous trades. The system sets limits at which orders can be executed, which are calculated based on the previous price of a trade multiplied by the forced order range. Currently, all orders must be within a multiple of 10 of the last traded price, although this will rise to 20 following the reduction of tick sizes.
“This initiative addresses our customers' need for more cost-efficiency and trading opportunities,” said Chew Sutat, head of securities at SGX. “Tighter spreads will encourage investors to increase their participation in SGX, the best market for accessing fast-growing Asia. This will in turn enhance liquidity here in Singapore.”