Attracting more retail investors to SGX -Not! 1 comments

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I almost choked on my breakfast when I read several days ago that SGX is planning on a major drive to attract retail investors into the market. To me, their recent actions and their strategy are completely at odds.

To small investors like me, risk is a more tangible issue to us since it involves our own money than say, the fund managers, who are managing other people's money. Hence to be assured of ready access to information and a relatively level playing field is one of the most important things to us because at least systematic risk and disadvantage is minimised.

Consider the Straits Times report today that SGX plans a levy for live share prices. This will most likely cause live feeds for Teletext to become 20-minute delayed feeds for older investors who have no alternative recourse due to their unfamiliarity with computers. Perhaps this is a ploy to increase their dependence on their brokers. Online brokers will also likely be affected by the levy if it is applied. The cons of monitoring stock prices real-time throughout the day is besides the point; the central issue here is that effectively an asymmetry of information is threatened unless we pay more. SGX is taking advantage of the market bull to grab investors by the balls and squeeze more money out of them if they want to continue to participate. Of course one may argue that these costs are across the board, but then such overheads for institutions are likely to be insignificant in relation to assets managed compared to small investors.

Take another example: the company announcements on the SGX website. Nowadays "minor" announcements are kept on the SGX Announcements website to a maximum of 3 months' history, with only the results announcements being stored up to one year back. This was implemented only recently; it used to be that all these were stored up to at least one year back if I remember correctly. Are the "minor" announcements really minor? Share transactions by key shareholders and directors, trading suspensions and their reasons, key contracts signed and JVs formed, departures of key personnel, change or resignation of auditors -- all these are hardly minor information from a fundamentals investor's viewpoint. Instead the listing of such announcements is now outsourced such that it is each listed company's responsibility to maintain its investor relations site (eg. on www.listedcompany.com); if you visit each company's IR site you will notice that they have varying standards of such disclosure. For a stock exchange which emphasises that it is now a disclosure-based regime and urges buyers to caveat emptor the SGX is not doing its best to make sure that the critical element for such a system to succeed -- the easy availability of access to such disclosures -- is facilitated such that investors can truly make informed judgments. They can't even claim they are benchmarking according to other markets --- look at the Hong Kong market which keeps relevant announcements up to 2-3 years back.

Don't get me started on the IPOs that the SGX has "attracted" to the market. By now it should be clear that many are duds which have fallen into a swoon soon after listing. That is probably related to the relatively small scale of operations of many such IPO companies; so many have run into financial trouble and earnings collapses immediately after their IPOs that one wonders what kind of due diligence the SGX does to protect IPO investors -- just look at New Lakeside, Daka, Anwell, 8Telecom, ATM, Alantac, Eucon, Sinobest, Pharmesis, Etika, Karin, FM Hldgs, Azeus, Linair etc etc just these two years. There was a cry after the CAO scandal for introduction of something similar to the Sarbanes-Oxley in the US requiring company executives to be legally responsible for their financial statements, as well as an independent commission akin to the Securities and Exchange Commission to be able to truly monitor market transactions without personal interests getting in the way; the calls seem to have died off without much action from the authorities. What we have is SIAS, well-meaning but dependent on funding from companies like DBS and thus not truly able to act independently; and perhaps MAS which seems to take a broad supervisory role and leaves the devil of the details to SGX, which itself has to be accountable to its shareholders. Again, benchmarking to Hong Kong, they have their Securities and Futures Commission (SFC), which is an independent statutory body that does this role.

It is in the SGX's interest to stimulate retail investment in the market, since in developed markets with affluent masses it is these investors, either independently or through unit trusts, who stimulate trading liquidity; the US boom in the 1990s was brought about by the small investor with ample funds. Singapore is clearly trending towards such a future, with emphasis on development of domestic consumption and services. However if the SGX is perceived to be acting more in its own interests or in the interests of the corporates rather than the investors, then such funds are more likely to flow elsewhere in the face of increasing global communications links facilitating funds transfer.