Evaluate SGX rule based on liquidity outcome

The letter “SGX should explain timeline rationale better” (Nov 25) missed an important point. The implementation of the minimum trading price (MTP) can be evaluated based on the reasons given by the Singapore Exchange.

A key reason is improved liquidity, a major component of market quality. But numerous counters have conducted share consolidations, several months have passed and liquidity for most counters seems to have fallen just after consolidation.

This can be measured objectively, and the SGX should provide liquidity statistics for the counters, such as the transacted value the day before and after the effective date, and the average transacted value for the month before and after.

I believe the investment community would like to see such a report, which should provide a good picture of how things have fared.

Another artefact is the dislocation of the opening price on the effective day of consolidation versus the closing price the day before. Without any significant news, by rights, the dislocation should be minimal.

In practice, the dislocation and wide bid-ask spreads at the opening are a problem. I wonder why the 20-bid limit is not applied on the effective date based on the adjusted closing price.

Previously, share consolidations, share splits or other corporate actions that require share price adjustments were less frequent. We could adjust to the occasional ones given some time.

With numerous consolidations, investors tend to lose track of the price histories of market counters. Without such discontinuities, we can say about a counter: “This used to trade around 20 cents a year ago; it is now 50 cents.”

But we must now check whether there was consolidation. The mental adjustment is probably not too problematic for those that had chosen the convenient ratio of 10 to one.

But it is not as convenient for ratios of five to one or four to one. And how about 10 to 3? With the MTP affecting more than 200 counters initially, potentially a quarter to a third of the main board require adjustments.

Is it good for the market if participants are lost in this aspect? Without the price histories as guides, the usual response is avoidance.

I agree that market quality should improve in the long term, but as economist John Maynard Keynes said: “This long run is a misleading guide to current affairs. In the long run, we are all dead.”

The market is feeling the effect already. A look at the consolidated counters is telling. More consolidation will probably accentuate the effect. The SGX should evaluate and adjust the implementation of the MTP if things are not going well.