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Cooperation, not confrontation
Two interesting letters were published in Business Times today that are worth reading. Both deal with the same subject - how to improve the local stock market. Yet their suggested approaches differ - the first from Society of Remisiers' president Jimmy Ho is critical of moves by the Singapore Exchange to reduce speculation in the local market, whilst the second, from remisier Vincent Khoo, essentially says SGX is on the right track with its reforms.
In my view, there is no right or wrong here and all parties have valuable contributions to make. Mr Ho calls for stronger regulation, better quality listings and some leeway for speculative activity - all criteria for a vibrant market and recommendations we can have no quarrel with. He also says that too many sophisticated product offerings are not needed and calls for a return to "plain vanilla'' investing. I agree that if SGX gets the basics right then activity and interest will return and I also agree that complex products have to be carefully studied before being introduced. I say this because the Singapore market's experience with these products has been patchy at best - structured warrants have succeeded but single-stock futures and extended settlement contracts have failed badly.
Mr Khoo in the meantime, reminds remisiers that the good old days when the phones rang off their hooks have long gone, and that everyone has to reinvent themselves in order to survive. With the advent of the Internet, retail investors have become a lot more market savvy than say ten years ago, which means remisiers have to evolve - as Mr Khoo said "they cannot stay as just order takers and hope for the phones to ring non-stop again''. He also advocates instilling more of an investment-style mentality among investors instead of the speculative-type which has prevailed, and argues that the stock market is not a place to gamble. I agree with this, though I believe that completely discouraging speculative activity is not the right approach - there has to be some scope for short-term punting and trading, even if the system discourages it.
The key therefore is to find an acceptable middle ground, though this is easier said than done. As I noted in an earlier blog posting, I think SGX has a thankless job balancing the various interests and demands of the market. Sometimes people take SGX's efforts for granted and fire off criticism when events take place that don't work in their favour; other times the criticism may be warranted (as in the case of last week's 3-hour market shutdown).
By the same token, the exchange has taken the welfare of remisiers for granted by removing the lunch break, perhaps the single biggest sticking point among retail brokers. I once suggested starting trading half an hour early at 8.30pm and closing for lunch between 1-2pm as a logical compromise when SGX invited feedback for its proposal to switch to full-day traading and had that suggestion been accepted, I believe a large part of the negative feelings remisiers have towards SGX would not exist today. But I digress. Both letters contain useful suggestions and I'm sure both will draw plenty of feedback and provoke much discussion in the days ahead.
Hopefully, all parties will one day work together and tap each other's suggestions - after all, the ultimate goal is a stronger Singapore stock market which is what everyone wants.