SGX's volumes will shift around but won't grow much with lunch break: Nomura

THE SINGAPORE Exchange's (SGX) reinstatement of the lunch break on Monday will be more street cart than full-service banquet when it comes to impact on trading volumes, analysts at Nomura's Instinet Pacific said in a report.

The trades that would have taken place during the one-hour pause will be pushed around to other parts of the day, but overall daily volumes are unlikely to grow much of a bulge, the analysts said.

About 5.5 per cent of daily trading volumes on SGX currently takes place between noon and 1pm, Nomura noted.

"In the case of Singapore, our base case assumption is that 50 per cent of displaced noon to 1pm volume will occur on the PM open auction (at 1 pm), 25 per cent of that volume will be distributed to the AM session, and 25 per cent will be distributed to the PM session after the auction," the analysts said.

They based their prediction on patterns in the Japanese, Malaysian and Thai markets, which also have midday trading breaks. In those markets, between 0.5 to 1.5 per cent of daily volume takes place at the afternoon open auction.

Golden Agri-Resources, Keppel Corp and Ascendas Real Estate Investment Trust might experience the most amount of displaced trades to other times of the day, based on their historical noon-to-1pm volumes, the analysts said.

SGX has provided several justifications for bringing back the break, including: The noon to 1pm window is the lightest trading period of the day; the break overlaps those in the Hong Kong and China exchanges; the break will allow traders to contact clients at midday leading to more effective trader/client relationships; and that a midday auction may faciliate the execution of larger orders.