Eroding safeguards to boost liquidity not the way to vibrant market

THE Monetary Authority of Singapore (MAS) and Singapore Exchange (SGX) must find better ways to improve stock market liquidity and to attract issuers than whittling away regulatory safeguards.

News emerged this week that MAS is reviewing an earlier plan to require 5 per cent collateral from retail stock traders. There has always been strong industry opposition to the proposal, because of a belief that margin requirements will significantly deter retail traders who trade on a contra basis.

Contra traders buy shares and sell them before they have to settle the purchase, allowing them to realise profits without having to put any money upfront. Opponents of the margin rule argue that having to put down collateral will suffocate contra trading, which contributed about a third of trading value on SGX from October 2012 to 2013, based on market statistics. The volume of contra trading is believed to have fallen since 2013.