Hi forummers, Anyone knows how will the reduction of min bid size of.5 cents to 0.1 cents for stocks below 20cents from 4 july affect the way investors invest. I am not sure why sgx wants to do that? Will it improve liquidity? I doubt it. I just feel that they are very extra lei.. Fixing something that is not broke, instead of tighting the safety net for retail investors against rogue companies. Well, it might turn out to be beneficial to those who are not vested, but someone like me who is vested and sitting on paper loss on anchun, what initially was a 10bids climb to break even will become a 100 bids climb.. Seems like an impossible climb to me la.. Or am I wrong in my thinking? Any enlightening from forummers?
While there will be some retail traders who may be put off by the decreased margins, perhaps there will be some retail traders/investors who may be attracted because the decreased margins will mean increased margins of safety - it will be easier to get in and out of the stock. After all if a stock has true value it will go up regardless of the bid size, and it would have been unsustainable to depend on contra traders to push up the stock anyway.
If the American stock market is anything to go by, where if I'm not mistaken penny stocks can be traded even at intervals of 0.01 of a cent and yet are still extremely volatile, then the new smaller intervals should not affect the overall volatility of the stocks. The intraday volality of the stock may decrease especially on slow, low-volume flat days where instead of a half cent movement you may just see 0.1 or 0.2 cents movement, but I wouldn't think that this new ruling will affect the overall intra-week or intra-month volatility.
If a stock was meant to go up 20% due to market revaluation it will go up the 20% no matter how many bid intervals there are in between. I do not think that the market can be so irrational that having more smaller bid intervals will dramatically affect the perceived value of a company, such that instead of going up 20% it goes up just 2% instead. If that were the case then by that logic we might as well get SGX to raise the minimum bid intervals to 5 cents instead, then all our penny stocks will rise very quickly
What do the rest think?
This will likely increase investor participation on penny stocks. In the last 2 mths, S-Chips have been beaten down badly because of fear and force selling, many are now below 10 cts and a half ct bid is quite a lot. There are also the annoying program selling , dropping these stocks at half ct bid for days. Now they have to do it at 0.1 ct a bid haha. Will be interesting to see how it goes next week.