Below is my letter to MAS in response to their open call for feedback from stakeholders in the stock broking industry.
PM Lee Hsien Loong
DPM/Finance Minister Tharman Shanmugaratnam
The MD MAS R Menon
CEO SGX Magnus Bocker
5 Mar 14
The Stock Market is NOT fine. It is no longer a level playing field and has been redesigned for unfair trading in favour of computer trading. (This two line statement is a summary of this paper)
This is an open letter to the above gentlemen and will also be posted in my blog, www.mysingaporenews.blogspot.sg/.
The Stock Market is not fine contrary to what was stated in the discussion paper issued jointly by the MAS and SGX. The condition of the stock market is dire, in a state of denial and slipping into a coma. Yes, the trading volume gives an impression that it is healthy and active. The revenue and profit of the SGX suggested that all is fine and presumably the market will continue to function in this manner for a long time to come, with the SGX chalking up good revenue and profit as it gets along. It is NOT. There are hardly any retail traders in the market. Why?
The Stock Market is not only the SGX. It has other players and stakeholders. And all is not fine except for the SGX and the computer traders. Some of the front line soldiers, the remisiers, are earning less than what a cleaner or security guard is getting. Younger remisiers have already left the industry or seeking employment. Only those that could not find alternative employment are sticking it out and waiting for the broking houses to ask them to leave.
The retail traders have fled from the market.
With this pathetic level of commission, the broking houses too would not be able to sustain their operations at the current scale and would soon have to downsize and retrench staff. The supporting staff will have to go and overhead cuts. Some may want to get out of the business too.
For companies listing in the SGX, soon they will realise that it is a waste of time when the value of their shares are near to worthless. It is a joke that the prices of stocks in the main board of a regional financial centre with big ambition can be less than 5 cents or even worse, less than 1 cent. And this is not an exception.
What is happening to the Stock Market? What are the causes that led to this dismal state of affair? Some stakeholders will still swear that it is fine. They will not want to see the elephant in the class room. What is that?
The culprit that is causing the demise of the Stock Market is not contra trading as they would want you to believe. Excessive contra trading and speculations need to be moderated but not to be wiped out. They are the soul and spirit of a small market. Without contra trading and speculations you will have a market the size of a pea.
The Stock Market today is not the traditional stock market that we knew before. All the principles and fundamentals of a traditional stock market have been violated and cast away. The Stock Market we have today is nothing but a casino in disguise but without the strict regime, regulations and controls of a casino.
The SGX has been reorganised and redesigned to allow computer traders using high speed sophisticated computer systems to trade against unsophisticated investors or even big funds still trading on fundamentals and believing that they are investing in the long term. Rules and processes have been changed to facilitate computer trading to be more effective and efficient, taking full advantage of computer power, time and speed, and financial resources to cream the market, to trade against investors without the benefits of these computers. Continuous trading with no lunch breaks, small board lot size, minimum bid size, script borrowing, keying in of short positions, etc… etc… were all created to favour computer trading against other traders.
High speed computers of computer traders are plugged into the SGX system to have access to information of other traders and their positions and simply trading against them with no regards to the fundamentals of the stocks. Computers trade for profit by buying and selling against the rest of the investors, often depressing prices of stocks against their real values. They have cleaned up the traders, big and small, and not many are left with money to lose.
Put it simply, computer trading is unfair trading, unfair advantage. It violates all the fundamentals, principles and regulations of the SGX to provide a level playing field and fair trading to all the players. How could this be allowed by the SGX? This is criminal.
I am not making any suggestion or recommendation as to how to save the Stock Market. The solutions are obvious but no one wants to see or do the right thing. The invitation for the public, the uncles and aunties for their recommendations to improve market activities, but creating an unfair and uneven playing field, reflects two things. One, they do not see anything wrong with the current system. Two, they are not serious.
The problems in the industry and the Stock Market are very serious and highly technical. You need experts and professionals who can understand what is happening and the complexities of the market mechanism to know what is wrong and what are needed to put things right.
If you get the picture, and see the problem and want to do something about it, it is best to set up a COI of experts who not only know what they are doing but have the heft and confidence to change what really need to be changed. You would need people like Paul Volcker or some real foreign talents who are critics of the existing flawed stock market system to tell the truth about the unfairness of the system. The advocates of the system will not volunteer to tell you what is wrong with the market and the system. They will say it is fine. This is how far I am prepared to comment.
For a ‘nobody’ to make suggestions is not only rude but a waste of time when the believers and converts of the current system could simply throw the paper into the waste bin. You need a COI of professionals to make real changes, failing which you can wait to bury the Stock Market in a year to two.
If you have bothered to read this far, there is some hope that the stock market industry can be saved. And I thank you for your patience and trouble to hear me out.
Chua Chin Leng aka redbean
*The writer blogs at http://mysingaporenews.blogspot.com