Plan to cut trading spread runs into mass opposition

PUBLISHED : Wednesday, 15 February, 2006, 12:00am
UPDATED : Wednesday, 15 February, 2006, 12:00am

Retail investors say HKEx proposal for under-$30 stocks reduces transparency


Nine in 10 retail investors are opposed to the Hong Kong Exchanges and Clearing's proposal to narrow the spread on stocks trading at less than $30, according to a survey conducted by two of the largest brokerage industry bodies.


The finding announced yesterday comes on the eve of an exchange board meeting today to determine whether to proceed with the controversial proposal.


The survey, jointly conducted by the Hongkong Stockbrokers Association and the Hong Kong Institute of Securities Dealers, last week asked 800 investors whether they supported the move.


It showed 90 per cent of respondents opposed a change in spreads - the difference between the bid and ask prices - for stocks trading below $30, with 67 per cent saying it would lead to lower market transparency and 76 per cent saying it would cause confusion.


About 87 per cent believed cutting the spreads would not reduce their trading costs and would not encourage them to trade more.


'It is crystal-clear that the retail investors do not support the changes. There are more than a million individual investors in Hong Kong and most of them are investing in stocks trading below $30,' said Tony Espina, chairman of the stockbrokers group.


'I don't think the exchange board should rush. With so many retail investors voicing their opposition, the exchange should consult the market comprehensively before making further changes to trading spreads.'


The exchange last year began the first phase of its plan, cutting all bid and ask price spreads from 25 cents to five cents for stocks trading between $30 and $100, and from 50 cents to 10 cents for those above $100. It plans to make further cuts for shares trading below $30 after gaining experience from the first phase.


Institutional investors want a narrower spread to make it difficult for derivatives to hedge positions. Day traders have pushed for a wider spread to boost their profits.


Mr Espina said the exchange had to balance the interests of institutional investors against those of retail investors.


However, an exchange source said a cut in spreads for stocks trading above $30 would boost turnover.


'The HKEx has also received requests from retail investors to narrow the spread. With such a mix of views, the exchange will listen to both sides of the argument before making a decision,' the source said.


WIDE DIFFERENCE


Retail investors say cutting the spread will cause confusion


Big investors want a narrower spread to foil derivatives hedging


HKEx board will decide today whether to push the plan