HKEx board split on narrowing of spreads

PUBLISHED : Monday, 12 February, 2007, 12:00am
UPDATED : Monday, 12 February, 2007, 12:00am

Hong Kong Exchanges and Clearing's board meeting on Wednesday is likely to be the scene of a heated debate on whether to narrow trading spreads for stocks and warrants that currently trade at between 25 Hong Kong cents and HK$2.

Reformer David Webb and his board ally Christine Loh Kung-wai are both in favour of the change and want it to be made immediately.

HKEx chief executive Paul Chow Man-yiu and the six government-appointed directors, who hold the balance of power on the 13-member board, have yet to publicly state their positions.

Small local brokers are implacably opposed to a narrowing of the spread between the bid and ask prices of stocks and warrants. They argue the move will make it harder for retail investors to make money, while making it easier for derivatives traders to do hedging.

In July 2005, the exchange cut the spreads of 36 stocks trading at more than HK$30 and left spreads unchanged for those trading between HK$20 and HK$30.

In February last year, the board decided to narrow the spreads for all shares trading under HK$20 but it partially backed down in June in the face of strong opposition. Only 280 stocks trading at between HK$2 and HK$20 had their ranges narrowed in July; the board said it would not touch the spreads of 2,500 stocks and warrants trading at below HK$2 for at least six months.

This week's board meeting was called to review the past six months' trading figures for about 700 stocks that trade for less than HK$2.

Mr Webb said there was no reason to further delay a narrowing of these stocks' spreads. 'In the past six months, no systemic problems have been identified. Turnover has been hitting record levels, and investors have been given more choice of prices inside the old wide spreads, resulting in price improvement for both buyers and sellers, faster execution and greater market efficiency,' he said.

Director Vincent Lee Kwan-ho, a broker and chairman of the Hong Kong Institute of Securities Dealers, said the spreads should stay as they are. He is supported by another director representing small brokers, Bill Kwok Chi-piu.