The Singapore Exchange (SGX) is considering major amendments to its listing rules to promote more retail participation in initial public offerings.
According to a consultation paper published by SGX on Friday, the exchange operator intends to require companies seeking to list on the mainboard to allocate at least 10% of shares to retail investors at the time of their IPOs.
SGX's rules do not set a mandatory allocation of IPO shares to retail investors now. In 2012, the exchange issued a similar proposal for a minimum allocation of 5% of shares for retail investors, but it did not implement the plan after a public consultation.
Now SGX is back with the proposal of a larger, 10% allocation rule. Its intention is to improve market liquidity by encouraging retail participation in IPOs. Regional rival Hong Kong has a similar 10% allocation rule for IPOs, but other Asian bourses do not.
To address concerns that a 10% retail allocation may be challenging for companies if the total offer size is too large, SGX has also proposed a cap of S$100 million on the value of shares allocated to the retail tranche.
SGX is collecting public feedback until March 24.
Restoring market liquidity
Singapore has a tough year in terms of new listings last year. The Lion City saw only one mainboard listing – BHG Retail REIT’s S$395 million ($280 million) IPO – last year compared to 12 deals in 2014. Total IPO fundraising also dropped significantly, to S$630 million last year from S$3.5 billion a year earlier.
Liquidity has always been one of the main concerns of SGX when compared with the Hong Kong stock exchange, the world’s biggest IPO fundraising hub last year and SGX’s main competitor in the region.
But SGX is confident it can overturn the situation through the introduction of the new regulations.
Data collected by SGX shows over 90% of mainboard IPOs between 2010 and 2015 had retail applications exceeding 10% of the total deal size, indicating a substantial retail demand for IPOs. But the demand has not been matched by the supply of shares because institutional investors have been favoured, as they are often seen as longer-term investors.
The introduction of the new rule could ensure retail investors get a more significant portion of IPO shares going forward.
Loh Boon Chye, SGX’s chief executive officer, said the initiative was aimed at giving individuals more investing opportunities in the Singapore equities market and was part of overall enhancements to the Singapore stock market.
The former Asia-Pacific head of global markets at Bank of America Merrill Lynch introduced multiple initiatives to restore SGX’s global competitiveness since he took over the role of CEO in July last year.
On Wednesday SGX confirmed it had submitted a non-binding bid for the acquisition of London-based Baltic Exchange, a major trading platform for shipping contracts and provider of key maritime indices.
It is also finalising details of a bilateral trading link with the Taiwan Stock Exchange to allow mutual market access for retail investors.