A planned reform to the Hong Kong stock exchange’s trading unit system should boost stock market turnover and encourage smaller investors, but implementing it will require investment to overcome technical challenges, according to brokers.
Both the exchange and financial firms would need to upgrade their systems to support changes to the board lot – the number of shares defined as a trading unit, they said. Currently, board lots are not standardised, and are generally large, which can discourage smaller investors.
Financial Secretary Paul Chan Mo-po in his budget speech on February 26 called on bourse operator Hong Kong Exchanges and Clearing (HKEX) and market regulator the Securities and Futures Commission to propose an upgrade of the system this year. They should ensure the system “can better meet liquidity characteristics of shares of different sizes and investment needs, as well as facilitate trading and improve efficiency”, he said.
While players across the ecosystem agree with reform in principle, some are concerned that the upgrade will be costly, especially for smaller brokers.
“We are in the early stages of a review on board-lot sizes, part of HKEX’s ongoing efforts to enhance Hong Kong’s equity market structure to ensure it remains fit for purpose,” said an exchange spokesman. “HKEX will consider the merits of various options and will consult the market before implementing any changes.”
HKEX currently allows listed companies to decide their own board-lot sizes, which can range from 10 shares to 10,000 shares.
