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Friday, July 24, 2009

Flash Bursa reduces tick size to boost liquidity

KUALA LUMPUR: Bursa Malaysia has reduced the tick size, which is the minimum price variation between the buy and sell price for a stock, with effect from Aug 3.

The stock exchange operator said the tick size was reduced in line with the current practice by global developed markets and to create market depth, enable price discovery and boost liquidity in the local equities market.

Chief executive officer Datuk Yusli Mohamed Yusoff said investors relied on information such as tick sizes to estimate future movement of a counter's share price as well as form a gauge of market sentiment.

"We anticipate that this reduction of tick size will broaden participation from investors who are poised to provide more liquidity to the local market as investors can enter and exit the market more easily.

"In addition, the smaller tick size will enable investors and traders to take advantage of more trading opportunities with each price movement, however small it is," he said in a statement.

Yusli said this was more evident with the advent of electronic access or Direct Market Access infrastructure which operates efficiently with smaller tick sizes.

Under the revised tick structure, the minimum price change of listed securities would be reduced.

Currently, a RM5.10 stock is quoted in multiples of five sen which means that the next tick up is RM5.15 and the next tick down is RM5.05.

With the new tick sizes, investors can now quote in multiples of 1 sen which will now see a RM5.10 stock go up to the next tick which is RM5.11 or next tick down which is RM5.09.
Bursa Malaysia said this would create more trading opportunities for both buyer and seller.

The equity Exchange Traded Funds (ETFs) on the Main Board would also benefit from the change to a smaller tick size.

It added these ETFs had a tick size of one sen regardless of any price. Under the revised structure, any ETFs below RM1 will have a tick size of 0.1 sen and ETFs that are priced between RM1 and RM2.995 will have a tick size of 0.5 sen.

For ETFs that are priced at RM3.00 and above, the new tick size will be 1 sen. Meanwhile, the bond ETF maintains its extremely small tick size of 0.1 sen.

In respect to the bidding price for buying-in, the Exchange will retain the 10 ticks. Arising from this, the buying-in price will be based on the current tick sizes instead of the new tick sizes to ensure that the buying-in price is attractive to potential sellers.

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