Bursa reduces tick size to boost market liquidity

Source: The Star Online

KUALA LUMPUR: Bursa Malaysia has reduced the structure of tick size or the minimum price variation between the buy and sell price for a stock, effective Aug 3.

In a statement yesterday, it said the tick size was reduced in line with the current practice by global developed markets and more importantly, to create market depth, enable price discovery and boost liquidity in the local equities market.

“Investors rely 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,” Bursa Malaysia Bhd chief executive officer Datuk Yusli Mohamed Yusoff said.

He said the exchange anticipated this reduction of tick size would broaden participation from investors who were poised to provide more liquidity to the local market as investors could enter and exit the market more easily.

In addition, the smaller tick size would enable investors and traders to take advantage of more trading opportunities with each price movement, however small.

“This is more evident with the advent of electronic access or Direct Market Access infrastructure which operates efficiently with smaller tick sizes,” Yusli said.

To investors, this revised tick size structure means that the minimum price change of listed securities is now smaller.

For example, 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 one 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 said the equity exchange-traded funds (ETFs) would also benefit from the change. Currently, these ETFs have a tick size of one sen regardless of any price. In future, 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 priced at RM3 and above, the new tick size will be one sen. Meanwhile, the bond ETF maintains its tick size of 0.1 sen. As to the bidding price for buying-in, Bursa said it would retain the 10 ticks.

Arising from this, the buying-in price would be based on the current tick sizes instead of the new tick sizes to ensure that the buying-in price was attractive to potential sellers, it added. — Bernama