Enhancing Liquidity in Local Markets: Insights and Initiatives

In regions like Malaysia, Thailand, and Australia, domestic funds predominantly linked to local pension schemes consistently inject liquidity into the markets. However, recent fluctuations in market activity have raised eyebrows regarding the sustainability of this trend, urging a closer look at potential initiatives to bolster liquidity in Singapore’s financial landscape.

Market volumes have seen a notable decline, with shares dropping from 38.6 billion in September to 29.3 billion in November. This downturn has led to concerns that the EQDP funds alone may not possess the strength to support an upward trajectory in the long term. Currently, Singapore Exchange’s daily liquidity sits around S$1.5 billion, a figure that still lags behind several neighboring markets.

Exploring Other Initiatives

In an effort to attract greater liquidity, one area for potential improvement lies in enhancing custodial services.

At present, the Central Depository Board serves as the exclusive custodian for Singapore-listed securities, holding them directly in the names of individual investors. This arrangement allows investors to reap benefits like attending annual general meetings and exercising shareholder voting rights.

However, brokerages are currently unable to offer this service either in the open market or through IPOs. Instead, they provide custodian accounts where shares are held on behalf of investors, which limits the level of direct engagement investors have with their holdings.

Modifications to the custodial roles of brokers could significantly enhance liquidity by enabling them to support margin financing and collateralized trading. Additionally, the government’s review group has indicated that there’s room for improvement in the facilitation of broker custody accounts. This change could expand the range of investment services available, including portfolio management and fractional trading, aligning Singapore with global best practices and encouraging more participation from internationally active asset managers.

In conclusion, addressing these challenges through strategic initiatives can aid in fostering a more robust financial environment in Singapore, ultimately enhancing market liquidity and investor engagement.