Bursa Malaysia's reduction of tick size poised to boost liquidity in equities market

Bursa Malaysia's reduction of tick size poised to boost liquidity in equities market

23/07/09

Bursa Malaysia today announced the revised tick size structure, which will see a smaller tick size, and is planned for implementation on Monday, 3 August 2009. The tick size is the minimum price variation between the buy and sell price for a stock. The tick size is 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.

Chief Executive Officer of Bursa Malaysia Berhad, Dato’ Yusli Mohamed Yusoff said, “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. 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.  This is more evident with the advent of electronic access or Direct Market Access infrastructure which operates efficiently with smaller tick sizes.”  

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 5 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.  This will create more trading opportunities for both buyer and seller.

The equity Exchange Traded Funds (ETFs) on the Main Board will also benefit from the change to a smaller tick size.  Currently, these ETFs have a tick size of 1 sen regardless of any price. In future, any ETFs below RM1.00 will have a tick size of 0.1 sen and ETFs that are priced between RM1.00 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 ten (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.

The following Table 1 and 2 illustrate the differences between the current tick sizes and the new tick sizes for all listed securities traded on Bursa Malaysia as well as listed Exchange Traded Funds (ETFs):

Table 1: Current and New Tick Sizes on Bursa Malaysia
 

Securities Price Current Tick Size New Tick Size
Below RM1.00
 
0.5 sen(1/2 sen)
 
0.5 sen (1/2 sen)
 
RM1.00 to RM2.99
 
1 sen
 
 1 sen
 
RM3.00 to RM4.99  2 sen
RM5.00 to RM9.99  5 sen
 
RM10.00 to RM24.99  10 sen 2 sen
RM25.00 to RM99.98 25 sen
RM100.00 and above 50 sen 10 sen

 

Table 2: Current and New Tick Sizes for Exchange Traded Funds (ETFs) on Bursa Malaysia 

Securities Price Current Tick Size New Tick Size
ABFMY (any price) 0.1 sen

0.1 sen
(No change)
 

Equity-based ETF*
 
   
Below RM1.00 1 sen  0.1 sen
RM1.00 to RM2.995 1 sen  0.5 sen
RM3.00 and above 1 sen 1 sen

*Currently, there is no tiered approach. The bid size of 1 sen is applicable to all ETF units trading at all reference prices.

For more details on the revised minimum bid structure, please go to www.bursamalaysia.com.