Hong Kong’s stock exchange is discussing options to lower the threshold for investors to buy some of the city’s most expensive stocks to stoke trading, according to people familiar with the matter.
In background meetings between Hong Kong Exchanges & Clearing and the brokerage community in recent weeks, bourse officials raised the option of streamlining the minimum trading unit, or board lot, of each stock, the people said, asking not to be named because the matter is private.
Currently the unit is set by each company and can range from 100 shares per trade to thousands. Other markets, including in mainland China, typically trade with a standardized unit of 100 shares and in some cases as low as a single share.
For example, to buy shares of Chinese automaker BYD, which are up about 35% this year, an investor would need HK$177,500 ($30,417.86) to enter at the minimum board lot of 500 shares. Firms such as HSBC Holdings and Alibaba Group Holding trade at 400 shares per lot and 100 per lot, respectively.
While partial board lots are available to investors in Hong Kong, they are costlier than whole units because of infrastructure issues. Officials have also discussed having the exchange mandate the same price for trading single shares as board lots to boost liquidity among the wider public, the people said. That would spare massive market-wide adjustment on derivatives products and settlement systems, which align with the size of board lots.
HKEX has yet to indicate a preferred direction, according to the people. The policy formulation is still ongoing, with the timetable and scope unclear, the people said.
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The board lot review was mentioned by Financial Secretary Paul Chan said in his latest budget speech in February.
“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,” an exchange spokesperson said in a statement. “HKEX will consider the merits of various options and will consult the market before implementing any changes.”
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The review is part of the wider push to enhance liquidity on the stock market from its low point in 2023. The city has already lowered the stock trading stamp duty, shrunk the bid-ask spread, and removed the minimum and maximum settlement fees.
Trading has boomed since late last year after China pledged broad stimulus measures and encouraged more listings and more products to trade via Stock Connect, a link between the Hong Kong, Shanghai and Shenzhen bourses. Trading rose to an average of about HK$200 billion a day in the first quarter, up from HK$91.7 billion a year earlier.
Companies tend to lower the minimum trading unit when stock price soars to lower the threshold for ownership. Chinese tech giant Tencent Holdings slashed its board lot size in 2007 and 2009 as the share price surged.
One concern among brokers is that allowing trading of one share could raise costs. HKEX currently charges traders and market makers for how many so-called throttles they use. In Hong Kong, one throttle can only handle two orders per second while in US they facilitate thousands. A surge in trading of small, single share orders would then necessitate additional throttles, which cost HK$50,000 each upfront.
Chart: Bloomberg
