29 Oct 2013 ~ Good Morning Singapore!
Central Execution Team - The Excellence of Execution
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Global Flash: While You Were Sleeping
Source: Marketwatch
Quote for the day : Happiness is beneficial for the body, but it is grief that develops the powers of the mind.
- MARCEL PROUST
Singapore: The Day AheadSINGAPORE DAYBOOK :SGX mulls over rebates for high-frequency market makers. Exchange keen to support liquidity and to compensate such traders for their cost and risk. [SINGAPORE] Singapore Exchange (SGX) could consider rebates for high-frequency market makers to boost liquidity in the marketplace, a senior executive of the bourse operator told The Business Times yesterday.
"We are interested to see how we can support liquidity and market-making in our securities markets as market makers and liquidity providers provide a service to the market," said Chew Sutat, executive vice-president for sales and clients at SGX.
"Clearly for that service and the cost and risk that they are taking in providing two-way quotes, they will need to be compensated through appropriate schemes, including potentially liquidity rebates as an example."
These comments come as SGX begins to lay some of the key pieces that would allow it to make a bigger push for high-frequency trading (HFT). The exchange plans to put in place circuit breakers in 2014, and has invested heavily in low-latency technology.
Mr Chew said SGX was unlikely to go as far as a maker-taker system, a controversial model where liquidity providers are paid for posting both buy and sell offers, while traders that "take" those offers are charged a fee.
However, fee rebates or liquidity provisions are possibilities that SGX could offer to entice high-frequency traders to make markets for Singapore-listed stocks once the regulatory and infrastructural support is in place, Mr Chew said.
Such a possibility has to be considered partly because Singapore is a single-exchange market. In more fragmented and deeper markets such as the United States, high-frequency traders can make money by arbitraging price differences between exchanges or correlations within markets.
In Singapore, those opportunities exist mainly in the derivatives market, where about 30 per cent of volumes are already attributed to high-frequency players. With derivatives contracts, traders can exploit inefficiencies through parallel products that trade elsewhere in the world, for example.
On the securities side, high-frequency market-makers also exist for many of the exchange-traded funds and warrants, where issuers have a clear incentive to maintain liquidity. But it is in the listed stocks where high-frequency market-makers may need more enticement.
"There are investors already running some algorithm models profitably, such as trading correlations intra sector - for example trading the three banks against one another - or across index components in different sectors, but we would welcome more," Mr Chew said.
Ken Ang, an analyst at Phillip Securities, reckoned that the exchange might also consider lowering the maximum daily clearing fees or reducing clearing charges if traded volumes exceed a certain threshold.
But he noted that SGX has adopted a multi-pronged strategy to attract high-frequency traders.
Minimum board lot sizes could eventually be lowered to one share, and market diversity and depth are constantly in focus.
"What they are doing is constantly trying to improve the attractiveness of stocks on the exchange . . . Including more sector diversity, more overseas exposure," Mr Ang said.
But UOB Kay Hian analyst Jonathan Koh felt that SGX was already competitively priced against many other exchanges.
"The cost differential may not be that significant between us and the US. In terms of cost, it's probably not a serious issue that can derail the transformation from happening," he said.
SGX's Mr Chew agreed, noting that clearing fees were only a component of total trading costs. In terms of total costs, Singapore falls somewhere in the "lower middle" of the pack when factors such as taxes and market-impact costs are considered, he said.
"Also, the cost of trading is not the only reason for different types and levels of HFT activity in any exchange," he said.
A Hong Kong-based high-frequency trader, who declined to be named, said Singapore's pricing was competitive with Hong Kong, which imposes stamp duties on securities trades.
The Republic is "a small venue but it's a good venue. What matters is the computer systems are very quick, and that's the main thing for us", the trader said.
SGX would benefit from the boost in liquidity should high-frequency traders become more prominent, said Carmen Lee, head of investment research at OCBC.
"This will help with the liquidity in the market, as market players are able to quickly participate in market opportunities, leading to more efficient flow of information to share prices," she said. "There will also be risks associated with it, but measures must be in place to help mitigate these risks, including SGX's plan to introduce circuit breakers."
Some critics of SGX's plan to woo high-frequency traders argue that doing so would prejudice retail investors.
"Regulators of much bigger exchanges and practitioners of HFT, such as the stock exchanges in European Union and the United States, have recognised the unfair advantages accorded to its users at the expense of the rest," Jimmy Ho, president of the Singapore Society of Remisiers, wrote in a letter.
"Hence, these regulators are now contemplating restraining HFT to restore a level playing field in the markets."
(Source: The Business Times)
MARKET SCOOP
Prices of completed apmts/condos in Central Region fell 1.7% in Sept: NUS
Singapore's Straits Trading to buy 20.1% stake in ARA
SGX to set up electricity futures market by end-2014
Rex Int'l to place up to 70m new shares at 75.5 cts/shr
Ezion gets LOI worth US$65m to supply service rig over 3 yrs
Triyards secures additional US$59m in deals for the 10th SEU order
UOL in "Pan Pacific" hotel venture in Myanmar
Sembcorp's S$30m boiler plant expansion comes onstream
Raffles Medical's Q3 earnings up 10%
(Source: The Business Times)
DBS VICKERS Securities says ...
EZRA HOLDINGS | HOLD| TP: S$1.34
Core net profit for 4Q-FY13 came in at about US$10.1m, higher than our estimate of about US$5m
The outperformance was mainly driven by higher revenue contribution from the subsea division in a seasonally strong quarter and good performance from associates (EOC and Perisai)
The offshore chartering division's performance improved with utilisation recovering to above 90% as a large part of the fleet was redeployed back to Asia
While spot rates for OSVs have been recovering, the benefit to the Group is likely to be gradual over the next few years as majority of the fleet is on long term charters
Subsea division EMAS AMC turned around in 4Q, with gross margins in the mid-teens, a significant improvement over the losses incurred in 3Q13 (including write-offs related to legacy projects)
Subsea orderbook now stands at about US$1.25bn, about half of which will be delivered in FY14
The Group is also actively bidding for about US$5-6bn worth of subsea contracts
We maintain our new order win assumption of US$1.5bn for the subsea division in each of FY14/15
Based on 4Q13's performance, we believe execution is improving and the worst seems to be over for the subsea division, with almost all legacy projects completed now
Thus, we raise our FY14F earnings (after preference dividend) by 33% on better margin assumptions
Our TP is also raised to S$1.34, as we raise our P/BV peg for the core business to 1.15x (average multiple post GFC), in anticipation of the near term recovery trend
We believe the robust share price performance in recent weeks has priced in some of the expected earnings recovery but we recommend holding on to the stock in view of improving execution and potential for realising strategic options for the subsea division
CREDIT SUISSE Securities says ...
ASCOTT RESIDENCE TRUST | NEUTRAL | TP: S$1.47
Operationally in line: 9M13 DPU of S$7.07 was 79.5% of estimates
Gross profit (74% of estimates) fell 0.9% YoY due to a weaker yen and slower REVPAUs across 7/10 markets
However, distributable income of S$88.6 mn rose 15% YoY, as deferred tax expense was +65% to S$12.4 mn in 9M13 (on properties with fair value increase)
Portfolio REVPAU -10% YoY to S$133/day, driven by CH (-13%), AU, PH and SP (all three markets -12%) and SG (-10%)
Stripping out currency impacts, the other markets were relatively weak as well, except JP and UK which saw increases in REVPAU
Post completion of AEIs in Brussels and Shanghai, ART saw 20- 35% uplift in ADRs, which should underpin FY14 NPI growth. Gearing was 41.1% with 3.2% debt cost (69% debt fixed)
Most of FY13 refinancing completed--3.4 years average debt duration
We maintain our overall assumptions except for deferred tax (subjected to the revaluation trends), which saw a S$12.4 mn addition to this year's DPU
Hence, we have raised our FY13 DPU slightly by 4.5%
With an FY14 yield of 7%, maintain NEUTRAL
CIMB Securities says...
RAFFLES MEDICAL GROUP | OUTPERFORM | TP: S$3.81
In line with expectations, 3Q13 core profit is 21% of our FY13 estimate while 9M13 makes up 64% (9M usually 60-65%)
RFMD has a very good cash-churning business
We keep our EPS, target price (25x CY14 P/E, at parity with regional peers) and Outperform call
Catalysts could include Raffles Hospital's expansion and success in developing integrated international hospitals in Shenzhen and Shanghai with its JV partners
Revenue was S$85m (+8% yoy) in 3Q13 and up 12% yoy if 3Q12 was accounted for without the MHA contract
The hospital and healthcare services divisions increased revenue by 9% yoy and 6% yoy, respectively
Higher patient load and patient acuity characterised the results
Operating efficiencies continued to flow down to the bottomline
We think 4Q13 should see sequential growth in the healthcare service division, especially with new branches opening and continued growth in corporate sales
We like the group's S$8m positive change in working capital with a tightening of receivables that resulted in operating cash flow of S$25m in 3Q13
This formed the foundation for solid net cash of S$146m (S$122m in 2Q13) despite paying out interim dividends during the quarter
Cash will cross the S$270m mark when the disposal of the Orchard building is completed in a few days' time (31 Oct 13), with c.S$18m in disposal gains
Management gave an assured reply on the timeline given to conclude its two Chinese hospital ventures and we expect that to come into fruition in the next three months, serving as stock catalysts
Should management not pursue such ventures, more cash will be returned to shareholders, making RFMD a good investment case |
