Commentary: Liquidity fix for small and mid-caps on SGX requires more to be done

Singapore Exchange (SGX) chairman Koh Boon Hwee recently cautioned that small- and medium-sized enterprises (SMEs) should not expect the bourse to bolster their valuations, as SGX does not generate liquidity or demand and supply. Instead, listed firms should proactively communicate their strategies to better inform investors about their businesses and growth prospects.

However, former editor and financial journalist Ven Sreenivasan argues that the bourse can do more to address the issue of poor liquidity faced by many SMEs on the SGX. Despite the broader gains in the local market, many SMEs continue to see thin trading despite their market capitalisation. This lack of liquidity hampers proper price discovery and makes it difficult for these companies to raise capital or engage in meaningful merger and acquisition activity.

While SGX has taken steps such as profiling SMEs through investor education activities, wider market revitalisation measures like the S$6.5 billion Equity Market Development Programme (EQDP) have yet to significantly improve secondary trading and liquidity. Privatisation, while an option for those whose shares are thinly traded, should not be the default solution.

Instead, SGX could consider removing clearing and trading fees to reduce friction costs for proprietary traders and market makers, or encourage in-house proprietary trading by SGX member brokerage firms. These measures could help improve bid–ask spreads and enhance overall liquidity for SMEs on the SGX.