Analysts suggest that modifying the board-lot size might increase trading volume and attract smaller investors; however, this shift could pose challenges for certain brokers.
A proposed overhaul of the trading unit system at the Hong Kong Stock Exchange aims to increase stock market activity and attract more small-scale investors. However, brokers say that putting this plan into action will necessitate significant investments to address various technical hurdles.
The exchange and financial institutions would have to update their systems to accommodate modifications in the board lot size—the specific quantity of shares used as a trading unit, according to them. At present, these board lots lack uniformity and tend to be quite substantial, potentially deterring individual investors with lesser capital.
Financial Secretary Paul Chan Mo-po in his budget speech on February 26 called on bourse operator Hong Kong Exchanges and Clearing (HKEX) and market regulator the Securities and Futures Commission to propose an upgrade of the system this year. They should ensure the system “can better meet liquidity characteristics of shares of different sizes and investment needs, as well as facilitate trading and improve efficiency”, he said.
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Although stakeholders throughout the industry support reforms in theory, certain participants worry that the enhancement might come at a significant cost, particularly for those operating on a smaller scale.
The assessment of lot sizes is still in its initial phase as part of HKEX’s continuous endeavors to improve Hong Kong’s stock market framework, ensuring it stays relevant and effective,” stated a spokesperson from the exchange. “Various alternatives will be evaluated, and we will seek input from the market prior to making any modifications.
Currently, HKEX permits listed companies to determine their own board-lot sizes, which may vary from as few as 10 shares up to as many as 10,000 shares.
Katerine Kou, who chairs the Hong Kong Securities Association, stated that the necessity for enhancement was evident.
She mentioned that the present board lot sizes lack standardization, with certain firms establishing such large quantities that individual investors find it difficult to initiate investments.
For example, China’s largest
electric vehicle
maker
BYD
with each board lot consisting of 500 shares, investors require a minimum investment of HK$187,400 (US$24,094), calculated from the closing price of HK$374.80 observed on Thursday.
During
HSBC
During an informal gathering of shareholders on April 1st, several investors expressed concerns about the bank’s board-lot size being set at 400 shares, deeming it excessively large. They encouraged the management to look into decreasing this figure. With the stock closing at HK$86.10 on Thursday, purchasing the minimum required amount necessitates HK$34,440. If the lot size were reduced to just 10 shares, the upfront cost would drop significantly to HK$861.
Tom Chan Pak-lam, the honorary president of the Institute of Securities Dealers, which represents local stockbrokers, noted that “a growing number of young people in Hong Kong now favor investing in U.S. stocks over Hong Kong shares due to the flexibility of their trading systems, allowing transactions with just one share.”
Decreasing the board-lot size will reduce the minimum transaction amount and enhance the flexibility of the trading system. Consequently, this move is likely to appeal to younger investors with limited funds for investing in Hong Kong equities.
Kou mentioned that HKEX might suggest standardizing the board-lot size to reduce the lowest investment requirement.
Kou mentioned that numerous investors would abandon purchasing stocks if they discover the minimum investment requirement to be excessively steep, regardless of considering these investments as opportunities.
Nevertheless, smaller brokerage firms might find it challenging to adapt to such changes.
“Although this proposed reform aims to bring advantages for investors, it could pose significant difficulties for the numerous stockbrokers in Hong Kong, who might be required to invest substantial funds in upgrading their infrastructure,” explained Wilson Chan Fung-cheung, an adjunct professor at City University of Hong Kong. “It will exert considerable strain on the brokerage sector here in Hong Kong,” he added, noting that several small-scale firms have already ceased operations.
The complete trading framework, encompassing fees, levies, and share documents, hinges upon the board-lot quantity. Any modifications to this would necessitate updates from both the stock market operators and intermediaries. The automated pairing mechanism employed by the exchange does not recognize quantities smaller than one board lot for transactions. Presently, individuals investing in Hong Kong looking to engage with partial shares have to turn to specific brokers amenable to these types of deals; such exchanges can only occur through an allocated interface within the trading platform.
Legislator Robert Lee Wai-wang expressed his support for the reforms, yet he wished that the changes wouldn’t impose significant additional burdens on those involved in the marketplace.
He stated, “Altering every aspect tied to the board-lot system could prove challenging since it encompasses listed firms, issuers, investors, and theHKEX.” However, the sector anticipates a clear shift aimed at reducing the disparity between Hong Kong and other financial hubs. Despite current technological capabilities facilitating smoother modifications, historical problems persist that aren’t straightforward to address.
Chan from the Institute of Securities Dealers suggested that HKEX should allocate funds to enhance its trading infrastructure due to the continuously growing transaction volume. According to HKEX statistics, the average daily turnover for the initial two months of 2025 stood at HK$222.5 billion, which is over twice what it was during the same period in the previous year.
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The article initially appeared on the South China Morning Post (www.scmp.com), which is the premier source for news coverage of China and Asia.
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