Analysts weigh impact of stock exchange’s one-share trading rule

By Alexandria Grace C. Magno

THE Philippine Stock Exchange’s (PSE) proposal to adopt a one-share board lot and revise run-off and trading-at-last rules could broaden retail participation, though analysts warn the changes may also lead to fragmented liquidity, execution challenges and higher operating costs for brokers.

“In theory, allowing investors to buy a single share improves accessibility and aligns the PSE with global practices, especially as digital platforms attract younger, smaller-ticket investors,” Toby Allan C. Arce, head of sales trading at Globalinks Securities and Stocks, Inc., said in a Viber message.

“However, the trade-off is a higher risk of fragmented and choppy trading, as order books may become crowded with very small orders that add noise rather than depth,” he added.

In December, the PSE released proposed changes that would standardize the minimum lot size at one share for all listed securities, regardless of price. The move will effectively abolish the odd-lot market and lower the minimum capital required to buy any stock, as part of the exchange’s broader trading system upgrade.

Mr. Arce said overall participation might rise, but liquidity quality could initially deteriorate, particularly in thinly traded stocks where wider bid-ask spreads and sharper price movements are more likely.

“Much will depend on how brokers implement minimum order value policies and how quickly market participants adapt their order-routing and aggregation strategies,” he added.

Under the proposed amendments, the revised board lot will reduce the minimum investment for any security to its market price.

“The proposed board lot will allow investors to trade a single share of a security and effectively reduce the minimum investment for any security to its market price, making stock market investing more affordable and accessible to retail investors,” the PSE said.

China Bank Capital Corp. Managing Director Juan Paolo E. Colet said a uniform board lot would also shift all trades to the regular market, removing inefficiencies tied to odd-lot transactions.

“Trading participants are allowed to set a reasonable minimum order value, so the rule change is a win-win for both brokers and small investors,” he said in a Viber message.

By consolidating liquidity into the regular market, the proposal could eliminate price distortions and wide bid-ask spreads that typically characterize odd-lot trades, Mr. Colet said.

To address concerns from trading participants whose business models may not suit a one-share structure, the PSE said brokers could impose minimum order values when accepting client orders. This provision is meant to offset higher processing costs from handling many small-value trades, especially for firms focused on institutional clients.

The exchange said any minimum order value must be implemented without exceeding commission limits under existing laws and regulations.

Mr. Arce noted that while the change could help attract first-time investors and incremental retail activity, it is not a complete solution to boosting market participation.

He noted that if brokers set minimum order values too high, accessibility gains could be diluted, while setting them too low might create operational inefficiencies and weaker per-trade economics.

“Over time, the reform could shift retail behavior toward more frequent but smaller trades, which may boost headline trade counts but not necessarily value turnover,” Mr. Arce said.

BDO Securities also said it does not expect major issues from the proposed changes, particularly in terms of retail participation, noting that removing odd lots could boost transaction volumes without lifting peso turnover value.

“Overall, the Philippine stock market has not been performing well, which has led retail investors to other types of investments outside the PSE,” it said.

It added that institutional clients generally view odd-lot trades as immaterial, but brokers will need to update systems to support the framework. These upgrades “will entail added costs, which will vary from broker to broker.”

The board lot proposal coincides with the PSE’s migration to Nasdaq Eqlipse Trading. The exchange said it completed a detailed gap analysis comparing Nasdaq Eqlipse Trading with PSEtrade XTS across operational, functional and regulatory requirements.

One identified gap involves trading during the run-off or trading-at-last period. Under PSEtrade XTS, incoming orders are rejected if the counterparty order price is more favorable than the established closing price.

The PSE noted that under Nasdaq Eqlipse Trading, orders priced at the closing price will be accepted and matched at that level, even if existing orders are priced more favorably. This lets more trades go through at the close, without disadvantaging investors whose orders are executed at the closing price.

Mr. Arce said the combined impact of broker-level minimum order values and revised run-off trading rules could complicate execution for institutional and end-of-day rebalancing trades.

“In the medium term, the success of these reforms will hinge on calibration — how minimum order values are set, how brokers adapt execution models and how effectively the PSE balances inclusivity with market efficiency as it transitions to a more technologically advanced trading environment,” he said.