Liquidity crucial to stock market reform

By James Leong

Public markets are the foundation of a healthy capital-markets ecosystem.

They provide price discovery, liquidity and, crucially, the exit pathways that allow private capital to recycle into new opportunities. When public markets weaken, the effects cascade through the entire chain: private equity struggles to exit, venture capital slows deployment and institutional investors face diminished returns. We’ve seen this dynamic play out in Southeast Asian capital markets.

Singapore’s recent Market Review Group recommendations this year recognised this reality. Their proposals span supply, demand, and connectivity, supported by a shift toward a more disclosure-based regulatory regime and strengthened investor recourse. These are welcome and necessary reforms. Yet revitalising Singapore’s equity markets also requires something that no policy paper can fully deliver on its own: deep, reliable liquidity and the confidence that investors can enter and exit positions at fair prices.

A central component of the review is the S$5 billion Equity Market Development Programme, which is intended to catalyse greater participation in Singapore equities by developing the domestic fund management industry and channelling more institutional capital into the market. It sits alongside adjustments to the Global Investor Programme, tax exemption schemes for funds substantially invested in SGX equities and enhancements to the research ecosystem through GEMS. These measures collectively strengthen demand at a time when institutional participation has thinned and retail activity has shifted offshore.

But demand alone cannot resolve one issue: liquidity.

Deep, continuous liquidity is what gives investors confidence that they can transact efficiently and that prices reflect genuine supply and demand rather than episodic flows. In larger markets, liquidity is supported by global capital and high turnover. In smaller equity markets like Singapore, the role of professional market makers becomes especially important.

Market making is often misunderstood and sometimes conflated with manipulative behaviour. In reality, legitimate market makers are essential infrastructure, and market making goes back to the days of trading in coffee houses. By providing continuous two-way quotes and narrowing spreads, market makers enable smoother execution and contribute to better price formation. This is why the Market Review Group’s emphasis on incentives to enhance market making, modernise post-trade custody arrangements and reduce board lot sizes is so important. These steps will make participation easier and execution more efficient, particularly for retail investors.

International comparisons highlight what Singapore must avoid. In the United States, a proliferation of exchanges and alternative trading systems has created a market so fragmented that even experienced investors struggle to track where prices are formed. Retail participants are confronted with complex products, such as zero-day options, that research shows most do not fully understand and often lose money on. The pursuit of access has produced a system where complexity favours those with scale and sophisticated technology.

Singapore has deliberately charted a different course. Our markets are comparatively simpler, more transparent and more protective of retail investors. But too much caution can also limit participation and innovation. If the range of products, liquidity or execution quality feels constrained, investors will naturally look to larger venues that offer more opportunities, even if those venues carry greater risks.

This is the balance Singapore must now navigate.

The Market Review Group’s recommendations acknowledge that supply-side reforms, such as streamlining listing processes and strengthening incentives for quality companies, must be complemented by demand-side measures like EQDP and improvements in research, governance and institutional participation. At the same time, connectivity and trading infrastructure must evolve to support a modern market. Dual-listing pathways, improved market-making incentives and efficient post-trade systems are all part of creating an environment where investors, issuers and intermediaries can operate with greater confidence.

Liquidity and trust are the glue that hold these efforts together. A disclosure-based regulatory regime only works when investors believe the market is fair and prices are robust. Incentives for market making only work when firms can operate within a clear, supportive regulatory framework. Retail participation only grows when individuals feel that the market is accessible and not overwhelmed by opaque complexity.

Singapore is well-positioned to strike this middle path. Revitalising SGX is not about recreating older eras of high turnover but about building a market structure suited to the next decade of Asian growth. The goal is an ecosystem where high-quality companies view Singapore as a viable listing venue, where fund managers see SGX as a meaningful part of their portfolios and where liquidity allows investors of all sizes to participate with confidence.

Public markets still matter.

They remain the common ground where capital is priced, opportunity is shared and long-term growth becomes accessible. With the right balance of innovation, protection and liquidity, Singapore can build an equity market that reflects not just the ambitions of our economy but also supports the resilience and competitiveness required for the future.

The writer is the CEO of Grasshopper, a technology platform and asset manager