Download Retail participation in many stock markets has risen

Retail participation in many stock
ownership of the stock market over
A similar picture is found in some
markets has risen dramatically in
the post-war period, to a substantial
other markets. In Australia, the
recent years. Contributing factors
extent, institutions, government and
number of stock investors rose from
include privatisation programmes
f o re i g n i n v e s t o r s s u p p l a n t e d
1.8 million or 15 per cent of the adult
and technolog y enabling easier
individual domestic retail investors.
population in 1991 to 7.6 million (54
access to the market. However,
Nonetheless, direct and indirect
per cent) in 2000. In Hong Kong, the
increased retail participation raises
retail ownership of shares remains
number of share owners rose from
new issues for policy-makers.
very large.
350,000 (9 per cent of the adult
population) in 1992 to 1,140,000 (21
Many markets track the incidence of
Few markets have share ownership
per cent) in 2000. In Canada, 49 per
retail investment through surveys. The
statistics of comparable quality to the
cent of the adult population owned
International Federation of Stock
US. Only half of the FIBV’s member
shares directly or indirectly in 2000,
Exchanges (FIBV) has done an annual
exchanges responded to its 1999 share
up from 23 per cent in 1989.
survey of share ownership in its
ownership survey. For those markets
member markets since 1997. Putting
which did respond, representing
Reasons for recent expansion
these sources together, some common
almost four-fifths of FIBV member
Reasons for the mass participation of
trends in retail participation in the
capitalisation (i.e the larger developed
retail investors include the following:
stock market emerge.
markets), domestic private investors
owned an average of 25 per cent of
Retail investor trends
the stock.
•
Privatisation. Following the
pioneer sales of state enterprises
by the UK Government in the
Decreasing share
Mature stock markets record a long
Increasing numbers
early 1980s, privatisation
term decline in the proportion of
A l t h o u g h t h e re t a i l s h a re o f
became a worldwide trend. To
shares owned directly by retail
ownership declined, the number of
win
investors. In the US, households
U S re t a i l i n ve s t o r s i n c re a s e d
governments pitched their sales
directly owned 90 per cent of
dramatically over the years, especially
of public enterprises at the retail
corporate stock in 1950; by 1998,
during the 1990s. In 1998, 84
investor. In Hong Kong, the
households directly owned only 41
million US investors, representing 52
flotation of the Mass Transit
p e r c e n t . In d i re c t h o u s e h o l d
per cent of households, directly or
Railway Corporation, which
holdings through mutual funds (or
indirectly owned stock. Between
attracted 300,000 retail
unit trusts) and private pension
1995 and 1998 the number of
investors, probably contributed
plans increased, however, so that
individuals increased by 15 million
substantially to the increase in
total household holdings declined
or 21 per cent, and it had increased
share ownership from 16 per
less: from 93 per cent in 1950 to 68
by 17 million in the preceding six
cent of the adult population in
per cent in 1998. Thus, in terms of
years.
1999 to the current 21 per cent.
public
Ju n e 2 0 0 1
support,
25
•
Demutualisation. In countries
NASDAQ to introduce an
2.3. Twenty-three per cent of
like the UK, which historically
improved limit order execution
stockholders with brokerage
had mutual institutions such as
system for retail investors and
accounts report no trading,
building societies (mortgage
such a system was introduced in
while another 35 per cent report
financiers), the demutualisation
1996. In Hong Kong, regulators
trading only once or twice in the
and public flotation of such
encourage a proportion of public
preceding year. Only one in five
institutions has been a
offerings to be made to retail
stockholders reported six or
significant factor contributing to
investors.
more trades.
wider share ownership. A UK
survey
•
found
“from
•
Employee remuneration. In
•
In Hong Kong in 2000, 23 per
demutualisation” ranking first
many markets, there is
cent of investors did not trade
among the usual methods of
increasing use of stock options
at all, while another 24 per cent
acquiring stocks.
and stock ownership plans.
traded only once or twice during
These increase the number of
the preceding year. Seventeen
Technology enables intermediaries
shareholders and promote the
per cent traded more than 10
to service retail investors at much
concept of share ownership.
times.
lower cost. Online brokers have
been supplanting traditional
Nature of retail
brokers in the US and other
participation
Canadian share owners held
Shallow
shares in only one company, and
much better dissemination of
It should be emphasised that while
53 per cent owned shares in 2 to
information to the mass of
retail participation has become much
9 companies (1996 figures).
investors.
broader, encompassing a large
•
In Korea, 41 per cent of total
Government policy, in areas
not necessarily become deep. The
investors owned between 100
other than privatisation, has
majority of retail investors holds only
and 999 shares.
often been a supporting factor.
a very small number of shares and
For example, the enactment of
trade infrequently, as the following
401(K) retirement legislation in
statistics show.
•
shift of individual retirement
In Taiwan, 35 per cent of
investors owned 1,000 shares or
fewer, and 43 per cent owned
the US contributed to the major
•
Twenty-eight per cent of
markets. Technology also facilitates
proportion of the population, it has
•
•
•
1,001 to 5,000 shares.
Sixty-two per cent of Australian
savings into the stock market.
investors had three or fewer
The UK Government of the
stocks in their portfolio. On
1980s sought to promote a
average, investors traded around
stockholders did not trade at all
“share-owning democracy”.
two times a year. However, 65
during the preceding 12 months,
per cent had traded only once
and only 6-7 per cent traded
Regulatory policy. Regulators
or not at all in the 12 months
more than 10 times.
have been active in promoting
preceding the survey.
Se c u r i t i e s a n d E xc h a n g e
Commission pressured
In the UK, almost half of
In some markets, retail investors make
the interests of retail investors.
So for example, the US
•
•
For the US shareowner, the
a substantial contribution to trading
mean number of stocks held is
volume. In Hong Kong, over the 10
years to 2000, the domestic retail
In the US, direct stockowners are
regulatory problems can become
contribution averaged 44 per cent. In
less than half the number of share
major political issues affecting
Korea, individual investors
owners; hence the median share
confidence in the government. It
contributed 87 per cent of total
owner does not hold any shares
w o u l d t h e re f o r e b e w i s e f o r
trading volume in 1998. In Taiwan,
directly. In Canada (1996), 16 per
governments, while promoting retail
individual shareholders contributed
cent of the adult population held
participation, also to educate investors
88 per cent of total market turnover
shares indirectly, while only 9 per
on the consequences of their
in 1999.
cent held shares directly and 12 per
investment decisions. Where this is
cent held shares
not done, governments may find
both directly
themselves forced to bolster share
and indirectly.
prices (e.g through market support
In Hong Kong,
funds), and intervene in regulatory
mutual funds
disputes.
are less popular:
in 1999, only 3
Share price rises translate into a wealth
per cent of
effect, boosting consumer spending;
investors held
conversely share price declines tend to
mutual funds.
dampen spending, perhaps
exacerbating the economic cycle. US
Skewed
Implications for
Federal Reserve Chairman Alan
However, retail participation is
policy-makers
Greenspan has complained of the
highly skewed. Most surveys show
The last decade or so has seen the
“irrational exuberance” of the US
a small number of investors
democratisation of the markets, with
stock markets.
trading very actively. Few surveys
share ownership extending to all
present aggregate figures
classes. Thanks to technology, and to
At the level of market regulation, the
expressing this skewness.
regulatory effort, the average retail
interests of different market user
However, the UK 2000 survey
investor today enjoys a level of market
groups have to be reconciled. A level
notes, “the 20/80 rule — 18 per
access and information that previously
of regulation appropriate for the retail
cent of the population holds 76
would have been reserved for the rich.
investor may be too tight for wholesale
or professional markets. In markets
per cent of the value of total
savings”. A 1994 survey of retail
Such increased retail participation in
like Hong Kong where there is a large
investors in Hong Kong found
the stock market is widely seen as a
retail element, protection of retail
that 70 per cent of the trading was
good thing, and is an explicit policy
investor is the main priority. Some
contributed by just 4 per cent of
objective for many governments.
other markets, such as the US, offer
investors.
However, it does raise policy issues.
extensive exemptions for professional
transactions. In the US, too,
Indirect
At the governmental level, the stock
empowerment of the individual
Indirect means of owning shares,
market, and investor sentiment,
investor goes furthest: individual
such as mutual funds and self-
becomes a major factor. Stock market
investors can band together to launch
directed retirement accounts, are
events such as sharp share price
class action suits to obtain redress from
becoming increasingly important.
declines, corporate failures and
corporate issuers.
Ju n e 2 0 0 1
27
In the UK, perhaps the world’s leading
institutional securities market, the
retail/institutional dilemma is felt
most acutely. Too light a regulatory
hand has been blamed for the
pensions mis-selling scandal. Yet too
heavy a hand could threaten London’s
status as a global financial centre. The
Financial Services Authority seeks to
achieve a balance by, among other
things, recognising the responsibility
of consumers for their investment
choices, and subjecting new regulatory
•
proposals to a cost impact assessment.
In markets such as Hong Kong
•
Institutions are well-served by
where shares in public offerings
existing intermediaries for cross-
are sold directly to retail
border trading, but retail
At the market operation level, choices
investors, it becomes important
investors are not. Seeing a
also have to be made.
to develop electronic means for
potential opportunity, exchanges
subscription and allotment of
and clearing houses are seeking
shares.
to build infrastructure links to
•
Historically, many markets in
Europe and the US tended to
favour the broker-dealer. Now,
facilitate retail cross-border
•
Issuers have to communicate
trading.
these exchanges are mostly
with a greatly expanded register
supplementing or replacing
of shareholders, leading to calls
It appears likely that the factors that
dealer-driven markets with
for electronic or abbreviated
have led to the vast expansion of retail
central limit order books which
accounts to replace the
investor numbers in many markets
are generally more suited to retail
traditional hard copy full annual
will continue to have an impact,
investors.
report.
leading perhaps to yet further
expansion and extension of the trend
to additional markets in the future.
The spread of online trading will make
it easier for retail investors to trade
Sources:
1999 Share Ownership Survey, FIBV
Share ownership 2000: NYSE
2000 Australian Shareownership Study, Australian Stock Exchange
(includes international comparative figures as at 1999)
Fact Book 1999, Korea Stock Exchange
Fact Book 2000, Taiwan Stock Exchange
Private Share Ownership in Britain, London Stock Exchange, ProShare, MORI
Financial Services, 2000.
Survey shows over one million stock investors, HKEx, 12 February 2000
Retail Investor Survey Report, Securities and Futures Commission, 1999
Canadian Shareowners Survey 2000, Toronto Stock Exchange
1996 Canadian Shareowners Study, Toronto Stock Exchange
more frequently. However, changes in
regulation, for example in US
retirement provisions, could affect this
projection. And in less mature markets
where retail participation is still
predominantly direct, there may be
scope for more retail money to be
channeled into the market via mutual
funds.