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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.