The one-share marketable lot

Recently, Pakistan Stock Exchange (PSX) introduced the one-share marketable lot for companies listed on the Stock Exchange. This aligns PSX with international best practices followed by the leading exchanges of the world.

It facilitates investor convenience and investment from retail investors. To understand the one-share marketable lot, it is important to read about its significance, its concept, and its purpose.

One Share Marketable Lot and Its Significance for Pakistan’s Capital Market:

A “marketable lot” is the smallest quantity of shares that can be exchanged in a transaction related to buying/selling of shares. Historically, stock exchanges globally have set marketable lots at greater share volumes, requiring investors to buy or sell a specific number of shares in order for the transaction to be considered legitimate. Therefore, at Pakistan Stock Exchange also, previously the minimum marketable lot sizes for listed companies varied from 20, 50, 100 and 500 shares based on their prices.

However, recently, PSX has implemented a one-share lot system (as mentioned above) in an effort to increase participation and democratise access to the stock market. Investors are able to purchase and sell individual shares of any listed company under this method. This action is a big step towards making the stock market more accessible, specially for novice traders and small-scale investors.

Understanding the Concept of a Marketable Lot:

The existing lot sizes of 20, 50, 100 & 500 shares had turned into a barrier for retail investors, particularly those with lower capital. This implied that retail investors frequently lacked the funds to purchase substantial blocks of shares, even if they were interested in trading in the stock market. The blue-chip high-priced stock picks continued to be off limits for smaller investors with low budgets, restricting trade and investment options available to smaller investors.

Why is the concept of one share lot important?

1. Increased market participation

The potential to boost retail investment in Pakistan’s capital market is the main advantage of a one-share marketable lot. The stock market will be more accessible to people who do not have large amounts of money for investment, ensuring that investors are able to buy even as little as a single share.

In a country like Pakistan, where people may not have large disposable incomes but are interested in building wealth through the stock market, financial inclusion is crucial.

2. Increasing financial inclusion

The one-share marketable lot may contribute to increasing financial inclusion by facilitating and in turn encouraging more people to enter the capital market.

The introduction of a one-share marketable lot is expected to build a culture of saving and investment, particularly among the young population and those who are not familiar with the stock market. Due to the low barriers to entry, those who would have previously refrained from investing can now experiment in the market with a small outlay of funds leading to gradually increasing investor confidence and overall understanding of how the stock market works.

3. Enhanced liquidity

One of the major challenges faced by stock exchanges is ensuring that there is enough liquidity, particularly in smaller, less frequently traded stocks. Introduction of the one-share marketable lot is expected to help increase liquidity by enabling more trades at smaller volumes.

Increased liquidity benefits all market participants. A liquid market is also generally more stable, as it reduces the chances of extreme volatility caused by large block trades.

4. Lowering barriers to entry for new investors

This initiative lowers the barriers to entry for new investors, particularly for expensive stocks, by permitting trades of even a single share. For example, the shares of renowned blue-chip companies that trade at extremely high prices per share may not be easy for small investors to own within the previously prescribed lot structure.

Now with one-share marketable lot, small investors with limited funds can own a portion of these high-value companies. Small investors wishing to diversify their portfolios will find this to be a specially valuable opportunity. Instead of putting all of their money into one stock or a small number of shares, they can now distribute their investment across several industries and businesses.

5. Promoting long-term investment culture

Another potential benefit of the one-share marketable lot is the promotion of a long-term investment culture. When investors are not required to invest large sums of money upfront, they may be more willing to take a long-term view on their investments.

They can accumulate shares over time, building their portfolio gradually. This aligns with the broader goal of encouraging a saving and investment culture among the Pakistani population, as it reduces the focus on short-term trading and speculation.

The one-share marketable lot is a significant step towards improving accessibility and inclusivity in the stock market. With this step, Pakistan Stock Exchange has created an environment to promote greater participation by lowering barriers to entry, which is expected to result in higher liquidity, financial inclusion, and a more robust market as a whole. This initiative has the potential to further enhance Pakistan’s capital market and encourage long-term investment and wealth creation for the wider population.

Note: The contents of this article comprising of information pertaining to financial products, including but not limited to securities, derivatives products, listed companies or companies proposed to be listed, are strictly of a general nature and are provided for informative and educational purposes only.

The article does not necessarily reflect the opinion of Business Recorder or its owners