Effect of standardization of trading board lot on abnormal liquidity in Malaysian stock market

Nor Elliany Hawa Ibrahim, Kamarun Nisham Taufil Mohd, Karren Lee-Hwei Khaw

Research output: Contribution to journalArticleResearchpeer-review


Abstract: Research question: This study examines the liquidity reaction
surrounding the standardization of trading board lot (STBL) event that was
announced and implemented in 2003. Motivation: The STBL event called
for a reduction in the trading lot size from 1000 and 200 units per lot to a
uniform size of 100 units per lot. The event that affected 98% of Malaysian
listed firms is claimed to have improved the market liquidity and increased
trading activities. Hence, this study is motivated to examine the claim. Idea:
Specifically, this study examines the liquidity effect surrounding the event
announcement and implementation dates. We hypothesize that the STBL
event has significant impact on market liquidity. Data: We have a sample of
869 firms. February 5, 2013 is taken as the event announcement date. Since
the STBL was implemented in three phases, we have three implementation
dates that affected different groups of firms. Method/Tools: To begin with,
this study examines the liquidity effect using an event study methodology,
followed by cross-sectional regression analyses. Liquidity is measured by (1)
volume turnover, (2) bid-ask spread, and (3) Amihud illiquidity ratio to
gauge the impact of the new policy on the market. Findings: There is a
significant liquidity deterioration following the announcement of STBL due
to the lack of information content. However, the implementation leads to
significantly higher volume turnover in the first stage, while the bid-ask
spread is significantly narrower in the second stage. In the last stage, we find
significant improvement in all three liquidity measures. This is driven by an
optimistic market outlook inspired by the positive liquidity effects observed
in the earlier stages. Contribution: The findings confirm the significantly
higher trading activities after the implementations of STBL, which further
contribute to the limited literature on the minimum trading unit. The
reduction of trading lot size leads to greater trading volumes. Lastly, the
outcome of this study can be used as a reference for the regulators in
evaluating the effectiveness of current policies or formulating future
Original languageEnglish
Pages (from-to)89-102
Number of pages14
JournalCapital Markets Review
Issue number2
Publication statusPublished - 2019
Externally publishedYes


  • Minimum trading unit
  • Lot size reduction
  • Market microstructure
  • Liquidity
  • Event study
  • Regulation

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