Hong Kong Brokers Drive Cabs as Competition Forces Locals Out

Hong Kong Brokers Drive Cabs as Competition Forces Locals Out

Hong Kong, Asia’s second-biggest stock market, may see 25 percent of its local brokerages close as trading and fees plunge, and competition from banks intensifies, a securities association said.

The number of local broking firms may decline to 300 from about 400 in the next five years, Mofiz Chan, a spokesman of the Hong Kong Securities & Futures Professionals Association, said in a telephone interview.“There are many people taking part-time jobs or completely moving out of the industry,” Chan said. “Many of our members have needed to shift into other jobs such as security, taxi drivers or tutors for primary school students.”

Fees have dropped since bourse operator Hong Kong Exchanges & Clearing Ltd. in 2003 removed a brokerage commission floor of 0.25 percent of the value of transactions, squeezing profits for brokers as mainland Chinese rivals expand operations. The competition has claimed foreign equity traders, with South Korea’s Mirae Asset Securities Co. and Japan’s Daiwa Securities Group Inc., among brokerages that have cut jobs.

Eleven brokerages have ceased trading this year, according to filings posted on the website of the Hong Kong stock exchange. King Fook Securities Co., established in 1971, said it will close at the end of this month.

Founding Members

“King Fook Securities was one of the founding members of the stock exchange before it became listed,” parent King Fook Holdings Ltd. (280) said in an e-mailed reply to questions. “We’ve been seeking to keep operating despite booking losses. High rentals and labour costs, together with the fact that banks are offering zero commission have made it difficult for us to survive.”

The securities-broking business at King Fook group reported a loss of HK$6.02 million ($776,000) for the year ended March 31, on top of a HK$13.2 million loss a year earlier, according to an exchange filing.

Brokers have been hurt after the average value of stocks traded daily plunged to HK$53.7 billion in 2012 from HK$69.5 billion in 2011, according to data from the exchange. Tokyo is Asia’s biggest stock market.

“If there is no improvement in our operating environment, more and more owners of long-established local brokerages will get frustrated and exit the market,” said Christopher Cheung, founder of Christfund Securities Ltd. and a lawmaker representing the industry.

Chinese Banks

Hong Kong Exchanges should reinstate the broker commission floor, Chan and Cheung said.

China’s big five banks all offer securities trading services in Hong Kong via their local units. Chinese Securities Association of Hong Kong, which comprises mainly China-backed brokerages in the city, has increased its members to more than 65 from 19 when it was founded in October 2009, according to its website.

Commissions at Bank of China (Hong Kong) Ltd., the largest Hong Kong-based Chinese lender, have dropped to as low as 0.18 percent of the transaction value if trades are done via internet banking, according to its website. That compares with the 0.25 percent floor removed a decade ago.

Brokers backed by banks or larger international competitors appear more credible and are increasing market share as they offer lower commissions, Cheung said.

Hong Kong Exchanges had 511 stock trading members, according to its 2012 annual report. The biggest 65 accounted for 90 percent of transactions in June, according to the bourse. This compares with 82 percent in June 2003.

Technology Upgrade

King Fook Securities, with nine employees, is among the 400 smaller brokerages that compete for the remaining 10 percent market share, it said in the e-mail.

The introduction of after-hours futures trading hurt local brokers who said they’d lose customers if they couldn’t afford staffing to offer access.

Technology upgrades needed to link into Hong Kong Exchanges’ (388) new faster trading platforms are pricing local securities firms out of the market, Chan from the association, which represents 3,200 brokers, said. The bourse operator said in March 2012 that it would spend HK$3 billion to upgrade its market data capabilities, and build faster securities and derivatives trading and clearing platforms.

Mirae Asset Securities said in April it will eliminate half of its 38 staff positions in Hong Kong. Samsung Securities Co. last year said it would suspend brokerage services for Hong Kong shares and reduce staff at its 100-person unit, its largest outside Korea, by more than half.

“We’ve helped Hong Kong to become an international financial market,” Cheung said. “We don’t want to see us being forced out of the market after all our hard work.”

To contact the reporters on this story: Eleni Himaras in Hong Kong at ehimaras@bloomberg.net; Stephanie Tong in Hong Kong at stong17@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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