Lawmakers bid to stop broker price war

Legislators ask government to set up statutory body for stockbrokers to end fight over trading fees that threatens the survival of small players

PUBLISHED : Friday, 15 November, 2013, 3:10am
UPDATED : Friday, 15 November, 2013, 3:10am

A statutory stockbrokers' association is needed to set rules to stop cut-throat competition as a commissions war threatens to push fees too low for small players to survive, lawmakers have urged the government.

The proposal is among a list of suggestions submitted by financial services functional constituency lawmaker Christopher Cheung Wah-fung and other legislators from the Business and Professionals Alliance to Chief Executive Leung Chun-ying and Financial Secretary John Tsang Chun-wah ahead of Leung's policy address in January.

"The price war between stockbrokers has reached a stage of such cut-throat competition that some small and medium-sized brokers would find it hard to survive," Cheung said yesterday. "Some banks now offer zero commission while some brokers accept just 0.03 per cent or 0.05 per cent, which is too low to support the operating costs of brokers."

Twelve brokerages in the city have closed this year.

A report by the Securities and Futures Commission shows that total profits of the 400 or so smallest brokers stood at HK$522 million in the first half of this year, down 30 per cent from the second half of last year. That is despite market turnover having risen by 36 per cent in the same period.

Cheung said the price war was a result of the removal of the 0.25 per cent minimum brokerage commission a decade ago, which allowed brokers to freely set prices for clients.

He said he would like to see the minimum commission reintroduced for small trades, but there was little hope the government would accept that idea because it was keen to let the market determine prices.

That led to the proposal aimed at ending the price war.

"I want to see a consolidation of the existing nine brokers' organisations into a single one that would then seek statutory status and work like the Hong Kong Association of Banks or the Hong Kong Institute of Certified Public Accountants," Cheung said. "These statutory organisations set rules for members and all banks and accountants must follow them."

He said a statutory brokers' association could introduce rules designed to stop cut-throat price competition between members and other rules to protect the interests of investors.

Cheung also suggested the government should use the policy address to lower the SFC's financial requirement for brokers lending money to customers for margin trading or to subscribe to initial public offerings.

"A more flexible financial resources rule for margin financing and IPO financing will help small brokers to do more business," he said. "This will also help improve market turnover if brokers are allowed to lend more money to customers to trade stocks."

Cheung said the SFC had taken steps to improve business for small brokers. This included an agreement that it would not take enforcement action against brokers who opened accounts with mainland clients as long as they had undertaken all the "know your clients" procedures.

"This has encouraged many brokers to attract more mainland customers," he said. "We would like to see the government do more to help local brokerages develop in mainland markets to increase their revenue."