Hong Kong broking firms feel heat from rivalry

One in four brokerages may close as banks enter the securities market and fees plunge

PUBLISHED : Tuesday, 23 July, 2013, 12:00am
UPDATED : Tuesday, 23 July, 2013, 3:56am

One in four home-grown brokerages may close as trading and fees plunge and competition from banks intensifies, according to an industry group.

The number of local broking firms might fall to 300 from about 400 in the next five years, said Mofiz Chan, a spokesman for the Hong Kong Securities & Futures Professionals Association.

"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, driving a taxi or tutoring primary school students."

Fees have dropped since Hong Kong Exchanges and Clearing (HKEx) removed a brokerage commission floor in 2003 of 0.25 per cent of the value of transactions, squeezing profits for brokers as mainland rivals expanded their operations.

The competition has claimed foreign equity traders, with South Korea's Mirae Asset Securities and Japan's Daiwa Securities among firms that have cut jobs.

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

Brokers have been hurt after the average value of stocks traded daily plunged to HK$53.7 billion last year from HK$69.5 billion in 2011.

"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, the founder of Christfund Securities and a lawmaker representing the industry.

HKEx should reinstate the broker commission floor, Chan and Cheung said.

The mainland's Big Five banks all offer securities trading services in Hong Kong through their local units. The Chinese Securities Association of Hong Kong, which comprises mainly mainland-backed brokerages in the city, has increased its members to more than 65 from 19 when it was founded in 2009.

Commissions at Bank of China (Hong Kong), the largest Hong Kong-based mainland lender, have dropped as low as 0.18 per cent of the transaction value if trades are done online, according to its website.

HKEx had 511 stock trading members, according to its 2012 annual report. The biggest 65 accounted for 90 per cent of transactions last month, compared with 82 per cent in June 2003.

Technology upgrades needed to link into HKEx's new faster trading platforms were pricing local securities firms out of the market, Chan said.

The introduction of after-hours futures trading hurt local brokers, who said they would lose customers if they could not afford staffing to offer access.