Number of Hong Kong brokerage firms reach a 20-year high

Number of brokers amounted to 604 but the top 100 already hold 94.6 per cent of all trading

PUBLISHED : Monday, 09 May, 2016, 10:25am
UPDATED : Monday, 09 May, 2016, 12:18pm

The number of the stock brokers in Hong Kong has risen to a 20-year high.

It shows the summer market rout did not discourage newcomers from joining the market.

The number of stock brokers actively trading on the Hong Kong stock market rose to 604 by the end of March. The previous high, two decades earlier, was 596, according to data from the Securities and Futures Commission.

Still, that is not back to the peak for the city. It had over 900 brokers in the 1980s. But compared with a trough of 428 in 2006, the number of the brokerage firms in the city has increased by 41 per cent in the last 10 years.

Compared with a year ago, it has increased by 22 per cent with 111 new firms joining the market in the past. Of those 99 came to the market in the first quarter.

They were not discouraged by the fact that stock market turnover dropped to only around HK$60 billion a day during the past month, compared with a record HK$200 billion in April last year.

Industry sources told the White Collar that the newcomers have arrived from a number of sources. Some are mainland-backed firms that want to set up brokerage firms in the city as a stepping stone to the overseas market. Some mainland tycoons also support some Hong Kong veteran brokers to set up firms for them as they consider owning a Hong Kong brokerage firms to be something to show up their wealth and social status.

There are also firms from the US and Europe that want to set up brokerage firms here to capture the opportunities of the stock connect scheme which enables cross-border stock trading between Hong Kong and Shanghai.

For international investors to trade the mainland listed A-shares, they would need to have an account with a Hong Kong brokerage firm. That has drawn some overseas firms to establish themselves in Hong Kong.

This may explain why all of them have various concerns about the planned Stock Connect scheme to similarly connect Hong Kong and Shenzhen.

This shows the stock connect scheme has really added value to the Hong Kong brokerage industry.

However, SFC statistics also showed business is not evenly distributed. The top 20 brokerage firms have taken 65 per cent of the total market turnover, while the top 50 largest players have traded 75 per cent of all. The top 100 players traded 94.6 per cent.

This means most of the rest — about 500 brokers — handled only 5 per cent of all trades.

Will the smaller companies be able to survive in the very competitive market and reduced market turnover? It is going to be tough.