Furtive steps towards a future with cyber-trading
WHEN ChinaTone Group announced the launch of the region's first website allowing online trading of China and Hong Kong stocks, it raised quite a few hackles.
The US$20 million site would be risky, observers said, and a magnet for hackers and money launderers.
Cyber-investing would also take brokers' business and would meet opposition from the territory's regulators, some have said.
Discount brokerage Green Line, allows online trade of North American stocks, but this time it is different as the territory's stocks are involved.
The ruckus is a far cry from the US, where up to 1 per cent of trade is online, and consumers are drawn to transaction costs that can be a fraction of the costs of the equivalent manual operation. All that with the convenience of being able to trade from home.
China's Stockstar software, currently being tested and set for trade in mainland shares in two months, has high-level support. ChinaTone teamed up with the Shanghai Stockstar Company, the Shanghai branch of the mainland's Ministry of Post and Telecommunications, to develop the software.
Contrary to speculation, the trend will not replace brokers, says Felix Fong, a partner at Fong & Ng Solicitors and ChinaTone's 'China-appointed attesting officer'.
'We're not taking away the business of the broker,' Mr Fong said. 'Investors who want to deal in shares will have to register with their brokers personally first.' The group is negotiating with two retail brokerages in Hong Kong eager to get their trade of Hong Kong shares on the Net.
'We're now working on the template to allow trade in Hong Kong shares. After we test it in a couple of months, we'll look into opening it to the public,' he said. 'We'll be charging the brokerages part of their commission, but on the whole, they feel this will broaden their customer base.' Ermanno Pascutto, a colleague of Mr Fong's and a former Securities and Futures Commission executive director, agrees. 'The stock exchange has a statutory monopoly on trading in Hong Kong shares.
'You can't trade unless you go through a member and, in this case, the Internet is just a means of communicating - an alternative to faxing or phoning,' Mr Pascutto said.
Surprisingly, China will be first on the road to cyber-trade, but that is due to costs. Building a mainland stock template is about five times cheaper than building one for Hong Kong, Mr Fong says.
The group is also holding discussions with the Bank of China Group on providing real-time information on Hong Kong companies, and is just a year away from broadcasting stock information from throughout the region.
The fact remains that the territory's regulators have little control over Internet trade because present legislation defines the stock exchange as a place. So there is a risk of worthless securities being promoted or accounts broken into. There are also fears of money laundering or new-issue scams when companies are floated through the Internet.
For those fearful of hackers, ChinaTone is putting in a pin code and password and, Mr Fong emphasises, 'you should know your broker'.
'We'll also be buying insurance against fraud,' he said.
While it is clear that the Securities and Futures Commission has no wish to hinder securities trade on the Internet, it recently proposed a bill giving it the power to regulate electronic trading systems.
While giving the Securities and Futures Commission control over securities trade on the Internet, the bill proposes a more hands-off policy, concluding that excessive regulation of cyber-trade will hurt rather than help.
For now, the commission is powerless to do anything, and ChinaTone is likely to start drawing Hong Kong investors to the Net without problems. But Mr Pascutto stresses: 'I can guarantee that if the regulators see anything going wrong, they will act quickly to deal with it.'