ANY attempt to cut minimum commissions on stock exchange transactions will spark a damaging rate war, local and institutional brokers warn. The resulting competition would lead to cost-cutting and a fall in standards in the territory, they argue. Their concerns were triggered by suggestions from stock exchange chairman Charles Lee Yeh-kwong that the exchange planned to abolish the minimum commission level of 0.25 per cent for institutional clients as a way of making the local market more competitive. However, brokerages contend that slicing further the already low commission level would not provide any more incentives to big institutional investors, whose interests were long-term and based more on economic fundamentals and corporate prospects. Wardley James Capel associate director Chan Chun-shing said: ''The commission level in Hong Kong is already low compared with markets like Singapore and Thailand. ''While a lower commission level might stimulate traders' interest, I doubt if it will have any effect on institutional investors.'' Institutional investors rely on brokerages more for their efficiency in execution of orders, their high-quality research and sales services than their cost, brokers say. ''What is important is our service and research back-up,'' Crosby Securities dealing director Chau Wing-hung said. As institutional investors had huge stock holdings, timely buying or selling by their brokers could generate enough return to offset higher commission fees, he said. Barclays de Zoete Wedd director K.S. Ng said: ''Institutional investors will not give more business to the firms simply because of a slightly lower commission level. ''It is not something that is better when it is cheaper, it is the professional standard [they seek],'' he said. Furthermore, commission is only a minor consideration for big fund houses when they choose in which markets to invest. ''Institutional investors are not speculative traders. They come to the market because of its good economic fundamentals, as reflected in the market's price-earning multiples,'' Mr Ng said. The recent huge influx of US funds was to get into China stocks, and commission was not relevant. ''Those fund managers take a long-term view on China, expecting a 10 to 15 per cent capital appreciation. Their investment strategies will not be affected by a quarter [point] reduction in commission level,'' he said. Scrapping the minimum commission level would not only not help the market, it might lead firms to cut rates to survive the competition. Rate-cutting means that higher volumes have to be generated to maintain the same level of profitability. Brokers predict that the standard of service will be the casualty of such competition. ''It will create internal competition among brokers who will try to win customers by offering a lower commission rate,'' Mr Ng said. Lower commission income might be temporarily compensated for by the current high turnover in the stock markets, but when the volume dropped, brokers would be under pressure to generate more business, he said. Already, the industry was burdened with spiralling operating costs, with ever-increasing expenditure on rental charges and salaries, he said. ''Ultimately, they will not be able to provide the same high level of professional services to their clients,'' he said. The move would not enhance competitiveness but would aggravate internal competition, jeopardising the industry's standards. ''A better way to gain investors' confidence is to exercise better control over the management quality of the listed companies, making sure they do not take advantage of minority shareholders,'' Mr Chan at Wardley James Capel said. The cost of stock transactions in Hong Kong has been declining in the past few years, as stamp duty, the transaction levy and clearing company levy have been cut. But the idea of tampering with minimum commissions - long resisted in Tokyo - brings back memories to brokers of the savaging of profits that followed Big Bang in London, when the Government forced the stock exchange to abandon its fixed tariff.