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LOCAL BROKERAGE firms Taifook Securities, Quam Securities and BOCI Securities have seen their online securities business  grow  by as much as 50 per cent annually.

Despite this, none of the firms believe the internet will replace traditional stockbrokers.

'My conclusion is that pure online trading will not work in Hong Kong,'  said Oliver Ng, executive director of the online brokerage department at BOCI Securities.

Mr Ng speaks from experience. In 1996 he returned to Hong Kong from North America to set up TD Waterhouse's online trading operation.

The Canadian company ended up merging with DBS Bank. In 2003, it went the way of several overseas online brokerages that had established operations in Hong Kong.

These firms, including Charles Schwab and ETrade Financial, either closed down or halted their online Hong Kong equities trading business.

'Although these American online brokers are leaders in their own market, they had problems breaking into the local market,'  Mr Ng said.

'Having worked with American online brokers, I can see the difficulties they faced. Local investors are still accustomed to personalised service. Additionally, the Hong Kong market is too small for online brokers while the cost of online trading infrastructure is very high,' he  said. 'Pure online brokerage cannot survive. The market is just too tough.'

When he joined BOCI Securities, Mr Ng had to diversify its online business to stay afloat.

'I compare our business to that of an airline. Every time the  aircraft takes off, if there's an empty seat, it is already foregone revenue. So we have to make full use of our web portal,' he said.

'But as much as we want to make 50,000 trades in a day, that is not going to happen because of the small size of the Hong Kong market.'

BOCI Securities has maximised the use of its web portal by tapping the offshore market. It formed a joint venture two years ago with a Japanese brokerage house to capture order flow from Japan and is about to form a second partnership with another Japanese broker soon.

The company also expanded its online business last year by offering a unique service aimed at Hong Kong-listed companies that give stock options to their employees.

'We make money several ways, from collecting a fixed fee for managing our customers' data bases of employees who hold stock options; by charging a handling fee to employees who exercise their stock options and from getting a commission when they sell their stock,' Mr Ng said.

Meanwhile, Taifook Securities has tried to expand its online business by launching an e-services platform, which provides comprehensive investment tools to help clients trade online 24 hours a day. It has also launched a loyalty programme whereby it gives points to clients every time they trade online. The points can be exchanged for mobile phones and other hi-tech gadgets.

Nelson Ying, head of online business at Taifook Securities, said the company would soon launch a new service using 3G Mobile Network that allows customers to talk to their analysts via 3G phones.

The growth of online broking will continue because investors are becoming internet savvy.

Allan Matheson, director of the online trading platform at Quamnet, which is a sister company of Quam Securities, believes that online brokers will eventually enjoy much higher growth rates than traditional brokers.

'This will take many years as typical Hong Kong investors like to have personal contact with their brokers,' he said.

'However, younger investors and those who come from the mainland tend to prefer  online trading  as it is far less invasive.

'Quam's attitude has always been that our clients are very smart. They only need the right tools to enable them to make informed decisions.

'We have been a beneficiary of the fact that investors are  increasingly using platforms like Quamnet for information and execution.

'This has meant we are still growing and bringing new clients to the Quam Group without being forced to look to new markets,' he said.



Internet trading will not see end of traditional brokers