White Collar

Doors open for HK stock brokers to enter the fund management fray

City’s stock trading watchdog relaxing its rules for stock brokers applying for licenses to conduct limited scale fund-management business

PUBLISHED : Monday, 26 June, 2017, 2:33pm
UPDATED : Monday, 26 June, 2017, 11:00pm

The Securities and Futures Commission, Hong Kong’s stock trading watchdog, is relaxing its rules for stock brokers applying for licenses to conduct limited scale fund-management business – a move which should help more brokers diversify.

The commission said that brokers who already have an SFC Type-1 securities trading license and five year’s experience of discretionary trading for clients – effectively that means they have complete freedom to make trades on behalf of clients – can apply for a Type-9 fund management license to conduct certain types of fund management, such as selling client fund products.

There will also be no need for individuals to pass formal exams in fund management, but companies will be required to offer staff training to gain the license.

The announcement is being seen as a personal success for lawmaker Christopher Cheung, a broker himself, who has spent two years fighting heir corner, so brokers can expand their services from pure stockbroking into some fund management.

“Brokers’ commission per transaction has fallen to below 0.1 per cent, while fund managers can ask for fees between 1 to 3 per cent up front, leaving a lot of brokers struggling in the current conditions,” Cheung said.

Many brokers have the experience and knowhow to invest on behalf of their customers, but as many have not taken examinations for a long time, it’s would have been quite an ask to require them study and pass formal fund management examinations at this stage in their careers, Cheung said.

Hong Kong Exchanges and Clearing’s chairman Chow Chung Kong has spoken often on how he wants the bourse to act as more of a wealth management centre for wealthy mainlanders and other investors.

Banks are currently responsible for buying and selling around 80 per cent of fund products in Hong Kong, but the move now means more some 500 stockbrokers with mixed customers networks, becoming eligible to enter the arena.

There have been calls by some brokers for the HKEX to introduce a specialist trading platform for investors buying and selling fund products, via their stockbrokers.

The latest SFC move may also well help pave way for this to happen, as more securities brokers expand into fund management.

After all, banks already sell many different kinds of financial services from stocks and funds to insurance policies, effectively turning some onto financial supermarkets.

With this latest move, brokers are sure to be pushing for more leeway in what they can sell.