Lower commission income, higher technology and compliance costs, stricter margin-financing rules as well as a drop in takeover interest from mainland buyers all contributed to the winnowing out of the world’s most crowded brokerage market.

“Many small brokers found their commissions were crushed and they could not make ends meet,” said Gordon Tsui, chairman of the Hong Kong Securities Association.

“Many small brokers cannot earn enough from brokerage commissions, so they relied on interest income from lending to customers to trade stocks. The ruling slashed their last major source of income,” said Tsui.

The inexorable rise of electronic trading has crushed brokerage commissions globally over the past decade. Portfolio managers down to retail investors can now buy and sell stocks digitally and expect to pay a fraction of what it would cost to ring a broker to place an order.

Technology costs have also spiralled to the point that only the largest brokers can afford to build the platforms able to handle electronic trading.

Single stock electronic trading grew from 37 per cent of cash equities trading volume in Asia excluding Japan in 2018 to 43 per cent last year, according to Greenwich Associates’ survey of large institutional investors in the third quarter of last year. The consultancy expects electronic trading to represent roughly half of cash equities volume in the region by 2022.

“Ten years ago, electronic trading was under 20 per cent. The overall volume of trading has gone up since then as well,” said John Feng a consultant at Greenwich Associates.

To be sure, Hong Kong’s market turnover surged by 20 per cent in the first quarter versus the same period a year earlier, but it was the biggest, most sophisticated brokerages who cashed in on this rush of trading activity.

Only the larger firms know how to use the short-selling or other derivatives to make the most from market swings, according to lawmaker Christopher Cheung Wah-fung, who represents the financial services sector.

Hong Kong’s 500 smallest brokerages have a market share of just 7 per cent in terms of stock turnover, compared with 40 per cent in 2000. The top 14 players have a 58 per cent share and 51 mid-tier firms have about 35 per cent of the pie.

Hong Kong’s small, family-run stockbrokers flourished in the 1980s, swelling to around 900 brokers before the 1987 stock market crash. The number dropped to 413 firms in 2005 then climbed back up to 606 by the end of last year, encouraged by interest from mainland brokers.

“These old brokers are well past their retirement age, but they kept going in the hope of selling at a high price,” according to Joseph Tong Tang, chairman of Morton Securities in Hong Kong.

But since then Beijing curbed overseas acquisitions, particularly debt-fuelled expensive purchases.

“Many brokers don’t earn enough to pay for rent and staff salaries. They kept running a losing business waiting for a buyer. Now there is slim hope they prefer to retire instead,” Tong said.

The government announced some relief measures last week, paying HK$50,000 for each brokerage excluding the 14 biggest players. The government will also pay half of each staff’s salary up to HK$9,000 for six months.

“It is not perfect, but at least it can provide some help to prevent more closures,” said Cheung, who is also chairman of his own securities firm, Christfund Securities.