Fighting for scraps: Hong Kong’s brokers compete as transaction value shrinks

Number of licensed broker rose to a 20-year high of 614 in June, even as transactions value shrank 42 per cent

PUBLISHED : Monday, 10 October, 2016, 6:26pm
UPDATED : Monday, 10 October, 2016, 9:57pm

The number of stock brokers trading in the Hong Kong stock market has risen to the highest in 20 years, even while the average daily transactions value dropped during the same period.

As many as 614 brokers are now licensed to trade in the city’s bourse, compared with 604 in March, according to the Securities & Futures Commission’s data In the past 12 months to June, 119 new brokers were licensed to begin operating in the city.

They were drawn by last year’s frenzied trading and rosy prospects, after the so-called Shanghai-Hong Kong Stock Connect programme allowed Hong Kong brokers to buy and sell Shanghai-listed stocks, and also opened the way for Chinese mutual funds to trade Hong Kong shares.

A record HK$200 billion of shares changed hands every day during the month of April in 2015.

At the height of the market, the amount of daily trading was enought to sustain many small brokers.

Since then however, trading has shrank by 66 per cent from the peak, and dwindled to a trickle, with average daily transaction declining 42 per cent in the first nine months of 2016 to HK$67.8 billion.

To make a hard business tough, stockbroking is concentrated in the hands of the largest brokers.

Hong Kong’s top 20 brokers control two thirds of the market’s trading volume, while the top 100 brokers make up 94.1 per cent of daily transactions. That leaves 514 brokers fighting for the remaining 6 per cent of the market, valued at HK$4.07 billion everyday on average.

To make matters even worse, brokers are increasingly having to compete with the prospect of automated brokers and chatbots, compelling them to slash their fees to between 0.25 per cent and 0.1 per cent. In fact, Hong Kong scrapped a minimum fee in 2004, which deterred brokers and caused the number to shrink to 428 in 2006.

The vast majority of brokers are fighting for scraps just to stay in business.

That’s why brokers are waiting with bated breath for the Shenzhen-Hong Kong Stock Connect to commence in November, which will allow brokers in the two cities to buy and sell each others’ shares.