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Tuesday, July 23, 2013

Plunging fees, competition threaten HK brokerages

Published on Jul 23, 2013

HONG KONG - Asia's second-biggest stock market, Hong Kong, may see 25 per cent of its local brokerages close as trading and fees plunge and competition from banks intensifies, according to a securities association.

The number of local broking firms may decline to 300 from about 400 in the next five years, said spokesman Mofiz Chan for the Hong Kong Securities and Futures Professionals Association, which represents 3,200 brokers.

"There are many people taking part-time jobs or completely moving out of the industry," he said. "Many of our members have needed to shift into other jobs such as security, taxi drivers or tutors for primary school pupils."

Fees have dropped since 2003, when bourse operator Hong Kong Exchanges & Clearing removed a brokerage commission floor of 0.25 per cent of the value of transactions, squeezing profits for brokers as mainland Chinese rivals expanded. The competition has claimed foreign equity traders, with South Korea's Mirae Asset Securities and Japan's Daiwa Securities Group among those that have cut jobs.

Eleven brokerages have ceased trading this year, according to the Hong Kong Stock Exchange. King Fook Securities, established in 1971, will close at the end of this month. "We've been seeking to keep operating despite booking losses. High rentals and labour costs, together with the fact that banks are offering zero commission, have made it difficult for us to survive," said parent company King Fook Holdings. The securities-broking business at King Fook group reported a loss of HK$6.02 million (S$984,000) for the year ended March 31, on top of a HK$13.2 million loss a year ago, said an exchange filing.

Brokers have been hurt after the average value of stocks traded daily plunged to HK$53.7 billion last year from HK$69.5 billion in 2011, according to data from the exchange.

China's big five banks all offer securities trading services in Hong Kong via their local units. Chinese Securities Association of Hong Kong, which comprises mainly China-backed brokerages, has increased its members to more than 65 from 19 in 2009.

Brokers backed by banks or larger international competitors appear more credible and are increasing market share as they offer lower commissions, said Mr Christopher Cheung, founder of Christfund Securities.


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