Hong Kong's online stock trading industry is growing by the day and the competition is set to become even more fierce in the coming months with the entry of three international giants into the market. Two major players from the US - E*Trade and DLJ Direct - have purchased stock exchange seats and will make their debuts on Hong Kong's Internet trading market by the end of 2000. The largest online broker of them all, Charles Schwab, is to open a physical branch in Hong Kong in October, which will be closely followed by an online trading service.
An official at DLJ Hutchison Direct - a joint venture formed by DLJ Direct and Hutchison Whampoa - said the company's plan to launch a trading service next month would not be affected by Credit Suisse First Boston's recent takeover of DLJ's parent Donaldson, Lufkin & Jenrette, though it might be necessary to rename the venture.
E*Trade, DLJ Direct and Schwab will join TD Waterhouse, which launched a Hong Kong trading service in June this year, so four out of the top five US online brokers will soon have a Hong Kong presence. TD Waterhouse managing director Karen Buck said 'Hong Kong is already a highly competitive market' and added that the big four could soon be joined by other rivals. As it stands at the moment, there are about 500 stockbrokers in Hong Kong and already around 60 are engaged in online broking.
Nonetheless, according to a Securities and Futures Commission survey released in July this year, only 1.3 per cent of Hong Kong trading occurs online. The figures show that Hong Kong is lagging behind other centres in Asia, such as South Korea where online trading accounts for approximately 50 per cent of all trading carried out.
Analysts predict growing foreign competition may result in a new round in a price war. In May, KGI Asia waived commission and handling charges until December 31 for clients who had registered with its Web-trading service before June 30. TD Waterhouse is not saying whether it will cut its prices to compete but said the firm would re-evaluate its price structure after the introduction of the stock exchange's automatic order matching and execution system, or AMS/3, later this year. The firm currently charges 0.25 per cent commission - the SAR minimum rate - on local stock trading. However, AMS/3 will allow investors direct access to the exchange's system without any manual processes in between, thus brokerages would be able to cut back their operations and lower commission rates, at least in theory.
Whilst the Hong Kong market is seeing the entry of large overseas players, Hong Kong brokers still view themselves as being in a strong position. Cash Online deputy chief executive Felix Miao commented that unlike the US, which allows share trading accounts to be opened through an online process, Hong Kong regulations require a client to submit identity documents to a broker's branch in person. He said: 'at least in respect of the number of branches, local brokers still have advantages over their foreign rivals.'
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