STRATEGIC PARTNERS
January 13, 2003
HONG KONG -- Small and medium-sized brokerages are bracing for a fresh round of consolidation if the government goes ahead with a plan allowing investors to buy shares and retail bonds via ATMs, according to a report in The Standard.
A government spokesman said the proposal was aimed at stimulating the lackluster stock market and streamlining the retail bond market. But brokers see the move as an effort to keep up with Singapore, which has offered equity and bond investing through ATMs throughout the 1990s.
"Hong Kong has its own unique qualities. What works for Singapore does not necessarily work for Hong Kong," National Resources Securities chairwoman Chen Po-sum said.
"Besides, we have no guarantee that such a move would boost turnover. What is important is that brokers can compete for business fairly. Major banks have the added advantage of having an established customer base, which is making the survival of small and medium-sized brokerages even more precarious," she said.
Grand Cathay Securities executive director Fernando Lao also blasted the proposal, saying it would deepen losses in an already shaky securities industry. "There will be fewer and fewer brokerages. Even though many of us have already consolidated our back-office operations, the revenue we are able to generate is still not enough to take advantage of the cost savings."
Lao said that the goverment will need to make an effort to preserve a level playing field, since the securities industry is governed by the Securities and Futures Ordinance, while the Hong Kong Monetary Authority regulates the banks.
"It's not fair as this will squeeze us further since we have to be properly licensed while banks are exempt dealers," Lao said. "When we open an account, we are required to first know the client. At an ATM, who is going to explain the risks of an investment to the customer? If the plan goes ahead, the licensing requirements have to be mutually applicable to both banks and brokerages."
Hong Kong Association of Banks secretary Rona Morgan admitted there were inherent difficulties in introducing investment services via ATMs, but denied the move would unfairly disadvantage brokerages.
"The difficulties of using the ATM are that it is designed for simple transactions and may not be suitable for effecting more complex transactions. Enhancements would be required, which would be very costly. Banks would want to know that transaction volumes would be sufficiently high to support such investments," Morgan said.
"Bank staff are trained to ascertain the suitability of prospective customers engaged in bond market transactions, including asking customers a number of questions which would prove difficult at an ATM," she said.
