Taiwan's securities firms are jumping on the bandwagon of online trading in a move which could eventually force scores of small brokerage houses out of business.
Competition from Internet traders has propelled local online brokers to offer cuts of up to 50 percent on stock commissions, as well as free computers, air tickets, cars and other gifts.
Some are even charging zero commission rates for monthly transactions of NT$1 million or more.
"We expect to see many small brokerage houses forced to shut down or merged with large securities companies beginning next year," said Weng Chien, vice president of Polaris Securities Co.
The commission squeeze has put smaller firms at a great disadvantage since their business operations were limited to stock trading and transaction revenues were their primary source of income, Weng said.
Securities firms, with comparatively higher capitalization and a broader variety of services, had a much stronger position in the price war, he said.
Polaris, for instance, has invested more than NT$100 million in its online operations since December 1997. It seized the biggest market share of 26 percent in net trading last month.
The web business also boosted the company's overall share in the island's securities trading to 3.0 percent this year from 2.7 percent in 1998.
Polaris, however, was one of the few firms to reap profits from e-trading. Commission discounts and free gifts have cut into the revenues of others.
Among the 99 securities firms and 99 brokerages in Taiwan, 49 of them are offering stock trading via the Internet at present. More will be forced to introduce such services to hang on to their customers.
"We have suffered a certain degree of decline in transaction after some of our clients switched from the conventional way of trading to the net," said Tseng Chin-lung, executive vice president of China Securities Co.
But he vowed: "This is a market worth fighting for at any cost because of the enormous potential business opportunities."
The volume of stocks traded via the Internet in September had jumped nearly five fold to NT$94.4 billion from January, accounting for 2.34 percent of the securities market's overall transactions.
The number of online accounts grew seven times to 71,789 last month.
Tseng said he expected online transactions to reach 10 percent of total stock trading by the end of 2000.
Yu Yin-kai, assistant vice president of brokerage administration at Grand Cathay Securities, made an even bolder prediction, saying the share could reach 40 percent in the next five years.
"Trading stocks via the Internet is not only cheaper but also more convenient than the old-fashioned way. It also provides investors with an easy access to a variety of market information and analysis," said Yu.
Many more investors were also expected to appreciate the privacy offered by the alternative trading system, he said.
Anticipating a bullish business, Yu said his company had decided to further expand its online operation next year.
However, the outlook on the fate of domestic brokerage houses was dismal, he said, predicting that only a handful would survive the turmoil of the next five years as the market was more and more dominated by large securities firms.
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