SFC scuttles proposal for minimum brokerage fee

Fearing stiff price competition from fellow brokers, members from the securities industry unsuccessfully attempted to convince the Securities and Futures Commission (SFC, 證期會) to maintain a minimum rate that brokerages must charge for stock trades.

The proposal was shot down by the SFC yesterday. Beginning on July 1, brokers may charge as little as they want, though their commissions are capped at 0.1425 percent.

In a meeting yesterday, the Association of Securities Brokers (證券商公會) proposed that the SFC adopt a minimum brokerage commission rate of 0.0522 percent.

SFC chief Lin Tzong-yeong (林宗勇) said the proposal was against Fair Trade Law and would be rebuffed by the Fair Trade Commission (公平交易委員會).

Kang Rong-bao (康榮寶), an accounting professor at Chengchi University, proposed the 0.0522 percent commission rate based on the overhead costs of brokerage houses nationwide.

On July 1, the SFC plans to scrap its five-tier commission structure, allowing brokerages to charge any fee they like as long as it doesn't exceed 0.1425 percent.

Securities companies executives worry that once the new rule goes into effect, it could spark vicious competition, in the process lowering already thin margins.

"Many securities companies are already engaged in a price war," said Luo Fu-juh (羅福助), a legislator and chairman of Tashin Securities (大信證券), who attended yesterday's meeting.

"If the plan is implemented on July 1 and some securities companies go bankrupt, who is going to take responsibility?" Luo asked.

He also said the Fair Trade Commission should review whether the brokerage commission structure should be changed and whether the SFC's plan should be postponed.

The SFC's Lin insisted that the plan would be implemented on July 1 as scheduled.

However, he agreed to a compromise, whereby brokerages firms won't be required to make public their new commission rates.

But securities companies will have to disclose to the SFC or the Taiwan Stock Exchange their new rates. The reporting requirement will be used to check whether brokerages are engaged in vicious competition.

"Every securities company has a different cost structure. The brokerage commission is not a utility bill or gasoline bill, which normally have fair and identical rates," Lin said. "Investors are smart enough to compare different brokerage rates or even negotiate their own rates."

Lin said the new rule allowed securities companies to set variable rates based on their customers' trading habits and transaction volume.

"Setting up a minimum brokerage commission is against the principle of liberalization and fair competition," a Fair Trade Commission official said.