Family-owned brokerages once reigned in Hong Kong, tapping close-knit networks of clients in a territory with few regulations that relished a quick buck.
Now, in an era of algorithms, online trading and growing dominance of big banks, the hundreds of small brokerages are losing their relevance. Add the economic toll of territory’s year-long political unrest, a US-China trade dispute and the COVID-19 pandemic, and its trading houses are closing at a record pace.
“The virus outbreak is really the last straw for the brokers,” said Hong Kong Securities Association chairman Gordon Tsui (徐聯安), who estimated that more than 30 could close this year after a record 22 folded last year.
The pandemic-fueled trading boom at the start of this year underscored how far behind local brokers have fallen. With just a 7 percent market share split between nearly 600 small firms, the lion’s share of fees from the first quarter’s boisterous trading fell to big banks, such as Goldman Sachs Group Inc, which handled more than 60 percent of transactions.
New start-ups are also piling in, crunching down already thin commissions and they are easy acquisition bait for mainland Chinese brokers.
The biggest misstep was failing to keep pace with the technological shift of trading.
Back in the 1980s, people would visit brokerages to place orders and sniff out rumors. The local firms were known as “goldfish tanks” because of glass separating the traders from the many onlookers.
At the end of British colonial era, they had about 40 percent of the market after decades of go-go years when the markets were not only an obsession of the territory’s rich, but also its blue-collar workers and housewives.
Then came the Internet. Now more than 65 percent of retail investors swap stocks online, with only 1 percent still heading down to the broker, according to the government-backed Investor and Financial Education Council.
One survivor is Bright Smart Securities and Commodities Group (耀才證券金融集團), which invested in infrastructure to enable online trading all the way back in 1995, at a time when few Hong Kongers had even heard of the Internet, chief executive officer Edmond Hui (許繹彬) said.
Many rivals have missed out on the younger generation, while their existing clients are aging and trading less, he said.
A veteran of the old brokerage cluster in the territory’s Sheung Wan district, Hui said it was not a lack of cash that caused them to fall behind.
“The old brokers are rich,” he said. “They just don’t think IT infrastructure was necessary, because they rely on a handful of loyal clients and it has worked well for them for decades.”
As elsewhere in the world, trading fees have also hit rock bottom. In Hong Kong, there has been a price war for close to two decades since the territory scrapped a fee floor of 0.25 percent in 2003.
Upstarts are also piling in. With Chinese online brokers, such as Tencent Holdings Ltd (騰訊)-backed Futu Securities International (Hong Kong) Ltd (富途證券國際) coming in, trading fees are being brought in line with those on the mainland, dealing a blow to Hong Kong’s brokerages, said Amanda Xie, regional manager at online broker Usmart Securities Ltd (友信證券).
A push into more lucrative businesses, such as margin financing, was also squashed as the territory’s regulators over the past years cracked down on suspected shell companies to prevent often wild share moves seen in the territory’s smaller stocks.
A typical small broker has about 12 licensed staff, which cost about HK$500,000 (US$64,508) a month, Tsui said.
Even during an upbeat trading environment, many are struggling to break even and cutting employees is not an option, as every firm needs a certain number of licensed staff to stay in operation, he said.
Firms such as F.R. Zimmern Ltd and Gold Fund Securities Co (金豐證券有限公司) have this year handed back their licenses after decades of trading. Others stepped out earlier, in part cashing in on a wave of mainland Chinese brokers entering the territory.
David Tung Wai (董偉), known as the “King of the Cigar,” in 2016 sold his life-long business to China’s Zhonghua Financial Holdings Ltd (中華金融控股有限) after years of advising media tycoon Run-run Shaw (邵逸夫).
Another veteran of the Sheung Wan days is 82-year-old Cheung Tin-sang (張天生), who is still trading at Luk Fook Securities (Hong Kong) Ltd (六福證券). His previous firm, Sun Hung Kai Securities, was acquired by Chinese mainland brokerage Everbright Securities Co (光大證券) in 2015.
He is now fielding calls from former colleagues looking for jobs.
“But what company would hire a new guy in his 60s?” he said. “I’m sad that I can’t help much.”
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