Broker war deepens as Huatai scraps feesBusiness | Bloomberg 13 Jul 2020
Huatai International, the Hong Kong arm of China's third-largest broker, is no longer charging commissions and platform fees for stock trades, but just a HK$8 monthly fee, as of last month, in a move set to deepen the pain for the city's many hard-pressed trading houses.
It has seen a surge in customers, gaining more users over the past month than it has over the past three years, according to Zhu Yali, the firm's head of the fintech and retail business, who declined to give specific numbers.
The move could have a knock-on effect across the sector, putting pressure on rivals who are already suffering under thin margins. Battling an influx of online trading and mainland China rivals, growing dominance of big banks, political unrest and an economic slump, Hong Kong's brokers are closing shop at a record pace this year. Some 23 of the city's brokers have ceased trading this year, exceeding last year's record 22.
Huatai is leaning on its deep pockets - its trading app in China has 7.8 million active monthly users - and trimmed costs to make up for the lost income, betting it can replicate a mainland strategy of folding new customers into its broader wealth management business. By cutting fees to zero, the broker is forgoing HK$150 million to HK$200 million in fees for every 100,000 clients, according to Zhu.
Charles Schwab's move to go to zero fees in October quickly shook up the US industry, with domestic discount rivals and even mutual fund giants such as Vanguard and Fidelity following suit.
But Hong Kong has features that will make it hard for many brokers to match Huatai. One issue is that they can't make up for lost income through order flow payments. US brokers are able to provide free trading partly because of this practice, in which they sell customer orders to wholesale market makers who profit off the bid and offer spread.
Commission income is sizable in Hong Kong. Last year, the city's brokers earned HK$19.9 billion in such fees, which was down 18 percent from the previous year. Trading has picked up this year though, stoked by volatility from the coronavirus, helping to ease some of the pain.