Brokerages brace for greater competition

Asean linkage scheme next year poses big challenge.

Brokerages are not only adopting strong measures to weather the sea-changes at home, but also are moving to fend off overseas competition when the Asean linkage scheme takes off next year.

"This initiative will allow easier access with likely lower transaction costs. It's another challenge for the industry," Pattera Dilo-krungthirapop, executive director of the Association of Securities Companies, said last week.

"[Thai] brokerages need to adjust to become more widely accepted, especially within Asean," she said.

The bourses of Thailand, Malaysia, Singapore and the Philippines will begin allowing cross-border trading next year, but the local industry should not just see that as a threat.

The larger market would be more appealing to foreign investors and would enable Asean exchanges to compete with others, which should provide a chance to do more business, she said.

Asean managed to capture 3.51 per cent of the world's market capitalisation, according to Bloomberg data as of June 27, while China accounted for 7.18 per cent, Hong Kong 4.81 per cent and India 2.80 per cent.

The Asean countries with active equity markets are Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

The Asean linkage "could send a message to foreign investors to come into the region and more joint effort would be a good sign", she said.

Besides taking store of regional integration, local firms have been improving products and services to cope with full commission liberalisation next year.

"We have been liberalising commissions in the industry for over a year and a half and are at about 70-80 per cent. Now, commissions are quite stable and at a proper level for further development," she said.

The industry has been developing a wider variety of products and distribution channels.

This is the strategy that DBS Vickers follows, but it is not fully developed, said Pattera, who is also CEO of DBS Vickers (Thailand) Co.

"Our strategy is multi-products and multi-channels. Mitigating risks with many products allows us to respond to our customers' need for risk and return. The first thing is to have an array of products, ranging from low-risk government bonds to high-risk derivatives and equity-linked notes," she said.

In terms of multi-channels, the brokerage has been developing its Internet system to facilitate customers' decision-making.

DBS Vickers laid out a strategic platform for an integrated securities business several years ago. The next step is to do marketing to expand its customer base.

Like other brokerages, in two to three years, DBS Vickers expects to be generating 70 per cent of total revenue from stock trading and 30 per cent from other trading - mainly bonds, derivatives and equity-linked notes - and fees from foreign investment. Currently, about 85 per cent comes from stock trading. Its share of the equity market stands at 2.5 per cent.

Another coming trend is overseas investment, reflecting increasing risk in this country.

"DBS Vickers can utilise DBS Bank's network" in Asia, covering Singapore, Malaysia, Indonesia and Hong Kong to China, to serve its Thai customers, who need to invest in neighbouring and other regional markets, she said.

Investors' four favourites with their large sizes and high liquidity are the stock markets in Hong Kong, China, the United Kingdom and the United States. They will play a part in the Internet services that DBS Vickers expects to launch this year.