The growing presence of pure play online brokers, robo-advisory firms and digital offerings are posing a threat to local brokers and remisiers
by MARK RAO / pic by MUHD AMIN NAHARUL
MALAYSIAN brokerage firms have come under pressure from declining trade revenue and as digital platforms — which provide cheaper access to the market — gain traction with investors.
The total trading value for participating brokers in Malaysia’s equity market declined 21.1% year-on-year to RM550.17 billion for the first half of the year (1H19) on high foreign net outflows and the tepid trading environment.
Trading volume also came in lower over the six-month period at 660 billion, down 8.1% from the total 717.86 billion securities traded in the corresponding period in 2018, according to data from the local bourse.
In addition, 1H18 saw a jump in volumes ahead and after the 14th General Election as investors took on a risk-off stance.
While the decline in volumes in 1H19 is largely in line with global markets, the growing presence and popularity of pure play online brokers, robo-advisory firms and digital offerings are posing a threat to the traditional business model for local brokers and remisiers.
“They have somewhat cannibalised a certain portion of the market share of traditional brokers and remisiers with respect to the mass retail market,” Pheim Asset Management Sdn Bhd CEO and CIO Leong Hoe Kit told The Malaysian Reserve (TMR).
“However, the market share for the institutional and high-net-worth individuals market remains unaffected as these market segments still require ‘high touch’ servicing, currently provided by the traditional brokers and remisiers.”
Nonetheless, he said the latter group needs to upskill to enhance their service offerings to keep pace with the heightening demands of institutional and high-net-worth investors.
This is also needed to weather the ominous threat of the fast-evolving and adaptable artificial intelligence space, he added.
Rakuten Trade Sdn Bhd VP for research Vincent Lau said the lower brokerage trading volume and value was largely due to the RM5.8 billion net foreign selling of Malaysian equities from February to May this year.
While traditional brokers have been offering online trading platforms for the longest time, he said remisiers need to move away from their traditional business.
“Remisiers have to evolve from pure execution of orders, to providing valueadded services to clients on research investment advice,” he told TMR.
An analyst for a local brokerage firm said the slowdown in trading activity and value is in line with the global picture where trade uncertainties, limited buying opportunities and a weak pipeline for listings are creating a challenging operating environment for the industry.
Initial public offerings (IPOs) boost liquidity in the market and Uber Technologies Inc’s underperforming IPO,
as well as the aborted listings of Budweiser Brewing Co APAC Ltd in Hong Kong and Malaysia’s own QSR Brands (M) Holdings Bhd indicate a slowdown on this front, the analyst said.
“Going forward, we do not expect an improvement (in the brokerage business), especially with more digital offerings and online brokers coming into the market,” the source told TMR.
“Brokers have no choice but to up their game as more pure play online brokers, who primarily compete on price and access to the market, chip away at their market share.”
The source said it is about building a platform that is cost-competitive, has good product offerings, is user-friendly and error-free, and provides supporting materials to investors such as research reports.
Rakuten Trade — a joint venture (JV) between Malaysia’s Kenanga Investment Bank Bhd and Japan’s Rakuten Securities Inc — is credited as Malaysia’s only fully digital equity broker.
Since it first commenced operations back in May 2017, the online broker reportedly generated close to RM5 billion in trading value and has activated over 32,500 accounts.
Other brokers have not been idle in the market with CGS-CIMB Securities Sdn Bhd, a JV between CIMB Group Holdings Bhd and China Galaxy International Financial Holdings Ltd, commencing operations at the start of the month.
The 50:50 JV is aimed at leveraging on shared expertise and digital innovation, as well as gaining wider market access.
Customers can trade stocks listed on 33 exchanges via the broker, while online clients have direct access to eight exchanges globally.
Others are looking to raise income from the wealth management business. Kenanga, for example, acquired a 100% stake in ECM Libra Financial Group Bhd’s fund management arm, Libra Invest Bhd, to consolidate its position as one of the leading unit trust and asset managers in Malaysia.
The local brokerage market registered a total RM1.25 trillion in trade value last year with 1.29 trillion securities traded.
Affin Hwang Investment Bank Bhd was the largest broker, commanding 12.6% or RM157.41 billion of the total trading value, as well as 17.7% of the total trading volume that year.
This was followed by CIMB Investment Bank Bhd, Maybank Investment Bank Bhd, Kenanga and RHB Investment Bank Bhd (in that order) in terms of trading value captured in Malaysia’s equity market.