Deregulation benefits investors

The deregulation of securities brokerage fees in October last year has led to savings for investors as competition between brokerage houses becomes fierce. ING Baring’s head of domestic sales Vichai Putthatiwat says that commissions are currently as low as they can go. "Prices are very cheap. They cannot get any cheaper."

Yet others aren’t so sure. Phillip Securities’ analyst Adisak Kammool describes the industry as experiencing a consolidation period. "The first step has been price cutting, but we won’t feel the full effects until 12 to 18 months after liberalisation first came into effect. I think we will see an average of 0.1 to 0.15 per cent established for the industry."

Prior to deregulation, commission fees for all securities transactions – that is the buying and selling of shares – was 0.5 per cent. (Local mutual funds companies, however, were charged 0.3 per cent.) It was illegal for brokerage houses to grant a better rate for a client no matter how large their volume of trading. In other words, houses were effectively insulated from price competition, meaning they had to compete on the basis of services provided instead.

All that changed on 1 October, when houses were free for the first time to set their own prices; price drops occurred immediately, and now investors pay a maximum of 0.25 per cent on any transaction.

In an industry that derives 80 to 90 per cent of its income from commissions, the effect was bound to be serious. Adkinson Securities’ head of research Amarit Singnarong says that on the positive side, deregulation is helping the industry become more efficient. "Everyone’s looking to trim fat. Before they didn’t care – it was a lucrative business. Now the bubble has burst and we’re on a recovery path."

Things are certainly different now. Managing director of Seamico Securities Alistair Burgoyne says that not much beyond price is differentiating houses anymore. "It’s very much a price-driven game. We have a situation where no one is making any money. The end client is the sole beneficiary in this situation."

With the focus on price, attention to research is dropping, leaving those investors seeking high-quality guidance for their purchases and sales with a lower quality of information.

"Quality of research has dropped tremendously," confirmed Kim Eng Securities’ Lan Ung. "Well-qualified analysts are becoming very rare here – companies just can’t afford them anymore, once they take into account both their drop in revenue stream and the fall in the baht over the past few years. It’s not that local analysts are bad, but they do lack the experience international analysts bring."

However, individual investors have not traditionally sought out and paid for high-value research anyway. "Discount houses have never provided research, and high quality houses have given it away," Ms Ung said. "It’s traditionally mutual funds companies that have relied on good research."

Despite the tough times, no houses have yet closed their doors, and mergers have been slow to occur among local houses. "People here continue to hang on in the hope that things will improve – in other countries there would have been more mergers by now," said Ms Ung.

Nevertheless, she predicts they will start occurring, or at least houses will look towards appointing a central settlement office to save on back office and administrative costs. "Over the next few months the stockbroking industry will undergo some dramatic changes here."

Adkinson Securities’ Marco Sucharitkul says that any mergers are likely to be strategic. "For example, if a firm specialises in local and foreign institutions but they lack retail experience, they may approach a retail firm to merge. It won’t be a case of big fish eating small fish, it will be strategic for both."

Kim Eng
Up to 1m: 0.25
1m to 5m: 0.2
> 5m: 0.15
100m/month and over, can possibly negotiate to 0.1 or less

Capital Nomura
Up to 20,000: Bt50
20,000 to 1m: 0.25
1m to 3m: 0.2
3m to 5m: 0.175
5m to 10m: 0.15
>10m: 0.1

Seamico Securities
Any amount: 0.25 (Min Bt50)
Large transaction: Negotiable

Kiatnakin Securities
Up to Bt50,000: Bt125
50,000 to 300,000: 0.25
300,000 to 500,000: 0.2
500,000 to 2m: 0.175
2m to 5m: 0.15
>5m: 0.1

ING Baring Securities
Up to 1m: 0.25
1m to 5m: 0.2
>5m: 0.15

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