How cyber trading tools feed and challenge brokeage houses
By Kim Da-ye
Last year, the Board of Audit and Inspection of Korea (BAI) found that the Korea Eximbank, a state-owned lender, let employees freely trade stocks during office hours.
Between January 2009 and January 2011, the BAI found that 162 employees of Eximbank traded stocks 35,678 times using 228 accounts that included their family members'.
Seven employees traded securities more than 1,000 times with the most active staff member logging in at 7,504 times, followed by others with 4,072, 2,662 and 1,756 times, respectively.
Eximbank may be an extreme case, but in general, stocks make good topics of conversation among Korean salaried workers because many of them directly buy and sell securities.
Retail investors account for around 70 percent of daily transactions by number and more than 50 percent by value, according to the Korea Exchange’s (KRX) 2011 data.
That has been made possible by the wide distribution of online trading tools such as “home trading systems (HTS)” and “mobile trading systems (MTS).” Eximbank, for instance, hadn’t blocked employees’ access to HTS.
This system, by which investors trade various types of securities and derivatives including overseas shares and futures and receive real-time news feed and analysts’ reports, have played a major role in the growth of retail investment here.
Once investors open accounts at brokerage houses, they can download highly advanced programs for free. There is no monthly subscription fee even for investors who haven’t traded for a while.
Such the market structure is unique to Korea, and HTS have been the criteria for many investors in choosing a brokerage house.
Daishin Securities, a mid-large size securities firm, has been well-known for its advanced trading tool. Daishin’s U-CYBOS Global HTS makes forecasts for future prices of stocks a user is interested in and sends a text message when his or her stock reaches the target price or the “stop loss” price.
First launched in 1998, securities worth 4.900 quadrillion won have been traded on the firm’s HTS.
After the domestic success, Daishin exported its HTS to Taiwan’s Polaris Securities in April 2004, becoming the first Korean brokerage house to do so. In December 2005, Set Trade, a subsidiary of the Thai stock exchange, imported Daishin’s futures trading system. In 2011, it was exported to Indonesia.
The technology that has generated easy revenue for brokerage houses, however, is turning to a headache for the industry.
Fees collected from stock trading via HTS are much lower than that for orders received in branches or on the phone. Online trading boosted transaction volume by large, eventually raising revenues for companies.
However, Kiwoom Securities, a retail investor’s darling that does not have any branches and conducts all trading electronically via HTS, slashed its transaction fees to 0.0015 percent, igniting a fierce fee-cutting competition among brokerage houses.
As retail investors flocked to Kiwoom for low fees, other brokerage houses including Korea Investment & Securities and Daewoo Securities reluctantly followed suit.
The wide distribution of MTS that began last year has forced companies to lower fees even further.
To market their MTS, many firms did not charge any fees for securities traded on mobile phones or tablet PCS during a promotional period.
Mirae Asset Securities, for instance, waived fees for all mobile trading customers for more than a year.
“Because of fee-slashing competition, the brokerage unit is no longer highly profitable. Now the European crisis has even discouraged investors from actively trading. It’s a hard time for the securities industry,” an official at a major securities firm said.
Despite the recent downturn in the industry, advanced online trading tools remain local brokerage houses’ strengths especially in overseas markets.
Mirae Asset Securities’s Brazilian branch launched a web trading system in January 2011.
It was the only online trading tool that showed bids and asks on Brazil’s stock exchange in real time, Mirae Asset says.
The web-based trading system that fulfills about 70 to 80 percent of the functions provided by a typical Korean HTS became a hit among Brazil’s retail investors.
According to Mirae Asset, a typical Brazilian brokerage, which has operated for 10 years or more, has 100,000 to 150,000 retail investors’ accounts. The Korean brokerage attracted more than 5,000 investors in one year and six months since the opening of the branch.
In April, Mirae Asset launched an MTS in Brazil, allowing investors to trade securities and check market prices and balances all in real-time.
“Among overseas markets Mirae Asset has entered, we deal with retail investors in Brazil and Vietnam only. Both are emerging markets in which the portion of retail investors isn’t large,” Lee Man-yeol, the country manager for Brazil, said.
“As their economies continue to grow and personal income increases, the size of the population that invests in stocks may expand fast. Considering they are emerging markets, demand for home trading systems is quite high thanks to the growing Internet network.”
Advanced features available on Korean-developed HTS