Lower trading fees and commissions squeezing traditional brokers

Written by Victor Fan || 03 Mar 2014

February 2014, represented another month of decreasing commission fees in China's capital markets as the entrance of China's technology giants in internet finance starts to affect not just banks, who are losing deposits, but securities brokers whose fees are being squeezed. 

On Feb. 20th, 2014, Chinese IT giant Tencent and Sinolink Securities co-launched a service package called ‘Yongjinbao’. One most important characteristics of Yongjinbao is that it offers 0.02% total transaction fee for the clients. 0.02% stands for the lowest possible rate for trading securities because the exchanges’ fee per transaction is exactly 0.02%, which means there is zero profit margin for securities companies through trading because there is actually no commission raised by securities companies from their clients’ transaction. The launch of Yongjinbao has attracted a lot of attention as the new client numbers have increased as has the account balances. China's broker trading fees and commissions are being squeezed.

Other local securities companies are also under pressure to lowering and even eliminating their commission fees and some securities companies have already started. For larger clients, the impact of lower commission fees is somewhat ambiguous as they have enjoyed a relatively low commission fee from 0.05% to 0.07% for a relatively long period of time and they care more about the value added services the securities companies offer like professional research reports, personalized investment services and asset management products. However, further decreases in transaction fees could attract further large individual investors and institutional investors in the long-run.

According to the prediction model of CITIC securities, in 2013, the daily average securities market transaction volume was RMB 185.8 billion with break-even at about 0.045%. Larger securities firms broke even at around 0.037% and small at 0.053%.

So these rates are still nearly double the new rates offered by Yongjinbao and other product offerings which means that we will likely see profit margins tighten further as competition increases. In addition, we will likely see additional value added services come to market as firms try to make what was once irrelevant and unwanted services wanted again.

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