Broker Huatai International brings zero fee trading to Hong Kong, piles pressure on smaller rivals already struggling with thin margins
- Hong Kong arm of China’s third-largest broker is no longer charging commissions and platform fees for stock trades, but just a $1 monthly fee
- About 23 of Hong Kong’s brokers have ceased trading this year, exceeding last year’s record 22
Less than a year since Charles Schwab reshaped the US discount broker industry with zero fee trading, a Hong Kong firm is following suit in a move set to deepen the pain for the city’s many hard-pressed trading houses.
As of last month, Huatai International, the Hong Kong arm of China’s third-largest broker, is no longer charging commissions and platform fees for stock trades, but just a HK$8 ($1) monthly fee. It has seen a surge in customers, gaining more users over the past month than it has over the past three years, according to Zhu Yali, the firm’s head of financial technology and retail business, who declined to give specific numbers.
The move could have a knock-on effect across the sector, putting pressure on rivals who are already suffering under thin margins. Battling an influx of online trading and mainland China rivals, growing dominance of big banks, political unrest and an economic slump, Hong Kong’s brokers are closing shop at a record pace this year.
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Huatai is leaning on its deep pockets – its trading app in China has 7.8 million active monthly users – and trimmed costs to make up for the lost income, betting it can replicate a mainland strategy of folding new customers into its broader wealth management business. By cutting fees to zero, the broker is forgoing HK$150 million to HK$200 million in fees for every 100,000 clients, according to Zhu.
“Hong Kong is a very competitive market,” she said. “Other brokers will have to follow in order to maintain existing client base, or to acquire new clients.”
Charles Schwab’s move to go to zero fees in October quickly shook up the US industry, with domestic discount rivals and even mutual fund giants such as Vanguard and Fidelity following suit. Charles Schwab sealed a US$26 billion takeover of rival TD Ameritrade Holding just a month later.
But Hong Kong has features that will make it hard for many brokers to match Huatai. One issue is that they cannot make up for lost income through order flow payments. US brokers are able to provide free trading partly because of this practice, in which they sell customer orders to wholesale market makers, who profit off the bid and offer spread.
