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Comparing the online services

Online share trading may be slow in coming to New Zealand, however there is little doubt, judging from the overseas experience, that when it comes it will enjoy explosive growth.

Saturday, September 11th 1999, 12:00AM

by Philip Macalister

Online share trading may be slow in coming to New Zealand, however there is little doubt, judging from the overseas experience, that when it comes it will enjoy explosive growth.

 

A recent study by Forrester Research says that most US broking houses' big customers are on the Internet, and it expects that most active traders will be comfortable online within five years.

It also expects the number of online brokerage accounts in the US will grow from less than 4 million at the start of the year to 5.4 million by Christmas. Forrester says that the US will have 20.4 million online accounts by 2003 and by then US$3 trillion in household assets will be online.

Forresters' research illustrates that online trading is the way of the future in the US. So, what's happening in Australia and New Zealand?

The Australian market has seen strong growth in this area and there are now a number of players actively promoting their services to customers. On this side of the Tasman developments are much slower with none of the big brokerage houses offering online trading services. The companies, which are offering such facilities to their customers, are people like Wellington-based Direct and DF Mainland in Auckland.

However, the Australian firms such as E*Trade and Sanford Securities are offering their services in New Zealand for Australian Stock Exchange listed companies. This is a major plus for New Zealand investors as there is a growing recognition that the local market is Australia and New Zealand, not just New Zealand, nor is Australia considered international exposure (see story - Go West Young Man).

There are three main models for share trading now. At the top is the full service brokerage that charges a premium. Online trading has created a mid-tier and deep discount sector of the markets.

In the US there has been strong competitive pressure that has ratcheted rates lower and lower resulting in a number of players offering extremely cheap execution-only services. However, in the middle there are a group of significant players that offer trading and information services.

Forrester says mid-tier US brokers such as Charles Schwab, Fidelity Investments and Vanguard Group have established insurmountable leads in the online area.

It says online investing has moved beyond the early adopters to mainstream investors who seek advice and invest using mutual funds.

"As a result, the growth of the deep discounters will slow. Mid-tier firms will capture the sweet spot of the market, grabbing more households and assets than the others. Full-service firms will take too long to commit to the Net," it says.

Australian brokers have, generally, adopted the mid-tier approach, and started offering other services alongside brokerage, pitching prices between A$30-A$50 a trade and offering an increasing number of additional services.

 

Comparison of rates between online brokerage providers
and traditional broking services

 

Brokerage

Service

Online Brokers

Sanford

For trades up to A$50,000, A$28.95 or 0.1%, whichever is greater.

Trading services are free. A$9.95/month for charting; watch screen; historical data; up to 500 quotes.

Sanford

Premium Service

Up to A$50,000, A$28.95 or 0.1%, whichever is greater.

Trading services are free. A$29.95 month plus royalties for market depth; dynamic live data, news, research, analysis and ASX announcements

E*Trade

A$49.50 up to A$75,000. For trades between
A$75,000-A$200,000: 0.1%

Quotes, charts, equity news stories, ASX announcements, and portfolio management tools free

Traditional Brokers

JB Were

Standard rate 2.0%

A$75 min

Merrill Lynch

Standard rate 1.5%
Agency fee A$18 per trade

A$50 min

 

For a full comparison of online services in Australia visit www.yourbroker.com.au

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