Competition hots up amongst online brokers
Ann Cunninghame details what is happening with online broking services.
Monday, September 27th 1999, 12:00AM
That's just one of the claims for online trading, a catch-all phrase used to cover everything from glorified email systems to straight-through trading, in which your order is channelled directly to the stock exchange. However, the key distinction is that you're your own broker as one firm puts it: trading is essentially client-driven.
Access Brokerage recently unveiled its online service Web-Broker with a price so keen you could cut yourself - a flat rate of $29.50 per trade. It's prices like that plus the convenience of online order confirmation and portfolio updates that are attracting the punters, while other broking houses are distancing themselves still further from the discount boys through research-based, added-value service.
Until now, New Zealand has lagged behind overseas markets where online broking has cut a swathe through more established forms of share trading. In the USA, one in five share trades are now reportedly done via the Net and Forrester Research expects the number of online brokerage accounts to hit 5.4 million by Christmas.
Across the Tasman, global giant E*Trade has gone from no clients last April to 23,500 at present, while the total percentage of online trades is expected to rise from five to 18 per cent in under three years.
Finally, competition here is hotting up with E*Trade poised to open a local office early next year, Direct Broking's launch of Direct-Trade in August, increased marketing by Net pioneer DF Mainland and a number of others preparing to join the fray. An added spur is the NZSE's decision to bring in straight-through trading: that's likely to happen next year once its new dealing system is bedded down and could, according to chairman Eion Edgar, lure in the larger broking houses.
That will clear away the last hold-up to automating the trading process: sharebrokers currently have to retype any client orders received via the Internet into the exchange's special trading system terminals. However, it's also likely to mean extra controls on our sharemarket.
NZSE managing director Bill Foster: "The consequences of untutored people trading on the market can have quite severe consequences and people can make themselves victims of their own conduct."
Foster says that one of the exchange's reponsibilities is to maintain an orderly, open and efficient market. He says markets that have gone electronic have all had sophisticated monitoring software with features such as trading halts and circuit-breakers.
While the NZSE doesn't go down that route at present, it would need to instal some monitoring and protection systems before allowing straight-through trading. Foster notes too that, even with straight-through trading, orders are still channelled through brokers and they carry the settlement risk.
He says it's not clear how much straight-through trading will boost overall market trading levels, but it will certainly lower the cost of access. Nor does he expect such a high take-up here as in other countries.
"Not all that many people have either the Internet access or the time, you can do it all over the phone here at the moment anyway and most people already in the market have a broker they can call. Also, our cost structure has always been very low."
"However, it does offer another service channel and a way of differentiating the market; also improving access internationally may help."
And as Direct Broking's managing director Nigel Wynn points out, the New Zealand market is tiny by world standards so there's a limit to how much offshore brokers will get involved. "I was looking at one of the Aussie discount brokers ...its daily trades alone could make up twenty per cent of the New Zealand market, and that's not going to happen."
Direct launched its own online service in August after a three month trial and Wynn's expecting it to make up 40 per cent of business within the year. "It's cost-effective and a good way to operate for clients."
As DF Mainland's chief executive John White puts it, "the whole point about the about the Net is empowerment".
"People are making decisions on the basis of information on our website and other sites - it's much more knowledge-based so we have a distinct educational role to play."
DF Mainland has been online since 1996 (it says the first in the Southern Hemisphere) and is upgrading in readiness for straight-through trading.
"We also believe that, over time, it's quite conceivable that a share transaction will go down to the cost of an eftpos transaction."
Guy Hedley of JB Were agrees that straight-through trading is certainly the most price-efficient way to execute a trade.
"However, given that most clients aren't professionals, there are the same issues regarding skill as there are with using discount brokers."
"Firms like ours tend to be where clients come to seek advice; to use us to help them navigate the market."
He says a classic example is when brokers buy a stock for a client and "finesse" the order by watching the market. "Online brokers tend to just hit the bid and order. The individual has to take that skill on board themselves."
JB Were already operates a website and Hedley says it's currently arranging a trial with some clients to place orders through to the Australian market. The firm also has an alliance with the largest US online broker, Charles Schwab, to execute straight-through trades on the American market.
"We will deliver services that our clients want. But if you're talking about cheap and nasty discount broking on the Internet...at this stage, that's not part of the market that we're going to be operating in."
Talking cheap, then, is where Access Brokerage comes in. Its newly launched Web-Broker, with a $29.50 per trade flat rate, stacks up well against the scaled brokerage fees more commonly charged as well as overseas brokers' flat rate charges.
However, Access doesn't provide investment advice and marketing manager Peter Hansen says the system has been set up as "quite plain vanilla". Funds must be up-front in a call account before placing an order and short-selling isn't an option (if you're selling, the system checks to make sure you already have the holding).
Hansen says Access is currently negotiating to provide trading in offshore securities via Web-Broker. It also hopes to set up a wholesale service later this year so that financial advisers can buy stocks on behalf of their clients.
"We see the Net as really changing the landscape of sharebroking," Hansen says.
"I'm certain that the ease and much broader access to the market for the average investor will attract more people.
"All that information, real-time prices and so on - just at the click of a button."
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