Testing time for TRs but there's still hope

'IT'S CERTAINLY worrying times for stockbrokers. Trading volume has been declining and commissions have been cut drastically. One dealer with 15 years in the business says a broking licence today 'isn't worth the paper it's printed on' . . . many in the industry seem to accept the view that stockbroking today is not just a sunset industry but that only the fittest will survive."

It may surprise readers to know that those words were not written recently. Instead, they formed the introduction of the editorial in BT's Aug 14, 2001 issue - almost 15 years ago. Yet, going by feedback from retail trading representatives (TRs) today and recent reports in the press, little has changed: the profession is still in the doldrums, TR ranks are thinning rapidly, and everyone is struggling to survive.

To an extent, this is true. About 11 months ago, 1,225 TRs signed a petition calling for fundamental changes to the market's microstructure and a revamp of existing business models - a call that was born of huge frustration and disillusionment that had been brewing in their circles for some time.

The concerns raised then are still valid today and, for many, breaking even every month is a challenge. But even though the broking landscape appears bleak - even bleaker now, given the plunges of the past three weeks - all is not lost.

First, even though anecdotal evidence is that retail investors have abandoned the market, it could be that what is being witnessed now is a market in transition - from punters who relied heavily on "contra" trading to younger investors with online accounts and for whom contra is perhaps not really an issue.

In this connection, the numbers offer some encouragement. According to data furnished by the Singapore Exchange (SGX), the number of new Central Depository (CDP) accounts opened in 2015 was 18 per cent more than in 2014, while the average number of investors who made at least one transaction per month increased 4 per cent over 2014. Also, the number of CDP accounts with holdings grew 4.5 per cent to 906,294 in 2015.

In other words, despite a very testing year, there was a modest rise in retail interest and an uptick in participation in local equities which should offer hope to existing and prospective TRs.

Moreover, even though many TRs are finding it tough to make ends meet now and some are reported to be considering alternative careers, gaining a dealing licence appears to still be an attractive proposition.

Back in 1999 when the local market had just recovered from 1998's Asian financial crisis and the devastating impact of Malaysian shares being withdrawn from Clob International, the number of TRs in the local market was 1,743, securities daily average volume (SDAV) traded was S$725 million, and commission was still one per cent.

In the intervening years, TR numbers quite understandably fluctuated with the markets's fortunes - but they did not fall. Instead, they peaked at 4,336 in 2011 when SDAV was S$1.5 billion. So TR numbers increased roughly 2.5 times when volume doubled. This was perhaps to be expected - the US subprime mortgage crisis had passed and markets everywhere were riding on the waves of liquidity unleashed by several major central banks.

By then, brokerage rates had been fully deregulated, online trading was in force, and customers were paying around 0.2 per cent commission for their trades.

Last year, when SDAV was S$1.1 billion (56 per cent more than in 1999), there were still 3,581 TRs in the local market. This was a significant drop from the peak in 2011 but nevertheless twice the number in 1999.

These figures suggest that even though the industry is undergoing a difficult time today because of the recent decline in volume, the expansion of online trading and the inevitability of razor-thin commissions due to competition, it is still appealing enough to attract new blood while retaining some older players.

Furthermore, there has also been some growth of retail participation - not spectacular, mind you, but enough to offer a hint of the potential business that could be tapped. All is therefore not lost.

sivan@sph.com.sg

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