Hutchison Whampoa, CSFBdirect Plan Low Rates to Boost Hong Kong Business
January 15, 2001
Tech Center
Hutchison Whampoa, CSFBdirect Plan
Low Rates to Boost Hong Kong Business
By GREN MANUEL and KENNETH WONG
Staff Reporters of THE WALL STREET JOURNAL
Hutchison Whampoa Ltd. and U.S.-based online brokerage firm CSFBdirect Inc. have entered Hong Kong's crowded Internet trading market with plans to offer cut-rate services; the move, however, increases industry fears that a crush of local and overseas players will lead to a price war.
Sammy Tse, chief executive of Hutchison's e-commerce division, told reporters Friday that the partners were sharing an initial investment of US$20 million and that they expected the operation to become profitable in two or three years. The deal was first announced in February between Hutchison and DLJdirect. Credit Suisse Group's Credit Suisse First Boston later merged with Donald Lufkin & Jenrette in November and their online broking arm was renamed.
The venture also aims to set up operations across Asia. CSFBdirect Inc.'s Chief Executive Officer K. Blake Darcy said that Singapore and Taiwan were obvious candidates for future expansion. CSFBdirect already has an operation in Japan, which is a joint venture with seven Japanese companies including Sumitomo Bank Ltd. and Daiwa Securities Inc.
Explosive Growth
A survey in April by Hong Kong's Securities and Futures Commission found that total online trades amounted to just 1.3% of 2.4 billion Hong Kong dollars (US$307.7 million) in volume for that month. But brokerage firms have been looking at the explosive growth that occurred in South Korea, and hope that the equally wired Hong Kong could get the same upturn. In Korea, in July, online trading amounted to 61% of volume. More importantly, the sharp increase since January 1998 showed that online trading had brought in new business rather than just cannibalizing the existing market. During the maximum growth period in 1999, brokerage-firm accounts increased nearly eight-fold in less than a year and Korea's Kosdaq, the market for smaller companies, became the busiest in the world relative to its market size.
Mr. Darcy said he believed the pattern of online brokerage firms spurring an overall increase in trading would be copied in Hong Kong and in the other Asian countries the venture is focusing on.
"You will have a certain group of investors that will be hyperactive traders that increase turnover. But you will also have regular investors who get more interested in investments than they were before," Mr. Darcy said. He added that the new venture will make use of Hutchison's extensive retail outlets -- such as supermarket chain Park'n Shop and household-appliances retailer Fortress -- to market the stock-trading platform.
Stiff Competition
But Hutchison CSFBdirect is already facing stiff competition from other U.S. brokers moving into the region. U.S. giants Charles Schwab Corp. and TD Waterhouse Group Inc. have already set up operations in Hong Kong aimed at local investors wanting to trade both Hong Kong and U.S. equities. Local brokerage firms are also scrambling in with more basic offerings for trading Hong Kong equities only. One consortium of 165 local brokerage firms is working to develop a shared online infrastructure.
By law, brokerage-firm commissions in Hong Kong must be at least 0.25%. But like an increasing number of online players, Hutchison CSFBdirect will use loopholes to cut below this level, charging 0.2% until April, when it will review charges.
Yet another newly launched online brokerage firm, 2cube Securities Ltd. already charges as little as 0.18% commission and is pursing the same cross-marketing strategy as Hutchison CSFBdirect. 2cube's shareholders are Pacific Century CyberWorks Ltd., which is marketing the service to its database of telephone customers, and Chase JF, which is supplying research reports and trading support. The two big-name partners have invested US$30 million between them. Lower still, one Taiwan-based broker last year already tried offering commission-free online trades when it opened its online operation in Hong Kong.
One factor that may slow growth is a decision by Hong Kong's Securities and Futures Commission to ban pure online brokerage firms. Like their offline counterparts, the new players will have to comply with rules requiring a physical signature to execute transactions. That is why Hutchison CSFBdirect will have outlets inside Hutchison shops, and 2cube has opened three shops.
Write to Gren Manuel at gren.manuel@awsj.com1 and Kenneth Wong at kenneth.wong@dowjones.com2
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