OK.Last One For Today.Maybe More Tomorrow.
Share trading and the Internet boom are arenas that were always bound to find each other. Dozens of Taiwan brokerage houses have gone online, desperate to shave costs in a very tight brokerage market. But for most, the Internet is still a sideline to the more traditional business. That's not the case for Enovation Group, who operate exclusively in cyber space. Staff Reporter Stanley Chou spoke to Enovation's Chairman and CEO Ching Hsiao about the battle over Internet trading
By Stanley Chou
STAFF REPORTER
Since Internet trading on Taiwan stocks was first introduced in late 1998, more than 50 securities companies have jumped on the bandwagon. However, one company has taken a completely different approach from the other securities firms.
Enovation Group (üÑúsøˆ¯é), established last November, is the only securities company in Taiwan that started as an Internet trading company -- with no traditional trading facilities similar to the two hundred or so other securities companies that offer brokerage services.
"We would like to become one of the top online brokers in the next few years, provided the SFC can detect what the market trend is and make the necessary updates to their regulations."
Ching Hsiao, chairman and CEO of the Enovation Group
This strategy might be able to tell us something about the direction of the securities brokerage market and what scenario the industry is facing now and in the near future.
The following is an interview with Ching Hsiao (¨«ýMõà), chairman and CEO of the Enovation Group. Hsiao has a masters and PhD in computer science from Purdue University and has spent the last fifteen years at the heart of the computer software industry in Silicon Valley. Before leaving the US he was president of a network system company on the Dow Jones.
Taipei Times: What is the background of Enovation Group?
Hsiao: Enovation has a number of shareholders, including United Microelectronics Corp (µpûq), Acer (õ¯), Taiwan Technology (¾xïð) and Mercury (ÏTøàÝ‘). Most of our stockholders have their businesses in the technology field, instead of in securities or the financial fields. That already makes for a great difference compared with other securities companies or brokerages in this market.
TT: What is the concept of this company.
Hsiao: Information technology is the approach we think the financial market requires in the next century. It is why we would like to start with e-trading and move toward e-finance (¬’Ýýzø]). It could provide a solution for the investors on this island.
TT: What is your approach to providing financial services?
Hsiao: We started with online trading facilities [www.iinvest.com.tw] first. In the near future we are going to provide investment consulting services to our customers. Later we are going to expand our services to other financial products like banking, insurance, mortgages, credit cards ... etc.
TT: How do you define e-finance?
Hsiao: Everybody knows about e-trading. And we think the market competition is now expanding from e-trading to e-finance. The definition of e-finance contains several aspects. It could include financial services banking, brokerage, insurance and other electronic services. And it could deliver services that are online, real-time, electronic and secure, anytime and anywhere. It offers maximum value for the customers at the fastest speed.
TT: How many staff and branches has your company presently?
Hsiao: Currently we have only 50 personnel, 30 in the technical field and 20 in the securities field, at headquarters. Compared to a traditional brokerage the number of staff is much lower. We have no branch so far, but we are seeking that in the near future.
TT: What is your expectation on the weighting between online trading versus traditional trading?
Hsiao: Although online trading was only launched about 15 months ago in Taiwan, the weighting of online trading has been increased to about 4 percent of the total turnover of the entire trading market at the end of January. I expect it could rise to about 10 percent at the end this year and up to 20 percent at the end of next year. It will also depend on deregulation.
TT: What kind of deregulation do you mean?
Hsiao: The biggest hurdle to online trading companies presently has been the strict restrictions set by the Securities and Futures Commission (Çãïµú|), including trading facilities and account opening. There are so many rules and regulations that originally apply to traditional brokerages and now it also applies to us, which I think is out-of-date and unreasonable. For example, in order to set up a branch office conducting brokerage services, one has to spend more money on a traditional brokerage than an online brokerage. We want to establish a number of service stations with only three to five personnel each and with a much smaller office than present regulations. Since we are doing everything online instead of in the traditional way, there is no need for us to have a huge space in the office for investors.
Another major hurdle for an online broker here is the procedure for any new investor to open an account. According to present regulations, customers have to go to the broker's office personally, instead of using the mail or other means that could save trouble and inconvenience for customers. In the US, any customer who wishes to open an account with an online broker can do it just by contacting the company through the Internet. The company will then send an application form to the customer by mail, the customer just needs to fill out the form and return it. Without simplifying the procedure, the pace of online trading in Taiwan will be slowed down. Also the hurdles apply to traditional brokerages that provide online trading, not just us.
TT: If the SFC could amend its rules on those out-dated restrictions, what could happen?
Hsiao: The growth rate of Internet trading could be explosive. For example, South Korea introduced online trading roughly about the same time as Taiwan, and now it has more than one-third of trading coming from online trading brokers. I can't see why Taiwan could not reach that level in a short period of time.
Also I have to mention that the 4 percent figure mentioned earlier has been exaggerated, since about three-quarters of that figure actually comes from telephone-voice trading, and it is not online trading since no Internet is involved. So actually there is only a small percentage of trading coming from online trading, until recently. The pace of Taiwan's online trading has been much too slow. Just compare it with South Korea, then you know what the SFC should do immediately.
TT: From the cost side, what is the major difference between traditional brokers and online brokers?
Hsiao: Since traditional brokers have to increase labor continuously while it is expanding its market share, its cost structure would be like a rising straight line. The costs for online brokers would be seen as a horizontal line, because of the fixed-costs for its technological facilities.
The costs will only rise after the market share has reached a certain level and another investment in the technological facilities is required. But again it would be a horizontal line once the facilities have been upgraded. Generally speaking, at most stages, the cost of an online broker will be significantly less than traditional brokers. It is why almost every major securities company has been entering the online market without a second thought.
TT: The US market has been the earliest market place for online trading. Do you thing that Taiwan will one day have a similar market structure to the US brokerage market?
Hsiao: From US statistics on online brokers, we can clearly see what might happen to Taiwan's market in the next five years or so. The top ten online brokers [including traditional brokers that provide online trading] in the US recently have comprised 91 percent of the turnover in the online trading market and 25 percent of total turnover in the entire market.
And among them, three companies are solely online brokers including E*trade, Datek and Ameritrade that do not provide traditional brokerage services.
We would like to become one of the top online brokers in the next few years, provided the SFC can detect what the market trend is and make the necessary updates to their regulations.
TT: Are you interested in merging with other securities companies?
Hsiao: Many local firms have been in contact with us in the last several months. But most of them have been interested in acquiring a company like us to provide online trading for their customers.
We are not interested in being merged with some large securities groups here, especially when the concept and strategy is totally different. However, we would like to have joint ventures with appropriate candidates, so that both parties could benefit in a strategic alliance.
Also we are not very interested in acquiring smaller-size brokerages all over the island. As I mentioned earlier, we deal with the customers mostly online and what we need is a number of very small-size service stations island-wide to provide face-to-face service for our clients.
I sincerely hope that the regulatory agency could design a new set of regulations for online brokers that could greatly increase the operational efficiency of the industry as soon as possible. By doing so, the e-trading or e-finance era could then really take off in Taiwan. |
