Frugality the order of the day at broking houses

Remisers' commission rates have shrunk with the growth of online trading and decline in trading volumes. Remisiers earning 1 per cent commission in the 1990s now make a mere 0.2 to 0.275 per cent on average. Some have to pay penalties ranging from a
Remisers' commission rates have shrunk with the growth of online trading and decline in trading volumes. Remisiers earning 1 per cent commission in the 1990s now make a mere 0.2 to 0.275 per cent on average. Some have to pay penalties ranging from a few hundred dollars to over $1,000 to brokerages for failing to meet trading quotas.ST PHOTO: TERENCE TAN
Mr Esmond Choo.
Mr Esmond Choo.

Remisiers badly hit as difficult market conditions force cutbacks

When the stock market was booming, wine flowed freely at the annual parties of some brokerages. But last year as market conditions deteriorated, employees at one brokerage noticed that the plonk was restricted to just one bottle per table.

Even top prizes for lucky draws were downsized.

"The first prize used to be a 60-inch TV, now it's a 42-inch TV," lamented one remisier.

As disappointed as some may have been at the watered-down festive cheer, few remisiers and others operating in the local market would be truly surprised that a new age of sobriety, and frugality, is afoot.

Uncertain market conditions, and low trading volumes and retail interest compared with boom times before the 2013 penny stock crash, have forced some brokerages to keep a lid on costs. That has meant various cutbacks, from fewer greeting cards and calendars to reducing financial news terminal subscriptions and delivering electronic contract statements to clients.

CIMB Group, in addition to being stringent on new hires and salary increments, is consolidating office floor space and introducing flexible work arrangements for employees in Singapore to manage rental costs.

HARD TIMES

In a declining market, it’s very hard to depend on contra trades to survive.

MR ESMOND CHOO, UOB KayHian senior executive director, saying that smaller brokerages that depend primarily on retail business from the Singapore market are most affected in the slowdown.

CIMB, which occupies 130,000 sq ft at the Singapore Land Tower, is giving up one storey or 13,640 sq ft as part of a "cost optimisation" exercise companywide.

"CIMB Securities is hunkering down as the Singapore market is going through a difficult phase... The securities business was a big contributor to CIMB Singapore's revenue and profitability six to seven years ago. Today, that's no longer the case," said a spokesman.

The Singapore Exchange (SGX) is facing serious competition for institutional fund flows from larger markets like Hong Kong, Taiwan, South Korea and Japan as well as emerging markets like Thailand.

"Commission income has declined generally and this has sparked greater competition to a point that many firms are operating below break-even point," Ms Melinda Sam, chief executive of the Securities Association of Singapore, told The Straits Times.

"We cannot be totally dependent on the traditional sources of investment funds: mutual funds and retail money to drive the market."

Thin liquidity is another problem. Smaller brokerages that are more dependent on secondary business on the exchange have felt the impact more while the large and more diversified groups with other revenue sources are less affected.

Stiff competition has led some brokerages to increase remisiers' trading quotas. Some are also looking at diversifying their product offerings by promoting foreign markets such as Hong Kong and the United States to make up for lost revenue from SGX trades.

Another remisier, who wanted to be known only as Mr Soh, said some dealers were getting just one to two months of bonus payments, compared with up to nine months when times were better.

Some brokerages are allowing remisiers to be mobile or work from home to help reduce office rents but these measures have not stemmed the declining numbers of trading representatives.

Last year, when the average daily value of traded securities was $1.1 billion, there were 3,581 licensed trading representatives, down from 3,829 in 2014. This was a significant drop from the peak of 4,336 in 2011.

This is not surprising as commission rates have shrunk with the growth of online trading and decline in trading volumes. Remisiers earning 1 per cent commission in the 1990s now make a mere 0.2 to 0.275 per cent on average.

Compounding their unhappiness, some have to pay penalties ranging from a few hundred dollars to over $1,000 to brokerages for failing to meet trading quotas.

Society of Remisiers (Singapore) president Jimmy Ho noted that some are trying to move to brokerages that do not impose unreasonably high quotas. "On a gross commission of, say, $2,500, UOB Kay Hian approaches remisiers for the shortfall on the 60 per cent (company) portion only on a selective basis, knowing well we simply can't cajole extra business from the currently dry market," he noted.

UOB KayHian senior executive director Esmond Choo noted that smaller brokerages that depend primarily on retail business from the Singapore market are affected most in the slowdown.

"We noticed that the drop in trading representatives last year generally came from the older remisiers whose clients did mostly contra trading. In a declining market, it's very hard to depend on contra trades to survive," he said.

He noted that a relatively high number of remisiers have seen their commission fall to as low as $40,000 to $60,000 in gross commission annually.

"That means their monthly take, based on 40 per cent cut, is about $1,333. They are sadly the ones who are hard-pressed and looking for part-time employment to supplement their falling income," Mr Choo said. "But there are also younger remisiers who have adapted to the new paradigm and are able to sell other products such as Hong Kong and US stocks. They are able to survive better. All said, it is still a struggle for everyone."

A version of this article appeared in the print edition of The Straits Times on March 12, 2016, with the headline 'Frugality the order of the day at broking houses'. Print Edition | Subscribe