The liberalisation of brokerage fees

See “SET supports move to delay floating fees” (business, page 2)
By Jon Fernquest

The liberalisation of stock brokerage fees at SET seems likely to be delayed for another three years. According to the article, "The current fee structure was imposed several years ago after local brokers suffered huge losses following a period of full fee liberalisation." The obvious question is whether the situation will be any different three years from now if liberalisation is delayed once again. As you read circle the reasons cited why liberalisation should be delayed. Rank the reasons by how reasonable you think they are. (See answer key at end).

The history of how brokerage fees were liberalized in the west provides another useful perspective. Over 25 years ago in the United States the stock brokerage firm Charles Schwab Corporation led the movement to freely float brokerage fees. Brokers were instructed not to give investment advice. Executing a stock sale or purchase became a commodity service that was roughly the same whatever broker you chose. Independent financial advisors (or investment advisors) including CFP’s [Certified Financial Planners] became more important as sources of information, advice, and research. Charles Schwab developed a network of independent financial advisors and Charles Schwab himself eventually became one of the wealthiest people in the world. During the internet boom, day trading over the internet became popular. Day trading allows anyone to become a self-employed stock trader buying and selling from their own portfolio over the internet. Recently, Charles Schwab Corporation has moved back to being a full-service broker for wealthier clients. Read this list of principles upon which Charles Schwab originally built his business.

What differences between Thai and western financial markets might affect liberalization?

Vocabulary (in article)

floating fees – fees are allowed to move freely with supply and demand
diversify – find other sources of income
liberalisation – laws become less strict allowing people more freedom of action
commission fees – the percentage of a sale paid to a sales person
an initiative – actions that are taken to solve a problem
reach a consensus – a general agreement between the members of a group
on par with – equal to
derivatives – financial derivatives, a contract between people that depends on the future value of an asset such as a currency, stock, or commodity (See Wikipedia:Derivative(finance))
to file a petition – make a formal request of the government
slash research – reduce research, cut research

Answer Key:

Reasons given for delaying brokerage fee liberalization:

1. “to give local brokers more time to improve their operational efficiency and services.”

2. “the current fee structure was on par or even lower than commission charged in other regional markets.”

3. “fees should match the trading volume and the operating costs posted by local brokers.”

4. “local brokers needed more time to diversify their income away from brokerage fees and also carried costs such as the need to offer research services.”

5. “Future income would be gained through the development of Thailand Futures Exchange, the derivatives market launched last week.”

6. “the majority of brokers continued to depend on brokerage fees as their primary source of income. Foreign brokers, however, relied on brokerage fees for just one-third of income, with the remainder driven by investment and investment banking activities.”

7. “brokers would be forced to slash research and other services to help maintain profit margins.”

Posted by Jon Fernquest at 08:54 AM | Permalink | Comments (0)