Chinese brokerage and financial services firm Huatai International is shaking up the trading sector in Hong Kong by cutting its trading fees to zero. The move to completely remove its trading fees is placing a lot of pressure on its rivals in the city, which are already struggling to cope with the economic downturn caused by the months of civil unrest and the coronavirus pandemic.
Instead of charging its customers a commission and a platform fee for trading stocks, Huatai International will only be requiring an HK$8 or US$1 monthly fee. Since it implemented the new rules, the company's trading platform has seen a massive influx of new users. According to the company's head of financial technology and retail business, Zhu Yali, its platform has gained more users over the past month compared with the past three years. The official did not give out any specific numbers.
With the presumably thousands of traders now shifting to its platform, the company's rivals will likely be facing added headwinds, most of which are already struggling to keep afloat with their already thin margins. To sustain its drastic move, Huatai International is leveraging its massive liquidity and deep pockets. The company claims that by offering zero fees, it will be foregoing earnings of around HK$150 million to HK$200 million from the fees and charges for every 100,000 clients.
The company acknowledges that it may be stealing away clients with the move. Zhu had stated that the city is a highly competitive market, and that if other brokers want to survive and maintain their client base, they will need to follow suit.
Huatai International's move to cut its trading fees comes just less than a year after U.S. broker Charles Schwab reshaped its home country's discount broker industry by removing its trading fees. Its close rivals Vanguard and Fidelity immediately followed suit in order to retain their client base.
Following Huatai International's footsteps may be harder for its Hong Kong rivals. For one, most brokers will likely not be able to make up for the losses incurred in foregoing trading fees. U.S. brokers can make up for their losses through order flow payments, which is not possible in Hong Kong. Hong Kong also only has one stock exchange, which means that it will be difficult for brokers to earn additional compensations.
Hong Kong budget broker I-Access Group added that a lot of clients will likely find the move suspicious, particularly for long-time traders. Other competitors, which are unlikely to follow in Huatai International, have called the move nothing more than a gimmick.
