Thursday, December 06, 2012

Speaking on the Motion on "Supporting the development of the securities industry"

Mr President, it is difficult to resist supporting a motion so motherhood and apple pie such as the one moved by the Honorable Christopher Cheung, that commends the great contribution of the local securities firms to Hong Kong’s financial services market, and urges the Government to adopt specific measures to support the development of this local securities industry.

Yet, it is curious to note the exclusive nature of the reference to the “local” securities firms only, as far as these great contributions are concerned, and the vague description of “specific measures” of support.  What are these specific measures, as opposed to other ones that may be unspecific?  If there are local securities firms, what are the non-local securities firms?  At least, according to the criteria listed by the Stock Exchange of Hong Kong, exchange participants must be companies limited by shares incorporated in Hong Kong anyway.

One may suspect that one of the specific measures in the mind of the local securities brokers may be the implementation of a “two-tier” brokerage fee system, with a mandatory minimum commission rate for transactions below a certain amount.  This would in particular protect the interest of the Category-C stockbrokers, that is, those outside the top sixty-five, which make up between 9 to just over 11 per cent of the market volume each month for the last twelve months.

If a minimum commission rate is established, these players at the lowest end will take a bigger than proportional share of the commission incomes in the market. Is that fair?  Some even believe that this is a form of price-fixing and may be in breach of the new Competition Ordinance.

In fact, after the minimum commission rule was revoked by the Stock Exchange in 2003, consumers or retail investors have benefitted greatly from the resulting competition in terms of lower fees for transactions.   Back in the year 2000, the Government has already said, and I believe rightfully and justifiably, “The removal of the minimum commission rule will not only enhance the competitiveness of Hong Kong's securities industry, but also help to strengthen our position as a regional and international financial center, and bring direct benefit to the investors."

We must not strive to act for a small portion of an industry in the expense of the wider public interests.  If the interests of a small portion of an industry cannot be aligned with the public interest, then public interests must come first.  Free and open market and competition must take precedence.

While the Honorable Cheung seems to shy away from being specific about what he means by those specific measures, I am glad that other colleagues have stepped up and be more specific.  Specifically, the Honorable Sin Chung-kai’s and the Honorable Martin Liao’s amendments in support of developing the local bond market, the Honorable Ronny Tong’s proposals for stringent standards for corporate governance and information disclosure to protect investors’ rights and interests, and the Honorable Kenneth Leung’s call for local securities firms to become more innovative in lowering costs, enhancing services and generally becoming more competitive – are all specific measures that are welcome and should be supported.

One must also bear in mind that it takes more than just the stockbrokers to keep the securities industry ticking.  Times have changed and our market has become more globalized.  Information technology professionals for instance play a critical role in leading our securities industry to new height, transforming the way deals are made and improving the way customers are served.

The Stock Exchange has invested hundred of millions of dollars in upgrading its infrastructure by building a next-generation financial data center in Tseung Kwan O.  It makes no sense for some to try to hold us back to the way things were done in the last millennium, over the dim sum tables.  Indeed, if stockbrokers of today still need to build relations with their customers over lunch, I am afraid they are missing out on the generation of young and younger clients who wants to Whatsapp their stockbrokers and get the business done, rather than having lunch with them.

So it boggles my mind to comprehend how going against the global trend by shortening the trading hours and extending the lunch breaks would serve to increase trading volumes or make the industry more competitive.  No wonder one is again tempted to amend the original motion as proposed to me by a very witty friend of mine, by the name of David Webb:

“That, given the great contribution of restaurants to Hong Kong’s financial market and their unrivalled importance in feeding stockbrokers during their lunch breaks, this Council urges the Government to adopt specific measures to support the healthy diet of the local securities industry, including minimum charges for lunches.”

But seriously, while we salute the restaurant waitresses and pizza delivery men, if Hong Kong is to be a truly international financial services center, and an international city, let’s strive to make all players more competitive according to global standards of today and not local practices of time past, by serving customers better, rather than holding on to or even reviving protectionist and discriminatory practices, at the expense of public interest.

Mr President, I so submit.


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