Digitalisation disrupting securities trading biz
Lim Cian Yai 
Arai says 3,000 accounts have been opened with Rakuten Trade

The emergence of online equities broker Rakuten Trade Sdn Bhd is a strong indication that digitalisation is a force to be reckoned with in the stockbroking industry.

The advent of such online platforms is seen as a threat to traditional remisiers and dealers and they may need to consider joining the bandwagon and embracing the digital trend.

Dubbed as Malaysia’s first completely online stockbroker, Rakuten Trade is leveraging on the ease of opening an account and minimal trading requirements to appeal to the mass investing community.

“Our business is a form of democratisation of investment, meaning everyone will have access to trading. We allow investors to open their account entirely online. They can start trading after two hours provided all necessary documents are submitted,” says Rakuten Trade managing director Kaoru Arai.

Since the service was launched in May, Arai says, Rakuten Trade has seen 3,000 accounts opened, which is beyond its expectations. A substantial number of account holders are in their 20s and 30s.

As of the end of last year, there were about 220,000 Central Depository System (CDS) account holders below the age of 35. The number is less than 10% of the total CDS account holders of 2.49 million.


Targeting younger investors

Besides the vast untapped market of young traders, Rakuten Trade is also looking at taking advantage of the growing smartphone penetration and online trading participation. As of December last year, online trading participation is 25% of total market trades, increasing from 22% in 2012.

Rakuten Trade is a joint venture between Kenanga Investment Bank Bhd (KIBB) and Japan’s Rakuten Securities Inc. Malaysia is Rakuten Securities’ first market outside Japan that deals in equities. It has presence in Hong Kong and Australia but the operations are limited to over-the-counter foreign exchange. 

Rakuten Trade currently offers only cash-upfront accounts, with plans to introduce collateralised and margin trading accounts before year-end.

The current brokerage rates are a minimum of RM7 for transactions below RM1,000 and a maximum of RM100 for transactions of RM100,000 and above. Trades between RM1,000 and RM9,999.90 will be charged RM8 per transaction and those between RM10,000 and RM99,999.99 will be levied 0.1% of the trading value.

The capping of brokerage fees at RM100 per trade will likely encourage high-rollers to trade more frequently. Peers currently impose a commission rate of 0.20% and above for trades above RM100,000.

The fees are structured to draw both novices and active day traders. In fact, some 20% of Rakuten Trade’s account holders are beginners with no experience in trading. These investors are also from the internet-savvy generation.

Arai points out 95% of retail share trading in Japan is done online and the balance through large securities firms like Nomura Securities Co and Daiwa Securities Group Inc.

Rakuten Trade has set a target of capturing 30% of the local retail investor market by total trade in the next three years.


Challenge for remisiers

Moving forward, competition will only get stiffer and remisiers are likely to be the biggest losers in this era of digital transformation.

Online trading platforms with their lower trading rates will reduce or possibly eliminate the need for remisiers and dealers to service clients.

Investors may see little reason to pay for the premium service offered by remisiers at a minimum brokerage cost of RM40 per trade, when they can trade online at RM8 per trade for cash-upfront accounts.

According to the Remisiers Association of Malaysia (Persama), there are some 6,000 licensed remisiers nationwide but only 2,000 of them are actively buying and selling shares on behalf of clients for commission.

Persama president Sam Ng Soon Lee stresses the survival of remisiers very much depends on public policy on whether to keep them as an intermediary to connect investors to securities trading.  

He says a remisier acts as a gatekeeper against fraudulent and speculative information, advising clients on their investment decisions. “Online trading suits savvy investors who require minimal advice. But for beginners, remisiers still have a role to play,” says Ng.

He is now semi-retired and spends most of his time monitoring his own portfolio and occasionally servicing his long-time clients. He estimates the current income of remisiers has dropped by 90% from a decade ago.

The Securities Commission had in 2008 further liberalised the commission rate structure to make transactions costs for trading of listed counters more competitive. Now, investors can trade shares online at brokerage fees of as low as RM6 for cash-upfront trading, as offered by brokers like Amesecurities. 

While a near-zero percent commission rate has spurred trading activities, Ng is concerned this will eventually lead to more speculative and manipulative activities.

William Capital Plt chief investment officer William Ng, a remisier-turned-entrepreneur, concurs the intermediation industry is not necessarily a sunset industry. “Instead of seeing it cannibalising overall sales of remisiers, they might want to capitalise on the e-trading trend.

“Now they will have more time to service clients who are willing to pay a premium for their service, while developing a net-work of people who trade more frequently because the transaction cost is low,” he adds.

For the first eight months of this year, a cumulative 855.28 billion shares with a total trading value of RM812.64 bil changed hands. This compares with 622.8 billion shares worth RM548.66 bil a year ago.

Affin Hwang Investment Bank Bhd topped the broker rankings with a market share of 17.19% by volume, followed by KIBB with a 12.95% share.

This article first appeared in Focus Malaysia Issue 256.