Hong Kong’s small brokerages are shutting down at the fastest pace since record began in 2003 – ironically the year the last health crisis hit the city.
As of end-March, 35 small brokers closed in Hong Kong in the last 12 months, including 15 in the last quarter alone compared to two in the first quarter of 2019.
The ongoing coronavirus pandemic and social unrest have done little help in an industry that was already facing ample headwinds. They include higher tech costs, higher compliance costs and stricter margin financing rules in addition to persistent margin pressure from emerging fintech players – a Greenwich Associates report estimates 50 percent of cash equity trading to be done electronically by 2022 after the market grew 43 percent last year.
Additional strain caused by the coronavirus pandemic has been untimely for Hong Kong’s small brokers after anti-government protests created extra pressure that led 22 houses to close in 2019.
Crowded Market
In 2000, Hong Kong’s 500 smallest brokers held a 40 percent market share by turnover but that has plummeted to just 7 percent today with 58 percent held by the largest 14 players. Despite their shrinking share, many have remained in the market partly in the hope of being acquired likely by mainland buyers who have expressed added interest following the launch of a Hong Kong-Shanghai trading link in November 2014.
Meanwhile, the government has attempted to appease the industry by providing targeted relief. In addition to broad financial relief for all employers that covers up to $1,160 of salary per employee for six months, brokerage houses (excluding the top 14) will receive $6,450 each.
