TO prevent unhealthy competition in the stockbroking industry, the Association of Stockbroking Companies Malaysia (ASCM) has announced minimum commission rates for the industry.
The minimum commission rate for retail trades valued below RM100,000 is set at 0.6%, compared with the current fixed 0.7%that had been agreed among stockbroking companies in June last year.
Retail trades above RM100,000, for which commission is fully negotiable now, will have a floor rate of 0.3%.
The minimum rate for inter-broker transactions is set at 0.125%, and for institutional trades at 0.225%.
IT savvy investors who conduct e-broking trades will enjoy a further 30% discount on the prescribed minimum rates.
In a statement yesterday, the ASCM said, from May 12, members were expected to adhere to the framework for minimum commission rates.
The Securities Commission (SC) would review the framework after a year, the statement added.
According to the ASCM, the framework was established after extensive discussion within the industry with moderation by the SC and consultation with various stakeholders of Malaysia's equity market, including the KLSE, institutional investors, foreign brokers, and remisiers.
The association said the minimum rates would assist the stockbroking industry in weathering the current challenging market conditions.
Cut-throat competition emerged in the local stockbroking industry in 2000 with liberalisation of stockbrokerages under the Capital Market Masterplan.
The liberalisation was implemented in a gradual manner. In the first stage (implemented in September 2000) the commission for trades at and above RM100,000 was fully negotiable, while a fixed rate of 0.75% was applicable for other transactions.
In the second stage, the commission rates for all trades were to be fully negotiable, subject to a cap of 0.7%. However, the SC then revised the liberalisation scheme against the backdrop of poor market conditions.
As a result, no commission rates were fixed for trades above RM100,000, while the commission rate for trades below RM100,000 was fixed at 0.7%.
Stockbroking companies had been offering low commissions to get a slice of the shrinking pie caused by the lacklustre interest in the KLSE for more than two years now.
Dealers said the inter-broker commission rate had been slashed to as low as 0.08% to 0.1%, while institutional investors were offered 0.2%.
Some stockbroking companies even gave rebates to institutional clients so that these fund managers could enjoy a larger discount on top of the low rates. This resulted in wafer-thin margins for the stockbroking companies.
Mayban Securities Sdn Bhd vice-president (head of dealing) Wan Ahmad Satria Wan Hussein said the framework for minimum commission rates would help the stockbroking companies survive.
With the minimum rate framework, stockbroking companies can now compete on quality customer service, instead of low commission, which is not healthy,'' Ahmad commented.
However, he pointed out, strict adherence to the framework was equally critical.
Regulatory authorities should play a role in enforcing the implementation, he added.
The ASCM said, in general, specific provisions would be incorporated into the rules of the KLSE to ensure adherence to the minimum commission rates.
Details of the policing mechanism would be released by the KLSE at a later date.
Industry observers expect penalties to be imposed on those who did not adhere to the framework. But some said it would be a difficult task to identify the guilty because discounts given might not necessarily be in the form of lower commission rates.