THE entry of Japan’s second-largest online broker into Malaysia could have many implications on the local trading scene.
The new fully-online trading platform iSPEED.my eliminates the need for any human intervention throughout the entire trading process, which means remisiers and agents are no longer in the picture.
It also means the cost of trading will go down.
Rakuten Trade Sdn Bhd, the joint venture between Kenanga Investment Bank and Japan’s Rakuten Securities is the country’s first brokerage to gain approval from the Securities Commission for straight-through processing to Bursa Malaysia.
From setting up a Central Depository System (CDS) to performing transactions – everything can be done online via the iSPEED.my application.
The convenience and lower costs which come hand-in-hand with fully-online trading platforms make it a very attractive option, especially among the younger generation and the technologically-savvy. Other Malaysian brokerages are likely to follow suit in setting up their own online platforms.
In Japan, online trading accounts for over 90% of the entire trading volume in the retail market.
The Japanese version of the mobile app has over 1.5 million downloads.
The online brokerage business in Japan began in 1999 following the full deregulation of stock brokerage commission rates.
Rakuten Securities Inc president Yuji Kusunoki said this was the time when a lot of the online brokers set up operations, as the usage of the Internet by businesses and consumers grew rapidly in the late 1990s.
“More importantly, we began to see the commission levels getting lower. We quickly started offering margin trading services, and this is when many retail investors entered the market,” he tells StarBizWeek.
When online trading began in Japan in 1999, its share of the retail market was about 2%, but it shot up 80% within the next four years.
Today, over 90% of trading in the retail market it done via online platforms.
Rakuten Securities holds between 60% and 70% of the retail market share in Japan in terms of trading volume.
The JV with Kenanga is Rakuten Securities’ first in the equities business outside Japan. The company hopes to bring the Japanese model and replicate its success in Malaysia.
For now, it aims to capture between 20% and 30% of Malaysia’s retail market share within the next three years.
Apart from being the first to offer a completely online platform, Rakuten is providing among the country’s lowest brokerage fees.
The fees structure features a flat rate of RM100 for any transaction of RM100,000 and above, while the fee for transactions between RM10,000 and RM99,999 is 0.1% or 10 basis points.
It charges a flat rate of RM8 for transactions between RM1,000 and RM9,999 and RM7 for transactions below RM1,000.
“Our vision is to activate trading on Bursa Malaysia by bringing in more retail investors, particularly the younger generation.
“We also want to provide margin trading services and this will generate huge trading volume in the market,” he says.
The mobile app, iSPEED.my was launched on Thursday and it operates on a “cash upfront” basis, whereby users must first transfer cash into the account to begin trading.
The JV firm Rakuten Trade Sdn Bhd managing director Kaoru Arai says margin financing will be offered “very soon”, but says the interest rate has not been determined.
He says that the rates will be competitive.
Getting retail investors into the market has always been a priority for Bursa. Apart from adding to velocity of trades, having more people invest in the stock market also helps in generating wealth for Malaysians.
That is gaining traction as Malaysia’s overall retail participation rate in trading activity is now at about 23%, an increase from 20% last year.
Data from the stock exchange also shows that younger investors are entering the market as seen in the 36% jump in the number of CDS account holders aged 25 years and below in 2016.
This age group was the fastest-growing band among CDS holders, with a total of 27,252 account holders as at Dec 30, 2016. Coming in second were investors between the ages of 26 and 35 with a total of 192,123 CDS accounts.
However, those between 46 and 55 years of age remained the group with the largest number of CDS account holders in Malaysia.
That is followed by those between the ages of 56 and 65 years, and the 36 to 45 years category.
There were 2.49 million CDS account holders in Malaysia last year, an increase of 0.4% year-on-year.
So why did Rakuten choose to enter Malaysia to set up its first equities business outside Japan?
Arai says it had been looking for a partner in Asean for the last few years.
“We looked at several countries and spoke to brokers.
“In the equity business, we need local partners because we they would know the country’s rules and requirements, and have a good relationship with local authorities.
“Coincidentally, Kenanga was also looking for a business partner, and that is how it started about two years ago,” he says.
Kenanga Investment Bank inked the JV agreement with Rakuten Securities to jointly provide online brokerage services in April last year.
Rakuten Trade is confident it will be able to attract Malaysian retail investors and replicate its success in Japan.
“In Japan, it has only been about 17 or 18 years since online trading began and the industry landscape has changed dramatically. The Internet environment in Malaysia is very good and also, almost everyone has a smartphone.
“We also offering competitive commission rates, compared with other brokerages in Malaysia,” he says.
The company has also teamed up with three leading loyalty providers – AIRASIA Big, BInfinite by Berjaya Group and Bonus Link to reward its users with loyalty points for transactions using the iSPEED.my app.
For people who need any additional assistance, the company has also set up a call centre.
With the RM30mil initial investment from Kenanga and Rakuten, the JV company hopes to break even and become profitable within the next three years.