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Calls for lower brokerage commissions growing as GEB launch nears

By Song Jingli (chinadaily.com.cn)
Updated: 2009-08-28 12:00

The requirement that investors must visit a brokerage office in person to open an account on China's soon-to-open Growth Enterprise Board (GEB) has triggered a massive call for lowering brokerage commissions, the Shanghai Securities News reported yesterday.

The Nasdaq-like GEB, which is designed to help start-up companies raise funds for their growing business, is likely to be launched in the fourth quarter of the year, according to a recent report posted on the website of the official Xinhua News Agency. Prospective investors were allowed to open accounts starting July 15.

On Aug 19, China Securities Regulatory Commission and Shenzhen Stock Exchange jointly asked brokerages to set clear targets for the number of accounts they will open as soon as possible. Some sources at brokerages said investors then began to take advantage of this to demand reduced commissions, as brokerages were working extremely hard to meet their set targets.

"We did not expect there would be a concentrated call for lowering the commission," a source with a Shanghai-based brokerage said.

An industry insider said that customers have been asking for reduced fees for a long time, and they would grasp every opportunity to justify paying less -- including the launch of the GEB.

A securities manager with a Shenzhen-based brokerage said that customers asking for lower commissions are often those who trade on computers at home. Because requests for lower commissions must be presented and signed in person, customers coming in to open a GEB account often ask for commission reductions at the same time.

Related readings:  GEB listed firms may get approval for Hong Kong trading  NASDAQ-like GEB expected to offer fresh hope to startups  GEB office in pipeline, board likely to open in Oct  Regulator rolls out norms for GEB investors

Another insider said brokerages are facing the challenge of attracting more investors to open GEB accounts as well as increasing calls for slashing commissions.

Zhang Li, an analyst with Lianhe Securities, said that the end of the rebound in the stock market has made investors more sensitive to commissions. Demands for lower commissions raised by GEB account openers may lead to a broader reduction in commissions across the industry, Zhang predicted.

That reduction likely would have happened anyway, regardless of whether the GEB was opening or not.

"We gain most profits from our active customers, making up 20 to 30 percent of all our customers; but about a quarter of the active customers are asking for a lower commission," said an industry insider. "Because there is harsh competition in the brokerage business and we are not willing to lose our customers, we will lower the commission if their requests are not too unreasonable."