How the Brokerage Industry Will Change Over the Next Three Years
Given the ever-changing development of the securities market, predictions in connection with the outlook of the brokerage industry in the next three years will hardly be accurate. However, in response to the recent technological and economical situations, certain changes are likely to be made across all the brokerage firms in Hong Kong. I will discuss two of these changes for which their impact on the industry is recognized as direct and far-reaching.
Firstly, the potential for cyber criminals is increasing as businesses become more dependent on technology for more elements of their operation. On 10 April 2011, HKEx’s website for disclosing company information was crashed due to the distributed denial of service (DDoS) attack by computer hackers. Several blue-chip stocks such as HSBC and Cathay Pacific were suspended as they attempted to disclose price sensitive information. The hacking incident disrupted normal operations of trading in the market which might cause tremendous amount of money loss to the customers. It is clear that no brokerage firm can run the risk of being vulnerable to hacker attacks like the one in HKEx and they will all be taking measures to ensure they are effectively protected. Staff in brokerage firm should be mindful that information risk is increasing and learn the best practices for prevention of any cyber crimes in the financial market and keep abreast of developments in this field.
Second, more RMB securities products will be launched to follow the trend in RMB internationalization. The RMB deposits in Hong Kong have increased dramatically over the past few years. This is not only a driving engine to accelerate the RMB internationalization process, but also a strong signal that other RMB investment products with higher growth rate can attract investors to diversify their portfolio rather than putting all their money in RMB deposit. As we witnessed, the first IPO Hui Xian REIT (87001) went public in April last year and the Heng Seng RMB Gold ETF (83168) got listed in SEHK at the start of this year. I am confident that more RMB securities products will be appearing. However, these business opportunities do not come without risk. RMB is not the local currency in HK and the exchange rate between RMB and HKD is not linked. On the other hand, the costly infrastuctures for trading these products are still very new to the market. Given the risks and costs involved in trading these products for the customers, HK brokerage firms should take caution when preparing for trading and clearing of RMB securities products to ensure that these risks and costs are short-term, bearable and controllable in this long-term process.
New challenges and opportunities keep appearing as the financial markets are evolving. From technological advancement to RMB internationalization process, there is no clear target or direction in which the brokerage industry is heading. To stay competitive in this market, brokerage firms should keep their mind open while at the same time be skeptical to any challenges and opportunities that might be introduced when moving beyond their existing operations.
