Brokers have urged the Hong Kong Exchanges & Clearing to launch a trading platform targeted at listed mutual fund products.
The Hong Kong Securities Association and other brokerage organisations have been in talks with the government and the exchange operator about the merits of the new platform.
“The stock exchange now focuses on securities trading, however, the stock market can also be a good venue to trade listed bonds, mutual funds and other investment products,” said Benny Mau Ying-yuen, the chairman of the Hong Kong Securities Association.
Mau said the platform would enable Hong Kong’s 450 licensed brokerages to trade mutual funds on behalf of their clients.
“Local brokers have proven to be an effective channel to trade listed securities and initial public offerings for companies. The industry can do the same job for the mutual fund industry,” Mau said.
Mau and other brokers, including Christopher Cheung Wah-fung, who is a broker as well as the legislator for the financial services sector, have held talks with the Securities and Futures Commission and HKEx officials, as well as fund industry officials, recently about the proposal.
“A fund trading platform would be a win-win situation for brokers, fund houses and the stock exchange. By adding new products to trade, the brokers can earn more commission income, the stock exchange can enjoy higher trading fees and the fund industry has a new selling channel,” Cheung said.
HKEx has struggled to diversify its income sources, relying almost exclusively on income related to stock trading and IPO activities. The one-year-old stock connect, enabling cross-border stock trading between Hong Kong and Shanghai, has a lower than expected turnover. Trading from Hong Kong to the Shanghai stock market via the stocks only stood at 6.7 billion yuan, representing about 0.6 per cent of Shanghai’s daily market turnover.
The three new mini metal contracts launched in December have also struggled to garner investors’ attention.
Cheung said the stock exchange could expand its revenue stream by embracing the fund trading platform and a clearing house for trade settlement.
He also said the timing was right, with mainland mutual funds now eligible to be sold in Hong Kong thanks to a mutual recognition agreement that took effect in July.
“These mainland mutual funds, if listed on the stock exchange, would be easier for Hong Kong investors to trade,” Cheung said. “At present, banks charge high fees for selling mutual funds. Brokers could compete with a lower trading fee for customers.”
Establishing a platform to trade mutual funds would broaden access to investment products which are sold exclusively through banks at present. If listed on an exchange, it is likely more investors would take an interest in the products.
Other experts, however, cautioned that it was not clear that the platform would be welcomed by investors.
“It would take time for the fund customers to get use to the new selling channel such as trading them in the stock exchange,” said Stewart Aldcroft, chief executive of CitiTrust.
Aldcroft said Australia also embraced the use of the stock exchange platform, but has found only lukewarm interest from the investment community.
“Hong Kong brokers can give good advice to investors about Hong Kong stocks. But many mutual funds are trading in bonds or overseas equities. It would be a challenge for local brokers to hire and train up staff to sell these fund products,” Aldcroft said.
Meanwhile, some big brokerage firms such as Sun Hung Kai Financial already have asset management arms that have been active in promoting these fund products to investors.
The platform would likely be a bigger benefit to smaller local brokers who do not have the necessary size to run a separate department dedicated to investment funds.
Mutual fund sales in the first half of this year rose 14 per cent to US$47 billion, according to the Hong Kong Investment Funds Association. A breakdown of first-half sales data showed that 64 per cent of investment flows went into equity funds, mainly China and European products.
Last year investment funds marketed in Hong Kong attracted a record US$77.7 billion, compared to US$71.1 billion in 2013.
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