Electronic Brokerage Fees In Asia
Fees charged to the buy-side for electronic Asia equity (or “cash” as it’s known here in the East) flow are quite high relative to the US and Europe. For example, Japan as the second largest economy in the world and an equally large equity market can command institutional rates of 2bps a side; almost 4 times the average for the same trade in the US. The program trading desks might get squeezed down to 1bp but that is still quite a hefty margin relatively speaking.
If we look at Hong Kong and Singapore, generally regarded as business friendly and certainly hedge fund friendly markets you can expect to pay 4 to 5bps. The Hang Seng Index future, the benchmark of the Stock Exchange of Hong Kong, earns around 20 to 25HKD per contract or around US$3 (ex-exchange fees). The notional value of the index is around HKD1,000,000 (~US$140,000) and has a tick size of 50 HKD (US$7) compared to say the E-mini S&P 500 Futures (US$12.50 per tick) or the Euro Stoxx 50 index future (US$14 per tick). The Japan Government Bond Future with its US$100 tick commands around US$9 per contract in commission.
Then we have what is referred to as the “ID markets” – Korea, Taiwan and India. In order to trade as a Foreigner Institutional Investor (FII or FINI in Taiwan) the Regulators of these countries require that each firm obtain an Investment Registration Certificate (IRC) in Korea, a Certificate of Registration in India or an Investor ID in Taiwan. You will also have to fund those accounts locally and settle trades in the local currency. After you have gone through the documentation process you will have to pay some of the highest brokerage in Asia. 7 to 8 bps in Taiwan and Korea and 12 bps in India.
Some of the junior markets like Thailand, Malaysia and The Philippines do enjoy even higher rates but are still largely voice markets. Australia, Japan, Hong Kong, Singapore, Korea, Taiwan and India represent the senior bourses where most of Asia trading takes place.
Now what about China? Well its hard to gain direct access to that market but you can trade the bigger names in Hong Kong on it’s H Share list. Expect to pay the same as any other Hong Kong name.
How can brokers get away with charging such high rates? There are a few reasons. First of all there is a high barrier to enter these markets especially the ID markets. Market access is a near monopoly with a price maker view. All of these exchanges are local, fragmented markets with no real pan-Asia ATS or MTF and require a large capital outlay to offer these connections to you the end customer. Additionally, trading turnover is a lot less then in the maturer western markets so more commission must be charged to justify the lower trading volumes.
Keep in mind that the commission rates listed above vary from client to client and are purely electronic rates. They also exclude exchange fees and stamp duties where applicable.