Fidelity Investments, a major US financial services company, announced that commissions on online stock, ETF and options trading in the United States had dropped from $4.95 to zero since October 10. So it became the fifth U.S. securities broker to announce zero Commission since October.
Since the announcement of zero Commission on stock trading by Charles Schwab on October 1, several American brokers have responded quickly. They either take the initiative to win more customers and market share, or to prevent customer churn, which is also recognized as an irreversible industry trend. From the perspective of revenue structure, zero Commission has little effect on the income of these securities firms.
What you are most concerned about is whether domestic securities firms will respond quickly? Liang Chunliang, general manager of the wealth management department of Galaxy Securities, believes that due to the high percentage of commission income of domestic securities firms, the approaching cost of commission rate, the tendency of accounts to trade independently and regulatory requirements, zero Commission will not be followed up in the short and medium term, but it will accelerate the progress of the transformation of wealth management and gradually change the income pattern of brokerage business.
Uncle Cheng, a Chinese columnist for securities firms, told reporters that the zero Commission initiative of large brokers in the United States will speed up the digital transformation of securities firms, speed up the process of survival of the fittest and accelerate the pace of future industry integration. In the future, the further improvement of the concentration of the securities industry will bring two kinds of superior securities firms to the fore: one is a small number of head securities firms with strong comprehensive strength, the other is small and medium-sized securities firms that focus on creating business differentiation characteristics and gaining leading advantages in the subdivision field.
Influenced by the announcement of zero commission by Jiaxin Finance, shares of Jiaxin Finance, TDAmeritrade and E*Trade fell sharply, falling 13.9%, 28.3% and 15.9% respectively in the same week. However, such a sharp decline did not last long. This week, the stock price of U.S. securities firms began to show an upward trend as a whole. On the 10th day, HTCs share price rose by 213%, YMCs by 3.53%, JPMorgan Chase by 1.40%, Bank of America by 2.01%, Goldman Sachs by 1.53%, Citigroup by 1.76%, and Yingtuo Securities by 4.09%.
Five U.S. brokers implement zero Commission in 10 days
Unsurprisingly, Fidelity invests in stock trading and other zero Commission strategies, but also differentiates.
Kathleen Murphy, president of Fidelitys personal investment business, said in a statement: We made this decision after carefully considering our customers and ensuring that we met all their needs. According to public data, Fidelity manages $2.46 trillion of assets for customers, has 21.8 million accounts and total assets of $6.8 trillion.
Fidelity Investments is the fifth U.S. securities broker to announce zero Commission since October. In addition to implementing zero commission, Fidelity has other initiatives to automatically invest retail investorscash into alternative investment products with higher returns, and promises not to pay for the order flow of stocks and ETF transactions. Forbes commented that Fidelity chose a different path from the industry.
This is why we will continue to provide retail investors with the option of investing cash in high-yielding products in addition to providing zero-commission automatic online trading, as well as providing industry-leading transaction execution for customers without sacrificing their interests. This kind of combination is not found in other companies. Kathleen Murphy said.
Founded in 1946, Fidelity Investment Group is an American multinational financial services company headquartered in Boston, USA. It is one of the largest asset management companies in the world (other well-known companies include BlackRock, Pioneer Group, etc.).
Senior securities industry analysts told reporters that American brokers have implemented zero Commission one after another. On the one hand, it is influenced by the implementation of zero Commission in stock trading by Robinhood, which was established in 2013. On the other hand, they have taken the initiative to force securities firms, which mainly rely on the income of trading commission, to hand over their customers and market shares.
When it comes to zero commission, Robinhood cant be ignored. Its greatest feature is zero Commission on stock trading, targeting young people in the United States who give up buying stocks because of commission. When it was founded, analysts predicted that it was only a matter of time before major brokerages were forced to cancel commissions.
However, when Charles Schwab, the largest online brokerage in the United States, announced on October 1st that it would reduce commissions on online trading of stocks, ETFs and options from $4.95 to $0, the financial industry was a bit caught off guard. Subsequently, American brokers such as TDAmeritrade, E * Trade and unlisted AlyInvest followed suit and reduced their commissions to zero.
Does the implementation of zero Commission have a great impact on the income of these securities companies? From the revenue of many securities firms, the abolition of commission income has little impact on performance. For example, these brokers can get fee income from robotic consulting services, self-investment products, etc., and interest income from custody funds.
In terms of revenue composition, only a quarter of TDAmeritrades revenue in the last quarter came from trading commissions; Charles Credits financial commissions accounted for 3% to 4% of its quarterly revenue, which was not very high. More than 90% of its revenue came from interest and wealth management, and the cancellation of commissions had little impact on the company.
Motley Fool, an American financial advisory website, analyses that because Fidelity has a wide range of financial products, as far as the proportion of commission income to its total income is concerned, it is likely to be at the low end of this range, and the elimination of stock trading commissions will have very little impact on Fidelity.
Asked how Fidelity would compensate for a large part of its commission revenue, Kathleen Murphy said Fidelity was a broad, diversified business with a large scale, which enabled them to continue to add value.
How will domestic securities firms follow up?
As we all know, zero Commission is an inevitable trend. Large brokers in the United States have implemented zero Commission successively, which has brought great pressure to domestic securities companies. However, several senior securities dealers agreed that for domestic securities dealers, this situation will not be reached immediately.
Liang Chunliang, general manager of Galaxy Securities Wealth Management Department, said that the above judgment was based on four considerations: first, the proportion of income, the domestic brokerage commission income accounted for a higher proportion of revenue; second, the domestic industry net Commission has fallen below 13,000. Under the existing market trading scale, some small and medium-sized brokerages have faced the pressure of cost-income ratio in the short term, and continue to decline rapidly. Low; Third, the foreign countries are the account authorized broker management, no transaction commission costs, customers and brokersincome maximization, domestic customers are independent transactions, different stages of development; Fourth, regulatory requirements, commissions can not be lower than the cost of securities company services, almost two-tenths of the cost margin of brokerage business.
According to the data disclosed by trade associations, in the first half of 2019, the net income (including seat leasing) of the securities trading business of the whole industry was 44.4 billion yuan, accounting for nearly 25% of the industrys revenue, which is the second largest business sector of the securities industry. However, this proportion has decreased compared with the same period last year, and securities firms are trying to reduce the proportion of revenue from channel business.
The gradual decline in commission rate is a more obvious indicator of industry perception. The brokerage business of brokerage firms has changed from making money lying down to crisis four volts, with commission rates ranging from three thousandths at the beginning to three thousandths or even lower at present. Several brokerages have already given two thousandths or even lower commission rates, which means that they have realized zero Commission in fact.
It is also worth mentioning that in July this year, the Securities Regulatory Commission issued the Measures for the Management of Securities Brokerage Business (Draft for Opinions) which clearly stipulates that brokers should not charge commissions less than the cost of securities brokerage business services.
As early as September 2017, Uncle Cheng, a columnist of securities firms in China, wrote an article pointing out three major trends that domestic securities firms can not escape: first, free access (i.e. zero commission) is the general trend; second, service charges (wealth management) is the general trend; and third, the whole business chain (retail and institutional business synergy) is the general trend.
Liang Chunliang believes that domestic securities firms, especially head securities firms, will not implement zero Commission for stock trading in the short and medium term, but put forward more stringent and higher requirements for securities firmsdisposition wealth management capabilities, which will accelerate the transformation and development of wealth management and gradually change the income pattern of brokerage business.
Uncle Cheng told Chinese journalists of securities firms that the zero Commission measures of large brokers in the United States have far-reaching impact on the industry, will promote the speed of digital transformation of securities firms, speed up the process of survival of the fittest and accelerate the pace of future industry integration. He believes that the further improvement of the concentration of the securities industry in the future will lead to two kinds of superior securities firms to stand out: first, a small number of head securities firms with strong comprehensive strength; second, small and medium-sized securities firms that focus on creating business differentiation characteristics and gaining leading edge in the subdivision field.
Zhao Ran, chief non-bank analyst of CITIC Construction Investment Securities, said that even the licence business was further channelized because of the intense overlapping of the stock game and the reduced risk preference of institutions. In the future, as one of the important flow portals, brokerage business needs to strengthen cooperation with other business lines within the company, such as large capital management, large investment banks and other departments, constantly increase product innovation and provide more value-added services, in order to maintain long-term competitiveness under the background of lower brokerage business rates.
Source: China Responsible Editor of Securities Dealers: Yang Bin_NF4368