The Board of Hong Kong Exchanges and Clearing Limited (HKEx) today (May 17) endorsed a proposal to remove the rules which fix the respective minimum brokerage commission rates for stock and futures transactions with effect from April 1, 2002.
In the consultation papers issued by HKEx through its wholly owned subsidaries, the Stock Exchange of Hong Kong and the Hong Kong Futures Exchange to their Participants in March this year, it was proposed that for the Stock Exchange, the minimum brokerage commission rule be removed from the Rule of the Exchange effective April 1, 2002. It was also proposed that transactions on new products under the Nasdaq-Amex Pilot Program and similar pilot programs introduced before April 1, 2002 be immediately exempted from the minimum brokerage commission rule. For the Futures Exchange, it was proposed that fixed minimum commissions be completely removed from all contracts traded on the Exchange with effect from April 1, 2002.
After the proposals become effective, stockbrokers and futures brokers will be free to negotiate commission rates with their customers.
"The liberalisation of commission rates opens an important chapter for Hong Kongs stock and futures markets as it will lead to freer and more healthy competition, said HKEx chairman Charles Lee.
It is both the regional and global trend to go for free negotiation of brokerage commission rates. Hong Kong is one of the very few markets in which minimum commission rates still apply. In order to maintain its position as a leading international financial centre and in order to further develop its stock and futures markets into the regional markets of choice of international investors, it is only logical that Hong Kong should decide to remove the minimum commission rules." Mr Lee continued.
At present, 13 of the 15 largest stock markets (by market capitalisation) in the world have adopted a system of free negotiation. These include the United States, Japan, the United Kingdom, France, Germany, Canada, Italy, the Netherlands, Switzerland, Spain, Australia, Sweden and Finland. The only two exceptions are Hong Kong and Taiwan, ranking 10th and 13th respectively.
Most major international derivatives exchanges have also adopted a system of free negotiation. These include exchanges in the United States, the United Kingdom, France, Australia, Singapore and Korea.
"The HKEx Board met today (May 17) to consider the results of the consultation. The decision to endorse the liberalisation proposal was made by the Board after careful consideration of all the views received.
"HKEx considers that Hong Kong must take proactive and market-driven initiatives in order to remain competitive in the world market and to meet the challenges it will face in the light of globalisation and technological advancement," Mr Lee stressed.
"HKEx is ready to take and support initiatives that can enhance Hong Kongs status as a regional or global financial centre and hence bring benefits to the whole economy.
The liberalisation of brokerage commission rates is one such initiative which, we believe, is in the interest of the investing public, the brokerage industry and the economic well-being of Hong Kong," he said.
According to Mr Lee, the decision regarding the two-year transition to liberalisation has been made after careful consideration and was aimed at allowing brokers to prepare for the change, if necessary, such as by improving cost-effectiveness and productivity.