Are remisiers still necessary?
Personal Investing - By Ooi Kok Hwa
Online trading cheaper so remisiers should offer better and value-added services
MEMBERS of the general public have been complaining about the services of remisiers as they feel there is no difference between buying shares through remisiers and online trading. They feel that remisiers do not provide any value-added services.
Whenever they call to buy or sell shares, remisiers let the investors decide themselves whether to buy or sell stocks at the current prices.
They say remisiers seldom provide their views on whether to buy now or later as sometimes investors may be able to get better prices if they purchase the stocks later.
Some investors prefer online trading as some stockbroking firms provide the minimum brokerage cost of about RM10 per trade compared with the minimum brokerage cost of RM40 per trade if they use the services of remisiers.
On the other hand, a lot of remisiers have been complaining about their business. Some complain that the minimum brokerage cost of about RM10 per trade for online trading has put them at a disadvantage as their services are more expensive at the minimum brokerage cost of RM40 per trade.
In addition, despite the high stock market trading volume, they also notice that not many retail investors are actively involved in the stock market.
As a result, some remisiers are quite negative about their own profession.
The Securities Commission launched the Continuing Professional Education (CPE) programme and has made it mandatory for all licensed persons in the Malaysian capital market since 2001.
'You still need me'? asks a remiser.
Given that remisiers are licensed holders and have been attending classes over the past 10 years, we notice that their investment and financial knowledge has improved over the years.
At present, remisiers are looking for more advanced courses instead of simple courses like introduction to investment or financial knowledge or products. Hence, we feel that remisiers have the ability to provide better and value-added services to investors.
There are two main transaction costs when purchasing stocks, namely explicit and implicit costs.
- Explicit costs refer to direct costs of trading like brokerage commissions, stamp duty and clearing fees whereas
- implicit costs refer to indirect costs of trading like market impact (or price impact), delay cost and missed-trade opportunity costs.
Market impact refers to the price movement caused by placing the trade in the market, delay cost is the inability to complete the trade immediately due to the order size and market liquidity, while missed-trade opportunity cost is related to the unrealised profits or losses attributed to the failure to complete the trades.
For example, Stock A is currently selling at RM1.98 (buying price) to RM2 (selling price). Mr B intends to buy 50 lots of Stock A and to save on brokerage commission by buying online. However, he is not aware that there is some good news on and strong buying interest in Stock A.
A good remisier should be able to advise Mr B to give market order and buy Stock A at the best available selling price of RM2, rather than give a limit order of RM1.98. If the day’s closing price for Stock A is RM2.10 and Mr B did not manage to accumulate the stocks at RM1.98, the missed-trade opportunity to Mr B is 5% ((RM2.10-RM2)/RM2).
This missed-trade opportunity cost of 5% is much greater than 0.6% that he pays on the brokerage commission.
We tend to agree with the general public view that not all remisiers are willing to commit themselves to get the best prices for their clients. One reason may be the difficulty in judging whether the buying interest will persist throughout the whole day.
As a remisier, his key role is to get the best execution prices for his clients. We feel the minimum brokerage cost of RM40 per trade is fair to the remisier as the implicit cost of buying a stock is much greater than this explicit cost.
The RM40 is also used to cover the time required to monitor and to get the best prices; time spent on reading market developments and corporate news; costs required to acquire market information and attend classes; and administrative work involved in helping their clients on rights issues or any other corporate exercises.
In Malaysia, we have about 8,000 remisiers and dealers with a population of 28 million versus 3,000 remisiers with a population of about 4 million in Singapore. We strongly believe that the remisiers’ services are still required and have the potential to grow.
Nevertheless, remisiers need to upgrade and add more value to their services, on top of providing the best execution of trades to their clients, to differentiate their services from online trading.
The writer is one of the active CPE course trainers. He is also an investment adviser and managing partner of MRR Consulting.
http://biz.thestar.com.my/news/story.asp?file=/2010/6/2/business/6381518&sec=business
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