This article first appeared in Capital, The Edge Malaysia Weekly on July 3, 2023 - July 9, 2023

AT a time when Malaysia’s stock market is witnessing a decline in trading activity as retail and foreign investors remain cautious in the wake of a slowdown in the global economy, a new breed of brokerage firms is emerging locally, offering investors access to overseas stock markets and low-cost brokerage services.

The benchmark FBM KLCI is down 6% for the year, closing at 1,388.37 points last Wednesday.

While the entry of new foreign online players is likely to intensify competition in the local brokerage industry, its incumbents are not resting on their laurels and have been improving their digital offerings to stay ahead.

Still, the digital trading platforms of existing players have been available for many years now, and they seem to have had little success in attracting the interest of the younger generation.

The Securities Commission Malaysia (SC) recently granted Hong Kong-based Futu Holdings Ltd’s Malaysian subsidiary approval-in-principle (API) to roll out its investment platform moomoo in the country. Other investment platforms such as Tiger Brokers and Webull are also said to have entered the local market, offering retail investors lower trading fees for international trades via mobile applications. They are also offering attractive welcome gifts, including free shares, cash credits and commission-free trades.

Malaysia is moomoo’s second Southeast Asian market after Singapore, which it entered in 2021. However, the service in Malaysia is yet to open for registration, according to its website.

According to Futu’s website, the company’s services include trading, clearing and settlement, wealth management, margin financing and securities lending as well as corporate dealings, all of which can be done on its platform without any physical interaction. Futu’s strategic investors include Tencent Holdings, Matrix Partners and Sequoia Capital.

It is not clear if Webull has an API from the SC. Meanwhile, there are online foreign trading platforms that are on the SC’s investor alert list, including eToro and Tiger Brokers. It is understood that these platforms are being used by Malaysians.

Asked if moomoo and other foreign online brokerages would need to work with local brokerage firms, especially for settlement purposes, the SC says, “This is a commercial decision depending on the applicants’ business viability and value proposition assessment.”

According to the SC, the entry of the new breed of online brokers is part of its initiative to develop and grow the local capital market through greater adoption of digitisation transformation and technology.

“In order [for the capital market] to remain attractive and accessible for a wide range of investors, we are open to considering the entry of new players that bring with them unique value propositions that will further drive growth and diversify the range of services available to investors,” the regulator says when asked about the rationale behind having moomoo in Malaysia.

“For these reasons, we welcome all innovative digital business models and are encouraged by the strong interest received from the industry locally and regionally with extensive international presence to attract and promote international investors into the Malaysian capital markets.

“This is also in line with liberalisation measures announced in 2020,” it explains.

The regulator believes that the entry of new players will bring about healthy competition, potentially providing investors with a wide range of options and opportunities. “Additionally, we recognise the importance of maintaining a level playing field for all players in the market, and we will continue to work closely with stakeholders to ensure that this is achieved.

“Ultimately, our role as a regulator is to provide a stable and supportive environment for all market participants, while also ensuring that consumer protections are in place,” says the SC. “As we move forward, we also aim to reach out to new and young investors whose investment needs have evolved with the emergence of digital technologies.”

There are currently only two online brokerage platforms listed on the SC’s website, namely Rakuten Trade Sdn Bhd and iFAST Capital Sdn Bhd.

A 50:50 joint venture between Japan’s Rakuten Securities Inc and Kenanga Investment Bank Bhd since 2017, Rakuten Trade is a fully online equities broker that allows users to trade in not only the Malaysian stock market but also other markets, including in the US and Hong Kong.

Meanwhile, iFast Capital — a part of Singapore-based iFAST Corp Ltd — had in 2021 attained its capital markets services licence from the SC for its online investment platform FSMOne Malaysia, which allows investors to deal in US- and Hong Kong-listed securities and offers exchange-traded fund (ETF) brokerage services. FSMOne Malaysia was established in the country in 2008.

A trader says he has been using foreign online trading platforms for more than three years, as they provide him with access to other stock markets globally and not only the local stock market. He points out that as he holds a full-time job, he only has time to look at the stock market after office hours.

“The platform is user-friendly with access to multiple markets. After my office hours, I can look at the US market and it provides real-time market data and analysis,” he tells The Edge.

Most of the existing brokerage firms in Malaysia are positive about the entry of foreign players into the market.

Rakuten Trade CEO Kazumasa Mise says their entry would accelerate the acceptance of the “fully digital investing lifestyle”.

“Increased competition drives innovation, improves the level of service, and potentially leads to new industry benchmarks and policies that ultimately benefit the customers. It may also expand the overall market participation and attract more investors,” he tells The Edge.

Mise says Rakuten Trade remains confident in its product and service offerings as it is currently the largest digital stockbroker in Malaysia with more than RM120 billion traded via its platform as at May 31.

Following increased demand for a fully digitalised online brokerage platform, Malacca Securities Sdn Bhd unveiled its online investment platform, dubbed M+ Global, in May. The platform offers Malaysians direct and secure access to stocks listed on the Hong Kong stock exchange and Nasdaq in the US.

“We recognise that the trading landscape in Malaysia has become increasingly competitive. This reflects the growing interest and demand from investors in the market. We view competition as a positive force that encourages innovation, enhances customer choices, improves services and benefits investors,” says Malacca Securities managing director Lim Chia Wei.

In terms of sign-ups, she says demand has been encouraging, with over 30,000 registered customers for the M+ Global platform less than a month after its launch.

“Trading overseas stocks provides Malaysians with access to a broader range of investment opportunities. This will expand the range of stocks to trade, allowing Malaysians to diversify their portfolios and tap into global companies, and unlocking potential opportunities for higher returns.

“Investors can seize opportunities in sectors that are less available in the local market, such as large tech companies, e-commerce, renewable energy and biotechnology,” says Lim.

In response to the competitive environment, some players have adjusted the cost of trading for investors.

Mise says Rakuten Trade recently revised its brokerage fees to between RM1 and RM100 across all markets, including Malaysia, Hong Kong and the US, from a minimum of RM7.

FSMOne Malaysia had also reduced its flat commission fee for Singapore-listed stocks and ETFs from S$10 to S$8.80 in April 2021.

While the competition has led to a price war, with brokerage firms adjusting their fees, industry participants say a race to the bottom should not be the end game.

Malacca Securities’ Lim says the company is choosing to focus on delivering a comprehensive and reliable trading experience with its hybrid stockbroking approach through M+ Global.

“Our offering doesn’t just include a wide range of investment options but also intuitive features where investors can access real-time market data and market intelligence, advanced trading tools, and educational resources, which will boost their trading experience tremendously,” she stresses.

The decline in trading volume in the local market has already impacted brokers. For instance, Kenanga Investment Bank posted a pre-tax loss of RM5.3 million for its first quarter ended March 31, 2023, compared to a pre-tax profit of RM8.2 million a year earlier, on the back of lower revenue of RM70.7 million against RM84.8 million previously. 

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