The PSE’s strategic development committee endorsed the proposal made by ATR-Kim Eng Securities chairman Ramon Arnaiz who cited the positive experiences of the Stock Exchange of Thailand (SET) when the minimum commission was reimposed.
The PSE said that despite the improved volumes, a stockbrokerage firm which wants to provide a minimum level of good service and research information to his clients still cannot be profitable at the current practice of fully negotiable commission rates.
"A fully negotiated commission rate system has led to a price war, especially in larger blocks of transactions. Brokers fight tooth and nail to get a piece of the block sale," the PSE said.
It added that brokers sometimes resort to almost zero or no commissions at all just for the perceived privilege of cornering additional trade volume which would drastically raise its broker ranking, as institutional funds often require a minimum broker ranking for accreditation.
Arnaiz cited that in other Asia Pacific markets, such rules are in force: in Hong Kong, a 0.25 percent minimum commission rate is also in place while in Malaysia, a floor commission of 0.75 percent is set for trade volumes amounting to 100,000 ringgits and below.
But he particularly noted the case of the SET which reimposed the 0.25 percent minimum commission in mid-January 2002, bringing the positive effect of promptly reversing losses of brokers into profit during the first quarter.
"It is worthwhile to note how remarkably swift the Thai Exchange reacted to changing their policies in order to address the problem of brokers. In just one year of liberalizing their rates, the Thai Exchange turned around to protect the brokers from further losses by bringing the minimum rate back," the PSE said.
The set allowed commission rates on a fully negotiated basis in October 2000, leading to a full-blown price war among brokers with rates averaging 12 to 18 basis points, although considerable business were transacted at just five basis points.