China scandals evoke old Chicago
By Geoff Dyer Published: July 22 2007, FT
When an American friend sent me an e-mail last week about the latest food scare in China – something about bottled water full of the wrong type of minerals – he titled it The Jungle, after Upton Sinclair’s 1906 novel exposing the grim realities of the Chicago meatpacking industry.
I added it to the long list of messages that have made the very same observation. For many Americans who have been watching the safety scandals that have engulfed Chinese exports to the US in recent months, Sinclair’s book is something of a road map for contemporary China.
In their own way, the tales about “filthy” catfish and poisonous toothpaste fit neatly into one of the grand narratives of our time, that China's booming economy is following a path similar to the US just over a century ago. Here is a continent-sized nation with new cities bursting with entrepreneurial energy and roads and railroads opening up once-isolated regions.
Such rapid expansion has left the institutions of government scrabbling to keep up, opening space for unscrupulous businessmen to cut every imaginable corner. Copies of The Jungle are being dusted off because as well as illuminating the dark side of hasty industrialisation, it also provoked outrage that helped pave the way for the creation of the Food and Drug Administration.
The uproar over Chinese products in the US is also an eye-opener about just how far globalisation has reached. No matter how much is written about the Chinese economy, it still has the capacity to surprise. It probably came as no shock for Americans to discover that their toys are made in China these days (with the possible exception of Lego), but I bet most did not know a few months ago that a quarter of imported seafood also came from the same country. How many chefs were aware that half the garlic consumed in the US is grown on Chinese farms?
Behind the indignation in the US about dodgy Chinese products, there has sometimes been another sentiment – a desire to turn back the clock to the time when China was only too happy to lock itself in a box and turn its back on the rest of the world. But that China no longer exists. Such is the scale of China's economy and so broad is its reach, there is no choice but to engage. Whether we like it or not, China's problems are now everyone's problems.
If food regulators in China cannot impose standards on the fish farms and vegetable producers they patrol, it is no longer just Chinese consumers at risk. The challenge facing regulators in Beijing is daunting, with hundreds of thousands of small companies operating in the industry, many with powerful connections to the local officials who should be keeping an eye on them.
The same goes for the foul air in Chinese cities. The other day, the Associated Press ran a story from the summit of Mount Bachelor in Oregon, 9,000ft above sea level, where a group of scientists has set up instruments to measure the increasing flow of soot particles that cross the Pacific from China. “This is, in effect, a fingerprint . . . the pollutants fingerprint,” one of the scientists said.
Angry American consumers can take heart that in today's globalised world, outrage also crosses borders. The US reports may have left some Chinese people feeling their companies are being victimised, but many more are concerned about the risks they themselves face and want more information.
As if on cue, another e-mail I got last week had the more intriguing title of “China's Upton Sinclair”. It included extracts from a book written in 2004 by a writer called Zhou Qing that describes in excruciating detail all the things residents of China have heard about the food supply but did not want to think about.
At a factory making pickled vegetables, he watched workers pour in insecticides to get rid of bugs. Or there is the Shanghai shop that fumigated cakes with sulphur powder and added industrial bleach to make them look whiter. Or the Nanchang drinks company that scraped off the sell-by date that had expired and added a new one to the bottles. Corruption and powerful local vested interests are always in the background of his tales – all written in the very best muck-raking tradition.
The big question is how quickly in China's one-party state, with its internet firewalls and media restrictions, such stories will translate into sustained pressure on the authorities. The other day I had a browse in some Shanghai bookshops and did manage to find The Jungle. But there were no copies of Zhou Qing's books.
TERRITORY FACES FUTURE WHERE WOMEN OUTNUMBER MEN
By Robin Kwong in Hong Kong Tuesday, July 31, 2007, FT
The trickle of mainland Chinese migrants into Hong Kong is having a profound effect on its demographics, as the government projects that in 30 years there will be just three men for every four women in the territory, writes Robin Kwong in Hong Kong.
The gender imbalance is expected to be among the worst in the world and will be a marked change from just six years ago when Hong Kong had slightly more men than women. The world average is about 106 men for every 100 women.
Hong Kong's demographic shift is expected to be the accumulated result of having 150 people each day – or 55,000 a year – emigrate to the city from mainland China.
With over 20,000 Hong Kong men taking mainland wives every year, the majority of Chinese entering Hong Kong on such “one-way permits” are women coming to the city to be reunited with husbands.
“This is the biggest factor affecting Hong Kong's male/female ratio,” says Fung Hing-wang, Hong Kong's commissioner for census and statistics.
By 2036, the addition of 150 people a day is expected to boost Hong Kong's population by 1.6m, and will account for practically all of Hong Kong's population growth over that period.
The gender imbalance is further exacerbated if the hundreds of thousands of foreign domestic workers who live and work in the city are taken into account. In the 25-44 age group, there will be just 55 men for every 100 women by 2036.
Hong Kong women, faced with the increasingly difficult prospects of finding a local husband, have already started looking across the border for potential spouses. There were 6,483 marriages between a Hong Kong woman and a mainland man last year. The figure is expected to rise in coming years.
¶ 11:54 PM0 comments
Last year, 40 per cent of the 65,626 babies born in Hong Kong were just visiting. They were born to mainland Chinese mothers transiting the territory on tourist visas and hoping to give their children something that many others have endured terrible hardships for or even died trying to obtain – the right of abode in Hong Kong.
Immigrants made Hong Kong. In each of China’s three decades of Maoist isolation, from 1949 to 1979, a million Chinese slipped through the bamboo curtain to begin new lives in the then UK colony, transforming it from a sleepy entrepôt into a regional export power. One-third of Hong Kong’s 7m people were born in China, including Li Ka-shing, the territory’s richest man.
Modern Hong Kong’s borders, by comparison, are well sealed. In 1980, the colony ended its so-called “home base” policy, whereby residency was granted to anyone who evaded Mao’s border guards and made it to Hong Kong’s urban areas – sometimes after swimming through shark-infested waters. In its place, a strict annual quota system was adopted.
Ten years after China resumed sovereignty over the territory, Hong Kong continues to cap immigration from the mainland at just 150 people a day, or 55,000 a year, with most of the quota reserved for the spouses, children and parents of Hong Kong residents.
For Donald Tsang, Hong Kong’s chief executive, that is not enough. He envisions a future in which Hong Kong could ultimately be home to as many as 10m people. “We are immigrating a lot of people but we are not aggressive enough,” Mr Tsang said in a recent interview with the Financial Times. “We have to continue to invest a lot more in education. We will have to attract a lot more people from all walks of life, all nationaities into Hong Kong to strengthen its place as an international financial centre.”
Mainland mothers giving birth in Hong Kong have been pilloried as opportunistic spongers who often skip town without settling medical bills, and in February the government began demanding a $5,000 (€3,650, £2,470) fee from expectant mothers crossing the border.
In fact, about 36 per cent of the 26,132 mainland mothers who delivered their babies in Hong Kong in the first 10 months of last year were married to local residents, reflecting the degree to which Hong Kong men are increasingly seeking brides in China. Of the 50,300 marriages recorded in Hong Kong last year, 21,400 (just over 40 per cent) involved a cross-border spouse. In 1997 there were just 2,600 such cross-border unions.
“The new measures have been able to introduce an orderly influx of women from the mainland,” says Dr Kwok Ka-ki, who represents the medical sector in Hong Kong’s legislature. “But if the woman is the wife of a Hong Kong resident she should be given different treatment. Sometime down the line the mothers will have the right to come to Hong Kong and the children should have the same rights as their Hong Kong fathers.”
Despite the restrictions, Hong Kong needs new babies. With just 9.6 births per 1,000 people, it now has one of the world’s lowest birth rates. Since 1961, the percentage of the population aged 65 or older has doubled every 20 years. By 2031, more than a quarter of the population will be elderly, putting an impossible strain on the public health system.
“Life expectancy in Hong Kong is the highest in the world. In fact we are higher than Japan,” Mr Tsang says. “But our fertility rate is the lowest in the world. That can only be bridged in the short term by immigration and in the longer term by heavy investment in education and training.”
A rapidly ageing population and plummeting birth rates have given rise to ad hoc policy measures to enhance recruitment of what the government terms “high-quality” professionals.
Since visa procedures for qualified mainland professionals were eased in 2003, about 17,000 have arrived in Hong Kong. But that is far fewer than the government’s estimated shortfall of 100,000 university-educated workers – only one in five members of Hong Kong’s workforce has a tertiary education. And for those who do come, culture shock can be an issue.
“When I first came to Hong Kong it was too compact, too crowded and too noisy. I needed time to adjust to the environment and the long working hours,” says William Liu, the mainland-born head of China research at CLSA, a regional investment bank. He has, he says, since come to appreciate Hong Kong’s cosmopolitan qualities.
Another programme introduced last year, the Quality Migrants Scheme, uses a points-based system to encourage highly qualified foreigners to move to the city. Though it received widespread publicity for attracting several Olympic medallists and piano virtuosos from the mainland, in the eight months after the scheme’s launch less than 20 per cent of its annual 1,000-visa quota had been filled.
In part, this is because young, highly educated Chinese face a wealth of options. Professionals fluent in Mandarin Chinese and English are in demand across the region, especially in home-sweet-home China.
Ellen Shen, who is working in GE Capital’s Hong Kong office on a six-month training visa, is a Shanghai native and looks forward to settling back in her hometown. “There’s always the feeling that it’s not your own place, no matter that it’s Hong Kong with so many Chinese around.
Market insight: What risk managers have learnt since the shock of 1998
By Michael Gordon Published: July 19 2007, FT
Will the troubles in the US subprime market pass by as a little local difficulty – or will they start a rout across capital markets and bring to an end the great bull run in a broad range of asset classes? That’s the big question faced by those in capital markets right now.
Can history teach us anything on this score? Well, it’s certainly worth looking at the collapse of Long-Term Capital Management in September 1998. The near-demise of this mammoth hedge fund marked a turning-point for credit markets, hitting brokers and banks hard.
The debacle is less than a decade ago, but banks were smaller and less diversified firms in those days and so less able to absorb large shocks. Also, their risk management systems were not as well developed as they are now. When further risks emerged in Russia, the banks and brokers were not well-placed to handle the fallout.
The credit quality of the lending banks started to slip, triggering concerns about systemic risk. Spreads on swap instruments – proxies for banking liquidity that involve investors exchanging assets or an exposure to a cash flow – widened, which in turn put additional pressure on financial companies. As the liquidity crisis deepened, asset prices began to fall sharply. When the crunch ultimately came, there was a severe dislocation in asset prices.
The extent of this turmoil is neatly illustrated by the performance of investment banking stocks at the time. Sector shares tanked, losing a large chunk of their value in just a few weeks. Spreads widened, indicating a contraction in banking liquidity.
Wind forward to today. Does the collapse of confidence in the US subprime market have any similarities to the LTCM affair? Well, many of the weaknesses of the banks and brokers that emerged in 1998 have since been addressed. They are larger, more diversified institutions. They have also invested a great deal in risk management. Overall, the banks look far more resilient.
In addition, the banks have shifted much of the underlying credit risk into the hands of other investors. By parcelling up the risk through instruments such as collateralised debt obligations that are then sliced and sold to investors, the bulls argue that risk has been spread so widely that a single large failure can be absorbed more easily: the impact would be a thousand small dents rather a big hole.
Sure, there have been some justified concerns about the pricing of debt to support leveraged buy-outs, as well as worries about the volume of such lending. But, overall, corporate credit quality remains good. And the credit quality of banks has held up so far. The ratings agencies may move shortly to reassess CDOs, but the investment banks have seen no deterioration in their own ratings.
That's probably why there have been fewer concerns about systemic risk this time round. Some credit asset prices have corrected but broad liquidity remains sound. The bulls argue that what we are seeing is an orderly repricing of risk. Now take a look at the share prices of the investment banks. There has been no great sell-off as there was in 1998.
So is it really different this time? Have product innovation and industry consolidation helped create greater resilience across the financial system? Perhaps. But the bears will argue that while the banks may have insulated themselves against serious defaults, another group of investors now bears risks that are so complex in their structure that few really understand the implications.
They'll be less than happy when the music stops. And any credit meltdown is likely to hurt banks anyway. The bears also argue that CDOs and other innovative structures have, in fact, made the financial system less resilient because of their complexity and lack of transparency.
So far the markets have taken bad news in their stride, easily digesting the problems at two Bear Stearns hedge funds. But there is a strong sense in many quarters that the party is coming to an end. The subprime woes look a good candidate for the party-pooper, but if history teaches us anything it is that the biggest threats to markets are rarely the obvious ones.
*The writer is chief investment officer at Fidelity International
¶ 11:40 PM0 comments
Lack of women in boardroom 'a competitive disadvantage'
By Christopher Adams Published: July 30 2007, FT
Companies without women in senior boardroom roles are at "a competitive disadvantage" and should ask themselves where their talented employees have gone, says Kitty Ussher.
With women counting for just 2 per cent of the top jobs in FTSE-100 companies, equality campaigners have forecast that it will take 40 years before they reach the same level of representation as men in the boardroom despite accounting for almost half the workforce.And, in London's financial district, it is claimed that harassment and sexual discrimination remain commonplace. The courts have seen a string of alleged "sexism in the City" cases.
Ms Ussher, though steering clear of the court cases, said at least one chief executive had raised the under-representation of women at the top of UK companies "as something that needs to be addressed". "My view on this has always been . . . that companies will do best if they recruit the best talent and they keep the best talent," she said. "And, if they're not keeping some of their talent pool, that puts them at a disadvantage.
"If I was a CEO and I found people, predominantly but not totally mothers and parents of young children, deciding to leave at a certain stage in their life, I would say, 'Why are we losing the talent?'
"If you flip it around the other way, there's also an issue about certain sectors of society not getting access to credit. Why is it that people from certain ethnic backgrounds or a certain gender are not succeeding so well as entrepreneurs and there's actually no factual evidence that they are less capable?"
¶ 11:37 PM0 comments
Banking abroad will be as easy as banking at home once SEPA gets going
Europe is on course to adopt a uniform payment system next year that will replace all others and simplify transactions for people across the continent, regardless of membership in the euro-zone.
The Single Euro Payments Area (SEPA) will give the 490 million Europeans in the EU and the European Economic Community a uniform system for domestic and international payments, whether their countries have adopted the euro or not.
"SEPA will offer many advantages for the business community and consumers," said Hans-Joachim Massenberg, deputy head of Germany's federal association of banks. "The Single Euro Payments Area will also be an important step forward for the EU internal market."
National methods of payment, such as bank transfers and debit and credit cards, will, however, continue to exist during the transition period. But Massenberg said he expected that by 2015 at the latest SEPA would be the only system for payments in use in the EU and EEC, which includes Iceland, Liechtenstein, Norway and Switzerland.
In the EU currently, individuals, businesses and public authorities conduct around 60 billion transactions yearly using their bank accounts, mainly through bank transfers, direct debits and credit card payments. Nearly a quarter of those transactions are carried out in Germany, which has the largest population and economy in the EU.
Germans eschew checks
But each country has its own regulations and technical standards for such transactions, and methods differ.
Hans-Joachim Massenberg
In France, for example, checks are commonly used, while they're rarely employed in Germany. German bank customers usually opt for debit withdrawals -- particularly for covering regular payments like rent or electricity bills -- which they employ twice as much as the average European does. Brits prefer to pay with credit cards. The Portuguese and the Greeks hardly use debit withdrawals at all.
"The goal is an integrated market for payment services in which fair competition prevails and there's no differentiation between cross-border and national payments," Massenberg said.
IBAN, BIC -- common currency of the future
Thus the use of international bank account numbers (IBAN), international bank identifier codes (BIC) and standardized forms will become obligatory. That's already been the practice since 2003 for standard EU bank transfers within the euro zone.
The new regulations apply to bank transfers and debit and credit cards. Debit withdrawals across borders will also be introduced. For residents there will no longer be any difference between using debit and credit cards at home or elsewhere in the EU and EEC. Banks will be expected to charge the same fees for cross-border euro payments within SEPA as for comparable domestic payments, and they will be just as fast, safe and easy.
Multinational companies are likely to profit the most from SEPA. Instead of maintaining bank accounts in each country in which they do business, they'll be able to work from one account for most of the continent. At the end of each working day, they'll be able to quickly establish their bank balance without referring to a multitude of accounts.
Why the Americans and Brits do not save for a rainy day
By John Kay Published: July 17 2007, FT
The inveterate spending habits of rich American households are financed by the thrift of poor Chinese peasants. The explanation of this paradox has several elements, but the contribution of financial market deregulation is a paradox in itself. The more highly developed a country's retail financial services, the less that country saves.
The US, followed by the UK, has the most sophisticated range of products available to savers and investors in the Group of Eight rich countries. The large continental European economies – France, Germany and Italy – follow some way behind, and Japan and Russia come after that. That ranking is also the ranking of national savings rates, with the US and the UK at the bottom and Japan and Russia at the top.
Only the worthy Canadians – who benefit from American financial expertise and products but retain the thrift and caution appropriate to their chilly climate – are an exception to the general rule. These rankings – particularly the low savings rates of Britain and the US – are long- established and firmly entrenched.
Liberal financial markets give wider opportunities to save and to borrow, but they expand opportunities to borrow even more than they expand opportunities to save. Britain and the US have the most competitive mortgage markets, and have also been pioneers in equity release schemes that enable people to spend the capital gains accrued in their homes. These countries were also the first to adopt credit cards, and they still make the most use of them.
Italy, by contrast, has relatively less lending for house purchases than any other developed country, even though it has a high rate of owner occupation: well-meaning but inept regulation has inhibited the evolution of both the mortgage market and the rental market.
The common myth is that young Italian men remain at home because they cannot tear themselves away from Mamma's cooking. A more likely explanation is that they can find nowhere else to live. Italian law protects consumers by making it almost impossible to repossess a house, which achieves the intended effect in an unintended way by making it difficult to obtain a mortgage in the first place. When Mamma and son are not savouring the bolognese, they are both busily saving to find the substantial deposit needed for his house purchase.
Social habits and economic institutions are mutually reinforcing. German banks are conservative lenders, and German households suspicious of debt. This creates a frame of mind that justifies the old joke that banks will lend only to someone who doesn't need the money. And these banks are right to behave that way, because anyone who does need the money has stepped outside established cultural norms.
A wider and more attractive range of investment opportunities does not necessarily lead to more saving. If saving were a commodity like any other, better returns and wider choice would make saving more appealing.
But saving is not an intrinsic good; it is a means to future consumption. If you can expect – or are led to believe you can expect – indefinite double-digit returns from your stocks, you need put aside correspondingly less to achieve any particular goal. And savings have a precautionary purpose – what an older generation used to describe as providing for a rainy day. But the more options you have when a rainy day arrives, the less you need precautionary saving. The credit card and access to the equity in your home are always available.
None of this means that financial market deregulation is a bad thing. But I used to believe that the justification for an active financial system was that it made it easier to garner the funds needed to build schools and factories, shops and offices.
Yet active financial systems don't build more schools and factories, shops and offices. They are associated with higher shares of consumption and lower shares of investment in national income. The role of a developed financial system is to enable us to buy a Wii as soon as it appears in the shops and spend our retirement cruising the Caribbean.
¶ 1:08 AM0 comments
Imagine telling the wives of the four England footballers who got married last week about the traditional Chinese practice of renting bridal gowns – and imagine the horror. Renting a venue is one thing, but how can a woman rent a gown for one of the most important days of her life?
Simple. Greater China is mostly non-Christian, and what westerners think of as the wedding gown is only worn for picture taking. According to local celebrity designer Dorian Ho, a traditional Chinese wedding would involve one gown that could be a bridal gown for the ceremony, another for the reception, another for tossing the bouquet, yet another for dancing, and finally one for seeing guests off. In addition, says Carolyn Chow, partner and general manager of Central Weddings and Occasions in Hong Kong: “The average Hong Kongese lives in a small flat and if she buys a wedding dress, there is no room for storage. It is also more important to wear a cheongsam or qi pao. The wedding dress is not important so they don’t see any reason for spending much on it.”
Or rather, they didn’t. Recently, women in Hong Kong and Singapore have started to buy high-quality designer gowns. “A large part of the HK population is open to western culture and familiar with international brands,” says Chow. “We are seeing a trend towards slimmer and fewer gowns,” agrees Ho.
When Chow started looking for a gown to wear to her own wedding, she couldn’t find anything in Hong Kong that was on a par with what she saw as a student in America. Four years ago, she opened Chimes, her first bridal business endeavour.
“I was lucky to be able to start relationships with Carolina Herrera and Badgley Mischka, who were very interested in expanding into Asia,” says Chow. Now her shop also holds exclusive Asian rights to Oscar de la Renta, Monique L’Huillier, Kumari and Reem Acra. Meanwhile, Vera Wang in Asia is exclusive to The Link Wedding in Singapore.
Whole bridal packages are “not much cheaper than having something made for you that is beautiful and well done,” says Chow, whose gowns start at HKD 50,000 (£3,330), including local fittings. Ho, whose gowns start at HKD 20,000 (£1,300), adds: “More fashion-conscious brides like to manifest their individuality.”
Meanwhile, a smaller segment of mainland Chinese women have been flying to Hong Kong and Singapore for western-style wedding gowns. The Link Wedding estimates their mainland business at “10 per cent and growing steadily”. Chow also attributes about 10 per cent of Central Weddings’ market to the mainland. Having done very little publicity for gowns that cost over a year’s pay for some, most customers come through referrals. “They may not be western educated but I suspect they follow fashion trends and buy luxury goods,” says Chow. “They make decisions quickly and pay right away.”
It’s not just Chinese wedding dresses that are changing; the classic bridal jewellery and gifts are also evolving. At the usual pre-wedding tea ceremony, the mother-in-law used to present the bride with 24-carat gold bracelets. These days, it may be bangles embossed with Mickey and Minnie Mouse, or Hello Kitty and her husband, Daniel.
“The traditions are still practised, but we have to modernise our designs,” explains Emily Li, brand general manager of Chow Sang Sang in Hong Kong. The 73-year old jewellery chain has the licence to produce 24-carat gold Disney and Sanrio characters, and all manufacturing is done in China.
“一开始就能与Carolina Herrera和Badgley Mischka合作，我很幸运，他们对在亚洲扩大业务很感兴趣，”Chow说。目前，她的门店持有Oscar de la Renta、Monique L'Huillier、Kumari和Reem Acra在亚洲的独家代理权。同时，新加坡的The Link Wedding独家代理了Vera Wang在亚洲的业务。
同时，中国内地的一小部分女性一直在飞临香港或新加坡，选购西方风格的婚纱。The Link Wedding估计，他们的内地业务占“10%并在稳定增长”。Chow也认为，“Central Weddings有10%的业务来自内地。这些婚纱价格超过某些人的年薪，他们也很少做推广，多数顾客是经人介绍而来。“他们不一定受过西方教育，但我认为，她们紧跟时尚潮流，而且常常购买奢侈品，”Chow说。“她们很快就做出决定，并且当场付钱。”
As a stock market newsletter site, we are constantly asked questions about the various online stock brokerage websites. Therefore, we have prepared this report to provide you with insights on the most popular online trading sites. This report discusses online trading in general, and specifically discusses the attributes of the following online trading websites:
E*Trade
Fidelity
Schwab
TD Ameritrade
Scottrade
Note: InvestmentHouse.com is not in the brokerage business and does not compete with the above-listed companies, rather we provide this detail and comparison for our site visitors and newsletter members so that they may make an informed decision when picking an online broker.
E*Trade Financial was incorporated in 1982 and is based in New York City. E*Trade provides financial solutions to retail and institutional customers globally. It offers retail investing and trading products and services, including automated order placement and execution of market and limit equity, futures, options, exchange-traded funds, and bond orders; real-time streaming quotes, commentary, and news; advanced trading platforms for traders; personalized portfolio tracking; and access to approximately 7,000 non-proprietary and proprietary mutual funds. In addition, it provides advisory and asset management services to retail clients; and token-based security solution. E*Trade serves retail, institutional, and corporate customers through the Internet and other electronic media.
E*trade offers a range of offerings which includes banking services and mutual funds in addition to its main service of stock trading. The commissions range from $6.99 to $12.99 for a market order based on the asset amount or number of trades in a quarter. Like many other services, E*Trade has branch offices where customers can go for in-person advice. This has been recently added and is only available in selected cities.
E*Trade has now dropped a $3 handling fee for the first 26 trades during each quarter. There is, however, a $40 maintenance fee per quarter, raising it from $25. Those with additional E*Trade accounts or at least $10,000 in assets may also avoid fees. E*Trade also provides many free and usually unpublicized services like asset allocation advice and financial planning. Research tools included screen charting and daily stock recommendations based on technical and fundamental analysis. There is no longer a minimum opening balance requirement, making E*Trade friendly to lower-asset or novice investors.
Comparison of Online Brokers
The online brokerage services market has expanded significantly in the last 10 years and continues to evolve rapidly. At its peak in early 2000, online retail traders accounted for nearly one-third of the trading volume on the NYSE and NASDAQ, a figure which float around 10% for last couple of years. The brokerage firms have come to realize that retail trading levels and commissions may never return to the heights seen in late 1990s and early 2000. The online brokerage industry has been in the news lately, as the industry moves towards consolidation; driven primarily by two factors - excess capacity and the very low level of variable costs associated with processing a trade.
According to a research by Tower Group, the online brokerage market has shrunk from 154 players in 2000 to about 50 today. However, the major share of business is in the control of the five largest companies[1] - Fidelity, Schwab, TD Ameritrade, E*Trade and Scottrade. These leading firms have a stranglehold on the online brokerage business, across industry accounts, trades, assets, revenues and net income. These five dominate the marketplace at a point in time when trading activity, after a post-Internet-bubble lull, has surpassed pre-bubble activity. There are currently about 1.27 million online trades placed per day, compared with 1.20 million in 2000.
Fig. 1: Online Brokerage Market (2000-2006)
Source: Tower Group, Tiburon Strategic Advisors
Market Competition
Top five players currently accounts for about 80% of market share with Fidelity and Schwab, whose businesses extend beyond traditional retail accounts, dramatically ahead of the other three firms in several categories. In terms of total business, Fidelity is the clear leader with 12.2 million total online accounts because of its mutual fund, 401(k) and clearing units. Schwab is second at 7.2 million accounts, TD Ameritrade is third with 6.0 million, E*Trade fourth at 4.3 million and Scottrade fifth with 1.4 million accounts. Together, the big five control 91% of all the accounts in the online brokerage marketplace.
Source: Tiburon Strategic Advisors
Their dominance is also reflected in revenues, where Fidelity alone generates 51% of the industry total. Schwab accounts for 25% of the industry’s revenues, E*Trade is 12%, TD Ameritrade is 9% and Scottrade is at 1%. The rest of the firms account for only 2% of the industry’s revenues.
Fig. 3: Market
Share of Industry Revenues
Source: Tiburon Strategic Advisors
TD Ameritrade's market share for commissionable trades plummeted from 33.8% of the discounter total in 2004, to just 23.7% in 2006. E*Trade, on a pro forma basis (including newly acquired HarrisDirect and BrownCo) has given up 1.9 percentage points of share to reach 15.8% from 17.7% in 2004. Schwab's market share of retail trades jumped to 24.6% from 19.1% in 2004, while Fidelity's share climbed 2.1 percentage points to 12.7%, from 10.6% in 2004[2].
Fig. 4: Market
Share for Commissionable Trades
Source: Tiburon Strategic Advisors
Major Players and their Offerings
Charles Schwab Corporation
The Charles Schwab Corporation was incorporated in 1986 and engages, through its subsidiaries, in securities brokerage, banking, and related financial services. The company's principal activities are to provide security brokerage, banking and related financial services. Its activities are carried out through four segments: Individual Investor- offering retail brokerage and banking operations, Institutional Investor - offering custodial, trading and support services to independent investment advisors, serves company 401(k) plan sponsors and third-party administrators and supports company stock option plan. Capital Markets offers trade execution services in Nasdaq, exchange-listed and other securities primarily to broker-dealers, including Schwab, and institutional clients. US Trust offers investment and wealth management, custody, fiduciary services, and private banking services to individual and institutional clients.
Charles Schwab used to be a broker with a complicated fee structure of minimum account balances and handling fees. But in late 2005, the broker eliminated its service fees (except for IRAs) to better complete with other brokerage firms. Schwab has a tiered rate schedule and a $2,500 minimum deposit to start an account. Those with account balances under $50,000 pay $19.95 per trade. Those with balances between $50,000 and $1,000,000 pay $12.95 per trade.
Further, Schwab has an easy-to-use website with lots of accessible information. Also Schwab has now branched out into personal banking, offering credit cards and online bill paying. Charles Schwab's design and easy website navigation is simple and easy to understand and provides research from Morningstar and Goldman Sachs among others. There is also a Market Insight section that has articles and webcasts on investing strategies and market commentary.
Fidelity Brokerage Company
Although widely known for mutual fund management, Fidelity has been a significant provider of brokerage services for over a decade. In March 2001, Fidelity Brokerage Company was established to integrate Fidelity's Personal Investments (Retail) and Institutional Brokerage businesses. Fidelity Brokerage Company, a part of Fidelity Investments, provides a broad range of retail and institutional brokerage services. Today, Fidelity Brokerage Company is one of the leading brokerage firms in US with more than $1.5 trillion in assets under administration and managing over 16 million client accounts.
Fidelity has designed a three-tier-trading scheme for its customers: Gold, Silver and Bronze. Gold investors, who are privy to an $8 commission rate, must have over $1 million in assets or make 120 trades a year. Silver-level investors have assets over $50,000 and pay $10.95 per market trade. The Bronze clients have under $50,000 in assets and pay a $19.95 per trade.
In 2005, Fidelity has lowered its fees to better compete in the market. For a market order, Fidelity's highest price is $19.95 for the first 1000 shares and $.015 for additional shares. Fees drop for those with a high account balance or for traders with a high level of activity. Inactivity, handling and maintenance fees have now been eliminated, and while a $2,500 minimum is required to open an account, customers are not penalized for dropping below that minimum. Fidelity website has a lot to offer, including financial planning tools, research reports and videos from Lehman Bros. The biggest bonus may be Fidelity's 110 branch offices throughout US where customers can go for in-person service.
Table 1: Summary of Key Online Brokerage Firms
Fidelity
Charles Schwab
E*Trade
Scottrade
TD Ameritrade
Minimum Account Balance
$2,500
$2,500
$1,000
$500
$1,000
Online Trades & Limit Orders
$19.95
$12.95 + $0.015/share over 1,000 shares
$12.99
$7
unlimited shares
$9.99
unlimited shares
Broker-Assisted Orders
$55.00
+ $0.14 per share
over 100 shares
$37.95
+ $0.015/share
over 1,000 shares
$45.00
+ online commission
$27
unlimited shares
$44.99
Maintenance Fee
None
None
$40 (quarterly)
$160 (annually)
None
None
Margin Interest Rate On $7,500 Debit Balance
11.08%
10.75%
10.24%
10.50%
11.00%
Real-Time Dow Jones News for Investors
Not Available
Complimentary
for active traders
$95.00/Month
Complimentary
$29.99/Month
Branch Offices in US
110
300
20
276
103
Source: Company Websites
Scottrade
Established in 1980, Scottrade is among the leading companies in online investing, serving individual investors. Headquartered in St. Louis, Missouri, the firm is unique in the industry because it boasts very low commission rates while offering easily accessible, local branch office support of online trading in 273 locations throughout US. Scottrade.com is the online trading site of Scottrade and offers customers the convenience of placing market orders online at a very low price. In addition to its online capabilities, Scottrade staffs each branch location with a licensed branch manager plus additional brokers and assistants.
Scottrade biggest foray is its low broker's commissions which are much lower than other firms along with a minimum opening balance is just $500. Trade executions are fast and there are free real-time quotes. The only drawback is that the company offers little in the way of research. But there are nearly 300 offices around the US, something most online brokers do not have. Furthermore, there are no account-inactivity fees and no maintenance fees at all. Buying no-load mutual funds incurs a $17 commission but no-load funds are free. Like many brokers, Scottrade also offers a big selection of No Transaction Fee (NTF) funds, for which investors do not have to pay anything to buy, sell or exchange.
TD Ameritrade
Founded in 1971, TD Ameritrade Holding Corporation provides online investment products and services. It was formerly known as Ameritrade Holding Corporation and changed its name to TD Ameritrade Holding Corporation in January 2006. The company's principal activity is to provide securities brokerage services. The company also provides trading execution and clearing services for the broker-dealer operations and for unaffiliated broker-dealers. The operations are conducted through the Private Client Segment that provides brokerage services, clearing services and brokerage capabilities to individual investors. The company also provides advisor tools as co-branded or private-label products to business partners and customers. The customers include retail investors, traders, financial planners and institutions. The company operates in the US and Canada and is headquartered in Omaha, Nebraska.
TD Ameritrade has been around a long time, and is one of the largest online brokers. A $2,000 deposit is the minimum needed to set up an Ameritrade account. Dropping below that amount or conducting less than four trades in six months incurs a $15 fee per quarter (waived for IRA and beneficiary accounts). A market order is $9.99 and that's regardless of the number of shares purchased. Ameritrade touts this as a perk over other brokerage firms whose customers can rack up higher fees for purchasing a large number of shares.
Independent Unbiased Review
Fig. 5: Online Trading Investor Satisfaction Study (2005)
在股市中赔钱的唯一好处，就美国而言，是索赔的钱可以用来抵减所得税。但是美国国税局设立了[冲洗售股法规]来禁止在股市中频繁炒做的投资人投机取巧。 （1） 什么是Wash Sale Wash Sale是投资者把赔钱的股票卖掉，又在卖股日之前30天或者卖股日之后30天之内再度买回已卖的相同股票。 日期的计算：从卖股日倒数30日之内或卖股日正数30日之内，连卖股日在内的61日（包括星期六、星期日及所有的假日）。 股权（Options and Contracts）在卖股前后30日之内，因购股权而买到的股票也算Wash Sale。 （2） Wash Sale的后果 l Wash Sale的后果的股票损失不可从当时所得中减去。 l 不能减去的损失要加到重新买回的股价上。 l 持股日期要从已卖股票的原始购进日算起。 这项法律的目的是防止投资者把长期损失（Long-term Loss）变成（Short-term Loss）对纳税人而言，短期损失的好处比长期损失多。 （3） 有关Wash S ale应注意的事项 Wash Sale条款只管辖赔钱卖股票。若赚钱卖股票则需立即算入当时所得不得延期。 重新买回的股票必须是相同的股票（包括股权）与股数（Substantially Identical Stock）。 以买卖股票为业者（Traders）可以免受Wash Sale条款的限制，但是要受另外条款（Wash Sale Rule to Traders）的限制。Wash Sale Rule to Traders 相当复杂。诸如合格的限制，不能享有长期获利（Long-term Capital Coin）的优惠等等。 买卖频繁的投资者应该与会计师商讨有Wash S ale Rule 的详情，一面遭到税务上的伤害与麻烦。 （4） 避免Wash Sale的可行之道 为了避开受到Wash Sale条款的限制，最佳的方法是等到卖股后31天之后在买回持股。此法的危险是所卖股票在31天后回涨，投资者要用更高的价格赎回。也可在卖股前的31 天先买回等数的相同股票。如此一算，若股价上涨，投资者的利得可以加倍，但若股价继续下跌，投资者损失也加倍。 投资者若实在对持股爱不释手，又需要以投资赔款之额抵消所得税时，可以卖掉持股再买金进与持股性质相同的股票。例如某投资持有100股Wal Mart Storkes(代号WMT)，由于经济的循环，零售业很有信心相信经济会很快好转，但因年底在即，很需要一些Capital Loss来抵冲自己的所得税。该投资者可以卖掉WMT，以卖股索赔的钱来冲抵所得，同时又以所卖WMT 款购买100股Home Depot Inc.(代号HD)。象WMT一样，HD也是零售业的龙头，像WMT一样，在零售业不景气时HD的股价也十分低迷。可是当零售业回暖时，WMT与HD会 首先回涨。如此，投资者即可等待零售业的回涨又可达到减税的目的。因为卖WMT买HD不算Wash Sale。 综上，我们讨论了美国证券交易中的五个热点实例。中国近期加入WTO的现实，已令世界经济的发展进入一个崭新的时代。正如克林顿总统签署PENTS时说的那样：中国的入会将使美国的子孙万代得益，当然中国的万代子孙也将获益无穷 。此世纪，我们应努力学习，踏实工作，缩小经济差距，才是务实之举。
