Average daily market turnover jumped 54.5% in Q1 2020 compared to Q4 2019, which has led to a corresponding increase in brokerage revenues and profits.
Hong Kong’s FSTB (Financial Services and Treasury Bureau) is under fire for making potentially false and misleading statements to justify subsidies for brokerage firms under the government’s ‘Anti-epidemic Fund’ announced on 8 April.
In a 17 April paper to the LegCo Finance Committee, the FSTB had proposed to give a cash subsidy of HKD 50,000 to brokers ranked 15th onwards by market turnover (Category B and C firms).
According to reporting from former investment banker and shareholder activist David Webb, the FSTB potentially misled LegCo on two main points to justify the subsidies.
First, the paper claimed that small and medium-sized intermediaries serving primarily retail clients were “particularly hard-hit” by the adverse business environment. However, based on HKEX data, the Webb report shows that average daily market turnover jumped 54.5% in Q1 2020 compared to Q4 2019, which has led to a corresponding increase in brokerage revenues and profits.
Second, the paper claims that reduced face-to-face contact has impeded the businesses of small and medium-sized intermediaries. The Webb report, pointing to a June 2019 study, says only 1% of retail investors tend to deal face-t0-face with their brokers, compared to 65% who trade online and 33% by phone.
“In a 12-month period, only 5% of retail investors dealt face-to-face even once – and most of them would be at a bank, not a broker,” the report says.
“The claims are easy to check, and the FSTB either knew or should have known that the statements were false. That is, they were either lying or reckless to the truth.”
The FSTB paper also proposed a HKD 2,000 cash subsidy for each of some 44,000 individuals licensed by the SFC (Securities and Futures Commission), in addition to an earlier waiver of licence fees. Webb highlights that licence fees are normally paid by the employer, not the individual.
The Webb report also notes that each brokerage firm can additionally receive up to HKD 54,000 per employee under the government’s Employment Support Scheme, even if their businesses “have been unaffected or even done rather well during the crisis” and they had “no intention of laying people off”.
In a separate report, Webb contrasts this with the UK’s Scheme, which only pays compensation to employers in the hardest-hit sectors, i.e. where employees have been furloughed.
Under the Hong Kong Scheme, the government will pay employers 50% of wage costs at HKD 9,000 per job per month for six months, including for employees that are still on the job.