Malaysian securities trading goes online

Investors Xchange, a free, multi-broker, Internet-based trading facility finally arrived on Malaysian shores last week, vaulting retail investors onto the high seas of online trading.

Investors Xchange, a free, multi-broker, Internet-based trading facility finally arrived on Malaysian shores last week, vaulting retail investors onto the high seas of online trading. The system's promise is that shareholders can become masters of their own fate and realize their dreams of finding a proverbial pot of equity gold at the end of their rainbow-dotcoms.

The timing could not have been better. Trading volume on Malaysia's Kuala Stock Exchange (KLSE) breached one billion shares on January 17, the first time in nearly five months. Its benchmark composite index closed at 953.42 points that day, a two-and-half-year high, and a sharp contrast to the September 1, 1998 low of 261.33 points, which coincided with Malaysia's introduction of controversial capital controls. In the punter's speculative world, memories are short. What better time then to attract new players to the game and veterans to their old habit? The political and financial torrent the nation underwent during the Asian Financial Crisis appears to have finally subsided. Provided the US economic weather holds up, all signs indicate that Malaysian bourses are headed for bright and sunny days.

"We want to reach out to small investors in towns where they may have access to the Internet but not to broking houses. We are providing a cheap and easy trading service for the masses. The days of getting engaged tones when calling up your brokers are gone. Now you can trade by just clicking," said Nik Mohamed Din, executive chairman of Virtual Commerce Group, the company that launched the new service.

Investors Xchange aims to attract a modest 50,000 subscribers within the next 12 months. The basic service that provides delayed quotes, analysis and point-of-sale avenue to investors and broking houses is free while real-time quotes are available for a RM20 (US$5.26) monthly fee. The financial portal offers trading in three Malaysian bourses - the KLSE the Commodities Exchange (COMMEX) and the Kuala Lumpur Options & Futures Financial Exchange (KLOFFE).

Virtual Commerce Group managing director Fahizul Khairi describes the new service as the "common technology glue" that will unify the Malaysian securities market's four pillars--the stock exchanges, investors, brokers and regulators. "We are confident that retail cybertraders will use Investors Xchange because we are a completely independent entity, in which investors would enjoy the convenience of trading with multiple brokers at a time and have access to neutral market information," said Fahizul.

Asian Day Trading takes off…

Investors Xchange was entirely written by local programmers in Visual C++, Java and Active Server Page (ASP). The system uses the Microsoft Windows NT 4.0 platform on Hewlett Packard servers, which are hooked up to the Net on a 2MBps line. The popular Secure Sockets Layer (SSL) standard will be used for entry-level security while Mimos Bhd's iVEST 128-bit encryption technology and Secure Electronic Transaction (SET) safeguard broker transactions on the client's end. Other value-added features include instant drill-downs on individual stock performance, sectoral analysis, charts and live market commentary by licensed analysts.

Investors Xchange has already signed on Jupiter Securities and South Johor Securities to offers its service to its subscribers and intends to sign up over 60 other registered stockbroking houses soon. "We expect to expand trading volume on the KLSE as the worldwide audience of retail investors log on to the service," he said.

Although Internet Xchange's present revenue streams are sketchy, its intentions are eventually to cash in on the online trading mania that has exploded across the world in the last two years. In the US, for example, America's largest online brokerage Charles Schwab & Company claimed online trades make up 73 percent of all trades at Schwab during the fourth quarter of 1999, up from 61 percent during the fourth quarter of 1998.

In Britain, online trading has proliferated with the London Stock Exchange now processing almost 100,000 private client trades every day - two-and-a-half times more than it did at this time last year.

Closer to home, markets in Singapore, Australia, Korea, Taiwan and Japan have all enjoyed an upsurge in their click-and-trade business. Fahizul said an estimated 1.4 million Koreans invested via the Internet in 1999, achieving one of the highest levels of online broking penetration in the world. "Explosive growth in Internet-based equities trading in an Asian country like Korea is very encouraging," states Fahizul. The Korea Securities Dealers Association recently stated that 38 percent of all stock trades including those by institutional investors were transacted online in October of last year. That month's $71 billion of Net-based transactions represents a quantum leap over the mere 4.7 percent of transactions performed online in January of 1999. Adds Fahizul, "this is an excellent trend that we hope will be emulated in Malaysia."

IT research specialist Dataquest, a unit of The GartnerGroup, suggests that Internet securities trading is set to boom in the Asia Pacific region. By 2003 it is predicted securities traded online by private investors will account for at least 20 percent of all retail equity market transaction volume in the region. Dataquest also projects that as many as 70 percent of Asia Pacific based retail brokerages will offer real-time market trading through secure Web sites by 2002.

Can Malaysia meet the competition?

"Customers who find that traditional securities trading services do not justify higher per-order fees will begin to exploit direct Web-based trading in droves by the middle of 2000," Lane Leskela, principal analyst for Dataquest's e-business Asia/Pacific programs was recently quoted as saying.

Dataquest believes that Japan, Taiwan and Korea will be home to the bulk of Web- based securities traders and online retail banking customers for at least the next three years. Analysts point out that Malaysia's KLSE still lacks the dotcom-type companies to draw the kind of interest other markets have attracted.

One dark omen in this otherwise sunny picture is the failure of MESDAQ Mesdaq, Malaysia's technology stock market to attract any other company in the nine months after its first listing, Supercomal Technologies Berhad, a wire and cable-maker. It appears that in the near future, it will be difficult to attract world-class start-ups to the Malaysian exchanges when the pull of NASDAQ is at an all-time high.

Fahizul concedes that some "fine-tuning" needs to be done to the MESDAQ's present framework. "For example, the requirements where more than 50 percent of an applicant company's revenue must originate in Malaysia should be looked into. Remember being an IT company is being a global company and its revenue is derived globally as well," he said. Fahizul believes that such requirements should be relaxed or reviewed in consultative discussions with netrepreneurs.

He suggested Malaysia take the cue from the Stock Exchange of Singapore, which amended its listing rules last September as part of an effort to keep local start-ups at home. "It allowed companies that were losing money to list on the main board of the exchange provided that the company had a market capitalization of at least S$80 million at the time of the listing, based on the issue price, or an aggregate pre-tax profit of at least S$10 million in the last one or two years. This is a good way to entice Internet start-ups to stay home," he said.

You still have to watch your money…

Others however, advocate a more conservative approach. While he is an agreement with the objective of putting more investors in the driver's seat, Virtual Commerce Group's management was wary of the potential for abuses in the nascent online equities trading industry. Chairman Nik Mohamed Din called on government to draw up rules to prevent "any Tom, Dick or Harry" to set up similar online trading facilities. "We want only genuine people to provide such information and services on the Net," he said. The former KLSE chairman wants authorities to put the brakes on dubious independent investment advice Web sites sprouting up.

Daytrading mania elsewhere has resulted in several instances of "share ramping" as well as "punting and dumping," where "consultants" and investors deliberately offer misinformation in Web sites, forums and chat rooms to falsely inflate prices. A famous recent case was that of Yun Soo Oh Park, also known as "Tokyo Joe," who ran an investment advisory service Web site in New York, allegedly recommended stocks he was selling and received stocks in exchange for touting a company. Park, 50, charged members up to US$200 a month for access to a restricted area of his Web site and attracted 3,800 members.

The lure of quick money coupled with over-confidence from initial triumphs in rapid-fire daytrading may also lead some to financial ruin. An extreme case is that of money-losing daytrader Mark Barton who took 13 lives, including his own, on a killing spree at two Atlanta brokerage houses after losing more than a half million dollars in the stock market last July.

Such dire consequences hang like a dark cloud over the daytrading phenomenon. It serves as a sobering and cautionary tale. The hype surrounding online trading often obscures the importance of thoroughly understanding how markets work. Nevertheless, remissier Shim Choon Ming is more optimistic about the shifting tide towards online investing, which he sees as an eventuality. He believes that some investors will play a market while driven by greed while others will get burnt in the process but these will be a small minority of online participants.States Shim, "online trading is a real opportunity for remissiers to expand their clientele bases. Investors will soon realize there is a new medium of trading and will want to switch and I want to catch these new clients when they do." Shim believes the role of remissiers will change and that the industry will need to embrace the new technology or be left behind. "Our role will become more advisory and not just confined to keying-in orders. Salesmanship and value-added services will become more central. And more broking houses will be offering their picks and analyses on the net."

Cybertrading, like all internet-based products, is predicated on the belief that ease of technology will translate into cheaper, faster services with more choices and fewer middlemen. For both investors and brokers, online trading opens up many opportunities for making money and saving costs that never existed before. But the information highway is also an unforgiving place and the less lemming-like we are, the better the chance we will not end up as roadkill on Yellow Click Road.