The downturn in global stock markets is forcing online brokerages to innovate to survive.
At five major online brokerages, group net profits between April and June 2011 dropped 50-60 percent from 2010 as individual investors, their main customers, refrained from stock investments.
The profits took the hit partly because their trading commissions have fallen to 0.03-0.1 percent--between 5 and 10 percent of the average at top securities houses such as Nomura Securities Co. and Daiwa Securities Co.--over the years.
The Nikkei 225 index closed at 8.374.13 on Sept. 26, finishing below 8,400 for the first time since April 2009.
"There is no future for online brokerages if things are left as they are," a senior official at one firm said.
To survive the vicious competition, online brokerages are looking to develop new ways of selling their services.
Matsui Securities Co. President Michio Matsui said: "The curtain will fall on a business in which brokerages compete only on lower commissions."
Matsui's firm will launch a new service in October allowing individual investors to trade as many times as they want in a day if they put up collateral. At present, they can trade only once using the same collateral.
In November, four online brokerages--SBI Securities Co., Monex Inc., Rakuten Securities Inc. and kabu.com Securities Co.--will start a joint campaign to promote investment trusts as opposed to simple trading services.
The trusts offer the prospect of stable commissions because they are less affected by market fluctuations than stocks, but they will pitch the online brokerages into a market sector in which traditional securities houses have established a lead.
"Wealthy customers expect fine-tuned services, and they can be provided only through face-to-face sales," an official in charge of sales at one major traditional securities house said.
SBI Securities is also reinforcing its electronic trading service, which operates outside conventional stock exchanges. Orders will be placed on its proprietary trading system if stock prices are higher, for example, than those on the Tokyo Stock Exchange.
And Monex Group Inc., which operates the Monex online brokerage, acquired a U.S. Internet securities company in June with an eye to possible expansion overseas. The acquired company is strong in systems development, with engineers accounting for one-third of its employees.
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