The past few months has seen the face of online broking change dramatically. A rash of consolidations and the emergence of new players has indisputably revamped the playing field. But is consolidation good news for traders and investors?
Over the past year, Australia’s biggest online broker CommSec’s picked up rival online broker IWL; ANZ gobbled up E*Trade; and CFD provider CMC Markets puchased online broker Andrew West.
CMC Markets’ Managing Director, David Trew says that not only will its acquisition, Andrew West Stockbrokers match Bell Direct’s record $15 trade it will better it. Details of the trade will be announced soon says Trew.
Trew believes that banks and institutions dealing with their competitor (as is the case with CommSec and its IWL wholesale clients) is an unworkable situation and one from which CMC Markets will gain.
“The banks that currently outsource to IWL will start looking for other outsource providers and we’re now in that space,” he says.
The downside to the consolidations, claims Trew, is that “everyone is now aligned to banks that make most of their money out of their own banking products rather than stockbroking”.
“Your average Mum and Dad trader want to access a stockbroking system that is 100% stockbroking,” he says pointing out that their one online platform will provide Andrew West’s margin lending and options trading along with CMC’s trading in CFDs, foreign exchange, treasuries, commodities and indices.
NAB Online Trading Operations Manager, Wesley Roach disagrees with Trew’s assertion that the bank’s forced association with the CBA is on shaky ground.
Disputing the notion that the CBA will put its own interests ahead of IWL’s clients Roach says “as a participant of the ASX the CBA has an obligation to address this issue”.
Roach maintains that the benefit to NAB consumers from the IWL takeover will come from the increased financial muscle that the CBA will bring to product stgelopment and services.
While acknowledging that economics state that industry consolidation creates less pricing power for the consumer, Roach is of the opinion that new players will create competition, which in turn will keep the price down.
Commsec’s General Manager, Matt Comyn refutes that the bank’s $373 million takeover of IWL last November has taken competition out of the market, stating that “ample competition still exists even among the large brokers, which is good for consumers and I can’t see that changing”.
Comyn contends that the spate of consolidation that has occurred over the last few years has been driven largely by the huge increase in volume of online trading and the realisation of the size of the investment that is required to maintain a competitive market share in the online retail broking business.
“The cost of technology needed to handle increasing market volatility is escalating,” says Comyn noting that pure trading volumes have increased three or four fold over the last few years.
“If you’re a small broker it’s difficult to continue to find that level of investment,” he says.
Comyn says that he has no intention of matching Bell Direct’s $15 a trade price.
“We’re very competitive,” he says. “But there will always be someone who is slightly cheaper.
“The smaller players need to find some way to compete because they can’t match us in terms of presence, breadth of services and products that we offer.”
Commsec today holds over 50 percent of the online broking market but Comyn says he wants to “reassure traders that it’s still a highly competitive market and if anything there will be greater focus and pressure on existing players, like ourselves, to continue to innovate and provide better products and services and fantastic value to our clients”.