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(Bloomberg) -- Almost 40 brokers called it quits in Hong Kong this year, marking another difficult year even after measures to boost liquidity were unveiled and Chinese stimulus revived trading. The Asian financial hub’s exchange lost firms for a third consecutive year as many of the city’s smaller brokerages have struggled amid slow trading and a lack of initial public offerings. Some 37 firms ceased trading this year with zero new participants, according to data from Hong Kong Exchanges & Clearing Ltd.
Another six firms decided to restart trading operations after an hiatus. In total, there are 616 exchange participants. The city has struggled over the past years during the pandemic and political unrest.
The lackluster Chinese economy and a Xi Jinping-led crackdown on private enterprise have further dented business. Still, cash trading is up 26% this year after China announced stimulus measures. Trading in futures and options is on track for a fourth record year.
Some six options brokers and market makers resigned from the exchange, while another five joined. The broker exit will probably continue for another two to three years despite the pick-up in trading, said Katerine Kou, chair of Hong Kong Securities Association. The reformed IPO process shortened the capital lock-up period and enabled a pay-after-allocated-share model, squeezing room to charge financial fees and interest to a minimum, Kou said.
“Like a lot of industries in Hong Kong, the sector is largely cornered by big players,” Kou said. “Smaller firms need great passion and a lot of friendly conditions just to barely survive.” Among those bowing out this year was Head & Shoulders Securities Ltd.
The firm has ended its options business after six years and is actively considering to fold the rest of its trading business after two decades, Chairman Stanley Choi said. The broker is focused on second- and third-tier listed companies, a market that has struggled since Covid hit. Strict regulations have piled on the adversity, Choi said.
The market has thin profit margins, but is high in risk, said Choi, who is a well known high stakes poker player. At its peak, Head & Shoulders was one of the few local corporate advisers among the top in the IPO league table alongside Wall Street powerhouses, ranking eighth in 2018. “There hasn’t been a time like now in my 20-something-year career that I couldn’t see the light at the end of the tunnel,” Choi said.
“I can only vote with my feet.” “HKEX is fully committed to supporting its market participants through building the depth and vibrancy of its markets, as reflected in the continuous rollout of new microstructure enhancements, as well as measures that add to the attractiveness of its listing framework,” an exchange spokesperson said in a statement. More stories like this are available on bloomberg.
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