IN recent years, most investment banks and stockbroking firms have struggled to find new clients to open trading accounts.
Lower retail participation on the local stock market has been an issue that Bursa Malaysia and stockbrokers have faced for years, if not decades, since the onset of the 1997/98 Asian financial crisis.
However, the rapid growth of Rakuten Trade Sdn Bhd’s customer base reflects a different picture of retail investors, particularly the younger ones, who are adept at conducting their own research and trade executions online.
According to Rakuten Trade managing director Kaoru Arai, the country’s first completely online equity broker achieved 10,000 account openings less than 10 months after its official launch in May last year.
This is a fivefold jump from the 2,000-odd clients it had last August, and double its 5,000 trading accounts last November.
“Rakuten Trade is anticipating significant potential for growth that leverages low commission, a simple and user-friendly platform as well as a market that is becoming more e-commerce and digitally savvy,” he tells The Edge in an interview.
The company is a joint-venture between Kenanga Investment Bank Bhd and Rakuten Securities Inc, the second largest online broker in Japan after SBI Securities.
In fact, Rakuten Trade, which offers retail investors straight-through processing to Bursa, is Rakuten Group’s first online securities business outside of Japan.
Arai reveals that 40% of the 10,000 clients are new traders who had never invested in shares before.
“Our job is to ‘activate’ these 4,000 clients. They are totally new to the stock market and they don’t have any trading account,” he says.
“So, what we do is to provide an education programme, including webinars and on-site seminars, to teach them how to trade. In addition, our platform also offers investors a financial portal to access simplified research materials.”
Interestingly, about 80% of Rakuten Trade’s traders are below 40 years old.
“The main clients of other brokerage firms in Malaysia are mostly senior traders or experienced investors while our clients are rather young, so we have to let them enjoy low commission,” says Arai.
It is learnt that all 10,000 of Rakuten Trade’s clients have initiated at least one trade, with almost 60% of them trading actively and frequently.
The company is on track to achieve a 20% to 30% market share in retail equity by around 2020.
“We have successfully accumulated a huge number of clients. Our next step is to analyse the big data, which would allow us to have a targeted information approach,” says Arai.
Just like online shopping, Rakuten Trade is able to analyse its clients’ buying behaviour and provide relevant recommendations about which stocks to buy next, he adds.
Arai opines that the recent incentive from regulators, which provides an exemption on stamp duty for three years to small and mid-cap stocks, would greatly reduce the cost of investing for retail participants.
About 50% of the shares traded on Rakuten Trade’s platform involve small and mid-cap companies, he reveals.
The stocks that qualify for exemption must have a market capitalisation of RM200 million to RM2 billion as at Dec 31 last year.
Commenting on the new measure, Tokyo-based Rakuten Securities president Yuji Kusunoki says it is quite bold in nature as it addresses the needs of the industry and allows for increased liquidity in the market.
“In fact, last year, the regulators took a positive step by giving incentives to brokers to provide research reports on small and mid-cap stocks. This was done to increase the coverage of such stocks. This boded well for us and our research team because, as you know, we specialise in investment ideas for small and mid-cap companies,” he adds.
According to Kusunoki, the stamp duty waiver is an added incentive to invest in these stocks and a positive move to increase investors’ participation.
“In Japan, many of our retail investors trade in small and mid-cap shares as they see this segment to be more interesting due to its potential growth and pricing volatility.
“We are seeing similar interest in Malaysia. With the three-year stamp duty exemption complemented with Rakuten Trade’s low brokerage rates, retail participants in Malaysia now have a more cost-efficient way to trade in shares of small and mid-cap companies,” Kusunoki concludes.