Amidst the fanfare you would expect of a joint venture between global financial giant Chase JF and Pacific Century CyberWorks, the companies' online securities trading venture, 2cube, was officially launched today (Wednesday). Accompanied by a flashy video to the tune of ABBA's "Money, Money, Money", assembled executives spoke highly of the strength and reputation of the two parent companies, but avoided specific answers to questions about investor protection.
Journalists had picked up on a section of the client agreement that states 2cube is not a participant of the Stock Exchange of Hong Kong, and therefore, in the unlikely event of a default by 2cube, clients are not entitled to make any claim against the Stock Exchange Compensation Fund.
It is not unusual for online brokers not to have a seat on the Stock Exchange, although it is normal practice to provide some kind of insurance in the event of default. Dr. C.L. Chan, managing director of 2cube declined to comment about any insurance policy. "We are a well-capitalised company. I have to stress that we are very serious about investor protection," he said.
Later, Chief Operating Officer Andy Doves stressed that investors using 2cube are afforded the same protection as customers of Chase JF.
2cube places all customer assets, whether cash or securities in segregated client accounts. Hong Kong securities are kept in a separate CCASS sub-account of Jardine Fleming Broking Limited, which is a participant of The Stock Exchange of Hong Kong. Cash is held in segregated accounts at HSBC.
2cube's site has been running in 'soft launch' mode for two months and claims that it has signed up user accounts numbering in the thousands in that time.
According to Chan the strength of the service comes from quality research from the Jardine Fleming team, as well as an aggressive commission rate of 0.18%. "Being an online securities trading company we can save a lot on labour cost which allows us to offer investors the low commission rate and pass it onto our clients," he says. The average commission rate currently stands at 0.25%.
Aiming for the top
2cube is a 50-50 joint venture between the two parent companies and according to Christopher Rampton, managing director, equities, at Chase JF, the total investment in the company stands at $34 million. Norman Yuen, deputy CEO at PCCW, says he hopes that 2cube will become one of the top three brokers in Hong Kong.
This won't be an easy task, with an SFC survey earlier this year indicating that 242 brokers plan to launch online services in Hong Kong before May next year. But 2cube investors and management say that the quality of the companies involved will inspire trust in consumers and that the technology the company has in place will offer excellent service.
"Our technology platform is unsurpassed, powered by the right expertise and experience drawn from PCCW. Our systems are also extremely reliable, in that there is a hot back-up site for all transactions and fail-over facilities," says Chan. 2cube is using Brokat's Twister as its main trading platform.
With the new AMS/3 system now beginning to be implemented at brokers in Hong Kong, execution times for trading in Hong Kong stocks are expected to speed up dramatically. Brokers are also hoping there will be a subsequent increase in the number of Hong Kong stocks being traded online. The SFC survey earlier this year reported that around 70% of online trading in Hong Kong was in overseas stocks.
But Rampton says he expects this to change as Hong Kong's 800,000 people with stock market exposure become accustomed to using their PCs for trading and research. He adds that in order to provide a fuller service, 2cube would soon be adding other markets, drawing on the global presence on Chase JF for support.