Money: NZ investors go high-tech

By Ann Cunninghame

Buying shares could end up as cheap as an Eftpos transaction and almost as easy.

That's just one of the claims for online trading - a catch-phrase used to cover everything from glorified e-mail systems to straight-through trading, in which your order is channelled directly to the stock exchange.

However, the key distinction is that you are your own broker as one firm puts it: trading is essentially client-driven.

Wellington-based Access Brokerage has unveiled its online service, Web-Broker, with a price so keen you could cut yourself - a flat rate of $29.50 per trade.

It is this sort of price plus the convenience of online order confirmation and portfolio updates that are attracting the punters, while other broking houses are distancing themselves still further from the discount boys through research-based, added-value service.

Until now, New Zealand has lagged behind overseas markets where online broking has cut a swathe through more established forms of share trading.

In the US, one in five share trades are now reportedly done via the internet and Forrester Research expects the number of online brokerage accounts to hit 5.4 million by Christmas.

Across the Tasman, global giant E*Trade has gone from no clients last April to 23,500, while the total percentage of online trades is expected to rise from 5 to 18 per cent in under three years.

Competition will hot up in New Zealand with E*Trade poised to open a local office early next year, Direct Broking's launch of Direct-Trade in August, increased marketing by net pioneer DF Mainland and a number of others looking to join the fray.

An added spur is the New Zealand Stock Exchange's decision to bring in straight-through trading. That is likely to happen next year once its new dealing system is bedded down and could, according to chairman Eion Edgar, lure in the larger broking houses.

That will clear away the last obstacle to automating the trading process. Sharebrokers currently have to retype any client orders received via the internet into the exchange's special trading system terminals. However, it is also likely to mean extra controls on our sharemarket.

NZSE managing director Bill Foster says untutored people trading on the market "can have quite severe consequences and people can make themselves victims of their own conduct."

Mr Foster says that one of the exchange's responsibilities is to maintain an orderly, open and efficient market. He says markets that have gone electronic have all had sophisticated monitoring software with features such as trading halts and circuit-breakers.

While the stock exchange does not go down that route at present, it would need to install some monitoring and protection systems before allowing straight-through trading. Mr Foster notes that even with straight-through trading, orders are still channelled through brokers and they carry the settlement risk.

He says it is not clear how much straight-through trading will boost overall market trading levels, but it will certainly lower the cost of access. He does not expect such a high take-up here as in other countries.

"Not all that many people have either the internet access or the time. You can do it all over the phone here at the moment anyway and most people already in the market have a broker they can call. Also, our cost structure has always been low.

"However, it does offer another service channel and a way of differentiating the market. Also, improving access internationally may help."

And as Direct Broking's managing director Nigel Wynn points out, the New Zealand market is tiny by world standards so there is a limit to how much offshore brokers will get involved.

"I was looking at one of the Aussie discount brokers ... its daily trades alone could make up 20 per cent of the New Zealand market, and that's not going to happen."

Direct launched its own online service in August after a three-month trial and Mr Wynn expects it to make up 40 per cent of Direct's business within the year. "It's cost-effective and a good way to operate for clients."

As DF Mainland's chief executive John White says, "the whole point about the net is empowerment. People are making decisions on the basis of information on our web site and other sites - it's much more knowledge-based so we have a distinct educational role to play."

DF Mainland has been online since 1996 and is upgrading in readiness for straight-through trading. "We also believe that, over time, it's quite conceivable that a share transaction will go down to the cost of an Eftpos transaction."

Guy Hedley of JB Were agrees that straight-through trading is the most price-efficient way to execute a trade.

"However, given that most clients aren't professionals, there are the same issues regarding skill as there are with using discount brokers.

"Firms like ours tend to be where clients come to seek advice."

He says a classic example is when brokers buy a stock for a client and "finesse" the order by watching the market. "Online brokers tend to just hit the bid and order. The individual has to take that skill on board themselves."

JB Were already operates a web site and Mr Hedley says it is arranging a trial with some clients to place orders through to the Australian market. The firm also has an alliance with the largest US online broker, Charles Schwab, to execute straight-through trades in America.

"We will deliver services that our clients want. But if you're talking about cheap and nasty discount broking on the Internet ... at this stage, that's not part of the market that we're going to be operating in."

Talking cheap, is where Access Brokerage comes in. Its newly launched Web-Broker, with a $29.50 per trade flat rate, stacks up well against the scaled brokerage fees more commonly charged as well as overseas brokers' flat rate charges.

However, Access does not provide investment advice and marketing manager Peter Hansen says the system has been set up as "quite plain vanilla."

Funds must be up-front in a call account before placing an order and short-selling is not an option.

Mr Hansen says Access is negotiating to provide trading in offshore securities via Web-Broker. It also hopes to set up a wholesale service later this year so that financial advisers can buy stocks on behalf of their clients.

He sees the net as "really changing the landscape of sharebroking."

"I'm certain that the ease and much broader access to the market for the average investor will attract more people.

"All that information, real-time prices and so on - just at the click of a button."

* Ann Cunninghame is a freelance writer specialising in personal finance.