SHANGHAI (Reuters) - The Chinese retail investor trading room, a photogenic anachronism frequented by tea-swilling, day-trading retirees who buy and sell stocks between hands of cards, may soon be gone as brokerages cut costs and move upmarket.
China’s security houses are shrinking their retail outlet space to save on rent, and converting rooms once dedicated to sociable mom-and-pop investors into spaces reserved for wealthy individuals and hot-shot hedge fund clients.
In the crosshairs are venues such as the Galaxy Securities trading room on Dongfang Road in Shanghai.
On Friday morning the building’s escalators were not running and the outer hall was dark, but the trading room itself was loud and bright as a cafeteria. More than a dozen customers were hammering trades into ancient terminals while hollering gossip; others sat on wide benches and gazed placidly at indices and tickers crawling across screens in Christmas-red and green.
Trading rooms like this were once the only place people could trade stocks between naps, snacks and cigarettes and Beijing actually issued regulations that brokerages keep them comfortable. For China’s first generation of equity investors, they still are.
“I’ve been coming here since 2007, every workday from 9:30 to 3,” said one 60-year-old Shanghainese woman who spoke to Reuters while standing at a terminal executing trades. She said she prefers the old terminals to web trading platforms, and likes to chat with other investors while she buys and sells stocks in 100-share batches.
“The brokerage planned to close down this trading room to reduce costs, but most of the retail investors opposed it, so at last they decided to keep it open,” she added, declining to give her name because of tensions with the brokerage.
The question is how long the reprieve will last. A female Galaxy employee surnamed Tang said it had recently gained fresh customers after Qilu Securities closed its trading room up the street, but had nevertheless lost around 80,000 yuan ($12,600) on its room in the first seven months of the year.
A visit to the Qilu branch revealed that the old trading room had been replaced by two terminals in the reception area, at standing height, no chairs provided.
“Nowadays, 90 percent of clients trade online,” said Tian Liang, analyst at Guosen Securities Co. “There’s no need to set up a big outlet for trading equipped with an expensive IT system and additional staff. That will affect those retired grandmas and grandpas, but they’re not our core clients.”
Jin Xiaobin, board secretary of Haitong Securities Co., told Reuters his company was halving or quartering the size of existing outlets to cut costs and redirecting its retail clients elsewhere.
“We encourage retail investors to buy investment products from institutions, rather than trade stocks themselves,” he said.
“We’re entering a new era of financial innovation, with a wave of new tools and strategies ... Retail investors don’t understand them and lack risk-management skills.”
Jiang Jianrong, an analyst at Shenyin Wanguo Securities Co, said that the government once supported brokerages’ retail investor focus, but “clearly that has changed”.
Draft rules from the China Securities Regulatory Commission published earlier this year specifically encourage brokerages to leave “on-site trading services” out of new outlet plans.
In most developed economies, institutions generate the bulk of stock trades, said Oliver Rui, finance professor at China Europe International Business School in Shanghai, but in China individuals are still responsible for 99 percent of accounts and 60 percent of transactions, and yet tend towards rumor-mongering and herd behavior.
“Individuals do not have the ability or the incentive to differentiate good firms from bad, which is the role of capital markets,” he said.
Rui added that while web-based transactions by retail investors were still profitable for brokerages, there was no business justification for maintaining trading rooms.
“Those rooms have become playgrounds for elderly investors. They have nothing to do but come in and sit and enjoy the AC. They talk, but that does not generate revenue.” ($1 = 6.3496 Chinese yuan)
Additional reporting by Chen Yixin; Editing by Alex Richardson