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Foreign robots are eating into Thailand's trading business

[BANGKOK] Thailand's domestic brokerage industry will continue to face shrinking revenues as foreign institutional investors increasingly replace local retail customers - and pay lower trading commissions.

A higher proportion of foreign programme trading will remain "a major threat" to the brokerage industry because they pay "extremely low fees" to trade, according to Paiboon Nalinthrangkurn, chairman of the Federation of Thai Capital Market Organization (Fetco), a trade group that counts brokerage firms and mutual funds as its members.

Domestic securities firms posted a "disappointing" 72 per cent slump in first-quarter earnings as brokerage commissions slumped, the Association of Securities Companies, a trade group of brokerage companies, said in a June report.

Asia Plus Group Holdings, the nation's second-largest stock brokerage by market value, suffered a 48 per cent drop in profit, while Finansia Syrus Securities and AEC Securities also reported losses.

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"The brokerage industry is facing one of its toughest times," said Montree Sornpaisarn, chief executive officer at Maybank Kim Eng Securities (Thailand).

"A lot of our retail customers have stopped trading because they are frustrated with the effect of high-frequency and machine-generated trading."

The firm's first-quarter profit sank 78 per cent to the lowest level in a decade, according to Bloomberg data.

Computer and programme trading will increase, following trends elsewhere, said Pakorn Peetathawatchai, president of the Stock Exchange of Thailand. The bourse is trying to add more products and services so those brokerages can expand revenue sources, he said.

To be sure, KGI Securities (Thailand), Thailand's biggest stock brokerage by market value and the only major securities firm in the country to report higher first-quarter earnings, said that gains on investments in derivatives, debt and other securities helped counter a slide in brokerage fees when it posted a 20 per cent profit increase for the period.

The firm has trained its equities marketing staff as financial consultants who can also sell fixed income and structured financial instruments among other products, said Lin Chih-Hung, KGI Securities' Bangkok-based chief operating officer.

Nomura Holdings' local unit also sought revenue beyond equities trading by expanding its business to offer wealth management services to about 60,000 individual customers in June. That came after the brokerage posted its first quarterly loss since 2010 in the January-March period, according to data compiled by Bloomberg.

Thai equities have attracted an influx of foreign funds as political stability improved.

Foreign investors accounted for 42 per cent of total trading turnover in the first half, almost double their 22 per cent share in 2015, according to Stock Exchange of Thailand data.

Trading by local individuals dropped to 35 per cent this year from 59 per cent in 2015. Half of the trading volume by foreign funds was via programme and computer trading, according to Fetco's Paiboon.

"I've stopped most of my short-term trading strategy," said Watchara Kaewsawang, a top Thai individual investor with more than 1 billion baht (S$44.1 million) of assets.

"It's hard to compete with machines that place orders at lightening speed."

BLOOMBERG