Why Are The Koreans Going Online
Asian Banker Interactive
November 21, 2000Online stock trading exceeded 70 percent of total volume in September. The reasons are not in the numbers.
While most countries in the world would be happy if about 30 percent of their retail trades are executed online, South Korea has already exceeded 70 percent. Even in North America, where online discount brokerages have had a longer history, the online trading penetration is still only half of what is being achieved effortlessly in South Korea in just under one year.
A monitoring report by Daishin Securities stated that online stock trading by the country's top five securities firms - Samsung, Daishin, LG, Hyundai and Daewoo - during the first nine months of this year hit 931trillion won (about $810 billion). The combined trading volume of the big five was more than double from last year's 444 trillion won ($386 billion).
By company, Daishin Securities has maintained its leading position in online trading with 357.85 trillion won ($311 billion), which was followed by Samsung Securities (164.5 trillion won or $143 billion), LG Securities (161 trillion won or $140 billion) and Daewoo Securities (135 trillion won or $117 billion).
In September alone, online trading accounted for 80.9 percent of Daishin's total stock trading, while Samsung and LG saw their cyber securities trading constitute 74.1 percent and 71.1 percent of their total volume respectively.
Sure, investors in Korea are incentivised to trade online because of the liberalised commission rates that they have to pay. In the past two years, commission rates have fallen from an industry average of 0.5 percent to 0.25 percent. Rates of 0.15 percent are beginning to be quoted by some aggressive players.
Also, securities firms are falling over themselves in offering new forms of cyber trading devices for free. Some firms are offering free commission rates for trading on Airpost devices - a palm sized computer provided free to high-end customers with more than $9,000 in trading volumes.
Certainly, the legal and technology infrastructure for trading on a wide variety of devices are mostly in place. There are 50.1 cellular telephone subscribers per 100 population, which is higher than the 45.3 per 100 for landlines. There are currently over 60 ISPs at work in the country.
Internet dial-up accounts have grown manifold from 386,000 in 1995 to an estimated 5.5 million by the end of 2000. A Pyramid research report pegs the figure at 9.6 million by 2004.
The country has already passed the Basic Act on e-commerce, a privacy protection e-commerce Act and an electronic signature Act. Although the existing tax rules in South Korea treat online transactions the same as regular transactions, the finance ministry recently said it would be introducing new tax incentives for e-commerce this year.
The real reason for the phenomenal increase in online trading in Korea possibly has a more perfunctory origin. Despite its size, South Korea exhibits popular behaviour that we would normally associate with city states and high density areas such as Tokyo, Hong Kong or even Singapore.
One in four Koreans live in the capital city of Seoul and it is easy for a new craze to spread in the city just like Hong Kong people queuing up for initial public offerings based on rumours, and Singaporeans showing mass hysteria over Hello Kitty dolls.
An increasingly clear profile of the retail 'day trader', as they are called in Korea, turns out to be salarymen of large corporations trading right there in their Internet ready office. Other popular devices are personal digital assistants (PDAs) and mobile phones. Day trading has become part of the popular culture amongst workers.
Housewives and students make up the secondary group of 'day traders', and are regularly seen at the 7,000 PC Bangs or Internet cafes in the country. Anecdotal evidence provided by the securities dealers association estimates that about 20,000 to 30,000 day traders can account for up to 20 percent of a day's trading volume.
Feeding the craze is a technology issue and this separates the winners from the losers amongst the securities firms. Daishin alone almost quadrupled its online trading account from 100,000 last year to about 400,000 this year. But while the top five securities firms have reported phenomenal growth in volume, revenues from commissions at 42 brokerages fell nearly 25 percent in the first quarter of this year due primarily to online trading.
The cost of keeping up with the technology and the advertising and promotions is phenomenal. LG Securities was reported to have spend $90 million to upgrade its IT infrastructure to make its online site more navigation friendly. Daishin Securities likewise spent $40 million recently on technology.
In addition, the Korea Securities Dealers Association reported that 31brokerage houses spent more than $300 million in advertising between April 1999 and March 2000, a six-fold increase over the previous year.
So, can this phenomenon be replicated in other countries in Asia?
The question is whether mass behaviour and low work productivity are as much reasons to suspect the rise in technology driven online day traders as the technology itself.