March 4, 2002	Monday	Zilhaj 19, 1422

ON APRIL 30 last year, in an article published in Dawn, “Prospects of Internet-trading in Pakistan” I had challenged the idea of introducing web-based trading in Pakistan at that point in time given the state of development of the country’s stockmarkets.

This current article is a review of where things stand presently, in the US, Asia and Pakistan in particular, and whether the probability of success of introducing such a product has changed. Simply put, does the current “bull run” justify such a platform?

Asia’s situation: Since December 2001, Hong Kong’s leading on-line securities brokers with both global and blue-chip local brand names have with shut-down their Hong Kong stock brokerage businesses, slashed staff or both. The majority of trading (approximately 60 per cent or so) in Hong Kong is still done over the phone with brokers. The relative dearth of inter-net use in Hong Kong is certainly true with stock trading. In a survey by the Hong Kong Securities and Futures Commission (SFC) in October 2001, only 10 per cent of 1,000 respondents said they traded stocks on-line. The US on-line trader, Charles Schwab, is discontinuing its Hong Kong trading in January as part of an international strategy to focus on the most promising areas.

Not quite different: TD Waterhouse, the second-largest discount brokerage firm in North America, has said that its customers averaged trades that were 43 per cent lower from a year earlier. With the investment banking business undergoing the steepest decline since the 1970s, all major brokerages are cutting back and laying off staff.

Take the case of Merrill Lynch. The world’s largest retail brokerage firm is under more pressure than most to shave costs because its profit has grown more slowly than that of its competitors, and its international brokerage business is losing money. Merrill began reducing its staff last year, lowering total employment to a current level of about 66,000. But in the wake of September’s attacks and economic retreat, the firm launched a major review of all of its operations in order to slash nearly US$2 billion a year from about $20 billion in annual expenses.

This trend is likely to continue into the second quarter of 2002. A retrenchment in the brokerage industry, accompanied by firms pulling out of the business, is by no means unusual. One of the big challenges of the brokerage industry is to deal with the cyclical nature of the business as it goes from boom to bust, with violent swings in earnings and market activity.

Merrill and HSBC have a joint venture offering of an internet-based trading platform. While both firms initially said they would invest as much as $1 billion in the new unit, the decline in trading has quickly dampened expansion plans. In August, plans to move into Germany and Japan were put on hold, and then in October about one-quarter of the 600 British employees were let go. Most online brokers a