Don’t hate the trader, hate the securities game

Effective June 1, stock transfer fees charged on the brokerages will be reduced by 25 percent, the China Securities Regulatory Commission (CSRC) announced recently.

Since it is a well-known fact that traders pass on their fees from exchanges to investors, regulators are hoping that a cut in trading costs will trickle down to the capital market. Unfortunately, this may be nothing more than wishful thinking, as nearly 90 percent of traders have intimated that they will not be scaling back fees for investors, according to local media reports.

Yet, it is not entirely fair to criticize traders for "misappropriating" benefits aimed at investors, given conditions at the country's securities market.

For one thing, with the nation's securities markets in the doldrums, capital has naturally retreated from stocks. During the first five months of this year, stock traders earned 29 billion yuan ($4.55 billion) from investors, down 32.7 percent from the same period last year, according to figures from Wind, a financial data provider. Meanwhile, the benchmark Shanghai Composite Index has fallen 19.14 percent over the past 12 months, according to figures from the exchange.

As private capital holders flee from stock positions due to market volatility, traders are witnessing their clients and the revenues they provide vanish.

At the same time, stock traders have seen their numbers surge at the nation's bourses in recent years, increasing from 3,000 in 2008 to more than 5,000 currently. As more traders enter the market, the harder they have to work to tap into an increasingly dwindling pool of investors.

Of course, despite the good intentions that may have motivated the impending trading fee discount, the CSRC is not entirely blameless in this matter either. Although it receives financial support from the government - as it rightly should, given the importance of its regulatory role - the CSRC also levies annual membership fees on traders and takes a cut of their commissions.

Relying on its administrative powers, the regulator has established these fees and other related charges without public hearings, which has aroused concerns among traders that more fees could soon be in the works.

Under these circumstances, many securities firms have been pushed into the red, leaving them with few incentives to reduce charges on investors. With their financial burdens mounting in an ever more competitive market, one can hardly blame traders from relinquishing their hold on one of their few dependable sources of revenue.