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Thursday, January 3, 2008

Watch your brokerage fees

Good morning and Happy, Healthy and Prosperous New Year!

It seems this This New Year has started out with a Big Bang, and I don't mean fireworks literally! :-) At the start of the year, the nation was gripped with the hugely controversial news about the possible illegal surveilance of the private life (sex activities) of our Health Minister. As a result, it is not unexpected that the Internet (including my cbox) has much discussions about that, possibly diverting attention on the impact of the new 2008 brokerage fees.

I was fortunate that I did a couple of transactions yesterday, which allowed me to understand the initial impact. At first, I was shocked and most dissappointed. Why? Well, when the Budget first announced the new fees last year, it focussed on 3 things. 1. That the Minimum Fee has increased to $40. 2. That the clearing fees have reduced in % terms by 0.01%. 3. That the brokerage % are negotiable. When you combine 2 and 3, my own personal expectation is that % terms, brokerages should fall (and that the Minimum $ fees rise, so as to encourage larger size trades).

However, when I looked at my actual trade result on 2 Jan 08, I was shocked! Here is a snapshot of my trades. For ease of convenience, "brokerage" refers to the total costs of brokerage + clearing fees + stamp duty.

Buy brokerage = 50.34 / 7800 = 0.645%!
Sell brokerage = 51.63 / 8100 = 0.637%!
Total intra-day trade = 1.28%!
In 2007, intra-day trade typically cost me (in total) around 0.29% one way, or 0.58% bothways (buy and sell). Naturally, I am most dissappointed with the higher % increase.

Buy brokerage = 56.68/12,250 = 0.46%!
Sell brokerage = 56.81/12670 = 0.45%!
Total intra-day trade = 0.91%!
Again. Most dissappointed that not only has the trade size increased to around $12k, but the % has also increased.

So, I quickly wrote an email to my brokerage firm, expressing my dissappointment and request for a full schedule of brokerage fees for 2008. To my brokerage firm's credit, their response was immediate. It seems the Minimum Brokerage is now $12 (unchanged). The intra-day brokerage % appears to have been REDUCED to 0.1% (previously 0.15%). However, as for the rest, it is still unclear (e.g. Normal trade % below $100k and above $100k).

Whilst I am partially relieved with the immediate and prompt response, I am extremely puzzled as to why this country has to create so much unnecessary work and confusion for everybody. Even up to now, I am still confused. And when there is uncertainty, as prudent traders and investors, one must scale down one's activities, until one knows the new rules in full.

Naturally, I will follow up my broker later. I urge you to do the same thing. Make sure you know the full schedule of fees that will apply to you for 2008, since brokerage is a very important component to one's investing results over one's lifetime. And naturally, the impact will hugely impact one's trading activities, especially for someone like myself.

Good luck.

PS. If your brokerage firm gives reduced brokerage fees than the above, please do not hesitate to drop me a note here in the comments, so that every reader and visitors here can consider that and possibly consider transferring their business to the cheapest and best value brokerage firm.

PS2. My deep apologies to my brokerage firm for publishing this, but this confusion needs clarification at national level urgently. Confusion is bad for business for everybody, myself included. This is notwitstanding the very commendable and prompt response.

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