Online Brokers -- Stayin' Alive

Back to Contents of Issue: June 2001

Four E-brokerages We Think Stand a Fighting Chance

by Sumie Kawakami

While the site may not have the most accounts, Matsui does see the most daily transactions of all online brokers; it is also one of very few making a profit, and earnings per share have been rising steadily (most competitors still run at a loss). Matsui has a huge brand-equity advantage, having been in the brokerage business over 80 years while many others offering online trading only started in the past two.

TARGET Slightly older (and probably flusher) customers: 40- to 60-year-old executives; other brokers predominately target salaried men in their 30s and 40s.

STRATEGY Matsui's success is largely due to margin trading, in which investors can borrow positions to sell when share prices are falling. Margin trading used to be the preserve of the rich, since the major brokers set minimum margin account deposits at ¥30 to 40 million. The company broke this pattern by cutting the minimum deposit to ¥2 million, and last year its share of all margin trading surpassed Nomura's to reach No. 1 (margin traders now comprise some 30 percent of Matsui's accounts, and 60 percent of transactions).

PRICING ¥3,000 (fixed); investors can trade as often as they want up to a daily maximum volume of ¥3 million. Not cheap -- but if investors want to run multiple transactions each day, it may make sense to go with Matsui.

RECENT MOVES In order to diversify revenue sources, Matsui launched a foreign trading service ("NetFx") in April, in collaboration with an Australian bank. The company also plans to sell foreign-brand cars through its site, with low handling fees.

QUOTE "I don't believe in an enclosure business model, in which you provide all kinds of services and take profits from everything you do," says president Matsui. "We provide channels for our customers by letting others do the actual business. Who wants to pay extra -- if customers can get information about almost any product through the Net, we can give them back the extra."

OUR TAKE We like Matsui; he's a tough street fighter with an instinct for survival and the brains to come out on top.

Following Matsui's lead, DLJdirect SFG is also shifting its weight to margin trading. The firm has cut the minimum margin deposit to ¥1 million (half of Matsui's). When it joined Goldman Sachs' Moon Trade in January, the company had only 10 transactions per night, while Monex Nighter had 130. Transaction volume then grew eight-fold within three months as the company extended trading hours and coverage. President Atsushi Kunishige is confident the company's nighttime volume will soon beat Monex's.

TARGET While others (like Monex) go for a large critical mass, DLJdirect SFG is aiming solidly for volume traders. Commissions may not be the cheapest, but they're "cheap enough," says Kunishige.

Strategy Provide high-quality services; forget the deep discounts. "Our customers seem to support what we do," says Kunishige.

PRICING ¥1,900 flat-rate (market order); ¥2,500 flat-rate (limit order); both for transaction values below ¥10 million.

Recent moves Firm's Web application, MarketSpeed, is popular for being user-friendly and detailed; offers real-time Reuters and Jiji news feeds, live charts, three latest quotes, and limited access to Nikkei Telecom's database. Tools for margin trading were added in February, and the firm's wireless channel, offered over NTT DoCoMo's new Java-based i-Appli i-mode service, has a reputation for high quality.

QUOTE "The advantage of a market maker is that everybody has a deal," says president Kunishige. (He says Monex's system leaves some traders out in the cold when there is an imbalance between buy and sell orders.)

OUR TAKE Cheap, accessible from anywhere, and good word-of-mouth buzz. While DLJdirect SFG may not come out on top, it won't be on the bottom either.

A successful IPO and dramatic listing on Mothers last summer (it was Japan's first "online IPO") made Monex's president and CEO, 37-year-old Goldman Sachs alum Oki Matsumoto, a celebrity. Outspoken and often critical of Japan's financial system, Matsumoto's public image certainly hasn't harmed Monex's brand; the firm runs at a loss, but Matsumoto is confident he'll come into the black in the April-June quarter this year. Monex does some underwriting, but relies heavily on equity trading commissions for revenue (the firm has said it has no plans to offer margin trading).

TARGET The company is trying, says Matsumoto, to reach out to the "ordinary masses" who are willing to bid a small portion of their salaries into equity investment.

STRATEGY Build the brand. With a merger with Saison Securities scheduled for June, Monex is expected to become the third-largest online broker, with 150,000 clients (more than E*Trade Japan, less than Nomura or Daiwa). Matsumoto says the Monex-Saison alliance will not only enlarge the account base, but also bring "synergy effects." Under the agreement, Credit Saison's credit cards can be used to pay for services provided by Monex, and the two plan to issue joint credit cards. Further, Monex will win access to 1.6 million Saison cardholders -- who are "younger, and thus more fit to be our potential clients than those of Visa or Amex," reasons Matsumoto. Monex is also planning to allow customers to pay via post office ATMs.

PRICING ¥1,000 for a market order; ¥1,500 for a limited order. Monex's prices are among the lowest.

Recent moves Launched after-hours trading ("Monex Nighter") to reach out to late-working Japanese salarymen who prefer to place their orders after work. While rival DLJdirect SFG uses Goldman Sachs Japan's market-making night trading system ("Moon Trade"), Monex Nighter is based on the day's closing prices; the company simply matches buy and sell orders placed by individual investors, and takes a commission from each transaction instead of taking a position itself.

QUOTE "By using Monex Nighter, our customers will trade only among themselves. This way, we avoid having profits go out of our universe," says Matsumoto, speaking in reference to Monex Nighter's system of settling trades only between individual investors. (In market-maker trading, the brokerage offers to trade certain securities at declared prices; this means retail clients end up competing with institutional investors.)

OUR TAKE Matsumoto is well spoken, media-savvy, and champions the little guy, a stance that has won him lots of positive publicity. Watch while Monex's subscriber numbers go through the roof.


The firm is a joint venture between Softbank Finance Corporation and E*Trade Group from the US. While E*Trade Japan enjoys the advantage of being part of Softbank, some analysts note the company may suffer from the relatively high cost of maintaining call center access for its customers (E*Trade is believed to rely heavily on call center access, unlike other online brokers; it does not reveal precise numbers).

TARGET Same as Monex, more or less, but it places heavier emphasis on the underwriting business than Monex does.

STRATEGY Somewhat lost at sea. The precipitous decline in Japan's IPO market has really affected E*Trade's initial focus. The company is now looking elsewhere for sources of income. It recently cut its fees, and can probably afford to live with reduced commission income (equity trade brokerage commissions amounted to only 39 percent of total operating income in the October-December quarter last year, lower than most of its competitors). Yoshitaka Kitao, chairman of E*Trade and president of parent Softbank Finance, has reportedly said the broker will let the ratio of commission revenue to all revenue drop even further.

PRICING ¥800 to ¥2,000 for online trading worth ¥500,000 or less as of February; as cheap or cheaper than almost everyone else.

Recent moves Cutting commissions was a major move; whether the company will benefit from doing so remains to be seen.

QUOTE In the January 2001, Japanese language issue of The Economist, Kitao said he "feels sorry" for investors who invested in his company. (The company's share price has declined sharply from its IPO last September.)

OUR TAKE Not a front-runner; but lots of potential in the brand name and E*Trade's US connection (retail shoppers here love anything foreign, whether Prada bags, Gucci shoes, or -- perhaps -- stocks via E*Trade). Free advice for Softbank head Masayoshi Son: Pull the plug on the call centers, and concentrate on marketing the Web and other electronic channels -- deepen the brand.

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