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News

Russia to relax rules on foreign investors

Spotted a summary in Asian Investor the other day about the proposed regulatory changes and infrastructure improvements in Russia that may make it easier for foreigners to access Russian stocks. The main piece is probably now behind Asian Investor’s paywall, but these are the key points:

Micex-RTS plans to remove the requirement for foreign investors to pre-fund their brokerage accounts ahead of trading by the end of the year. This differs markedly from international practice, whereby cash and securities are settled two or three days after trade day (T+2 or T+3), and has been a big obstacle for international investors … the exchange will also set up a central securities depository (CSD) around the end of September to replace the group of registrars and separate depositories that was run by the Micex and RTS exchanges … The exchange will also introduce listing reforms that will create a new listing segment, ‘novy rynok’ (‘new market’), specifically targeting international investors … This segment will require higher corporate-governance standards of issuers than for those listed elsewhere on the exchange. Disclosure will be in English, with quarterly financial reporting based on IFRS accounting standards.

(Micex-RTS is the new unified exchange formed from merging the two main Russian exchanges towards the end of last year in an attempt to increase liquidity and attract more listings.)

Whether these changes – if they happen – will make much difference remains to be seen. Many major Russian companies already trade abroad in London as GDRs (and less commonly in the US as ADRs) and many foreign investors prefer to deal there – trading volumes in Russian stocks in London can often exceed activity in Moscow.

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Updates

Updates to UK stock brokers

There haven’t been many recent updates to the site due to a combination of other commitments and few major changes that I’m aware of among international stock brokers. However, we have seen a couple of UK stock brokers change their fees and this is likely to become more common in the run-up to the Retail Distribution Review and the ongoing Platform Review.

In particular, we are likely to see more providers introduce explicit account maintenance charges for both fund and share accounts, since they will no longer receive trail commission rebates from funds. The advantages and disadvantages of this change can be argued – certainly the improved transparency on exactly what clients are paying seems good – but it will probably mean a net increase in costs for smaller and less active accounts, which have traditionally been subsidised by the fees received on larger and more active ones.

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News

Saxo Modern Wealth Management

[Update 06/10/12: Modern Wealth Management FX charge is confirmed to be 0.5%, in line with the regular Saxo account, not 1.5% (and is being waived until mid 2013) – not clear if this was an error in the original charges sheet or has subsequently been changed. See this update for other additional details of the service. There is also now a separate entry for Modern Wealth Management in the broker directory.]

Saxo Bank has expanded its services for UK investors with a new offering branded as Modern Wealth Management. As the name of the basic account – Saxo Invest – implies, this is aimed more at medium-to-long-term investors than Saxo’s traditional client base of traders.

On first glance, it’s a useful product, with a simpler front-end compared to the Saxo Trader platform and better options for tax-efficient investing. Unfortunately, there seems to be rather a large catch within the small print of the charges.

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FAQs

The best ISAs for international stocks 2012

The tables in this post have been updated with new fees and brokers in the Best ISAs for foreign stocks – October 2012 update.

[Updated 23/04/2012 to include the ISA available from Saxo Bank on its Modern Wealth Management platform]

As we saw previously, the mark-up that many stock brokers put on currency conversions can be a very significant extra cost when trading international shares. And while you can’t ignore these hidden fees at any time, they become an especially  awkward problem for UK investors who want to buy foreign stocks within an individual savings account (ISA) tax wrapper.

While the ISA rules allow a reasonably large number of overseas stocks, they do not allow you to hold any foreign currency – so you need to go through the conversion between sterling and foreign currency every time you trade. As a result, excessively high FX commissions can become costly even more quickly than usual.

So what are the most cost-effective ISAs for dealing in foreign stocks? The table below shows the charges for the main UK execution-only brokers that offer ISAs and allow foreign stocks in them. (Some major firms – eg Interactive Brokers – don’t offer an ISA at all, while others – eg Barclays Stockbrokers – currently only allow UK shares to be held in one.)

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FAQs

The hidden cost of currency conversions

When you’re trading international stocks, it’s not only the charge for buying the shares that matter. The charge for buying the foreign currency the shares are quoted in can also be very significant.

At some stock brokers, this FX commission can be higher than the commission on stocks. And many brokers try to make their rates look better by hiding it deep in the small print or even not mentioning it at all.

This is particularly a problem in the UK, although investors everywhere should watch out for it. For example, take TD Direct Investing (formerly TD Waterhouse UK). It charges a standard rate of £12.50 per trade for international stocks. On an investment of £1,000, that’s a commission of 1.25%. But TD Direct will also charge up to 2% over the interbank rate for converting your currency – almost twice the headline stock commission.

To be fair to TD Direct, it displays its currency charges more clearly than many rivals. But while they may be transparent, they’re certainly not trivial. Charges like that will mount up pretty quickly, especially if you’re an active trader. So minimising your FX commissions is an important part of keeping your costs down and improving returns.

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Updates

Binck Bank, DUTrade and other updates

There have been a number of updates to the stock broker directory recently. These include entries for:

  • DUTrade, an online broker based in Bahrain and covering much of the Middle East and North Africa
  • Dutch discount brokerage Binck Bank – reported to be a good choice for derivatives and structured products on European markets
  • IW Bank, the online brokerage arm of Italy’s UBI Banca
  • Hong Kong broker Core Pacific – Yamaichi

Other major additions to the site include a comparison table of US discount online brokerages for trading domestic shares and options – a long-standing request from readers – and a comparison table of Hong Kong online brokers. There’s also a comparison table for fund supermarkets in centres such as Luxembourg and Singapore that will accept foreign clients.

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News

China unlikely to open A share market for many years

Following India’s decision to open its equity markets a little further to foreigners – and recent proposals to do the same for bonds – Chinese reformers are apparently pushing to loosen the even-tougher controls on foreign investment in their country.

As the FT reports, a new report from the central bank advocates a medium-to-long-term plan for removing restrictions, culminating in a largely convertible renminbi:

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News

The largest stock broker by number of clients

While writing the update on Boom Securities being taken over by Monex, I found a Monex press release that adds some more background to my earlier posts about the estimated stock broker market share in various countries (US, UK, Singapore):

In Japan, Monex, Inc. is an online brokerage firm with a client base of 1.2 million. There are only 8 online brokerage firms around the world that have a client base of over 1 million: TDAmeritrade, Charles Schwab, E*TRADE, and Fidelity in the United States, Cortal Consors in Europe, and SBI Securities, Rakuten Securities, and Monex, Inc. in Japan.

It’s no surprise to see the four US heavyweights on that list (in fact, I think there’s an omission – according to Reuters, Scottrade has 2.5 million accounts) and given the size of the Japanese market, the major players there must also have a significant user base. I’m a little surprised to realise that Cortal Consors has so many clients.

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News

Fidelity expands international trading service

Fidelity, the largest US brokerage, at last seems to be making a serious effort in international markets, with the decision to open its international trading service to all account holders.

The firm has long had a decent set of overseas markets available for direct investment (as opposed to over the counter trading of foreign stocks in the US) and fees were generally not too excessive compared with peers. But the associated conditions were baffling – you needed a minimum balance of US$25,000 and over 120 trades per year or a balance of US$1,000,000. Any investor who met those criteria could and should find more suitable accounts at other brokers.

However, international trading is now available in accounts of all sizes, making it a reasonable proposition for the smaller investor. With another five markets just added (Mexico, New Zealand, Singapore, Sweden and Switzerland), it covers a good proportion of the major markets.

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Updates

UK CREST personal accounts comparison table

The UK stock brokers section now also has a comparison table for stock brokers that offer personal CREST accounts. If you’re unsure what personal CREST membership is, CREST is the UK’s central securities depository and you can find an explanation of why you might want a personal account there in the notes under the table.

There aren’t that many stock brokers that do this. The table lists the six main ones; some of the other traditional full service stock brokers may offer CREST membership as well, but are unlikely to be any cheaper. Other firms will be added if I get concrete details (many traditional brokers tend to be vague about fees, operating “by arrangement”, which makes compiling comparison tables awkward).

There is also one other small update to the UK listings, with the addition of HSBC InvestDirect/InvestDirect Plus to the stock broker directory.