Next Capital has started what may well be the next level playing field in Pakistans brokerage industry. At least, thats what its CEO Najam Ali hopes for.
The brokerage firm has started offering zero commission retail trade, which is arguably the first time ever in the countrys history. Of course, trading costs charged by KSE and NCCPL may well be passed on to the customer, but the stockbrokerage itself will not be charging a penny.
Naturally, with a financial boutique business model like this, Next Capitals competitors find it hard to believe. In fact, a casual anecdotal survey of the market suggests that the firm is being criticised by traditional players for creating extra competition.
Many leading brokers, with whom BR Research spoke to, appeared tight lipped about Next Capitals initiative. Others, who did speak, wondered about the sustainability of firms business model.
But Najam Ali says he knows his business well. Taking a cue from his prior experience at Fidelity Investments, Najam had coined this financial boutique idea when he was at the helm of JS Investments.
The former founding CEO of Central Depositary Company says his plan is to build a client base, develop a brand and then offer other value added products - hinting at fixed income and commodity trading as well as formal investment advisory functions.
From the looks of it, Next Capital may be chip away clients from low and middle tier brokerage firms, who in turn may be forced to zero or reduce their brokerage commissions. The firm may also be to attract those clients who are new into the market.
But chipping away clients from the big brokerage firms will be an uphill task; nor can the big firms be expected to follow Next Capital and lower their brokerage commissions. Thats because big firms tend to have a big brand image that keeps customers sticky.
Its too early to say how exactly Next Capital will strategise its moves. But if the future of brokerage is what Najam says it is, the Next Capital will have a first-mover advantage.
According to one market expert, the upcoming NBFC rules will provide plenty of opportunities to grow and mature. Investment finance services (IFS) is planned to be broken down and re-defined as stock brokerage, investment advisory, corporate advisory, securities financing and securities underwriting services.
"Flexibility has been offered to an entity to be reclassified as Non-Bank Finance Company (NBFC) to obtain either a full scope or limited scope IFS license," says SECPs Report of Non-Bank Financial Sector Reform Committee for Public Comments.
With equity trade volumes seen rising in the expectedly business friendly PML-N regime, and with business at local commodity exchange also picking up, box standard equity brokers may evolve into offering one-stop-shop for cross asset investment platform. And for that, building the right client base will be one of the key ingredients to success.
Models like this would create their own market base for tapping mutual funds clientele and potential investors who are at bay from equity market investment. However, traditional brokerage business may continue to function with its thin base of big players. In a nutshell, such practices would increase the width of stock market and could lead way for enhancing its breadth by enticing new IPOs.