As a fresh graduate in the midst of the Asian Financial Crisis, it was not easy for Teyu Che Chern to find a job in the stockbroking industry he was so keen on. Without a ready contact list of potential clients, there was hardly any immediate value he could bring.
After a couple of rejections, Teyu was hired as a management trainee with PhillipCapital instead. While it was not exactly what he wanted, it was at the very least a foot into the industry, he reasoned to himself.
After three years, he was transferred to Phillip Futures, the futures unit of the group founded and led by executive chairman Lim Hua Min.
Phillip Securities, whose core business is to provide stock-trading services, is the unit of PhillipCapital most investors are familiar with.
Phillip Futures, meanwhile, focuses on providing trading access for a range of non-securities investment products ranging from commodities to foreign exchange to contract for differences, to indices and more recently, cryptocurrencies.
Earlier this year, Phillip Futures won its own securities licence, which is separate from the one held by Phillip Securities.
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Besides Singapore stocks, Phillip Futures clients can now trade Hong Kong and US stocks too — on top of the various other products offered. To mark this new step, Phillip Futures is mulling a rebranding to Phillip Nova, which is the name of one of its two trading platforms.
For Teyu, CEO of Phillip Futures since 2008, winning the securities licence marks a personal milestone. He quips that he is finally in the stockbroking industry after more than two decades. “I’ve come full circle,” says Teyu in an interview with The Edge Singapore.
Evolution of the industry
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According to Teyu, when the idea of getting a securities licence was first mooted and brought up to the regulators and the stock exchange for their blessings, he had to repeatedly answer the same question: why can’t PhillipCapital just merge the two entities: Phillip Securities and Phillip Futures?
After all, Phillip Securities, with its more than four decades of history, is a leading stock brokerage in town and has grown strongly across the region as well.
As Teyu explains, Phillip Futures wants a separate securities licence to meet the continuing evolution of the industry.
Drawing upon his more than two decades of experience in the industry, Teyu notes that previously, the exchanges of the past were rather specific in what they offer. Commodities traders were focused on their rubber or palm oil, others did only forex and the rest mainly dealt with stocks while a few specialised only in indices. “Over the years, a lot of these ‘walls’ between the different products have been broken down,” he says.
Technology is one reason. It is now easier to trade multiple assets from one platform, and trading interest in different asset classes has naturally followed as a result.
“People who trade OTC FX (over the counter forex) could also be trading currency futures; people who trade stocks could be trading single stock futures and they could be trading stock indices. Then, people who trade some of these stock portfolios, they also use currency futures or currencies for hedging or to even trade US stocks. They need to do currency conversion, like into the US dollar, for example. The lines between the different products are not the same as in the past,” says Teyu.
While these different investment assets sound different, Teyu has an obligation to follow what his customers want, especially when the technology and regulations allow for it. “If we don’t offer certain products, they will be trading elsewhere. So why not let them do everything here,” he says.
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Another observation made by Teyu is that Phillip Futures’ business has become more global in nature. Barely 20% of its business now comes from clients based here in Singapore. The majority of its clients, some 90%, are institutional types such as asset management firms and professional traders.
For Teyu, the bigger challenge and opportunity is in trying to reach out to the potential investors. Specifically, he is looking for potential clients who do not overlap with Phillip Securities. “The intent is not to compete with each other. For example, if we only have 5% market share so how about the other 95%? There’s still a lot of growth potential. The world is big enough,” he explains.
He is proud to share how Phillip Futures has won over many institutional clients from China by word of mouth. Relatively to the huge global financial institutions, these clients are able to receive much more personalised attention and service from Phillip Futures, which is something he aims to build on.
Marginal revenue, marginal cost
For its expansion into stock trading, Phillip Futures will not need to commit significant additional capital expenditure to this new business. The front, middle and back offices are all there and can support this new business. Even the amount of regulatory capital needed can be met with what Phillip Futures have now. “So, it is more like marginal revenue and marginal cost,” says Teyu.
From a risk management perspective, there is scant worry as well. For now, the trading of stocks can only be carried out if clients deposit the funds. “I think we’ve reduced the credit risk to the bare minimum,” he says.
The brokerage industry is no stranger to the practice of extending generous credit lines to clients to conduct high volume contra trades, which is lucrative but extremely risky. This might have the effect of dampening the volume but it is something Teyu does not mind. He believes it is more important for the market to grow at a steady pace.
Referring to the meme stock fever in the US earlier this year, Teyu is wary of seeing huge spikes in volatility that might entrap gullible retail investors, leading to tragic circumstances in some instances.
Riding on the wave of growing retail interest, the brokerage industry here is also seeing a wave of new players. Besides local players such as PhillipCapital and the other bank-backed brokerages, there are also US and European names and increasingly, China-backed brokers muscling in as well.
Teyu is hesitant to be drawn into a price war by matching or undercutting low trading fees offered by the new players in their bid to grab market share. “We want to run a sustainable business,” he says.
The key, unsurprisingly, is to grow the overall market. That is why Teyu is upbeat with the recent announcement by the government to commit $1.5 billion for a start to fund promising local companies with the potential to be the next hot listings on the Singapore Exchange (SGX), which has been starved of such issues. If not, the Straits Times Index (STI) remains dominated by traditional companies such as banks and developers. “Hopefully they can bring in some of these unicorns, and at least make the market more exciting,” he says.
Teyu is also seeing Singapore enjoying some spillover effects from the tensions between the US and China. Companies facing difficulties listing in the US or Hong Kong might consider Singapore instead. “These could be factors that will bring more excitement to Singapore.”
However, that is not to say the Singapore market as it is, does not have any attractive stocks to buy. Teyu points out that there are some “really good” blue-chip counters that can easily give fuss-free returns of around 4% a year or more. For an investor here planning to retire here, investing here for the assurance of such returns is not necessarily a “bad choice”.
He acknowledges that foreign markets, specifically the US, offers more excitement but over the long run, there is forex to be factored into the total gain or losses. In any case, Phillip Futures will be working “very closely” with the SGX to help educate and grow this ecosystem, he says.
Teyu notes that besides the government funding, there are things that can be done. For example, deserving stocks should have some coverage. A common problem faced by many smaller caps is that there is insufficient or no coverage by the analysts. “Some of these things have to go hand-in-hand,” he says.
To this end, Phillip Futures has its own research team but can also tap on sister entity Phillip Securities Research with its dedicated team of research analysts.
In a way, Phillip Futures’ move to offer stocks trading is a form of diversifying risk. Markets move in cycles but not all markets move in sync and some probably will do well even as others falter. The diversification can also be seen from the different client types the company has built up over the years.
Teyu sees the number of retail clients growing at the fastest pace but it will still be the institutional or professional traders who will be consistently bringing in the bulk of the business as they tend to stay put in the market regardless of whether it is good or bad as they will try to tap on their means to stay profitable either way.
There are specific profiles within this group though. Some are so-called market makers who trade between different exchanges, for example, Singapore and Japan, or Singapore and the US. These investors like the volatility as they aim to make the difference by trading on both exchanges.
Another group are those who make “quick ins and outs” as long as there is a small price differential that they can exploit but they make up for their absolute trading profits with a larger volume of trades than most others.
Others, like family offices and asset management firms, are more “directional” and they do not trade as frequently. Another group could be firms underwriting ETFs.
With Phillip Futures now tasked to help drive growth in another front for PhillipCapital, all four customer segments are important to Teyu. “A chair with four legs is definitely better than one with two legs,” he says.
Photo by Samuel Issac Chua / The Edge Singapore