Unfair Competition – Are the banks guilty?

The SGX has commented that the banks are doing big business in trading equities for their clients and are contributing a significant volume of the daily market trades. The remisiers’ share of market trading volume has gone tumbling down and is becoming irrelevant when new and internet savvy young investors turned to online trading. In absolute value, the share of online trading is still very low and sometimes one wonders whether it is a profitable business to start with. Maybe the hope is in the future.
 
In the case of the banks, their gains in market share is mainly at the expense of the remisiers when high net worth clients were enticed or induced to become treasury clients and enjoying way below market commission rates. While the commission rates for trading in the stock market was freed and remisiers are allowed to offer any rate they are comfortable with, the norm is between 0.3% to 0.5% and with big clients enjoying 0.25%. Some banks have been quoted to go below the 0.2% mark with some offering a ridiculous rate of 0.1% to their high net worth clients to gain and retain their business.
 
Many remisiers or even brokerages are finding the cut throat commission rates offered by banks and financial institutions detrimental to the unsustainability of their business. Anything below 0.25% is no longer a viable business. Those operating less than 0.2% or 0.1% are like scrapping the ‘skin of the teeth’ and very difficult to make a decent living even if the volume is big.
 
The big question is whether banks are guilty of unfair practices by undercutting the remisiers by offering unsustainable commission rates to gain market share. Stock broking is not the banks main business, more a side show and can be treated as a loss leader to keep the clients with the banks for other businesses. This is a luxury that remisiers are unable to provide or to compete with. Stockbroking is the main business of remisiers and when the commission rate is too low, it is no longer a sustainable business. Many are leaving the industry as the monthly commission can be less than $1,000, less than a cleaner. Remisiers are becoming low income earners and still have to cope with stringent regulations and qualifications, examinations and risk taking.
 
Are the banks taking away the businesses of remisiers by unfair trading? Is under pricing by the banks fair or unfair competition? What does the law say or what would the Competition Commission of Singapore be saying?

The law on Unfair Competition says:
‘Any fraudulent, deceptive, or dishonest trade practice that is prohibited by statute, regulation, or the Common Law.’
 
So, if the banks offer their clients openly, honestly, no law to prohibit offering 0.1% of 0.15%, so no unfair competition. A little elaboration says such a law serves 5 purposes, to protect the economic, intellectual, and creative investments made by businesses in distinguishing themselves and their products. This one is not relevant here.
 
Second, to protect and preserve the goodwill that businesses have established with consumers. So if a bank offers crazy commission rates to win a client from a competitor who have built a lot of goodwill and relationship, will this be an unfair practice?
 
Third, the law seeks to deter businesses from appropriating the goodwill of their competitors. The argument is the same as the second point.
The fourth and fifth points are not relevant to what the banks are doing to snatch clients from remisiers so I will leave them out.
 
Unfair Competition laws abide to a few principles, the freedom to pursue a livelihood, operate a business, in a free enterprise system and accepting that there will be competition. But the law also prohibits a business from unfairly profiting at a competitor's expense, from exerting undue influence and other unethical means.
 
There is a Clayton Act that regulates the use of predatory pricing, ie the use of below-market prices to inflict pecuniary injury on competitors. I think this Clayton Act is perhaps the most relevant to the unfair practices adopted by the banks, by virtue of their muscles and wide range of businesses to take advantage of the remisiers to offer under the belt commission rates. Does this make sense? Is this fair or unfair
 
Do the banks violate any unfair competition laws? I am not even going to discuss about ethical practices as ethics have long been thrown out of the window by the big banks. Look at all the billion dollar penalties against banks found guilty of money laundering and fraudulent practices? Banks are in the gambling businesses when they started to promote toxic notes, derivatives and trading against their clients. What is a little unfair practices to snatch high net worth clients from little and helpless remisiers?
 
Nothing unethical, nothing illegal, what unfair competition? If there are, the Competition Commission of Singapore would have gone after them already. They must have found nothing wrong with the practices of the banks just like the clever rogue retailers in Sim Lim, People’s Park and Lucky Plaza. They are so clever, they know the law and how to work outside the law.
 
When rogues are in charge of banks, when banks are making their big money from speculations, money laundering, selling derivatives and toxic notes, what else can be wrong? Unfair Competition is child’s play.