Banking, finance, and taxes

Charles Schwab Takes Wrecking Ball to Online Brokers: Free Commissions and No Minimums

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Widely discussed over the past two decades is that the business of brokerage commissions was on a long-term race to zero. While some commission-free offerings and other almost-free offerings have been out for stocks, exchange-traded funds and options, Charles Schwab Corp. (NYSE: SCHW) has announced that it is removing the final barrier to making investing accessible to everyone — and it appears that the Charles Schwab shareholders are paying the price, along with shareholders at its top competitors.

Please note: This article has been updated for closing price data due to extreme volume spikes and share price moves.

The firm is eliminating commissions for stocks, ETFs and options listed on U.S. or Canadian exchanges. On the options front, clients will no longer pay a $4.95 commission, but they will still have to pay $0.65 per contract.

Schwab’s new structure will begin on October 7, 2019. On top of online stock, ETF and options trade commissions dropping from $4.95 down to zero, Schwab also will have no account minimums.

Schwab currently has over than $3.7 trillion in client assets. This changes the metrics for online trading firms, and Schwab already had no-management-fee ETF offerings for its clients.

Updated for Close: Schwab shares closed down 9.7% (-$4.07) at $37.76, and the 34+ million shares was nearly 4-times normal trading volume. Shortly after the opening bell, Charles Schwab shares were trading down almost 9% at $38.30, in a 52-week range of $35.85 to $52.47. Its prior consensus analyst target price from Refinitiv was $45.56.

The move announced on Tuesday is taking a toll on the other online trading and brokerage houses. These have been updated for the closing price reactions.

TD Ameritrade Holding Corp. (NASDAQ: AMTD) was last seen down 21% at $36.88, and it hit a new 52-week low. UPDATE: TD Ameritrade closed down 25.7% at $34.67 and the 44.5 million shares was close to 20-times normal trading volume.

E*TRADE Financial Corp. (NASDAQ: ETFC) was down 17.6% at $36.01, and it also hit a 52-week low. UPDATE: E*TRADE closed down 16.4% at $36.51 and the 23.5 million shares was nearly 9-times normal trading volume.

Interactive Brokers Group Inc. (IBKR) traded down 7.6% at $50.00, but its 52-week low is $44.50. UPDATE: Interactive Brokers closed down 9.5% at $48.68 and the 2.23 million shares was about 5-times normal trading volume.

Schwab CEO and President Walt Bettinger said of the effort:

This is our price. Not a promotion. No catches. Period. Price should never be a barrier to investing for anyone, whether an experienced investor or someone just starting on the investing path. We’re proud to provide clients with a full-service, modern investing experience that delivers on our no trade-offs combination of service, simplicity and superior value – backed by a satisfaction guarantee. In support of the valued independent investment advisors we serve, the same pricing will apply to their clients when trading at Schwab.

Founder and Chair Charles Schwab said:

From day one, my passion has been to make investing easier and more affordable for everyone. Beginning October 7, every Schwab client can trade U.S. stocks, ETFs and options commission-free. Eliminating commissions ensures my ultimate vision is realized – making investing accessible to all.

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