Electronic Trading Price Wars (AMTD, SCHW, ETFC, IBKC)

Shares of electronic trading firms are under a bit of pressure today over fears of more price wars in the highly competitive electronic trading arena.  The pressure comesx after Fidelity said it was cutting its online equity trades to $7.95 per trade on major US exchanges.  In fact, as a target on the competitive and growing ETF sector, Fidelity said it would offer its retail customers effectively no-fee or discounted fees for online trading of about 25 BlackRock Inc. (NYSE: BLK) iShares ETFs.

We already saw a commission plan change recently from Charles Schwab Corp. (NASDAQ: SCHW) down to $8.95 flat-fees for online trades as well as some commission-free trading for its online brokerage trading in some of its own index-ETFs .


This is weighing on shares of all e-brokers as they used to be called.  TD AMERITRADE Holding Corporation (NASDAQ: AMTD) is trading down 3% at $17.67, and its CEO spoke at a conference today saying that he does not see the need for a fee-cut in direct response.  E*TRADE Financial Corporation (NASDAQ: ETFC) is down 2.5% at $1.55 on the day and we have no clue what to expect from the company on its future charges and/or fee cuts because it is effectively operating without a permanent CEO.

The opinions on what a potential commission war would look like actually vary from source to source.  In some cases, a review of the same data listing the same pros and cons and the only difference is the last sentence of the report… “Therefore you should buy” or “Therefore you should sell”… That was the case over the last two weeks with Interactive Brokers Group (NASDAQ: IBKR) after its January earnings report.  Raymond James cut the stock to “Market Perform” on January 22, 2010 and on January 24, 2010 it was called a “Bargain” by Michael Santoli in Barron’s.  This was not really based on looking at any different data as it was after the post-earnings drop, yet the outlook is very different based upon that single snapshot in time.


Oddly enough, Interactive Brokers is the one e-Broker trading higher today with a 1.5% gain to $16.38.  Charles Schwab (NASDAQ: SCHW) is down 1.3% at $18.19 today.

ETFs have been competing with stocks and no-load mutual funds and in mutual funds with a load.  They have taken more and more market share and are becoming more and more accepted by the retail and institutional investors.  As there are some poor strategy mutual funds, there are some poor strategies outlined by ETFs.  But asking whether there will be more or less ETF products or less ETF products down the road it seems that the safer bet would be on betting-the-over.

A price war is good for customers.  These same price wars are rarely good for the suppliers of goods and services, in this cases the electronic brokerage firms.  This is definitely not the first price war in online trading fees.  It is likely not the last.

JON C. OGG
FEBRUARY 2, 2010