E*Trade is the latest online brokerage to cut its commissions. Details, a quick comment, then an excerpt from a sell-side analyst's note to clients:
E*Trade's commission cuts
- For active traders: previous rate was $9.99 per stock trade for an unlimited number of shares if you traded 9 times per month. New rates are: $6.99 per trade for those who trade over 500 times per month, $7.99 for those who trade 50 times or more per month, and $9.99 for those who trade 5 times or more per month.
- For "serious investors": previous rate of $12.99 per trade for those with more than $50,000 in assets falls to $11.99 per trade.
- For "Main Street investors", ie. those with less than $50,000 in assets with E*Trade: previous rate of $22.99 per trade cut to $14.99 per trade.
- Prices for options trades have also been cut.
Quick comments
- In a telephone interview with the WSJ, E*Trade President Jarrett Lillian said that the new commissions are already reflected in E*Trade's prior guidance of 2005 EPS of $0.93 to $1.08.
- Schwab looks uncompetitive again: after its recent fee cut, Schwab customers with over $50,000 of assets with the firm or who trade 9-29 times per quarter pay $12.95 for the first 1,000 shares plus $0.015 per share thereafter. Schwab lost another 17,600 customers in January, but its pricing still looks uncompetitive.
- Time for a fee cut from Ameritrade?
Morgan Stanley analyst Scott Patrick wrote:
E*Trade’s decision to lower the threshold to qualify for the Active Trader segment to 5 trades per month from 9 trades per month could put some pressure on other online brokers to follow suit...Full E*Trade press release is here, and ET chart is below.
Importantly, we continue to expect Ameritrade to hold the line on pricing in the coming months, though we do acknowledge that E*Trade’s move could create a bit more pressure on AMTD to reevaluate its pricing as the year progresses. The important point to note is that Ameritrade’s long-standing, flat $10.99 per trade rate (regardless of trading activity or assets at the company) continues to under-cut E*Trade’s new $11.99 rate for Serious Investors (who need to hold $50,000 or more in assets at E*Trade) and new $14.99 rate for Main Street Investors. In addition, in the Active Trader segment, we believe that the bulk of E*Trade’s qualifying customers will still fall into the $9.99 tier. Though this tier is $1 lower than Ameritrade’s pricing (as it has been for quite some time), E*Trade customers must still trade at least 5 times per month to qualify while Ameritrade customers pay this price point regardless of how often they trade.
Full disclosure: at the time of writing I'm short SCH.
