- Summary: New York institutional brokerage Genesis Securities is today launching a service for retail investors called SogoInvest that will charge $3 per stock trade with no minimum balance, with a 90 day introductory offer of $1 per trade. Florida-based TradeKing launched last year with $5 trades. Schwab cut prices this month for customers with under $50,000 in assets to $13 per trade, USAA cut its price per trade in May from $8 to $7 for those with $50,000 of USAA-managed investments and in December Bank of America cut its price to $5-10, depending on the level of client assets with the firm. Price cuts have accelerated partly due to industry consolidation due to Ameritrade and E*Trade's acquisitions. Online brokerages now hold an estimated 15-20% of their clients' money and have increased their share of discretionary financial assets from about 3.8% in 1995 to 10.1% in 2006. During that time, full-service brokerages increased their share of assets from 11.3% to 15.4%, and regional brokerages from 1.2%% to 2.1%.
- Comment on related stocks/ETFs: A cursory reading of the article is incrementally negative for Ameritrade (AMTD) and E*Trade (ET), as consolidation should have reduced price competition rather than intensify it. Schwab (SCHW) comes out of the article looking particularly uncompetitive. But a more careful reading is positive for the online brokerage stocks, particularly the data showing the increase in their share of total assets and of their client's money. Their profits are now more dependent on spreads than trade commissions. New start-up brokerages will find it hard to compete with the wide range of financial services (including mortgages and banking) offered by the online brokerages. Incrementally negative for traditional bank stocks, particularly the regional banks. Another reason to short the Regional Bank HOLDRs ETF (RKH)? See also the recent article on online banking.
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