Skip to main content

A man walks past a Charles Schwab investment branch in Chicago on May 11, 2016.

Jim Young/Reuters

Discount brokerage Charles Schwab Corp said on Tuesday it is eliminating commissions for online trading of stocks, ETFs and options listed on U.S. or Canadian exchanges.

Schwab’s latest move is likely to have a knock-on effect across the sector, forcing rivals to follow suit and eliminate commissions, experts warned.

Shares in rivals TD Ameritrade and E*Trade slid 22 per cent and 18 per cent, respectively, while Schwab’s stock was down 9.7 per cent.

Story continues below advertisement

“Certainly sends a salvo to other self-directed firms to follow suit,” said Stephen Biggar, director of financial institutions research at Argus Research.

The decision marks an inflection point for online brokers, as newer, nimbler rivals such as Menlo Park, California-based startup brokerage Robinhood have been capturing market share in recent years by offering commission-free stock trades.

The firms are able to offer the free trading by selling their customers’ orders to so-called wholesale market makers, such as Citadel Securities and Virtu Financial, which aim to make a profit on the spread between the bid and the offer on the shares.

This has forced traditional brokerages to follow suit.

Rival Interactive Brokers Group on Monday started offering commission-free, unlimited trades on U.S.-listed stocks and ETFs. And last summer, JPMorgan Chase & Co also began offering free stock trades for self-managed accounts through its mobile banking app.

“Stocks commissions long ago stopped being a primary revenue item for Schwab, dropping to 8 per cent of revenues last year and currently under 5 per cent. Net interest income from customer deposits and asset management fees are far more important,” added Biggar in an email to Reuters.

Schwab made $139 million from selling its customers’ orders in 2018, up 22 per cent from the previous year, according to a regulatory filing.

Story continues below advertisement

TD Ameritrade was paid $458 million for customer orders in its last fiscal year, up from $320 million the year before, according to a filing.

Schwab will reduce the commission to zero from $4.95 per trade, starting Oct. 7, the company said.

The company reported an 8 per cent year-on-year jump in second-quarter net income at $937 million.

Schwab managed total client assets of $3.75 trillion, as of July end.

Report an error
Tickers mentioned in this story
Unchecking box will stop auto data updates
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter