U.S. brokerage competition on trading costs has Canadian consequences

October 2, 2019 | Last updated on October 2, 2019
2 min read

In the U.S., pricing pressure among brokerages heated up this week, with certain rivals crossing the finish line in the race to zero — “zero” meaning $0 in trading commissions.

On Tuesday, TD Ameritrade Holding Corporation announced it would eliminate online trading commissions for U.S. stocks, ETFs (U.S. and Canadian) and options, effective Oct. 3.

The moved closely followed an announcement by Charles Schwab that it was eliminating its online trading commissions, starting next week.

TD Ameritrade previously charged trading commissions of US$6.95 and Charles Schwab charged US$4.95.

As a result of the announcements, shares of both firms, as well as those of competitors, dropped, with TD Ameritrade losing almost 26% on Tuesday, its worst day in 20 years.

In Canada, the move directly affects TD Bank, which owns about 42% of TD Ameritrade.

In a release on Tuesday, TD Bank Group said it expects the impact to TD Ameritrade’s fiscal 2020 earnings to have a “proportional effect” on TD Bank’s reported “equity in net income of an investment in TD Ameritrade” for fiscal 2020.

Steve Boyle, TD Ameritrade’s chief financial officer, said in the release that he expects his firm’s decision will impact revenue by about US$220 to US$240 million per quarter, or about 15% to 16% of net revenues based on the revenue for the June quarter of fiscal 2019.

More information about TD Ameritrade’s fiscal 2020 plan is forthcoming when the firm releases fourth-quarter earnings on Oct. 21, he said.

In the fiscal third quarter, TD Bank’s U.S. retail operations earned $1.29 billion in net income, with TD Ameritrade contributing $294 million, or 8.6% of TD’s business segment performance comprising Canadian retail, U.S. retail and wholesale banking.

Also read:

Fitch predicts increasing pressure on bank profits

Expect big banks’ earnings growth to moderate, DBRS says