Charles Schwab Corp. said Tuesday that it will reduce pricing for online equity trades by customers in mid-June and that revenues could drop 2% to 3% during the succeeding 12 months as a result.
Schwab's stock price fell more than 5% Tuesday morning, in response to the news, and the Amex Securities Broker-Dealer Index fell 1.3%. E-Trade Financial Corp., which announced its own reductions in options commissions on Tuesday, fell 1.9% in morning trading.
Schwab said it believes the pricing changes will enhance its competitive position and encourage a consolidation of client assets and trades at the San Francisco-based brokerage company. It plans to mitigate the financial impact by steps that will include restrictions on hiring in the individual investor and active trader businesses, as well as in staff roles throughout the company.
Schwab will offer $9.95 trades to clients with $1 million of household assets by its definition and cut commissions to $19.95 for a wider range of customers. The price cuts will apply to retail clients as well as to most independent advisers and their clients served by Schwab Institutional.
The company also said it will reduce the threshold for no-fee access to its Schwab Independent Investing Signature service.
E-Trade, meanwhile, said its E-Trade Securities LLC has reduced options commissions by cutting contract fees as low as $1.25 per contract and enhanced its OptionsEdge trading center.
In addition, E-Trade Securities cut the options commissions for its Priority E-Trade and Power E-Trade customers. Previously, all customers paid a per contract fee of $1.75, plus commissions.
