Yesterday, Charles Schwab announced that it’s getting rid of commissions for stocks, exchange-traded funds, and options listed on U.S. or Canadian exchanges on Monday. Online trade commissions have been $4.95.
The elimination of these commissions is the equivalent of $90-$100 million in quarterly revenue, or about 3-4% of total net revenue, CFO Peter Crawford explained on the corporate website.
“[C]ommissions per revenue trade have been falling for multiple years, so the potential revenue impact in coming quarters could very well be smaller, holding all else equal. It would have been easy for us to kick the can down the road, to hold off on responding to the proliferation of free commission offers for another quarter, another year,” he wrote, explaining that Charles Schwab is “willing to disrupt ourselves when appropriate and prioritizing long-term growth and success even if near-term results are impacted.”
Wall Street isn’t rejoicing. Charles Schwab stock closed around $42, but dropped below $37 on the day of the announcement. It closed at $36.51 today.
And it’s not because Charles Schwab is a minor player. The 48-year-old firm has $3.72 trillion in client assets as of August 31.
The behemoth’s 180 on commissions has impacted the stocks of similarly positioned brokerage firms. TD Ameritrade, which was near $47 on Monday and closed today at $33.54, had seen its worst day in two decades, and E-Trade has gone from hovering around $44 on Monday to $35.20 at this afternoon’s close.
Part of what has investors spooked could be the need for others to match Schwab’s move. TD Ameritrade already has; it announced a plan to nix commissions, currently $6.95, for online stock, ETF, and option trades, starting tomorrow. And today, E-Trade it was saying goodbye to commissions or those three types of trades, effective Monday.
At Schwab, clients trading options will still be charged 65 cents per contract. Ditto for TD Ameritrade customers. E-Trade is cutting the options contract charge to 65 cents per contract for all traders; its active trader pricing will remain 50 cents per contract.
“From day one, my passion has been to make investing easier and more affordable for everyone,” founder and chairman Charles Schwab said in a statement. “Eliminating commissions ensures my ultimate vision is realized—making investing accessible to all.”
This story has been updated.