Charles Schwab Corporation - SCHW

The post-2008 regulatory space changes were different here in :uk: versus the other side of the pond. In the UK, reg changes enabled newcomers to come and disrupt the financial scandal-ridden HSBC, RBS and Barclays. Meanwhile, the likes of JPMorgan only got stronger—it’s hard to start a bank over there.

Basically, studying regulation a little bit can help understand even why WeChat/AliPay are having a party of their own with noone else allowed to RSVP. Fintech and legaltech are hard and are guided by reg which opens and closes opportunities for some.

Schwab are just too comfortable and too slow. They are the Marks and Spencers and John Lewis of finance. There will be more like them and only the few, including Goldman Sachs, or those who are just too big will survive.

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a list of most uk brokers

Freetrade is still the best platform on price but hope this list helps you

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TD Ameritrade to follow suit and scrap fees too. Extends to their ThinkorSwim trading platform, one of the most popular platforms in the US but also used by many across the globe

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Also Interactive Brokers, no minimum investment, UK subsidiary, FSCS protected

Not according to that link you sent. Arguably joint best

It’s Not Free: Why You Need to Take a Closer Look at Commission-Free Trading

Agreed - but that’s very US focussed. As long as everyone realises that, fine.

The article points out implicit costs - fine, but try avoiding the spread! You can’t. It’s an order book where RSPs take the risk of providing a 2 way market and need to be rewarded for doing so. If their risk appetite for a certain stock falls you’ll see their spread widen. Fine. When you place your order you won’t execute against them if they’re not top of the order book. If they’re happy to take the order their spread will narrow and you’ll likely hit against them if you place an order that second. This seems fair to me. Someone providing a liquid 2 way market and taking the risk for being on the other side of the trade to you needs to be compensated - that just fact.

Again, I’m not saying the article is wrong. It is not. It is correct for the US. On this side of the pond our regulator (bless 'em) mandates Best Execution. Whilst this is a messy and arguable subjective regulation it essentially means your order will be routed to an order book where RSPs compete on price for your order. Therefore you’ll meet best execution rules providing your order is placed via the RSP network. No one is widening the spread on Freetrade orders neither is Freetrade manipulating the spread and taking anything from you. Orders go to market via the RSP gateway, prices come back, usually top of book will be executed against, Best Ex rules met (and trust me, I’ve had several retail clients complain about price and go to the FSCS and FOS - all failed in their action as all trades were dealt RSP).

There are, of course, Implicit costs in the UK. The spread exists - that’s just fact. But grab a factsheet or EMT for you’re favourite ETF - or just look at the “Transaction Costs” section of the freetrade website. Again, try avoiding these - how could a fund manager transact and incur no cost? But equally don’t get fixated by these as they are arguable useless as they are often based on differing methodologies that don’t therefore allow for comparison.

For the avoidance of doubt selling order flow is banned in the UK too - so let’s not go down that path.

OK, folks rest easy. Your flow is not being sold. Your orders are not being routed to a network where you’ll get anything other than the publicly disclosed, intrasecond market prices. Your stock is not being lend without your consent and you’re not being taken for a ride. Freetrade will charge you £1 for instant trades, £3pm for your ISA, take a commission on your FX (to cover their own costs) and not pass on the full interest on cash (which they are quite open about)

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  1. They are making money on untouched deposits in two ways: through interest on deposits and making loans.

var idleDepositCash: Double
earnInterestOnIdleCash()
lendIdleCash()
sendOrdersToDarkPools() :ghost:
profit()

This idle cash can add up. Schwab clients’ accounts total about $3.7 trillion, according to the latest numbers as of the end of August, with an average of about $265 billion of it earning interest for the company. The money Schwab makes from loaning out its customers’ cash surged to 57% of its $10.1 billion net revenue last year. For TD Ameritrade Holding Corp., the figure last year was 23% of its total $5.4 billion in net revenue. At ETrade Financial Corp. it was 64% of $2.8 billion in net revenue.

  1. And order flow—sending your orders via third-party “flash traders”.

Isn’t RH doing this too?

And while these companies are no longer charging commissions, that doesn’t mean they aren’t making money from clients’ stock trades. A chunk of their revenue is what’s known as “payment for order flow.” Basically, the brokerages get fees for sending their customers’ buy and sell orders to computerized trading firms such as Citadel Securities and Virtu Financial Corp. Those firms then match buyers with sellers themselves. (The trading firms can make money by picking up the tiny spreads between the prices offered by buyers and sellers, or by trading on any gap between the futures market and stock prices.) Brokers and the trading firms say this process results in a better deal for retail investors.

TD Ameritrade is probably affected the most by zero commisions:

Source - Brokers Profit From You Even If They Don’t Charge for Trading - Bloomberg

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A smart chap commented at the end of article!

https://www.nbc-2.com/story/41164824/fidelity-joins-the-broker-price-wars-by-ditching-commissions-on-stock-trades

Viktor is like a splinter in the toe of the behemoth brokers :joy: they know he’s there and causing irritation but they can’t quite pull him out. They are Worried their toe will get infected and spread !

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That is a great chart.

Schwab’s share price is still down 14% since their announcement, but their commissions make up only 7% of their net revenue. Looks oversold to me.

Most of Schwab’s revenue is from earnings on deposits.

See Q3/9 month ending September 2019 earnings - https://content.schwab.com/web/retail/public/about-schwab/schw_q3_2019_earnings_release.PDF

They will also sell fractionals now.

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I hold Schwab (bought since I last posted on this thread). They’re number 1, why buy a loser? TD Ameritrade is the broker with the largest percentage of commission revenue. Why not buy ETrade instead, who won’t be as impacted by the zero commission world.

There will be cost savings eventually when the platforms merge. But it’s not like they’re in a position to jack up prices.

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The rationale for buying the no.2 over the no.3 looks sound: consolidation into one business with $5trillion AUM - that’s truly staggering to me :open_mouth:

Schwab is being opportunistic by bidding for Ameritrade after their share price drop when they slashed commissions knowing they can also leverage their idle cash better:

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Found this illuminating:

Schwab has opened 30% more accounts since abolishing fees: clearly a lot of people who didn’t own equities before have been tempted into the market by the simplicity of free accounts.

Source: MoneyWeek article.

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I ended up selling this today at a small loss. I bought just after they dropped commissions for equity trades. But with interest rates at 0, I think there are better opportunities out there. Haven’t reinvested yet, sure that the market is going to drop again.

Freetrade Wannabes Schwab updated Android App updated this week to support fractionals