Trading levels slow at U.S. discount brokers

Wed Jan 4, 2012 10:08am EST

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* BMO says discount brokers' trading levels down 14-17 pct

* TD Ameritrade CEO: investors on sidelines over Europe

By John McCrank

(Reuters) - Trading volumes likely slumped more than initially expected in December at U.S. discount retail brokerages as investors pulled back even as volatility began to decrease, BMO Capital Markets said on Tuesday.

Daily average trades at the discount brokerages were likely down between 14 percent and 17 percent in December from November, based on checks with private brokerages, BMO analyst David Chiaverini said in a note to clients.

Chiaverini said he had initially been expecting an 8 percent decrease in trading volumes at discount brokers Charles Schwab Corp, TD Ameritrade, and E*Trade Financial, prior to checking with the private brokers. Trading volumes typically decline in December.

"That is slightly below overall industry trading volumes, which are seasonally lower in December," he said.

The decline adds to the drag of near-zero interest rates and soft equity markets that have been crimping profits at the discount brokers during what is already a slow time of year.

TD Ameritrade gets 44 percent of its annual revenue from trades. Trading represents about 27 percent of revenue at E*Trade and 19 percent at Schwab.

Fred Tomczyk, chief executive officer at TD Ameritrade Holding Corp, the No. 1 U.S. discount broker by trading volume, said that this year may have been a bit slower than usual.

"There's just so much uncertainty out there that I think most investors are on the sidelines until they see some conviction in the market," Tomczyk said.

Headlines coming out of Europe are swaying markets most days and the average investor is having a tough time reading that, Tomczyk said.

Earlier in the year, trading volumes at the discount brokerages surged to record levels as investors scrambled to keep up with market fluctuations. That boosted trading commissions at retail brokerages and helped to offset the effects of near-zero interest rates on the firms' earnings.

But market volatility, as measured by the Chicago Board Options Exchange Market Volatility Index, fell to an average of 25.0 in December from 31.9 in November. It ended December at 23.4 -- below its average of 24 for the year, BMO said.

Tomczyk said that the slower-than-usual trading was also a sign of investor unease.

Schwab, TD Ameritrade, and E*Trade are expected to release earnings results for the quarter ended December 31 in mid-January.

(Reporting by John McCrank in New York; Editing by Jennifer Merritt and Walden Siew)

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