Online Brokers Face Light-Volume Pinch

NEW YORK (TheStreet) -- A sooner than usual decline in U.S. equity trading volumes is likely to impact fourth-quarter numbers for online brokers such as E*Trade Financial (ETFC Quote) and TD Ameritrade (AMTD Quote), as well as the performance of specialty firms and exchanges.

While the markets typically experience a slowdown in trading activity as the holiday season kicks off, this year the decline has begun earlier than usual as the weak economy continues and investors worry that the financial crisis isn't over yet.

Traders and investors also typically lock in year-end positions at some point, whether for tax reasons or simply to take vacation time during the holiday season, and may be doing that earlier this year, given the strong run-up in stocks from the March lows.

In contrast, this summer saw a surge in trading activity for high-volatility stocks such as Citigroup (C Quote), Bank of America (BAC Quote), General Electric (GE Quote) and AIG (AIG Quote). Including Wells Fargo (WFC Quote), the list makes up the five most active stocks on the New York Stock Exchange so far this year. Citigroup alone saw nearly 18.5 billion shares change hands year-to-date as of Oct. 31, according to data from the NYSE.

In August, typically the slowest month of the year, retail trading volumes of these five stocks represented roughly one-third of the total trading volume on the Big Board for the entire month as active investors jumped in and out of positions.That number has since fallen to about 16%, according to Sandler O'Neill's Rich Repetto.

The heavy trading in these names came amid the broader market rebound as the Dow Jones Industrial Average has risen roughly 60% from its low of 6,547.05 on March 9.