Schwab, Barclays Plan Foreign Exchange Venture

Updated from 8:46 a.m. EST

Charles Schwab (SCH Quote) and British bank Barclays (BCS Quote) plan to set up a foreign exchange facility that will enable investors outside the U.S. to buy and sell securities denominated in different currencies.

Investors can use Schwab's online brokerage services to buy and sell securities in different foreign markets -- currently a cumbersome process -- without separately negotiating foreign exchange contracts.

"Any major player in the industry is creating ways for seamless global trading," sand analyst Greg Smith of Chase H&Q. "This is just a piece in the development of that global market." He rates Schwab a buy and his firm has done no underwriting for the company.

Barclays Capital, the investment banking division of Barclays, will provide real-time foreign exchange pricing and execute the foreign exchange transactions with Schwab. Last week, Barclays Capital announced the launch of its Internet-based foreign exchange dealing system for the use of its institutional and large corporate clients, such as Schwab. Barclays did not release the names of other clients that use the service.

Schwab chose Barclays from a list of 10 candidates.

Under the leadership of Paul Thrush, the head of foreign exchange, Barclays Capital has sought to refashion its presence in the foreign exchange market in the face of increased competition and pressure on margins.

"This effectively enhances Schwab's global online brokerage service strategy and adds another service for its existing customers," said Michael Flanagan, an independent brokerage industry analyst with Financial Service Analytics. "It also sets the stage for the company's continued global expansion." His firm does not underwrite companies.

The companies expect the facility to be in operation by the fourth quarter, with the new service rolled out in stages to different countries where Schwab has an affiliate -- first to Canada by the fourth quarter and then to Australia, the Cayman Islands, Hong Kong, Japan and the U.K. by an as-yet-undetermined date.

Canada is the first one because "it's a sophisticated market, customers are accustomed to online trading and they trade in more than one currency already," said Mike Durand, a spokesperson for Schwab.

Fees for using the facility will vary depending on the currency and the size of the transaction. Specific rate information will be available when the service is launched.

Schwab would not disclose the amount of its investment in the facility, but the cost should be negligible, according to analysts, since Barclays already has the technology and system in place. "The start-up costs would have been immense were Schwab to go it alone," Flanagan added. In terms of revenue, Durand said that all commissions generated would be split 50-50 with Barclays.

In late afternoon trading Tuesday, shares of San Francisco-based Schwab were down 1 1/2, or 3%, to 46 1/8. Shares of London-based Barclays were at 96, down 1/2, or 1%, on the New York Stock Exchange, while its shares on the London Stock Exchange closed at 15.25 pounds, up 11 pence or 0.73%.