TD Ameritrade Holding Corp. (AMTD) tumbled Tuesday along with the shares of Charles Schwab Corp. (SCHW) and E*Trade Financial Corp. (ETFC) as JPMorgan Chase & Co. (JPM) , the biggest U.S. bank, said it was preparing to start a digital brokerage service next week that will offer 100 free trades in the first year.
The service, to be called You Invest, will provide trades online or via the bank's mobile app for $2.95 each in basic accounts after the initial offer, said Darin Oduyoye, a spokesman for New York-based JPMorgan. Premier banking customers, or those with balances of at least $15,000, will get 100 trades per year free thereafter, and Private Client customers, with average daily balances of at least $250,000, will get all trades for free.
"It just takes three minutes to open an account," Oduyoye said in a phone interview. The news was reported earlier by CNBC.com.
The lending giant's push into the online brokerage business could put pressure firms like TD Ameritrade to cut prices to retain customers. TD Ameritrade, based in Omaha, Nebraska, offers online stock trades for $6.95 each, while the cost at San Francisco-based Schwab is $4.95. New York-based E*Trade charges $4.95 each when at least 30 trades are made each quarter.
The shares of TD Ameritrade fell 7% in New York trading. Schwab slid 2.1% and E*Trade was down 4%.
"While this has been telegraphed for some time, JPM entering the discount brokerage market is not your typical bank given its size, scale and global brand," Daniel Fannon, an analyst with the brokerage firm Jefferies, wrote Tuesday in a report. "That said, we view this as an ancillary product for JPM and a means of gaining a greater share of its existing banking clients' wallet."
Brian Kleinhanzl, an analyst at the brokerage Keefe, Bruyette & Woods, wrote that the business push is an effort to attract new assets under management, or AUM, to JPMorgan and is not likely to be highly profitable.
"We expect margins on the business to be low, and how JPM will monetize the AUM is uncertain given a portion of the investor base could have unlimited free trading," Kleinhanzl wrote.