NEW YORK ( TheStreet) -- Retail investor trends during the third quarter painted a "dismal picture" for the online and traditional brokerage firms, according to a new report from Keefe, Bruyette & Woods.

"We are revising our estimates for several of the regional retail and large-cap online brokers," KBW analyst Joel Jeffrey wrote in a note to clients on Wednesday. "Overall, the September quarter has been very weak from a volume standpoint as equities, options, and TRACE (Trade Reporting and Compliance Engine) volumes all declined during the 3Q10. Consequently DARTs (daily average revenue trades) declined sharply in the monthly operating statistics from the online brokers."

However, "the broad equity indices have turned higher as of late this quarter which could bode well for investor confidence and could lead to increased volume and trading activity," Jeffrey added.

The analyst estimates that daily average revenue trades at TD Ameritrade ( AMTD - Get Report), Charles Schwab ( SCHW - Get Report) and E*Trade Financial's ( ETFC - Get Report), dropped 23.1%, 24.5% and 30.8% quarter over quarter, respectively.

"We believe that much of this was due to the seasonality factor of slow activity during the summer, a drop in volatility, concerns over the market failure during the 'Flash Crash' as well as general concern on the economy and a lack of firm directional basis," he writes.

However, Jeffrey is hopeful that overall market volumes will pick up in the fourth quarter despite recent declines, he writes.

Jeffrey tweaked quarterly-earnings estimates and 2010 estimates lower for TD Ameritrade, Schwab, Raymond James ( RJF - Get Report) and Stifel Financial ( SF - Get Report). However, Jeffery raised estimates for E*Trade's third-quarter earnings by a penny, to 3 cents a share and E*Trade's full-year estimates to a loss of 3 cents a share from an 8 cents a share loss.

Jeffery made no change to his earnings estimates for SWS Group ( SWS).

The analyst also tweaked full-year 2011 estimates downward for four of the six firms. He slightly raised estimates on E*Trade and kept Stifel's 2011 year end estimates unchanged.

The online brokerages have experienced lower trading over the past few months, a combination of typical seasonal trading activity slowdowns, but also from the sharply lower volatility compared to the markets a year earlier.

As of mid-September, Sandler O'Neill & Partners analyst Rich Repetto estimated that DARTs for the three largest brokers had fallen an additional 4% to 7% from the end of August.

"While we continue to believe that certain online brokers represent relatively good values versus their historical market multiples, we do not see a near-term catalyst that would be a longer-term positive for the stocks," Jeffrey writes.

Schwab also warned investors earlier this month that it planned to take two one-time charges that would affect earnings.

The stocks of retail brokerage firms were in the red for the most part on Wednesday. TD Ameritrade shares were down 0.6% to $16.30. Schwab shares were most recently down 1.3% to $14. E*Trade shares were down 0.6% to $14.70. SWS Group shares were down 0.6% to $7.15. Raymond James' stock on the other hand was rising 1.5% to $25.65.

--Written by Laurie Kulikowski in New York.

To contact the writer of this article, click here: Laurie Kulikowski.

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