Investors are leery of the new strategy from the major brokerage firms not to charge commission for trades, sending three of the biggest ones tumbling more than 3% each Wednesday.
Charles Schwab (SCHW) - Get Report announced that it was dropping commissions this week, leading rival TD Ameritrade (AMTD) - Get Report to do the same. E*Trade (ETFC) - Get Report led the losses, falling nearly 4% in trading Wednesday.
JMP Securities published a note saying that Schwab in particular has been moving away from commissions for some time, preferring to focus on "market based revenues and interest rate sensitive earnings."
However, JMP estimates that the move will cost Schwab between 3% and 4% of its revenue, or between $360 million and $400 million, annually, at least in the short-term.
The silver lining is that the move could become a catalyst for more people to enter the stock market since the barrier to entry has been lowered. Volume and volatility could increase if these moves do spur more investment activity.
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