Daily average trades
Charles Schwab’s (SCHW) daily average trades rose to 543,000 in 3Q16 as compared to 518,000 in the previous quarter and 537,000 in 3Q15. The higher average trades reflected higher volatility, improved markets, and appreciation in broad markets. The company’s trading revenue fell 17% YoY (year-over-year) to $190 million on declining commissions, partially offset by rising trades. However, Schwab’s asset management and administration fees rose 20% to $798 million, reflecting client preference towards advisory-based offerings. Schwab is offsetting declining trading revenues with higher asset management and interest revenues.
The rise in average trades from the previous quarter was mainly due to broad market appreciation followed by net new client assets. Revenue trades fell 4% quarter-over-quarter and 12% YoY. Asset-based trades fell 11% quarter-over-quarter and 5% YoY. Other daily average trades in 3Q16 rose to 191,000, a 31% quarter-over-quarter and year-over-year rise.
Here’s how a few of Schwab’s competitors in the industry performed in terms of operating margin in their last fiscal years:
- E*TRADE’s (ETFC) operating margin was 31.0%.
- Interactive Brokers Group’s (IBKR) operating margin was 45.4%.
- TD Ameritrade Holding’s (AMTD) operating margin was 41.1%.
Together, these companies make up 1.3% of the Vanguard Financials ETF (VFH).
Charles Schwab’s average commission per trade has fallen continually over the past few quarters. In 3Q16, the company saw a lower average commission per trade of $11.17 as compared to $11.27 in 2Q16 and $11.67 in 3Q15. Brokerages are facing tough competition from fintech companies. These companies are challenging existing commission structure, which has resulted in lower trading revenues.
Schwab’s advisory-based services have attracted funds amid highly volatile and subdued markets. Its average commissions per trade are in line with those of its competitors, resulting in cost benefit from clients.