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June 2, 1998
Wall Street Firms Trail
In On-Line Trading Battle
By ANITA RAGHAVAN
Staff Reporter of THE WALL STREET JOURNAL
NEW YORK -- On-line trading is the fastest-growing way for individuals
to buy and sell stocks, yet it's increasingly clear that most of the
biggest brokers in this hot market aren't on Wall Street.
As on-line trading catches fire among small investors, it is discount
brokers such as San-Francisco's Charles Schwab & Co. and deep
discounters such as E*Trade Group, Palo Alto, Calif., that are leading
the on-line onslaught, leaving big Wall Street brokerage firms in the
dust.
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Who Rules On-Line
Wall Street's biggest brokerage firms are largely absent from the top
tier of on-line trading activity. Table shows first-quarter on-line
trading market share.
Company ÿÿÿÿÿ ÿShare
Charles Schwab ÿÿÿÿÿÿÿÿ32 %
E*Trade ÿÿÿÿÿÿÿ ÿ12
Waterhouse ÿÿÿÿÿ ÿÿÿÿÿ9
Fidelity ÿÿÿ ÿÿÿÿÿÿÿ8
Datek Online ÿÿÿ ÿÿÿÿÿÿÿ7
Ameritrade ÿÿÿÿÿÿÿ ÿÿÿ6
DLJdirect ÿÿÿÿÿÿÿÿÿ ÿ4
Quick & Reilly ÿÿÿ ÿÿÿ4
Discover ÿÿÿÿÿÿÿÿ ÿÿ4
Others ÿÿÿÿÿ ÿÿÿ14
Source: Piper Jaffray
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It's no wonder.
Unlike full-service brokerage firms such as Merrill Lynch & Co., which
have armies of brokers who oppose on-line trading because they fear it
will cannibalize their business, discounters such as Schwab and E*Trade
haven't had to wrestle with such conflicts.
"It's not Merrill Lynch and PaineWebber" that are dominating the on-line
channel, says Bill Burnham, who recently joined Deutsche Bank Securities
Inc. as its electronic-commerce analyst. Indeed, of the top five
securities firms as measured by number of brokers, only Morgan Stanley
Dean Witter & Co.'s Discover Brokerage Direct unit ranks among the most
active on-line brokers.
Mr. Burnham says about the only marquee names in the on-line arena are
the traditional discount brokers, which woke up in the second part of
1997 to the fact that on-line trading "isn't just a channel, it is the
channel."
Schwab Is Ranked No. 1
Clearly the leader in the on-line trading arena is Schwab, which
commands 32% of the market and handled an average 60,200 trades a day in
the first quarter, compared with 34,100 in the year-earlier period,
according to a report published by Mr. Burnham while he was still at
Piper Jaffray Inc.
Charles Schwab
www.eschwab.com
E*Trade Group
www.etrade.com
Merrill Lynch
www.plan.ml.com
Morgan Stanley Dean Witter's Discover Brokerage Direct
www.dbdirect.com
On-line trading has become such a significant component of Schwab's
business that during the first quarter, Schwab said, 48% of its total
average daily trades of about 126,200 were conducted via the Internet,
compared with 33% in the year-ago quarter and 41% in the fourth quarter
of last year.
"The Internet has now reached the mass market," says Gideon Sasson,
executive vice president of electronic brokerage at Schwab. "It's no
longer just for people who want to play with technology."
One of the reasons for the Internet's heady growth in the
financial-services arena is its convenience. Mr. Sasson says the most
popular offerings on the Internet are "sex and financial services, and
in both cases, it is the most convenient way to get access to that
information."
A distant second behind Schwab is E*Trade, which through its relentless
price cutting has grabbed 12% of the on-line market share by handling
about 23,196 average daily trades, according to Mr. Burnham's report.
Waterhouse Investor Services, a unit of Canada's Toronto Dominion Bank,
is the third-biggest player in terms of average daily trades, with 9% of
market share, Mr. Burnham's Piper Jaffray report says.
Phenomenal Growth
Frank J. Petrilli, chief executive officer of Waterhouse, says that
before the firm launched personal-computer trading in January 1997,
touch-tone-telephone trading accounted for 30% of the firm's business.
"Now, touch-tone trading has shrunk to 7% of our business, and PC
trading is the largest component of how we execute our trades," he says.
Fifty-four percent of Waterhouse's trades are done electronically, and
Mr. Petrilli expects that figure to climb to nearly 70% by year end.
At Boston-based Fidelity Investments, the growth has been equally
phenomenal. Fidelity had more than one million on-line accounts as of
March 31, compared with 200,000 accounts at the end of last year's first
quarter. Fidelity says that through the end of April this year, 60% of
all of its commissionable trades were done on-line, compared with only
17% in the year-earlier period.
"We are braced to see tremendous growth coming from on-line" investing,
says Stephen Killeen, senior vice president of Fidelity's interactive
unit. Mr. Killeen expects the next leg of growth to come from serious
investors who don't use the Internet for financial services currently,
but will move on-line to take advantage of such conveniences as the
ability to monitor their portfolios at any time.
Based on Mr. Burnham's report, Fidelity is the fourth-biggest player in
the on-line arena, handling 15,350 average daily trades in the first
quarter. A Fidelity spokesman says Mr. Burnham's numbers for the first
quarter understate Fidelity's volume by 20%.
Such blockbuster growth doesn't seem to faze executives at some of Wall
Street's biggest brokerage firms.
Merrill Clients' Disinterest
Randal Langdon, Merrill's director of interactive sales technologies,
says Merrill plans to roll out on-line trading in the fall. And despite
the eye-popping year-over-year gains in Internet trading, he contends
that the reason Merrill isn't rushing to offer the service is "this is
not one of the highest-rated things that our clients are asking for."
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