TD Ameritrade elaborates on impact of move to zero commissions

TD Ameritrade Holding Corp. (NASDAQ:AMTD) has published its results for its 2019 fiscal year, with the report including comments regarding the expected impacts of zero commission environment.

Let’s recall that, effective October 3, 2019, TD Ameritrade eliminated commissions for its online exchange-listed stock, ETF and option trades, moving from $6.95 to $0. As indicated in previous announcements, the company expects this decision to have a revenue impact of approximately $220-240 million per quarter, or approximately 15-16% of net revenues, based on June Quarter fiscal 2019 revenue. That estimate was reiterated in the company’s latest report.

Tim Hockey, president and chief executive officer of TD Ameritrade, comments:

“We were well positioned to quickly respond and are entering the new zero-commission environment from a position of strength. TD Ameritrade has been taking market share with a premium price point, and now with zero commissions, we’re even more confident in our competitive position and total value proposition.”

“With price no longer in the mix, we will compete on the value of our offering with an exceptional client experience via our award-winning platforms and investor education, cutting-edge technology, and a full range of offerings. We are working diligently to take advantage of new revenue opportunities and control expenses to replace the lost economics,” Mr Hockey added.

Regarding fiscal year 2020 expectations, Steve Boyle, executive vice president and chief financial officer of TD Ameritrade, said:

“The commission pricing changes implemented on October 3 represent near-term challenges for us. However, our focus is on balancing them with the long-term opportunity. Earnings are expected to decline in the first quarter of fiscal year 2020, but with a stronger competitive position, we expect to see stronger organic growth. TD Ameritrade is methodically working on new plans for profitable growth and will take measured strategic actions as needed. We will continue to invest in our business and expect results to provide significant shareholder value.”

The $0 commission applies to online U.S. exchange-listed stocks, ETFs, and option trades, whereas $0.65 per options contract fee applies to options trades, with no exercise or assignment fees. A $6.95 commission applies to online trades of over-the-counter (OTC) stocks which includes stocks not listed on a U.S. Exchange.

A number of other brokerages, including majors like Charles Schwab, have also reduced the commissions for trading stocks, ETFs, and option trades to zero.