The intensifying price war over commissions among the US’S top stock-trading platforms has delivered a $191m boost to investors betting against the sector.
Short sellers, who profit when a stock drops in price, enjoyed the gains from bets against Charles Schwab, TD Ameritrade, Interactive Brokers and Etrade, according to data from S3 Partners.
The sharp share price sell-off on Tuesday was triggered by Schwab’s announcement that it would scrap its $4.95 fee to trade stocks, exchange-traded funds and options listed on US and Canadian exchanges, starting on Monday next week.
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TD Ameritrade followed suit after markets closed, announcing it too would scrap the commissions it charges investors to trade stocks, ETFS and exchange-traded options. The decision will cost TD Ameritrade $920m in annual revenue, according to Citi estimates.
In the resulting share price shake-out, short sellers betting against TD Ameritrade gained $79m, according to the S3 data, after shares in the Toronto-based group slid 25.8 per cent — their largest one-day drop in two decades. Bets against Schwab netted the short sellers $56m as shares in the San Francisco-based group slid 9.7 per cent.
Shorts against Interactive Brokers delivered paper gains of $28m as its share price fell by 9.5 per cent, while a 16.6 per cent drop in Etrade shares offered the shorts a $27m boost.
Tuesday’s moves to cut commissions reignited competition between the retail brokers that had been left dormant for two years. Peter Crawford, Schwab’s chief financial officer, said the move was a response to the rise of a new wave of zero-fee internet-based brokers like Robinhood, which have gained market share and heaped pressure on established players to change.
