International news - 25 November 1999

US online trading falls in step with industry

Online broking is showing its first signs of maturing in the US, with daily trades fal-ling for the first time in the three months to September 30.

US online trading falls in step with industry

Online broking is showing its first signs of maturing in the US, with daily trades fal-ling for the first time in the three months to September 30.

A study by US-based investment bank US Bancorp Piper Jaffray has found that aver-age online trades fell 7.8 per cent in the three month period, the first time the industry has recorded a drop.

However, Stephen Franco, senior research analyst of electronic commerce at US Ban-corp Piper Jaffray says the decline is broadly in line with a fall in trading volumes across the broking industry for the quarter. He says this shows that the online trading industry is just becoming a normal part of the broking industry, subject to the same pitfalls. There has been talk over the past few years that declines in traditional broking would not translate to online trading due to its unprecedented growth. Franco says trend-trading volumes on both the New York Stock Exchange and NASDAQ were down 2 per cent in the same period.

Other findings in the research underscore the online broking industry's upward mo-mentum. For example, the report says that the industry added 1.1 million new ac-counts in the three months which was 11.5per cent higher than new accounts added in the three months to June 30. Assets under administration were up 6.6 per cent for the three months to $648 billion.

Schwab remains the number one broker in the industry, but continues to lose market share to its lower cost competitors. Schwab’s share has dropped from 27.9 per cent three months ago to 23.3 per cent in the current quarter.

E*Trade continue to show impressive growth in the number of accounts, adding 310,000 new accounts in the three months to September 30.

Newcomer to the top 10, Cybercorp, increased its average daily online trades 67 per cent.

Top 10 brokers in the US

Daily trades

Broker Market share (%) Assets ($USmil)

Schwab 23.3 $263,600

E*Trade 15.1 $28,000

Waterhouse 12.1 $52,700

Fidelity 11.9 $202,000

Datek 10.7 $7,000

Ameritrade 9.2 $22,900

DLJ Direct 3.8 $14,200

Discover 2.0 $7,500

Cybercorp 1.8 $112

Suretrade 1.8 $1,600

Others 8.2 $48,274

TOTAL 100 $648,108

Source: US Bancorp Piper Jaffray

Online onslaught

Three major US discount brokers are to form an online investment bank to secure a larger slice of the initial public offerings (IPO) market. According to Dow Jones Newswire service, Charles Schwab, TD Waterhouse and Ameritrade will come to-gether in a bid to convince major Wall Street underwriters to allocate a greater share of IPO shares to the new investment bank. The new partnership is indicative of the lack of impact online investors are having obtaining IPO shares even though online stock trading is regarded as a force by major Wall Street securities firms.

The reason for the lack of impact is most IPOs are still controlled by the major players such as Goldman Sachs, Merrill Lynch and Morgan Stanley Dean Witter, who logi-cally tend to allocate most IPO shares to their best customers, usually larger mutual funds and institutional investors.

Increasing share

A study of share ownership in the US by the SIA and the Investment Company Insti-tute (ICI) has revealed that 48.2 per cent of US households now own shares either di-rectly or through mutual funds. This is only fractionally ahead of the figure in Austra-lia which treasurer Peter Costello recently said sits at 43 per cent.

The US figure dwarfs the 1983 US figure which sat at 19 per cent. About three quar-ters of the 2,336 investors surveyed also say they pay close attention to their invest-ments and 64 per cent say they rely on a financial planner for help.

Bonds on the up

Asian bonds are continuing their recovery after a two-year economic nightmare that has dragged corporate and government issues to their lowest credit ratings.According to a report in the Financial Times, The Asian banks that restructured their non-performing loans have adopted a more stringent lending policy, which has led them to consider investing in the bond markets instead. Meanwhile, international funds in the US, propelled by stronger economies in the US, Europe and even Asia, are looking for places to park their money.