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Discount broker Charles Schwab buys smaller rival TD Ameritrade

Charles Schwab logo in New York 2013 - Bloomberg.jpg
Schwab will integrate TD's “thinkorswim” and “thinkpipes” trading platforms, educational resources and tools into its trader offerings for retail and independent adviser clients.

THE Charles Schwab Corporation, the largest discount brokerage in the US financial world, has completed its acquisition of rival TD Ameritrade in an all-stock deal valued at about US$22 billion.

No changes to TD's operations in Singapore have been announced. Schwab closed its Singapore office late last year, just two years after setting up shop in the city-state to provide investors with greater access to the US market.

In a press statement on Tuesday, Schwab said the TD acquisition creates a colossus housing some US$6 trillion in client assets across 28 million brokerage accounts and more than five million daily average trades.

The integration of Schwab's and TD's operations is expected to take place over the next 18 to 36 months. During this time, they will continue to operate two separate broker-dealers to serve their respective clients.

Until the integration is complete, the products, services and delivery channels currently available from the two companies remain "largely unchanged", according to the statement. Clients should thus continue to call Schwab for Schwab account business and TD for TD account business.

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Schwab said the significant scale from the acquisition will allow it to lower operating expenses as a percentage of client assets.

The combined entity can also deliver a broader and more extensive range of services and solutions to clients, including individual investors as well as the registered investment advisers (RIAs) who custody their clients' assets with the companies.

As a first step, Schwab had announced in August that it will integrate TD's "thinkorswim" and "thinkpipes" trading platforms, educational resources and tools into its trader offerings for retail and independent adviser clients.

Schwab also plans to retain TD Ameritrade Institutional's customisable portfolio-rebalancing solution "iRebal" as part of its offering for independent adviser clients.

After the integration, the combined entity's other products will include wealth management platforms, RIA custody platforms and tools, investor education, retirement services, banking and asset management.

Under the deal, TD stockholders received 1.0837 shares of Schwab common stock for each TD share. The exception was the Toronto-Dominion Bank and its affiliates, which received Schwab common shares only up to a maximum of 9.9 per cent of the Schwab common stock, and otherwise received newly created Schwab non-voting common stock.

Schwab also announced on Tuesday that it expects to finish moving its corporate headquarters to its new campus in Westlake, Texas, from San Francisco, by Jan 1, 2021.

The acquisition of TD was announced last November.

It came as profits in the industry were under pressure from a shift to zero commission. Reuters reported then that the deal could be seen as a response to recent disruption in the industry, where nimbler startups such as Robinhood are rapidly gaining market share by eliminating commissions on stock trades.

Schwab was among the first few brokerages to eliminate commissions on the online trading of stocks, exchange-traded funds (ETFs) and options. The move was quickly followed by rivals, including TD and Fidelity Investments.

In July, TD's Singapore business said it will eliminate commissions on online exchange-listed stock, ETF and option trades for its clients trading the US markets in Singapore. The move, which took effect on Aug 3, slashed fees from US$10.65 to zero. Clients trading options now pay US$0.70 per contract with no exercise or assignment fees.

Apart from losing trading commissions, online brokerages' profitability has been stunted by low interest rates, which affect the money they earn off customer balances.

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