TD Ameritrade to Acquire Scottrade Financial
Deal combines major players in the retail market for the buying and selling of stocks
By Austen Hufford Updated Oct. 24, 2016 7:20 a.m. ET
Both companies helped bring low-cost stock trading to small-time investors and away from the exclusive world of brokerage that existed before. ENLARGE
Both companies helped bring low-cost stock trading to small-time investors and away from the exclusive world of brokerage that existed before. Photo: Bloomberg News
TD Ameritrade Holding Corp. will buy Scottrade Financial Services Inc. in a $4 billion deal, combining two leaders in the retail market for the buying and selling of stocks as the landscape for stock picking continues to lose favor to index investing.
Both companies helped bring low-cost stock trading to small-time investors and away from the exclusive world of brokerage that existed before.
The combined company will have 600,000 average client trades a day and $944 billion in client assets.
The deal will happen in two parts. First, TD Bank Group, which owns a large stake in TD Ameritrade, will purchase Scottrade Bank from Scottrade Financial Services for $1.3 billion in cash. TD Bank Group will also purchase $400 million in new common equity from TD Ameritrade in connection with the deal. Then, immediately following that acquisition, TD Ameritrade will acquire Scottrade Financial Services Inc. for $4 billion, or $2.7 billion after the proceeds from the sale of Scottrade Bank.
In the late 1990s, the ramp-up of home access to the internet and surging stock prices brought many into the world of internet stock trading. As trading volumes surged, a new breed of low-cost internet brokerages competed for commissions. With stock prices rising across the board and commissions falling, seemingly everybody was able to make money buying and selling tech stocks. That ended when the tech bubble burst in 2001, but internet trading was established as the norm and continues to this day.
More than 40 years ago, a change in regulation allowed for the rise of low-cost brokerages. On May 1, 1975, known on Wall Street as “May Day,” fixed-rate commissions for trades were abolished by regulators in favor of market-rate. With some minor exceptions, for 183 years until May Day, it had essentially cost the same amount per share to trade 100 shares as it did to trade 1,000 or 100,000—and brokers regularly shaved 2% or more for themselves off the typical trade.
The deregulation allowed discount-brokerages offering just-the-basics trading, instead of costly advice, to start, and they began taking away market share from established leaders.
Early iterations of both TD Ameritrade and Scottrade began after this deregulation and were early adopters of internet-trading in the 90s, which offered faster service to clients and cheaper costs.
Write to Austen Hufford at
austen.hufford@wsj.com