Online brokerage stocks sink on JP Morgan’s plan to offer free trading

Daniel Acker | Bloomberg | Getty Images

Pedestrians walk outside an E*Trade Financial office in New York, U.S.

Online brokerage firms including Charles Schwab, TD Ameritrade and E-Trade sank on Tuesday after CNBC reported that J.P. Morgan Chase will offer a new digital investment app with free trading.

Shares of Charles Schwab fell 3.4 percent, TD Ameritrade fell 6 percent, E-Trade fell 4.5 percent and Interactive Brokers fell 2.7 percent in premarket trading.

J.P. Morgan will launch its new service next week. All customers get 100 free stock or ETF trades in the first year. Those with Chase Private Client get unlimited trades.

The new program comes bundled with free or discounted trades, a sophisticated portfolio-building tool and no-fee access to the bank’s stock research.

Responding to the move, Interactive Brokers told CNBC in an emailed statement that the company “will continue to be the choice of sophisticated investors and institutions.”

“Other banks and brokers that give away so-called free or cheap trades make their money by paying next to nothing on idle balances, executing trades at inferior prices, and charging exorbitant borrowing fees, which is costly to those that don’t do their homework,” wrote Steve Sanders, Interactive Brokers’s executive vice president of marketing.

The other brokers did not immediately return a call for comment on J.P. Morgan’s new app.

Commenting on the fall in the stocks, Rich Repetto of Sandler O’Neill & Partners said that while the move could weigh on e-broker earnings, he is not overly concerned for the group.

“It’s not good, but it isn’t the end of the world. They will all still be profitable, but certainly today the stocks will trade down on the headline risk,” the analyst told CNBC. “What you also should know is about one-third of trades at TD Ameritrade and E-Trade are derivatives, options trades, which would require a more complex platform.”