February 2, 2000 7:35 AM PST
Charles Schwab buys CyberCorp, cuts commissions
San Francisco-based Schwab also said it was cutting commissions for active individual traders from $29.95 to as low as $14.95. CyberCorp, based in Austin, Texas, caters especially to highly active online traders.
Schwab's concerted effort to draw active traders expands the firm's reach after years of serving investors who hold stock over the long haul. But unlike many other online brokerage firms, Schwab is facing competition on two fronts.
"Schwab is covering all their bases--essentially becoming a discount, full-service firm that offers just about every service possible," said Dan Burke, senior brokerage analyst at research firm Gomez Advisors. "(Schwab) wants to be a big player across the board, and all these acquisitions and activities are putting them in that position."
In the past several months, Schwab suddenly began facing competition from full-service, buttoned-down Wall Street players such as Morgan Stanley Dean Witter and Merrill Lynch, which are also offering $29.95 trades for their clients.
At the other end of the spectrum, today's deal also underscores Schwab's effort to stem customer defection to online brokers--such as Datek Online, Fidelity Investments and AmeriTrade--that offer rock-bottom fees to attract active traders.
Burke noted that although active traders represent a small portion of the online trading marketplace, they generate about half the overall revenues for online brokerages. Burke called active trading a "hot button" on the Web.
Schwab has not ignored this profitable clientele. Last August, the firm released software called Velocity that allows users to make faster trades and get stock quotes more rapidly. But that service was reserved for those who either maintain at least $1 million in their accounts or make more than 48 trades annually.
"The competitive realities of the market require us to pay close attention to our pricing and adjust it appropriately as we continue to enhance the technology and services we offer," Linnet Deily, president of Schwab's retail group, said in a statement.
Schwab's acquisition is a tax-free stock-for-stock transaction, with the firm exchanging about 13.7 million shares of its common stock for all outstanding shares, options and equity rights of CyberCorp. The transaction is based on yesterday's closing price of $35.63. The deal is expected to close in the first quarter of 2000 and has already been approved by the boards of directors of both companies.
CyberCorp designs and develops electronic intelligent order routing software that gives its customers the ability to scan Electronic Communications Networks (ECNs), market makers and market specialists for the best prices available, based on the firm's proprietary routing logic, and then to forward orders to the optimal counter-party.
The company also provides its customers with institutional-style streaming quotes and news, Nasdaq level II data, and stock screening and trade management tools.
"It is a trading cockpit for full-time investors who want to view and participate in the market like an institutional trader," David S. Pottruck, Schwab's co-chief executive, said in a statement. "By joining with CyberCorp, we can harness valuable features of this technology for the benefit of Schwab's active retail investors as well as extend its reach to our investment adviser clients and other institutional players."
The new pricing policy, which went into effect yesterday, cuts trades from $29.95 to $19.95 when a client trades more than 30 times a quarter and to $14.95 if more than 60 times. Schwab noted that customers must have $50,000 in household assets at Schwab to qualify for the new pricing.
In January, Schwab acquired U.S. Trust in a deal worth about $2.9 billion, hoping to attract high net individuals while keeping those who may jump to asset-management firms as their assets grow. The move allows Schwab to offer the advice services currently available at full-service firms such as Morgan Stanley and Merrill Lynch.