Online Trading Assets Roar Past $1 Trillion

Online brokerages saw record growth during the first quarter, as assets in accounts held by the firms topped $1 trillion (US$), according to a new report from U.S. Bancorp Piper Jaffray. New accounts rose by more than 2.5 million during the quarter, the report found.

E*Trade Group, Inc. (Nasdaq: EGRP) was the industry leader in terms of growth, adding 562,000 new investment accounts during the quarter, up 30 percent from the fourth quarter. E*Trade has outpaced the industry for the past four quarters, the firm said in the report.

E*Trade is the most visited online investment site, according to recent Media Metrix ratings.

Beginning next month, the Menlo Park, California-based company plans to offer its services over wireless networks through an agreement with Verizon Wireless.

The firm also has a new chief brokerage officer. On Friday, Jarrett Lilien was named to the newly created position, in order to “leverage the company’s leadership in online investing and capitalize on emerging opportunities to expand strategic brokerage activities worldwide,” E*Trade said in a statement.

Lilien, who joined E*Trade from recently acquired TIR Holdings, was managing director of international operations.

Trading Volumes on Rise

Overall, “the online brokerage industry continued its staggering rise in the first quarter of 2000, as we saw online trading volumes rise 69 percent sequentially,” said Stephen Franco, a senior e-finance analyst with U.S. Bancorp Piper Jaffray.

Online brokers have been helped by a strong economy and surging stock prices. E*Trade and rival Ameritrade Holding Corp. (Nasdaq: AMTD) both reported stronger than expected results for the latest quarter, bolstered by brisk trading revenue and growth in new customers.

Schwab Still Tops

In the latest quarter, Charles Schwab & Co. held on to its number one position in terms of size, the U.S. Bancorp Piper Jaffray report said. However, “despite a strong quarter, its trading-volume market share continues to diminish in the face of low-cost competition,” the report said.

The brokerage firm’s recent acquisition of Cybercorp should help Schwab “recapture some market share” in the second quarter, U.S. Bancorp said.

Schwab’s Cybercorp acquisition and the “remarkable success” of newly launched Tradescape “have forced the online brokerage industry to recognize the day trader as an important and profitable niche,” according to the report. Tradescape and Cybercorp offer direct access to electronic trading networks.

Old-line firms such as Merrill Lynch, Morgan Stanley Dean Witter and American Express do not release statistics on their online brokerage units, which U.S. Bancorp Piper Jaffray attributes to “channel conflict and old-economy infrastructure.”

Costs Drop

The report also found that costs for online brokerages declined even amid fierce competition for new accounts.

“Buoyed by investor confidence and the strong performance of the Nasdaq, we estimate margin balances rose 35 percent to 40 percent” in the first quarter, U.S. Bancorp Piper Jaffray said. Since the end of the quarter, the firm said, balances have likely fallen 20 to 25 percent.