TD Ameritrade Gains Uptick from SEC Rule
The CBOE Volatility Index (^VIX) has spiked since the uptick rule was abolished on July 6, 2007. And the outcry to have it reinstated has been heard from pundits, politicians and even listed companies.
The SEC quietly got rid of this obscure trading rule, which has been used to regulate short selling. The rule had been in place since 1938 and required short sellers to wait for a positive movement in a stock before selling short. By putting this “brake” on short sales, it limited the volatility in stocks trading down.
Many blame its removal on the severity of the current bear market. To be sure, volatility has been marketly higher since its removal. And this has made it a painful year for investors, as sectors across the board have plummeted. The financial services sector has lost over 60% this year.
Money managers and full service brokerages have also suffered as their assets under management have plummeted. But while many of the financials have suffered, there has been one that’s profiting. In fact, the discount brokerages are doing so well, they’re breaking records.
E Trade Financial (NASDAQ: ETFC) had its highest number of new account openings in five years while TD Ameritrade (NASDAQ: AMTD) just reported record October numbers of 411,000 client transactions per day. Interactive Brokers Group (NASDAQ: IBKR) recently upped its profit estimates after strong third-quarter income.
Firms like these will come out as the biggest beneficiaries of the 2008 market volatility. These brokerages don’t care if their customers are buying or selling. Either way, they are pocketing the commissions and any volume is good for them.
Companies mentioned in this article: IBKR, ETFC and AMTD
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