REUTERS/Jim Young

Charles Schwab, the founder and chairman of Charles Schwab.

• Charles Schwab, the founder and chairman of the eponymous online brokerage, told Business Insider that he's thought about slashing trading fees to nothing for the last decade or so.
• The firm said it would eliminate commissions for US- and Canada-listed stocks, exchange-traded funds, and options - though clients trading options will still pay 65 cents per contract - starting on October 7.
• The San Francisco-based firm's move to eliminate fees was the latest shot in an industry-wide commission price war.
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Charles Schwab, the brokerage that touts itself as a pioneer in low-cost retail investing, said on Tuesday that it would eliminate online stock, ETF, and options commissions - sending its own shares and those of its competitors tumbling.

Charles Schwab, the founder of the eponymous firm who now serves as its chairman, spoke with Business Insider about the latest move in a fierce price war for commissions.

"Oh, I've been contemplating this for years," Charles Schwab told Business Insider's Richard Feloni in a phone interview, adding that he began thinking about eliminating fees for trades - "going to zero" - about a decade ago.

"It's something I've wanted to always have. I've been a great fan of Bogle for many years," he said, referring to John Bogle, the late founder of investment management giant Vanguard who popularized low-cost, passive investing for the masses.

Brokers have had to grapple with challenges from zero-commission trading apps like Robinhood, and at least one startup is arguing that stock trading platforms should be paying customers to trade.

Schwab is going to zero on commissions for US- and Canada-listed stocks, exchange-traded funds, and options - though clients trading options will still pay 65 cents per contract - starting on October 7. Fees were originally $4.95.

The announcement sent shares in Charles Schwab and competitors TD Ameritrade and E-Trade diving.

The move comes just weeks after Charles Schwab said it was laying off 600 people, or 3% of its headcount, and as it looks to close on its $1.8 billion USAA brokerage business acquisition next year. As first reported by Business Insider, its retail head and marketing chief left the firm over the summer as part of an ongoing restructuring.

Read more: Charles Schwab says it will cut online stock and ETF fees to zero - and all the major brokers are getting clobbered

Execs at Schwab are seeking to downplay the financial impact of the commission changes. Its pricing reduction translates to some $90 million to $100 million in quarterly revenue, or around 3% to 4% of total net revenue, according to Peter Crawford, Charles Schwab's chief financial officer.

He said in a Tuesday post on Schwab's website that commissions per revenue trade have been falling for "multiple years," so the possible revenue impact in the coming quarters could "very well be smaller, holding all else equal."

Schwab's Tuesday announcement sent its stock down a notable 9%, and sent its competitors' stocks plunging. Shares of E-Trade and TD Ameritrade both plunged by nearly 20%. A TD Ameritrade spokesperson said the firm is "committed to delivering the best experiences" for its clients.

"Our price improvement rate is better than our competition for the size market orders the vast majority of our clients place. And, we will remain competitive," a company spokesperson said.

An E-Trade representative did not immediately respond to a request for comment.

Challenging environment

The San Francisco-based firm has pointed a finger at a challenging low-interest rate environment that eats into margins it earns on client cash sitting in sweep accounts - a landscape that chief executive Walt Bettinger has called "punishing" for its business.

New digital wealth and trading entrants are challenging legacy firms' status among retail investors, putting pressure on established players like Schwab.

Read more: Rivals E-Trade and TD Ameritrade had CEO shakeups within weeks of each other. The departures come as competition ratchets up among e-brokers.

Notably, Schwab's announcement comes days after Interactive Brokers said it would roll out a new product offering commission-free, unlimited trades on US-listed stocks and exchange-traded funds. The market reacted similarly, with shares of online brokerages promptly falling last Thursday when it was announced.

As for Schwab, which oversees some 12.1 million active brokerage accounts and $3.72 trillion in client assets as of August, every client using the company's web and mobile channels automatically qualifies for the new pricing.

"That escalated quickly," said Devin Ryan, an analyst with JPM Securities, in a Tuesday note to clients. "As we have been writing about extensively, we have entered a new commission price war as 'free trading' has been moving from an aberration to the norm."

Industry veterans and new players alike have motives to eliminate fees, Ryan wrote.

Announcements of eliminating fees have come from both large, established firms "looking to consolidate the customer wallet and from startups using it as a tool to add new accounts and grow faster (or do more with an existing customer base)," he wrote.

Crawford, Charles Schwab's chief financial officer, also spoke about the move in a post on Tuesday.

"We're not feeling competitive pressure from these firms...yet," Crawford wrote. "But we don't want to fall into the trap that a myriad of other firms in a variety of industries have fallen into and wait too long to respond to new entrants. It has seemed inevitable that commissions would head towards zero, so why wait?"

Read more: JPMorgan is taking aim at apps like Robinhood by quietly rolling out options trading to select You Invest customers