US Discount Online Brokerage Update 2005

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6 June 2005

Abstract

New York, NY, USA June 6, 2005

According to Celent the online brokerage industry is only operating at 35% of trading capacity -- at best. While retail trading has recovered somewhat from the crash of 2000, Celent believes it is still 21% below the 2000 peak.

E*TRADE痴 bid for Ameritrade and the potential TD Waterhouse acquisition is only the first volley, as the pressure for online brokers to consolidate increases. In a new report, , Celent provides an overview and analysis of key market trends, identifying leading industry players and discussing their prospects for future growth. It further looks at the trends which are creating pressure for industry consolidation in the discount online brokerage industry. The report also profiles several online retail brokerage firms and their product and service offerings.

As the discount online brokerage industry continues to recover from the dot-com crash of 2000, firms are getting used to the fact that retail trading levels may never return to the levels seen in 2000, and commissions are on a slow but sure decline. However, the leading online brokerages have had reasonable success in their efforts to develop new sources of revenue as the business continues to evolve.

"While the discount online brokerage industry will face extreme competition over the short run, it is not an industry that is going away, as people will always need brokerage services" says Lauren Bender, analyst in Celent痴 Securities and Investments group and author of the report. "While it is clear that trading services -- the traditional bread-and-butter of the brokerage business -- is fast becoming a commodity, clients will gladly reward those firms that are able to help them successfully manage (and grow) their net worth." "There will be room for one or two players to focus profitably on providing efficient trading services, but for the most part the firms that will be successful five years out will be those who are able to create value-added financial management products and services."

In spite of current and future price cuts, sluggish growth and costly infrastructures, the discount online brokerage firms, in general, are well positioned to remain important providers of financial services to a growing number of Americans, as services traditionally provided by banks and investment advisors are increasingly provided by brokerage firms. The discount online brokers can expect to be a major beneficiary as this convergence in the retail financial services sector continues.

The firms examined in the report are Ameritrade, Charles Schwab, E*TRADE, Fidelity, Scottrade and TD Waterhouse.

The 49-page report contains 28 figures. A table of contents is available online.

of Celent's Retail Securities & Investments research service can download the report electronically by clicking on the icon to the left. Non-members should contact info@celent.com for more information.

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