Online trading companies logged an average 340,000 stock and mutual fund trades daily in the fourth quarter of 1998, up 34 percent from the third quarter, amid growing purchases of Internet stocks.
"The online trading industry really emerged into the mass- market consciousness in the last couple of months,'' said Bill Burnham, an electronic commerce analyst at Credit Suisse who wrote the report. "When you can sign up hundreds of thousands of new customers, it's a sign you're branching out from the typical frenetic Internet user.''
Online trades were 13.7 percent of all stock trades in the fourth quarter, up from 11.4 percent in the third quarter and 9.2 percent in the second, said Burnham. His report has become a benchmark for the online trading industry, which is less than five years old. Nasdaq Stock Market trading rose 14 percent in the fourth quarter while New York Stock Exchange volume rose 1.5 percent.
Schwab lost 2.9 percentage points of market share in the period, finishing with 27.4 percent on 93,000 daily trades. E*Trade gained share for the first time in more than a year, adding 0.9 percentage point to 11.7 percent. Datek Online added 1.6 points to reach a 10 percent share, passing Fidelity Investments to move into the No. 4 spot.
The average trading commission was "eerily'' unchanged for the third consecutive quarter at $15.75, Burnham said. It's fluctuated between $15.53 and $15.95 the past five quarters.
Waterhouse's "incredibly strong showing'' resulted in part from its acquisition of Jack White Securities, whose 45,000 account holders placed about 4,000 to 5,000 new trades a day.
"They've made a statement'' by moving into the No. 2 slot, Burnham said. "I expect a dogfight for second place in the next quarter,'' and Waterhouse may have to "mount an E*Trade-like marketing campaign'' to cement its gains.
Toronto-Dominion this week said it's considering selling a stake in the discount brokerage to the public.
Also considering a discount brokerage IPO is Donaldson, Lufkin & Jenrette, owner of the No. 7 online brokerage, DLJ Direct. It lost 0.8 percentage point of market share to 3.7 percent as fourth-quarter average daily trades rose 25 percent to 12,656.
Ameritrade added 0.5 percentage points of market share to 7.6 percent as it spent $9.6 million on advertising, a figure the company said it will roughly double in the current quarter. E*Trade spent $40.9 million on ads in the fourth quarter of 1998.
The size of the parent company had no bearing on market share results. Fleet Financial Group's Quick & Reilly, the No. 8 online broker, lost 0.4 percentage point of market share in the quarter while Morgan Stanley Dean Witter & Co.'s Discover Brokerage Direct shed 0.3 percent, remaining No. 9 with a 3.3 percent share.
About 100 companies offer some form of online trading, though those not in the top nine lost 0.5 percentage point of market share in the fourth quarter, Burnham said.
"They all got their wish to be treated as Internet stocks,'' said Burnham. "But they have to be careful -- live by the sword, die by the sword.''