Discount broker stocks dive on news J.P. Morgan Chase to offer free trading

Shares of discount brokers took a dive Tuesday, after J.P. Morgan Chase & Co. said it will launch a rival trading service next week with an even bigger discount--completely free.

The banking giant’s service, to be called “You Invest,” will be embedded in the current Chase mobile banking app and available on the website, and will launch some time next week.

The service, which requires “zero” minimum balance, will include 100 free trades in the first year for everyone, Darin Oduyoye, a spokesperson at J.P. Morgan Chase, told MarketWatch. Premier banking customers, with deposits of $15,000 or more, will be eligible for 100 free trades every year and private client customers, who have about $250,000 in deposits, will get unlimited free trades.

Among discount brokers, shares of Charles Schwab Corp. SCHW, -2.43% sank 2.3% in afternoon trade, of E-Trade Financial Corp. ETFC, -4.36% dropped 4.3% and of TD Ameritrade Holding Corp. AMTD, -7.10% tumbled 7.5%.

Meanwhile, J.P. Morgan Chase’s stock JPM, +0.61% climbed 0.9%.

TD Ameritrade customers who deposit $3,000 or more get 60 days of commission-free online trading, E-Trade customers who deposit at least $10,000 up to 500 commission-free trades within 60 days of opening a new account and Charles Schwab charges $4.95 for online equity trades, according to the companies’ websites.

“TD Ameritrade is very well positioned to compete and win in a low-cost environment. However, the competitive environment will likely continue to shift, and we will remain nimble,” a company spokesperson told MarketWatch. “We continually evaluate our offerings and pricing, taking into account recent competitive changes and enhancements.”

Charles Schwab and E-Trade did not immediately respond to calls for comment.

CFRA analyst Catherine Seifert said she expects the J.P. Morgan Chase news “to heighten the already intense competitive environment” for online brokers, but she reiterated her strong buy rating on Charles Schwab and her buy rating on E-Trade.

Seifert said in a research note that she believes Schwab is well equipped to handle the increased competition its business model is “leveraged toward higher interest rates and growing a recurring base of fee-based revenues,” while E-Trade is also insulated because the company derives more than 60% of its revenue from net interest income.

Analyst Daniel Fannon at Jefferies said Charles Schwab is most likely to be looked to for a response to J.P. Morgan Chase’s offering. “How aggressive [Schwab] want to maintain its low cost leadership is difficult to predict, but we do believe the company is well prepared for this new entrant,” Fannon wrote in a note to clients.

“We believe [TD Ameritrade] and [E-Trade] will take a “wait-and-see approach” as both are effectively price takers,” Fannon said.

The idea of a tiered brokerage service for Chase’s large customer base was floated by Chief Executive Jamie Dimon in 2016. There are currently 47 million Chase customers who are already digitally engaged, said J.P. Morgan spokesperson Darin Oduyoye. “We are now flipping the switch,” on You Invest, he said.

J.P. Morgan shares have gained 8.1% year to date, while the SPDR Financial Select Sector exchange-traded fund XLF, +0.39%  has tacked on 1.9% and the Dow Jones Industrial DJIA, +0.25%  has advanced 4.6%.

Schwab shares have lost 2.3% so far this year, while E-Trade’s stock has run up 18.3% and TD Ameritrade shares have climbed 8.8%.

—Mark DeCambre contributed to this report.