- On Tuesday, Wall Street analysts peppered Charles Schwab executives with questions about the remarkable volatility in some stocks in the last week.
- COO Joe Martinetto said he wouldn’t speculate around whether changes would come to payment for order flow policy now under scrutiny across the industry.
- CEO Walt Bettinger struck a defensive tone when he said the firm had not restricted customers’ ability to buy and sell some stocks, though it prevented some “advanced” options strategies.
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When Charles Schwab reported fourth-quarter earnings in mid-January, the retail-trading frenzy and remarkable volatility in stocks like GameStop had not yet captured investors’ attention as it has since last week.
On Tuesday during a call to discuss those results, analysts jumped at the chance to ask the firm’s leadership about how the brokerage and wealth management giant has fared in recent sessions and how it will respond.
Chief Executive Walt Bettinger and Chief Operating Officer Joe Martinetto responded to questions about the controversial practice of payment for order flow, or the fees that brokerages like Charles Schwab and Robinhood receive for directing orders to third-party firms that will in turn execute those trades.
Martinetto, who is leading the firm’s TD Ameritrade integration efforts, said the firm was not going to speculate around what kind of changes to the practice would come to the market.
“We have no insight into what those changes might be,” he said.
Payment for order flow, a technical though powerful practice in the do-it-yourself brokerage industry, has helped power the rise — and very existence — of no-fee trading.
It is legal, though controversial, because the arrangement appears to create an incentive for brokerage houses to route users’ orders to whichever third-party firm will pay the most, rather than on the basis that it will turn out best for the retail trader in the end.
At the start of the call, Bettinger struck a defensive tone during prepared remarks when he said the firm had not restricted stock-trading customers’ ability to buy and sell shares of some stocks, as some competitors did. It did prevent users from executing some “advanced” options strategies, though not “basic” ones, he said.
Bettinger detailed the firm’s actions in order to “address a series of inaccurate statements in the press, and inaccuracies floating around the social media world” before declaring that the firm would not take questions related to that for the rest of the call.
A spokesperson for TD Ameritrade, which Charles Schwab is now working to integrate but continues to operate as a standalone trading platform, said in a statement last week that the firm had increased margin requirements and restricted short sales around some users’ transactions in GameStop, AMC, and other names.
Payment for order flow under fire
Amid the rapid rally and decline in some stocks like GameStop over the last week, the startup brokerage app Robinhood — for which payment for order flow is an important, though not the only, revenue stream — restricted some customers’ ability to purchase shares of some stocks.
That move, which Robinhood defended, prompted some to speculate that the company did so because it was looking to protect big investors from GameStop-related losses, and that payment for order flow was part of that incentive.
“To be clear, this was a risk-management decision, and was not made on the direction of the market makers we route to,” Robinhood said in a Jan. 28 statement.
Charles Schwab has not yet published trading volume data for the last week, but overall investing app downloads soared in late January, according to SimilarWeb data.
“We need to be smart about how we manage risk,” Martinetto said in response to a question about industry-wide margin requirements, adding there was unlikely to be a “dramatic change” in what the firm requires of customers.
Charles Schwab, which moved its corporate headquarters from San Francisco to Westlake, Texas, effective at the start of this year, reported $3.3 billion in net income for 2020 versus $3.7 billion the year prior.
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