Schwab made trades free. 54 days later it bought its rival.
On October 1, 2019, Schwab cut online commissions from $4.95 to zero. Commissions were 3–4% of its revenue and 15–16% of TD Ameritrade's. 54 days later it agreed to buy TD Ameritrade for $26 billion.
Transcript
54 days. That is the gap between Charles Schwab making trades free and agreeing to buy its wounded rival.
On October 1, 2019, Schwab announced it would cut online stock and ETF commissions from $4.95 to zero. Its own cost: roughly $90 to 100 million a quarter.
Commissions were about 3 to 4% of Schwab's revenue, but about 15 to 16% of TD Ameritrade's. That day, TD Ameritrade's shares fell 25.8%.
On November 24, 2019, Schwab agreed to buy TD Ameritrade for roughly $26 billion in stock.
A price cut that costs you a little and your rival a lot is not a discount. It is a strategy. Check the asymmetry before you cut.
The records behind this video
Every figure in the video comes from this Decision Record, each with its sources.
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