Monday, June 06, 2005

Engaging Possibilities

THE MATING DANCE CONTINUES among online brokers. Ameritrade (Ticker: AMTD) and Canada’s Toronto-Dominion Bank (TD) confirmed last week they are discussing a deal involving TD Waterhouse, TD’s online-brokerage subsidiary. The companies would offer no other comment.

The potential takeover of TD Waterhouse by Ameritrade has been a staple of the rumor mill since last fall, but this is the first time the two companies have acknowledged that they’re talking over the possibilities.

Although TD Waterhouse has made some improvements to its Website of late, it hasn’t kept up with the pace of innovation in the industry. From the viewpoint of a Waterhouse customer, an Ameritrade takeover would result in improved trading tools and, in general, lower fees. But it’s unclear whether Waterhouse’s extensive network of brick-and-mortar offices would be retained by Ameritrade, which has expanded by absorbing the technology and online customers from rivals such as Datek.

Ameritrade recently rebuffed a takeover offer from E*Trade (ET), but Ameritrade’s overture to TD Waterhouse may spur E*Trade to raise its bid for Ameritrade, according to one analyst quoted by Dow Jones Newswires. Ameritrade, for its part, has indicated its desire to remain independent. Another analyst opined that if TD Waterhouse doesn’t link up with Ameritrade, Charles Schwab (SCH) could take it over.

What’s certain is that consolidation will continue until the excess capacity in the online-brokerage industry is absorbed. In the meantime, the competition for your commissions and assets will remain intense. In that regard, Wells Fargo (WFC) last week announced it was slashing commissions for its online-brokerage unit, especially for high-net-worth customers. Accounts with over $250,000 get 50 free trades a year while those between $100,000 and $249,999 get 50 trades a year at $2.95 apiece. After that, they pay the same fee charged to accounts under $100,000, which is now $9.95.

Meanwhile, San Francisco-based PreferredTrade (http://www.preferredtrade.com), which offers direct-access electronic trading of options, stocks, futures, and basket trade executions for individuals, option floor traders, and institutions, is the most recent online brokerage to be taken over. The twist is that the buyer is the Fimat Group, the global brokerage unit of Société Générale, the giant French bank.

The acquisition of PreferredTrade, a self-clearing broker-dealer, gives Fimat memberships in the major U.S. equity markets. Fimat Preferred has been set up as the company to house the assets acquired from PreferredTrade; closing is tentatively scheduled for this summer.

Spreading the Wealth

OptionsXpress (http://www.optionsxpress.com) (ticker:OXPS) introduced Xspreads back in 2002, which allowed customers to trade spreads among themselves. The new version of Xspreads posts spreads in an electronic spread book executed through the International Securities Exchange and other broker dealers and exchange participants, which offers opportunities for price improvement on spread trades.

Spreads, which are strategies that help investors better manage risk and reward, involve buying or selling a mix of two or more different options. The Xspreads order-entry screen is essentially an RFQ (request for quote) process.

“We’re able to send the order to several liquidity providers before it hits the exchange,” says David Kalt, optionsXpress’ CEO. “The liquidity providers respond immediately. Typically when you execute a spread, the natural bid/ask can be 25 to 30 cents wide. This feature tightens it by a nickel on each side.”

What does this mean for a spread trader? A dime on a two-legged spread trade of 10 options is a couple hundred dollars, which improves your returns significantly.

With the new capability, Xspreads shows investors where opportunities for price improvement may exist before spread trades are placed, potentially saving optionsXpress’ customers hundreds of dollars per trade.

Schwab Updates StreetSmart Pro

In recognition of a 54% increase in the average number of daily options trades placed over the last six months, Schwab announced that it has added multileg options strategies to StreetSmart Pro, its platform for frequent traders.

Once the upgrade rolls out in July, StreetSmart Pro users will also have access to streaming quotes and news, interactive charting, and additional research.

While waiting for the new features, Schwab customers can take advantage of lower commissions for options trades. The base fee is now $9.95 per transaction, plus 75 cents to $1.40 per contract, depending on the number of trades placed per quarter or the balance held in an account. Customers can place trades via a live broker for an additional $30 per transaction.

Managing Medical Expenses

Over at Intuit (INTU), an employee’s family crisis led to the creation of a new product that fills a gap in the personal-finance universe.

Quicken’s Medical Expense Manager, written by an employee who was trying to stay on top of the huge pile of bills generated by his daughter’s open-heart surgery, lets you create a medical history for each family member—including pets. When you enter a bill, the program lets you know whether you’ve been billed for this before, how much insurance will pay, and what you should do next.

It’s a stand-alone product, which does not currently feed into either Quicken or TurboTax—although the company says they’re discussing those possibilities for future editions. Quicken Medical Expense Manager generates a figure you can enter in TurboTax for medical expenses, however—plus it helps you calculate your mileage deduction.

The Medical Log tracks each family member’s visits to doctors and other medical professionals, along with prescriptions and renewal information. The downside of the program is that its current incarnation requires quite a bit of manual-data entry, especially during the setup process. In that regard, it reminds me of using Quicken back in the early 1990s.

After playing with the program for a couple of weeks, I find it more and more useful for my personal situation. I’m now dealing with a condition that involves multiple prescriptions, second and third opinions from surgeons, and other experiences I’d just as soon avoid. However, Quicken Medical Expense Manager is helping make sense of it all, at least from a financial point of view.

You can download the program for $49.99 from http://www.quicken.com.

Published in Barron’s June 6, 2005

Posted by twcarey on 06/06 at 01:19 PM
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