Schwab to Shut Down brokersXpress - Analyst Blog

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The Charles Schwab Corporation ( SCHW ) is preparing to pull down the shutters of its brokersXpress unit, a wing of optionsXpress Holdings, Inc within the next couple of months. This was reported by Reuters on Wednesday. brokersXpress' inability to fit in the strategic setting may have prompted Schwab to opt for such an action.

Schwab acquired optionsXpress, a retail online brokerage company focusing mainly on equity options and future acquisitions, in September last year for a whopping $1 billion. Schwab's main purpose behind this acquisition was to enhance its equity-business and introduce options and futures trading to its customers.

Gradually, it was getting difficult to integrate brokersXpress as it failed to meet Schwab's core business demands. Hence, Schwab decided to close down the unit.

Upon closure of brokersXpress, most of its employees would be absorbed either in optionsXpress or Schwab advisory services that operates with 7,000 independent registered investment advisers (RIAs). Schwab acts as a custodian to all these RIAs. A 90-day closure notice will also be served to all the concerned representatives and investment advisers.

It may be pointed out that optionsXpress has recently come under the lens of the Securities and Exchange Commission (SEC), which has accused it of fraudulent behavior. However, Schwab's spokesperson has denied any connection of it with the brokersXpress closure decision.

Last month, SEC charged optionsXpress for repeatedly indulging in deceptive short-sale transactions claiming violation of Regulation SHO of the Exchange Act. This act requires brokers to complete customers' short sale transaction by buying and delivering the stock within 3 days.

Instead of adhering to this rule, optionsXpress sold the call options simultaneously and bought shares, generating apparent sales. The purchased shares were resold without getting delivered to the actual buyer.

Similarly, optionsXpress's trading arm, OX Trading LLC, was accused of continuing with its trading operations even after being de-listed from the Chicago Board Options Exchange (CBOE) and deregistered with the SEC, apparently to avoid an audit.

Conclusion

With the closure of an unproductive unit, Schwab can concentrate more on its core business. The company's image will remain intact as there has been no retrenchment of employees during the shut down.

Currently, Schwab retains a Zacks #2 Rank, which translates into a short-term Buy rating. One of its peers, TD Ameritrade Holding Corporation ( AMTD ) retains a Zacks #3 Rank (short term Hold rating).


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: AMTD , CBOE , SCHW

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