Schwab Partners With State Street on No-Cost ETF Trades

Charles Schwab Corp., the largest independent U.S. brokerage, plans to expand commission-free trading in exchange-traded funds by partnering with State Street Corp. and Invesco Ltd., two of the top four U.S. ETF providers.

Unlimited no-cost trades will apply to 105 ETFs, including products offered by Schwab, Guggenheim Investment Management LLC, ETF Securities Ltd. and United States Commodity Funds LLC, San Francisco-based Schwab said today in a statement. Schwab will seek to add other ETF brands to the program, Beth Flynn, the firm’s vice president of ETF platform management, said today in an interview in New York.

“This is about responding to investors, and investors tell us that commissions are a barrier to trading,” Flynn said.

ETF providers have been battling to lower costs as they compete for customers amid record deposits. BlackRock Inc., the world’s largest ETF manager, cut fees on six products and created four new lower-cost offerings in October. Vanguard, the third-biggest in the U.S., dumped index provider MSCI Inc. to lower costs, also in October.

State Street, based in Boston, is the second-biggest ETF manager and Atlanta-based Invesco’s PowerShares unit is the fourth-biggest U.S. ETF provider, according to Morningstar.

Investors poured a record $191 billion into U.S. ETFs in 2012, according to data compiled by research firm Morningstar Inc. They put another $28.6 billion into ETFs in January, Morningstar said today.

The ETFs offered for no-commission trading hold a total of about $15 billion, according to Flynn. State Street and other providers will pay Schwab an annual fee and asset-based fees to make their ETFs available in the commission-free program, Flynn said. The platform doesn’t include State Street’s $126 billion SPDR S&P 500 ETF Trust and $71 billion SPDR Gold Shares, the two biggest ETFs.

Schwab, which pioneered low-cost trading and led a boom in online trading in the late 1990s, has 8.8 million brokerage accounts, according to the company.

To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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