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Schwab, E*Trade Lose Share of Online Brokerage Trades

Charles Schwab and E*Trade Group, the two largest electronic brokerages, saw their shares of the online trading market fall in the second quarter as customers flocked to deep discount brokers, Credit Suisse First Boston said in a report.

Bloomberg News quoted the report as saying San Francisco-based Schwab's share of online brokerage fell to 29.7% of total daily average trades from 31.6% in the first quarter. Palo Alto, CA-based E*Trade's share fell to 11.5% from 12.2%.

Both firms had jumps in daily trading volume. Schwab's daily trades rose 9.6% from the previous quarter to 66,000, while E*Trade's rose 10.6% to 25,656. Those increases lagged the overall growth of online trading, which rose 16.8% to 222,000 average daily trades in the second quarter.

"Firms with the lowest prices courting the most active traders saw the most growth," Bill Burnham, an analyst and author of the CSFB report, was quoted as saying.

The biggest gainers were Iselin, NJ-based Datek Online Brokerage Services Corp., whose market share rose to 8.5% from 6.8%, and Omaha, NB-based Ameritrade Holding Corp., whose share rose to 6.9% from 5.9%.

Ameritrade charges $8 and Datek $9.99 for most Internet-based stock trades, less than the $14.95 and $29.95 basic commissions levied by E*Trade and Schwab, respectively.

A Schwab spokesman was quoted as saying the company is less concerned with its share of online trades than with the growth of its electronic accounts and assets. The firm had 1.9 million active online accounts at the end of July, up 700,000 from the end of 1997, and online assets of $132 billion, up $53 billion from year end, spokesman Tom Taggart said.

During the first seven months of the year, Datek more than doubled its accounts to 105,000, said Alex Goor, the company's president. Datek customers make an average of about five trades per month, he said.

E*Trade officials couldn't be reached, Bloomberg said.

The online brokerage industry is poised for what Burnham called "the mother of all marketing battles" with several of the biggest firms planning advertising blitzes. E*Trade, for example, recently said it would spend $100 million to promote its Internet site as a source of financial information for computer users.

The analyst said the stocks of online brokerages probably won't rise much until the outcome of the marketing war is clear.

According to the report, the number of firms offering online trading rose from the mid-60s to about 80 during the quarter. At the same time, the nine biggest electronic brokerages increased their combined market share to 87.4% from 86.4% in the previous period.