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Last week, TD Ameritrade Holding Corporation (AMTD - Analyst Report), an online brokerage firm, reported a 19% year-over-year decline in average U.S. trades in its Activity Report for the month of October 2012. Moreover, the U.S. trades dropped on a sequential basis.

For the reported month, Daily Average Revenue Trades (DARTs) were 330,000, down 7% compared with the prior month. The dip in DARTs largely resulted from the uncertain economic recovery and investors’ reluctance to invest in the equity markets. Moreover, the month under review excluded two trading days due to closed markets following Hurricane Sandy.

Broker performance is generally measured through the DARTs that represent the number of trades from which brokers can expect commissions or fees.

For the month, TD Ameritrade reported $469.9 billion in total client assets, up 16% year over year but down 1% from the prior month. Moreover, average spread-based balances augmented 10% year over year to $77.7 billion. Further, these balances upped 1% from September 2012.

At October-end, average fee-based balances were recorded at $98.1 billion, rising 26% year over year and 1% from the prior month.

Quarterly Performance

As of September 30, 2012, DARTs were 328,280, down 21% year over year. Net new client assets reported were $10.1 billion in the quarter, down from $12.4 billion in the prior-year quarter.

For the quarter, TD Ameritrade reported $472.3 million in total client assets, up 24.7% year over year. Moreover, average spread-based balance was $76.2 billion, compared with $67.5 billion in the prior-year quarter. Average fee-based balances were recorded at $93.6 billion, up 16.9% year over year.

Our Viewpoint

The competitive position of brokerage business in the market depends on trading customers, with emphasis on active traders. As the long-term investing customer group is less developed against the trading customers, there is an opportunity for future growth whenever there is an expansion in the long-term customer base.

Development of innovative ways for online trading and long-term investing products and services, delivery of advanced customer service, creative and cost-effective marketing and sales, as well as expense discipline can be considered as the key factors for executing TD Ameritrade’s strategy of boosting its trading and investing business.

Amidst a volatile operating environment, TD Ameritrade portrays organic client asset decline. The company also reported waning trading volumes and therefore significant turnaround remains elusive. Further, a low interest rate environment is also a matter of concern.

TD Ameritrade currently retains a Zacks #5 Rank, which translates into a short-term Strong Sell rating.

Later this week, among TD Ameritrade’s peers, Charles Schwab Corp. (SCHW - Analyst Report) and E*TRADE Financial Corporation (ETFC - Analyst Report) are expected to release their Monthly Activity Report for October.

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