Charles Schwab - Expanding Online Trading Applications|IT and Systems|Case Study|Case Studies

Charles Schwab - Expanding Online Trading Applications

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Case Details:

Case Code : ITSY007
Case Length : 10 Pages
Period : 1971-2001
Pub Date : 2002
Teaching Note : Available
Organization : Charles Schwab & Co. Inc.
Industry : Financial Services
Countries : USA

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Schwab needed a more efficient IT infrastructure to improve both time to market and hardware resources utilization. With the rapid growth of our online brokerage solution, we needed to start looking into more efficient ways to leverage our hardware and our development resources."

- Purna Roy, Director, Web Systems Availability,
Charles Schwab, in 1998.

Background Note

US based Charles Schwab & Co. Inc. (Schwab), the market leader in the global online broking and financial services industry had a 30% market share of the industry in 2001 and accounted for one-third of overall global Internet trading businesses.

The company provided high volume trading and customized, timely financial services for NASDAQ securities1 and brokerage-dealers and institutional customers through over 310 branches spread over the US, Canada, UK, Japan, Switzerland, Hong Kong, Australia and New Zealand. Schwab's main business activities included trading for investors, phone/online trading, futures and commodities trading, online mortgaging and supply of investment-related educational material.

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It was one of the top three mutual fund distributors in 1999 in the US (Refer Exhibit I & II for Schwab's products and services).

Schwab was established in 1971 by Charles Schwab (Charles). Schwab pioneered the concept of discount brokerage i.e., offering 'no-frills' transaction services to customers.2

Schwab was known for cutting commission rates consistently, even as other US brokerages raised theirs by as much as 50%.

As a result, the company's revenues grew thirty times, from $ 4.6 million in 1976 to $ 126 million in 1983. In 1983, Charles sold the company to BancAmerica, a US-based bank. However, as US banks were prohibited from expanding into the brokerage business, BancAmerica had to sell back the company to Charles in 1987.

Excerpts >>

1] The National Association of Securities Dealers Automated Quotation System (NASDAQ) is a US-based stock exchange, dealing largely in technology stocks. Started in 1971, NASDAQ was the first screen based, floor less trading system and was the second largest stock market in the US.

2]  A kind of brokerage that typically charges less commission as it does not offer investment advice from analysts. Discount brokers buy and sell stocks for their customers without making recommendations. They may, however, offer general investment advice as well as news and some other services.

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