Less equity trading in 2010?

TD Ameritrade Holding Corp., whose assets make it the third-largest brokerage firm serving individual investors, foresees a slowdown in equity trading next year as share prices swing less than in 2009, Chief Executive Officer Fred Tomczyk said.

A decline in volatility that began this quarter will probably continue through the end of the company’s fiscal year in September 2010, curbing the number of transactions made by TD Ameritrade’s customers, Tomczyk said.

Knight Capital Group Inc., which counts hedge funds and institutional investors as clients, said last week that it expects trading to rebound in January as money managers are forced to buy and sell stocks after holding off on taking positions at the end of 2009.

The 12 months that ended in September were a “very strong trading year for us,” said Tomczyk, who is based in Omaha.

“We had lots of news, lots of volatility, lots of things going on, and so we had record trading volume. Our activity rate was at a very high level, and I expect that will come in a bit in 2010.”

Volatility surged in November 2008: The Chicago Board Options Exchange Volatility Index reached a high of 80.86 as the collapse of Lehman Brothers Holdings Inc. added to the financial crisis that has led to $1.72 trillion in write-downs and credit-related losses worldwide. Traders, taking advantage of the price swings, bought and sold more shares, helping bring in more money for TD Ameritrade, where commissions and transaction fees account for more than half of revenue.

Trading by professional money managers probably will recover in 2010, after activity stagnates in the fourth quarter, with investors having “locked in their profits for ’09,” Knight Capital Group CEO Thomas Joyce said last week.

Since the Standard & Poor’s 500 Index hit a 12-year low in March, the average monthly stock trading volume has fallen 36 percent. Fewer than 7.87 billion shares on average changed hands each day on U.S. exchanges during November, the lowest average since August 2008, according to monthly data compiled by Bloomberg.

Money managers are showing signs that they are returning to equities, with hedge funds boosting bets last quarter to the highest level since the end of 2007, according to data compiled by Goldman Sachs Group Inc. They’ve continued to buy, according to data from Goldman Sachs, industry consultants and Bloomberg.

Last quarter, Knight’s daily average trading surged 53 percent from the 2008 period to 3.95 million a day, and TD Ameritrade rose 35 percent to 410,576 trades a day on average.

TD Ameritrade’s net income is expected to decline 12 percent to $161.7 million during the fiscal first quarter, which ended Dec. 30, according to an average of analysts’ estimates compiled by Bloomberg.

Although earnings have fallen for more than a year, the company beat forecasts last quarter. Tomczyk has projected earnings next year of $1.10 to $1.40 a share and an average of 398,000 to 476,000 trades a day.

Tomczyk said TD Ameritrade is positioned well for when the economy recovers enough for the Federal Reserve to raise interest rates, but he doesn’t expect a quick economic recovery or growth in profits.

“The first real opportunity to see that will be our second or third quarter,” Tomczyk said.

“That’s when the full impact of the interest rates are out of the previous year’s number. It could take a little longer depending on trading volumes.”

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