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Why Did Schwab Sell Capital Markets?

Traders Magazine, October 2004

Gregory Bresiger

For Schwab, three times was not a charm. It was making its third try at institutional trading, and seemed to be doing well. It was adding professional and new firms to its operation. So the sale of the Schwab unit for $265 million in cash was a surprise, even a shock to many in the trading industry. That's because just about five months after Schwab added Soundview Technology, with its much-heralded independent research capabilities, to Capital Markets, the giant discount brokerage decided to sell the institutional trading operation. A former Schwab official, who ran Capital Markets' Nasdaq operation until late 2002, said Schwab had intended to be a large institutional player, but was blindsided by a bear market. "They just didn't have the benefit of time. The bear market was making life impossible for everyone in our business," says Marty Cunningham, who has just founded his own firm, Hudson Securities, in Jersey City. "It gets to a point where the margins just can't support the business. The margins didn't kick in and give it the revenues it needed."

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