| 10 February 2010

OptionsXpress reported their monthly metrics for January today and showed an expected jump in trading activity. DARTs increased 20% versus December and 10% over January 2009. Margin balances were up nearly 29% versus January 2009.

Customer accounts also ended up 10% versus year-ago figures, but only up 1% versus December, showing a consistent slowdown in new account activity. And here is where we'd like to interrupt our droll number-crunching for some more interesting insights.

Now, we admit that sometimes, like a cranky old man from the Old Country, we read way too much into things. But we must comment on the lack of comments in this little update. Usually wise words from the CEO point to issues or concerns or highlights the company wants to address. Today, however, the CEO comments from David Fisher are decidedly lacking. In fact, all he does is regurgitate what the release just said:

"Trading activity rose in January, with retail DARTs growing 20% compared to December and 10% compared to last January as customer engagement improved following the holidays," commented David Fisher, Chief Executive Officer of optionsXpress. "In addition, margin balances were up over 50% from their 2009 lows and retail option DARTs reached their highest levels in a year."

What, no new insight for you? Well, let us make some comments for you, then.

Trading activity is up, but that doesn't matter much. Neither does the increase in margin balances. Why? Because a big shift in pricing is under way industry-wide, and margin doesn't mean squat in a near-zero interest rate environment.

E*TRADE Financial's (ETFC) latest move to lower commissions matches the moves made by Charles Schwab (SCHW) and Fidelity. Low price is no longer a differentiator -- and worse, it's becoming a loss leader. And just like the tightening spreads have killed the market makers, low interest rates have killed the Golden Goose that is margin.

This leaves us wondering where smaller, niche brokerages like optionsXpress can turn to for profit. We think the answer lies in service and providing an experience you're willing to pay for -- like what we've seen out of TradeMonster. Not sure if Mr. Fisher would agree. He didn't comment on it, anyway.