Fidelity Investments last week slashed online retail bond transaction costs in half while setting new minimum and maximum limits the firm will charge that comes on the heels of an overhaul in September of the way it sells bonds to individual investors.
The move will cut the amount the Boston-based firm charges retail customers who purchase municipal bonds online to $1.50 per bond, from $3.00.
Such costs have previously been considered hidden from investors in the municipal market because most brokerage firms incorporate them into the bond prices they quote to their clients.
In September, Fidelity became one of the first large brokerages to fully disclose such costs amid growing speculation of greater regulatory scrutiny with regard to such practices.
In a bid to expand the mutual fund giant's presence in the retail brokerage industry, the firm simultaneously rolled out an online system allowing investors to access detailed bond price information, including current bid-side quotes, independent pricing service valuations, historical trade data and other bond analysis tools.
Fidelity meanwhile announced in September that it had also tripled the fixed-income inventory available to its clients through a relationship with the New York-based BondDesk.
The new price cuts, which were implemented on Thursday, apply only to online transactions and not to trades placed with a Fidelity branch or telephone representatives.
"It's more efficient for the firm to have an investor who executes a trade online," Adam Banker, a company spokesman said. "We're passing on some of that to customers."
The online transaction cost at Fidelity for other fixed income securities will also be reduced by 50%. Treasuries now cost $0.50 per bond online, compared to $1.00 previously. Other U.S. government backed securities were cut to $1.00, from $2.00. Corporate bonds are now $2.00 each online, down from $4.00, while mortgage-backed bonds will now cost $2.50 instead of $5.00.
In conjunction with the lower online transaction costs, Fidelity announced last week that its retail customers could now also sell bonds online. The same charges apply to both bond purchases and sales.
The firm also instituted new minimum and maximum charges that will apply to its retail customers. Under that new system, investors can only be charged a maximum of $500 per trade. The move could allow many of the firm's high net worth customers to realize "significant savings depending on the trade," Banker said.
However, a new minimum charge of $19.95 will also apply to retail trades, making small transactions more expensive. Under the cost schedule Fidelity disclosed on Sept. 20, when the firm revamped the way it sells bonds to individuals, there were no maximum or minimum charges set.
Data collected by Fidelity during the month of September shows that the transaction costs for approximately 96% of fixed-income trades made by the firm's retail customers surpassed the $19.95 minimum, Banker said.
After disclosing the flat transaction costs in mid-September as part of the overhaul to retail bond sales at Fidelity, the firm did experience an uptick in business, according to Banker. He would not disclose whether the new system encouraged more small transactions from investors.
The new fixed-income minimum trade cost was designed to conform to the firm's equity trade commissions, Banker said.
