Charles Schwab: HFT Should Be Banned

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Charles Schwab: We have a very robust economy

In an exclusive CNBC interview, Charles Schwab, Charles Schwab chairman, discusses his company’s accountability guarantee, retail investors and weighs in on bitcoin.


the evidence would say the retail investor has seen this market, has seen this great year and started to put money back into stocks. is that what you see? they actually haven’t left. they were just inactive. sort of went quiet. 08, ’09 and ’10. they seem to be wake up to the fact their investments have improved by just sitting there tight with it. they didn’t abandon in a wholesale manner at all. and i think, you know, given what the fed has done and other economic indicators are looking better and better and better, i have to tell you, i think we have a very robust economy underneath us. and i think any time the fed does some tapering this year or next year some time, it’s the appropriate time to get it going. what do you glean from your platform that people are doing with their investments? what are they doing — what are they invested in? are you seeing any change lately? what we found actually in the last five years, people really need more help. they want more help and advice with respect to investing. they find it’s a little more complicated than they thought, whether it’s the 401(k) or actual portfolio, that’s one of the things i’m here in new york to talk about is our affordability and our guarantee with respect to accountability. you haven’t just led the industry in this space with regard to bringing fees way down. now you’re even going to be refunding people, is that right, if they’re not pleased with how their investments have done in a particular period? if someone is unhappy with a managed account or any advice we rendered to investors, they can ask us for a refund and we call it our accountability guarantee. so, any quarter that a person’s unhappy, it’s sort of about time wall street did something about this. so, we’re stepping up at schwab to make that happen. so, if someone is unhappy with our advice or kind of get — can you weigh in on the discussion of active and passive investing? it seems to have percolated again lately with bill gross and jack bogle. you may have seen bill gross’ recent letter, which he specifically mentions jack. where do you stand on this as we have certainly seen a sizeable move from the retail investor into passive funds etf? absolutely. we’ve seen a huge trend in that direction at schwab. not only mutual funds, no-load mutual funds, index funds and etfs. they’re wonderful products for investors to lower the costs, improve liquidity, get balanced accounts and portfolios. at very low cost. one s&p fund is now four basis points per annum. it’s unbelievable savings to investor. we see a huge trend away from individual stocks in trading. not complete bailout. many people are taking up the fact that this is a smart way to invest. index funds are the way to get broad diversification. i don’t have to worry about it as much as i used to. another debate that’s really raging to some extent right now is whether this market can be trusted and whether high frequency traders are destroying it and undermining market functioning. just to put up an op-ed of yours from the summer, really embraces this issue, talks about the concern that individual investors are fleeing stocks. says high frequency traders are gaming the system. that got a ton of attention, made people worried. i turn around and read — i don’t know if you’ve seen this, cliff’s top ten pet peeves where he says, there’s no reason to blame high frequency trading. it has evolved to meet the demand for today’s market. it’s lowered costs and the people who criticize is-t simply don’t understand them. well, we’re not fans at all of high frequency trading. we think it take as way from the marketplace. it doesn’t add liquidity it to it. we think it chip as way at confidence of investors who are not pleased with it. i think it should be controlled or maybe even for that matter outlawed as such because it really distracts from the true

Charles Schwab: Equities and innovation grow America

Charles Schwab, Charles Schwab chairman, shares his views of Dow 20,000 and innovation in America. “The benefit of the great American growth story is through equities,” Schwab say.


would you feel comfortable saying, you know, in the next year two or three we will see a dow 20,000? oh, i think it’s very possible, yes. in other words, a lot — if you look at the depths of 2009 seemed to be what happened in the equity markets and the economy to some extent is reverting to the mean and the mean is somewhere below. now the view from 2013 seems to be, no, the impetus is higher. is tgher, and is this a multi-year cycle that’s going to be playing? i’m a very confident investor. it will eventually reach that point. it may not be that day but equities will grow. it’s innovation, new stores, new ideas, that’s where you get the benefited of great american growth story, through equities. it’s a matter of time, relax, take the long term view and you’ll be just fine in your 401(k) or individual portfolio.


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