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SAN FRANCISCO (AP) -- E-Trade Financial Corp. is setting out to become the fastest broker on the Internet by guaranteeing to complete trades of most blue-chip stocks within two seconds.
If a trade involving up to 500 shares of any stock listed in the Standard & Poor's 500 index isn't processed within two seconds of an order, E-Trade will waive its normal commission, which typically ranges from $9.99 to $19.99.
New York-based E-Trade made the promise Thursday, accelerating a race that began 2 1/2 years ago when rival AmeriTrade Holding Corp. pledged to execute stock trades within 10 seconds.
E-Trade subsequently upped the ante by vowing to complete orders in nine seconds, only to be outdone late last year when AmeriTrade and Fidelity Investments rolled out five-second guarantees.
The gamesmanship reflects an intensifying battle for frequent stock traders, who often make money on price fluctuations that occur within a matter of seconds. Frequent traders are prized by brokerages because they generate more commissions and profits.
E-Trade won't specify how many of its 2.8 million brokerage accountholders qualify as "active investors"--a description that E-Trade applies to customers that make at least 27 stock trades every three months.
Although the difference of a few seconds won't matter to most investors, E-Trade nevertheless is betting its two-second pledge will impress the masses, helping to attract more customers.
"We think speed is a proxy for the quality and execution of a brokerage," said Mike Curcio, an E-Trade executive vice president.
Not all online brokers feel compelled to make promises or boast about how quickly they can execute trades.
Charles Schwab Corp., the largest online broker, believes the need for speed is so important that customers should be able to take it for granted, said company spokeswoman Sondra Harris.
"Technology has come so far that making a guarantee (like E-Trade's) is really unnecessary. It sounds mostly like a marketing message."
But E-Trade risked looking bad if it didn't respond to the challenge posed late last year by AmeriTrade and Fidelity, said industry analyst Richard Repetto of Sandler O'Neill & Partners. "A nine-second guarantee starts looking pretty slow when everyone else starts saying they can do it in five seconds."
E-Trade plans to showcase its swiftness in national television ads scheduled to begin airing Friday during CBS's coverage of the NCAA men's basketball tournament. The ads are part of E-Trade's $90 million marketing budget this year.