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Author: trader2012 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35397  
Subject: Correction On Schwab's Bond Prices Date: 11/29/2012 11:58 AM
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Schwab is NOT marking up the prices of the bonds they offer,as the term 'marking up' is customarily used. They are applying a 'commission' (based on the order quantity) and calling it a 'markup'. [By contrast, Scottrade does markup --aka, acts a principal-- and the result is more than just commish elsewhere would be.] My apologies to one and all for misstating the facts.

So, here's another comparison set, this time Vulcan's 7.15's of '37. At Schwab, the 'price' is listed as 99.925. At E*trade, 98.925, or a point lower. However, because just a single bond is available, Schwab's pricing algorithm 'knows' the order quantity can't be greater than one and that the commish will be $1/bond, $10/min per ticket, or a bond price of 99.925.

E*Trade, OTOH, calls 'price' what it is, 'price' and in the preview screen for orders applies the commish which --in this case-- would be the same $1/bond, $10/min per ticket. Thus, no matter the names, to buy that same bond through either broker is going to cost the same, and the breakdown of those costs will be the same.

Total Price = Bond Price + Commish + Accrued Interest

Thus, unless they are discounting a lot held in-house, both of them are re-quoting from the same, mostly overlapping set of underlying desks that are actually holding the inventory. Whew! Am I ever relieved. I like Schwab as a company a lot, and I wanted to be able to do bond business with them. Now I can, or at least, now that I understand how they are pricing bonds, price alone won't keep me from executing there.

Charlie
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