Subsequent Events

9 Months Ended

Sep. 30, 2020

Subsequent Events [Abstract]

Subsequent Events

Subsequent Events

On October 6, 2020, the Company completed its acquisition of TD Ameritrade, pursuant to the merger agreement. As a result of the acquisition, TDA Holding became a wholly-owned subsidiary of CSC. The Company issued approximately 586 million common shares to TD Ameritrade stockholders in the acquisition, including shares of a new, nonvoting class of CSC common stock. Immediately prior to the acquisition, on October 6, 2020, the Company amended its certificate of incorporation to create the nonvoting class of common stock with 300 million shares authorized for issuance and to increase the number of authorized shares of capital stock by the same amount. Additionally, in conjunction with the acquisition on October 6, 2020, the stockholder agreement with TD Bank, the registration rights agreement with TD Bank and Charles R. Schwab, and the amended and restated IDA agreement with the TD Depository Institutions, as further detailed in Part I – Item 1 of our 2019 Form 10-K, became effective.

Under the amended IDA agreement, which replaced the previous IDA agreement between the TD Depository Institutions and TD Ameritrade, the TD Depository Institutions make available to Schwab customers FDIC-insured (up to specified limits) money market deposit accounts. Schwab provides marketing, recordkeeping and support services to the TD Depository Institutions with respect to the money market deposit accounts for which Schwab receives an aggregate monthly fee, determined by reference to certain yields, less a service fee on client cash deposits held at the TD Depository Institutions, FDIC deposit assessments, and interest on deposits paid to customers (on a net basis, the “sweep arrangement fee”). Though unlikely, in the event the sweep arrangement fee computation were to result in a negative amount in any given month, Schwab would be required to pay the TD Depository Institutions. Under the terms of the amended IDA agreement, the service fee on client cash deposits held at the TD Depository Institutions was reduced to 15 basis points from the 25 basis points paid by TD Ameritrade under its previous IDA agreement. Additionally, the previous IDA agreement had floors in place which enabled TD Ameritrade to carve-out up to $20 billion of IDA deposits designated as floating-rate investments from the applicable service fee during specified low-rate environments. Under the amended IDA agreement, the renegotiated 15 basis point rate will be applied across all designated fixed and floating IDA balances.

The sweep arrangement fee received by Schwab under the amended IDA agreement, as well as bank deposit account agreements with other third-party depository institutions, will be included in a new revenue line item in our consolidated statement of income titled bank deposit account fees.

Under the amended IDA agreement, there will be an initial period during which the amounts swept to the TD Depository Institutions will solely be composed of customer funds from the TD Ameritrade subsidiary broker-dealers. Following this initial period, CSC’s subsidiary broker-dealers can sweep client funds to money market deposit accounts at the TD Depository Institutions, subject to certain limits. Beginning July 1, 2021, CSC’s subsidiary broker-dealers, including the TD Ameritrade broker-dealers, will have the option to reduce deposit balances swept to the TD Depository Institutions by up to $10 billion over each 12-month period, subject to certain limits and adjustments. Such limits and adjustments include Schwab’s obligation to move all of the uninsured IDA sweep balances on July 1, 2021 to its balance sheet or to other third-party depository institutions, which will count against the optional reduction amount, and the requirement that Schwab can only move floating IDA balances. Schwab’s initial reduction will also be affected by the net change in IDA sweep balances between the effective date of the amended IDA agreement and June 30, 2021. In addition, Schwab is also required to maintain a minimum $50 billion IDA balance through June 2031 and at least 80% of the IDA balances must be designated as fixed-rate obligations through June 2026.

The amended IDA agreement will have an initial expiration date of July 1, 2031, subject to automatic renewal for a five-year term if not terminated by either CSC or the TD Depository Institutions two years prior to the expiration date. For further details surrounding the amended IDA agreement, see Part I – Item 1 of our 2019 Form 10-K.

Pursuant to the merger agreement, CSC issued approximately 177 million shares of common stock and approximately 77 million shares of nonvoting common stock to TD Bank and its affiliates on October 6, 2020. Those shares of common stock and nonvoting common stock were issued in reliance upon an exemption from registration afforded by Section 4(a)(2) of the Securities Act. Following this issuance, TD Bank exchanged an aggregate of approximately 2 million shares of CSC common stock for an equal number of shares of CSC nonvoting common stock and held approximately 79 million shares of nonvoting common stock as of October 31, 2020. TD Bank and its affiliates are not permitted to own more than 9.9% of CSC common stock. This limit is interpreted in accordance with the applicable rules of the Federal Reserve and includes shares of CSC common stock deemed to be beneficially owned directly or indirectly by TD Bank and its affiliates.

See Notes 3, 9, 10, 13, and 15 for additional information on the TD Ameritrade acquisition.