TD Ameritrade amends TD Bank pact, permitting more buybacks


(Corrects to say that the cash sweep arrangement between TDAmeritrade and TD Bank is not governed by the shareholderagreement between the two)

By Jed Horowitz

NEW YORK, Dec 5 (Reuters) - TD Ameritrade Holdings,the largest discount brokerage firm by daily trades it executes,has modified its agreement with Toronto Dominion Bank, itslargest shareholder, in order to give the broker more leeway todo stock buybacks and to extend the relationship between the twofor five years.

Currently, if the Canadian bank's ownership of TD Ameritradecommon stock rises above 45 percent because of a sharerepurchase, it must sell down its stake "as soon aspracticable." As of Sept. 30, TD Bank owned 42 percentof the U.S. brokerage firm's common stock.

Under an amendment that goes into effect on Jan. 24, 2016,the bank agreed to use "reasonable efforts to sell or dispose"of stock that brings it over the 45 percent limit, but "has noabsolute obligation" to do so, according to a Thursday morningfiling from TD Ameritrade with the Securities and ExchangeCommission.

The filing could encourage buying of the brokerage stock,since buybacks tend to temporarily boost share prices. Thebrokerage firm has made no buybacks this year.

The earnings of TD Ameritrade and other large discountbrokers are highly dependent on rising interest rates, andinvestors have been buying TD Ameritrade shares in anticipationof a change in Federal Reserve policy. The Fed is widelyexpected to scale back the pace of its bond purchases in comingmonths, which could push interest rates higher.

Shares of TD Ameritrade have risen 88 percent over the last12 months, including reinvested dividends.

TD Ameritrade and TD Bank have extensive businessrelationships, including reduced fees to the broker when itsweeps customer unused cash into bank deposit accounts, that arenot affected by the shareholder agreement.

The amended agreement also extends the shareholders'agreement with the bank by five years to Jan. 24, 2021. It wasset to expire in January 2016. The stockholders agreement withfirm founder Joe Ricketts, however, expires in January 2016,meaning he will not be able to designate directors for thefirm's board. Ricketts and his family own about 67 millionshares of TD stock.

The amended agreement also allows the bank to deduct fromits ownership total up to 2 percent of securities it holds forclients or in other capacities "in the ordinary course ofbusiness." The exemption under the current agreement is 1percent. The bank also agreed to sell down the "ordinarysecurities" to 1 percent of outstanding shares within sixmonths.

The new agreement also obligates the bank as of January 2016to vote the so-called ordinary shares, if they exceed 1 percentof outstanding stock, and any excess stock over 45 percent, inthe same proportion as all shareholders on corporate governancematters submitted for a vote.

Shares of discount brokers were down slightly in earlymorning trading on Thursday. TD Ameritrade's shares were off 16cents, or 0.6 percent, to $28.51 on the New York Stock Exchange.Shares of Toronto Dominion Bank were down 1.8 percent.

(Reporting By Jed Horowitz; Editing by Chris Reese)

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