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Small investors pull back on stock trading -TD Ameritrade

By Jed Horowitz

NEW YORK, June 4 (Reuters) - Retail equities investors have put stock trading on hold as they wait for more certainty about the economic recovery and more volatility that can translate into trading profits, the head of TD Ameritrade Holding Corp said on Wednesday.

"The market is pretty dead," TD Ameritrade Chief Executive Fred Tomczyk said at Sandler O'Neill & Partners' global exchange and brokerage conference on Wednesday. "There is no conviction in the market. Everybody's pausing."

Although the S&P 500 stock index has risen in seven of the past nine sessions and through much of the second quarter, trading volume has been thin

Analysts track monthly trading volume statistics from discount brokerage firms such as TD Ameritrade to gauge confidence in markets, as well as profitability of brokerage firms.

Tomczyk's comments followed E*Trade Financial Corp's disclosure on Monday that average trading volume from its customers in May fell 14 percent from April and was off 9 percent from May 2013.

TD Ameritrade has not yet disclosed its May trading volumes.

This year started out strong as investors stepped up trading following a year in which the S&P 500 stock index rose 30 percent. At the same time, investors retreated from buying bonds and bond funds with rock-bottom interest-rate yields. TD Ameritrade, which has more active trading clients than competitors such as E*Trade and Charles Schwab Corp, also said volatility early in the year encouraged clients to borrow from the firm in their margin accounts so they could try to skim profits from rapid fluctuations in the market.

The S&P 500 index rose or fell 1 percent or more on 25 days from January through the end of March, versus just 12 days in the same period of 2013. TD Ameritrade's net interest margin and trading volume in the first three months of the year were higher than analysts had expected.

"There's no volatility now," Tomczyk said. "Where the market goes from here is going to depend on April, May and June (economic) indicators. April was a non-event."

When TD Ameritrade reported its fiscal second-quarter earnings on April 23, Tomczyk said signs of a gradual recovery in the U.S. economy were encouraging investors to buy stocks. He retreated from that conviction on Wednesday, but said the current absence of confidence and of volatility was "abnormal."

Volatility is bound to return to the market in the next few years as the Federal Reserve pulls back its stimulative bond-buying, he said, though he expressed surprise that 10-year U.S. bond rates continue to loll.

Low interest rates depress discount brokerages' profitability, which depends largely on trading commissions and returns from investing cash in clients' accounts. "There will be gyrations and volatility when (the Fed) pulls back, ...assuming that we do get out of this funky economy," Tomczyk said.

(Reporting By Jed Horowitz; Editing by David Gregorio and Marguerita Choy)