Online brokerage firms including Charles Schwab, TD Ameritrade and E-Trade sank Tuesday after CNBC reported J.P. Morgan Chase will offer a new digital investment app with free trading.
Charles Schwab's stock fell 2.4 percent.
J.P. Morgan will launch its new service next week. All customers get 100 free stock or ETF trades in the first year. Those with Chase Private Client get unlimited trades.
The new program comes bundled with free or discounted trades, a sophisticated portfolio-building tool and no-fee access to the bank's stock research.
Responding to the move, a TD Ameritrade spokeswoman told CNBC that the company is "very well positioned to compete and win in a low-cost environment."
"However, the competitive environment will likely continue to shift, and we will remain nimble," the spokeswoman added. "We continually evaluate our offerings and pricing, taking into account recent competitive changes and enhancements."
For its part, e-broker Interactive Brokers said in an emailed statement that the company "will continue to be the choice of sophisticated investors and institutions."
"Other banks and brokers that give away so-called free or cheap trades make their money by paying next to nothing on idle balances, executing trades at inferior prices, and charging exorbitant borrowing fees, which is costly to those that don't do their homework," wrote Steve Sanders, Interactive Brokers' executive vice president of marketing.
The company's stock fell 2.5 percent Tuesday.
"Since its founding, our firm's priority has been to make investing more accessible and affordable for all investors – providing clients with exceptional value, service and transparency," said a Charles Schwab spokesman. "Any action by others to help people invest in their futures is positive, and Schwab will continue to aggressively lead the way in improving how people invest and manage their wealth."
Remarking on the fall in the stocks, Rich Repetto of Sandler O'Neill & Partners said that while the move could weigh on e-broker earnings, he is not overly concerned about the group.
"It's not good, but it isn't the end of the world. They will all still be profitable, but certainly today the stocks will trade down on the headline risk," the analyst told CNBC. "What you also should know is about one-third of trades at TD Ameritrade and E-Trade are derivatives, options trades, which would require a more complex platform."