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consolidated Federal income tax returns and computed its taxable
income under the accrual method of accounting.
Charles Schwab & Co., Inc., the operating subsidiary, was
incorporated in 1971 as the First Commander Corp. under the laws
of the State of California. First Commander Corp. changed its
name to Charles Schwab & Co., Inc. (Schwab & Co.), in 1973 after
Charles R. Schwab became its owner and chief executive officer.
Schwab & Co. initially conducted a retail securities
brokerage business from a single office in California and
published an investment advisory newsletter. In 1974, Schwab &
Co. took advantage of a trial period during which the Securities
& Exchange Commission (SEC) permitted discounts on securities
commissions. On May 1, 1975, the SEC abolished fixed commission
rates, and Schwab & Co. engaged exclusively in discount
securities brokerage transactions by focusing its marketing
efforts on investors who wished to conduct their own research,
make their own investment decisions, and avoid paying brokerage
commissions for research, advice, and portfolio management.
In November 1982, Schwab & Co.’s parent company, Schwab
Holdings, Inc. (which, at that time, was called The Charles
Schwab Corp.), agreed to merge into BankAmerica Brokerage Co.
(BBC), a wholly owned subsidiary of BankAmerica Corp.
(BankAmerica). As a result of the merger, Schwab & Co. became a
wholly owned subsidiary of BBC. In January 1983, BBC changed its
name to The Charles Schwab Corp.
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