TD Ameritrade Holding Corp substantially cut its profit, revenue and trading forecasts in the face of low volatility and interest rates, a difficult environment that it compared to last decade's dotcom market crisis.

The second-largest U.S. discount brokerage also on Tuesday posted a 23 percent quarterly profit rise that was helped by a tax boost, but that fell just shy of Wall Street expectations.

The combination of lower intraday volatility and near-zero interest rates presents a unique operating challenge for us, CEO Fred Tomczyk said on a conference call.

For the first time that I've seen, both are trending to the low end of the scale, he added. This perfect storm creates one of the more difficult operating environments we've encountered since the bust of the tech bubble.

TD Ameritrade shares rose 2.2 percent to $20.50 as analysts -- who mostly anticipated the forecast adjustment -- highlighted the 59 percent jump in net new client assets, to a record $10.2 billion in the quarter.

The company's second quarter results were also helped by last year's purchase of thinkorswim Inc. The CEO said he expects earnings pressure for the rest of the year, adding it was prudent to adjust the financial forecast.

TD Ameritrade expects to earn between 90 cents and $1.10 per share this fiscal year, down from the $1.10 to $1.40 range it predicted in October. It also expects daily trading activity to be about flat compared to last year -- representing as much as a 20 percent lower forecast than it delivered in October.

Market volatility has dropped the last few quarters, signaling traders have backed off since the depths of the market crisis early last year.

Daily trading in the quarter jumped 17 percent from last year primarily due to the addition of options-focused broker thinkorswim. The company said trading rose another 8 percent so far this month, still well off the highs reached last summer.

During the peak times the number of retail trades was ridiculous, driven by all of the retail trading of Citigroup and other low-priced stocks. Now we are seeing the number of trades reverting ... and we expect it to settle down at these levels, said Diego Perfumo, an analyst at Equity Research Desk.

LOW RATES PINCH

U.S. interest rates remain low in a government effort to kick-start the recession-hit economy, pinching interest-based revenue at fund managers such as TD Ameritrade and Charles Schwab Corp and compelling them to waive fees on money market mutual funds so that clients' margins do not dwindle.

TD Ameritrade expects record asset gathering this year, helping to offset interest rates it predicted would remain low for at least the next six months. Bill Gerber, the CFO, told Reuters the fee waivers likely peaked in the latest quarter.

The Omaha, Nebraska-based company earned $162.6 million, or 27 cents per share, in its fiscal second quarter that ended March 31, up from $132.0 million, or 23 cents, in the same period a year earlier.

Revenue climbed 21 percent to $635.4 million. The company expects revenue between $2.44 billion and $2.69 billion this fiscal year, down from its previous range of $2.54 billion to $2.99 billion.

Excluding a low one-time tax rate, TD Ameritrade said it earned 23 cents per share. Analysts on average expected the company to earn 24 cents per share on $631.7 million in revenue, according to Thomson Reuters I/B/E/S.

Despite the arguably softer results, there were several positive data points, including strong account and net new asset growth, Raymond James analyst Patrick O'Shaughnessy wrote in a note to clients.

Toronto-Dominion Bank , TD Ameritrade's largest shareholder, said the results would add C$56 million ($56 million) to its wealth management segment's quarterly income.

TD Ameritrade closed its $606 million purchase of thinkorswim in June. Management has since said it would not hesitate to make another acquisition, and that it has the cash to do so. Analysts see it and larger rival Charles Schwab Corp as potential buyers of E*Trade Financial Corp , long rumored a takeover target.

Schwab, the top discounter, said Tuesday it would pay $200 million to settle a federal suit related to its YieldPlus Fund. Last week, it reported a steep 45 percent quarterly profit drop, hampered by rates and trading.

(Reporting by Jonathan Spicer, editing by Dave Zimmerman, Derek Caney and Matthew Lewis)

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