Tulips are wilting:Schwab Bars Web Trading of Infinity, 3 Internet IPOs (Update3)
12/11/98 14:48
(Adds E*Trade comment in 10th paragraph, updates stock price
in last paragraph.)
San Francisco, Dec. 11 (Bloomberg) -- Charles Schwab Corp.,
the biggest online brokerage, said it will periodically suspend
the trading on its Internet Website of some Internet stocks and
other securities because of their volatility.
Schwab late yesterday notified customers on its Web site
that they couldn't place trades online for Infinity Broadcasting
Corp. and three recent or pending initial public offerings of
Internet stocks. It's the third time in less than two weeks
Schwab has put stocks on a no-trade list, and about 15 stocks in
all have been on the list for about a day each.
Schwab allowed its customers to resume online trading of
Infinity and Abovenet Communications Inc. this morning, while
Internet America Inc. 'is probably resuming today,'' said Schwab
spokesman Tom Taggart. Infospace.com Inc. will remain on the list
until after it first sells shares, probably next week.
''These securities have been removed from electronic trading
due to expected volatility and fast-market conditions,'' Schwab
said in a notice posted on its Web site at 6:30 p.m. yesterday
New York time. ''Volatility and fast-market conditions could
result in price quotes significantly different from current
trading prices and cause delays in reports of order execution.''
E*Trade Group Inc., the No. 2 online brokerage, has ''never''
discussed halting online trading in volatile stocks, said Lisa
Nash, vice president of customer management. ''We are an Internet
company, we believe in the Internet, and we believe in our
investors,'' she said.
In Person Trading
Stocks on Schwab's electronic no-trade list may be traded in
person at a Schwab branch or over the telephone at normal online
commissions, said Taggart.
''Because online quotes are not always representative of the
current price of the stock, you do see an inordinate number of
changed and canceled orders as people try to watch the trading,''
said Taggart. Most Schwab customers use market orders, which are
filled as soon as possible at the prevailing market price, as
opposed to ''limit'' orders, which are filled at a pre-specified
price if the market allows.
Schwab's trading restrictions are an overreaction, said
Steve Franco, electronic commerce analyst with Piper Jaffray Cos.
''They think they're protecting their customers, but at what
point do they become the 'risk Gestapo?' '' he said. ''They
should teach their customers not to place market orders.''
Online trading companies have ''a real problem'' --
especially on the first day a popular IPO trades -- with orders
that appear to set prices though they aren't ever actually
executed as trades, Franco said. ''You never know what's the
real market'' because of cancellations.
Schwab's move comes less than a week after it raised
maintenance margins -- the in-house requirement for the amount of
customer cash that must back trades using borrowed money -- on 22
Internet-related stocks. At least five other online brokers also
raised maintenance margins on Internet stocks in late November
after two weeks of wide price swings and surging IPOs.
The online trading industry, which moved most of its trading
to the Web less than two years ago, has wrestled with technology
problems as its volume has grown by more than 10 percent from one
quarter to the next, and as it's become the vehicle of choice for
day traders who try to profit from small price differences.
Schwab yesterday said average trading by fee-paying
customers rose 19 percent in November to 120,900, and that figure
is up 84 percent during the past 12 months. About 54 percent of
its fee trades are made online, Schwab has said, and about one-
third of its $461 billion in assets are held in accounts with
online trading passwords.
Schwab rose 2 7/16 to 58 3/4 in afternoon trading. |
