Web brokers address surge
Spot shutdowns, trade limits imposed as firms
add capacity to handle volume
January 15, 1999: 3:20 p.m. ET
NEW YORK (CNNfn) - Online brokerages, trying to
lure investors with low commissions and quick
transactions, may have done their job too well -- the
result being slowdowns and occasional stoppages of the
major trading houses during recent volatile periods.
The problems call into question the ability of the
online services to deal with increased volume,
particularly at the times when investors are most apt to
feel as though they need to buy or sell.
One Internet trading service, Waterhouse Securities,
was taken down for about an hour earlier this week
because of delays in reports of executions returning to
customers, says Melissa Gitter, the firm's public relations
manager. She says that outage and other smaller ones
which have occurred in recent weeks were conscious
decisions on the part of Waterhouse management because
the execution report delays became unacceptable.
Another firm, Discover Discount Brokerage, is
reported to have experienced brief shutdowns due to
volatility.
Last Friday, Charles Schwab's online trading was
down for about 15 minutes at the opening due to
complications from the loading of additional capacity to
support the Web site's quote service, says Tracy Gordon,
a vice president of corporate communications. She says
the firm has not needed to take down the trading system
intentionally, despite volume of 70 million hits a day.
E*Trade Group says its site has never been taken
down, "although there definitely has been some
slowness," says Lisa Nash, a vice president for customer
management.
"We have rearchitectured our site and don't have to
bring it down," says Nash. "If we see one of our channel
of servers that's getting heavy usage, we rebalance the
load and migrate those customers to another server."
Suspended issues
Waterhouse has suspended online trading of 11
particularly volatile issues: America Online (AOL),
Amazon.com (AMZN),CMGI (CMGI), Yahoo! (YHOO),
Excite (XCIT), eBay (EBAY), uBid (UBID), Data
Broadcasting (DBCC), Lycos (LCOS), Broadcast.com
(BCST) and CBS MarketWatch (MKTW).
Gitter says Waterhouse customers can trade the stocks
through the firm's TradeDirect phone service or through
its 150 branch offices, and pay the same $12 fee for
trades up to 5,000 shares.
"This is nothing new in the industry," says Gitter in
describing the trading suspensions. "Other players have
made moves to bar certain securities with volatile
trading."
Indeed, Schwab, the largest online trading firm, says
it has prohibited trading of Internet-related IPOs on the
day they come to market, according to Gordon. She says
the firm is concerned that investors might suffer a severe
loss due to market fluctuations in such issues.
E*Trade allows only limit orders on IPOs when they
begin trading, says Nash, so that customers can be made
aware of the volatility that might cause an order to be
executed at a far different price than the price at which it
was placed.
Gordon also says Schwab is issuing advisories for
about 25 "fast-market" stocks, including Amazon.com
and Yahoo!. While Schwab permits trading in the issues,
placing an order results in an advisory screen warning
that the order might not be filled at the price it was
placed.
Bracing for the opening
Most of the problems have occurred at the busiest
time of the day, when the markets open and when they
close. "We have experienced some slowdowns at the
opening and the close due to high volume," says Paula
Ebert, a spokeswoman for Ameritrade's investor
relations department.
But Ameritrade hasn't actually shut down, as far as
Ebert knows. "It could have been extremely slow, so that
they might have timed out," she says of users who may
have had trouble getting through.
All of the firms say they're working to resolve the
service difficulties. "We've continually been upgrading
our systems and manpower to answer phones, so that
people having difficulty are able to call," Ameritrade's
Ebert says.
E*Trade's Nash says her firm has added 100 customer
service representatives and initiated a "triage" system in
order to better handle the substantial increase in service
calls.
Online trading volume has surged in recent months,
particularly during the run-up of Internet issues in late
1998. E*Trade says its online transactions were up 75
percent in the final three months of the year compared
with the same-period a year earlier. Waterhouse says the
online share of its overall volume, which has quadrupled
in the past year, has risen to 65 percent from 40 percent
at the end of 1997.
Customers are patient
"Our customers have been remarkably patient," says
Waterhouse's Gitter. "I think there's an understanding
that what's going on is happening industrywide."
Gitter says the firm fully expects to see its way
through the current surge. "We are committed to
building this business once this service problem is
solved," she says. "We're not going away."
Schwab's Gordon says that the glitches experienced by
her company and others online will do nothing to slow
the spectacular growth of Web-based trading. "It's like
when the Berlin Wall started to fall," she says. "I don't
think there's any way to stop it."
-- by Mark Meinero |
