N.Y. probing Net brokers
CNN - February 4, 1999: 12:25 p.m. ET
State inquiry prompted by growing complaints
over service outages, delays
NEW YORK (Reuters) - New York State Attorney General Eliot
Spitzer said Thursday he will launch an inquiry into the online
brokerage industry because his office has received dozens of
complaints about delays and glitches from consumers trying to funnel
stock trades through cyberspace.
"The public knows that there are always risks involved in
investing in the stock market," Spitzer said. "But part of the risk
should not include questions about whether trades will be executed
promptly or whether online brokerage firms can deliver on the
services that they've promised."
Investors funneled a record 340,000 trades a day through the
Internet in the fourth quarter, up 38 percent from the third quarter,
and trading volume in January is rising at the same clip, according to
industry reports.
About one in seven stock trades now takes place online. Internet
brokers have signed up some 7 million customers, and many expect
that number to rise to more than 10 million by year's end.
The surge in Internet trading, however, has led to many system
outages at brokers, frustrating many investors.
Major Internet brokers Charles Schwab Corp. (SCH), E*Trade
Group Inc. (EGRP) and AmeriTrade Holding Corp. (AMTD) all have
reported outages and software glitches recently.
Many E*Trade customers could not trade Wednesday because of
an outage and one investor reported problems again Thursday
morning.
The glitches already have attracted the attention of regulators,
prompting Securities and Exchange Commission Chairman Arthur
Levitt to warn cyberspace investors that they can end up paying more
for a stock than they thought because of system delays and Internet
shares' wild price swings.
Stocks such as those of Internet media company Yahoo! Inc. can
gain or lose tens of dollars in the space of an hour.
Spitzer's office said it sent letters to several online brokers,
asking them to provide information about their services. A
spokesman wasn't immediately available to name the firms subject to
the inquiry.
"Based on the tremendous growth of online trading, and a
corresponding increase in complaint calls to my office, this is an issue
we must look into," Spitzer said. "Unfortunately, it seems that often
the information super highway is full of potholes for consumers."
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