New York Attorney General To Probe Online Brokers
Office Has Received Dozens of Complaints
By Jack Reerink
Reuters
NEW YORK (Feb. 4) - New York State Attorney General Eliot Spitzer said Thursday he would 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 in a statement. ''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 volumes in January are 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 at this year's end.
The surge in Internet trading, however, has led to many system outages at brokers, frustrating many investors.
Major Internet brokerages Charles Schwab Corp. , E+Trade Group Inc. and AmeriTrade Holding Corp. all have reported outages and software glitches recently. Many E+Trade customers were unable to trade on Wednesday because of an outage and three investors called Reuters to report problems again Thursday morning.
E+Trade, which recently was ranked the best overall online brokerage by Internet research firm Gomez Advisors, Thursday morning still battled problems caused by malfunctioning software installed on Tuesday night, a spokesman said. The firm had fixed the problem by around noon, he added.
The glitches already have attracted the attention of regulators and lawmakers. U.S. Securities and Exchange Commission (SEC) chairman Arthur Levitt recently warned 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.
Four lawmakers, among whom Democratic Rep. John Dingell of Michigan, on Thursday wrote a letter to Levitt, asking his agency for more information on online investing.
''We are concerned about the potential for a speculative bubble or 'tulip mania' affecting Internet stocks; the capacity and other operational problems afflicting online trading systems ... and the adequacy of the SEC and other relevant regulations and resources for policing this market place,'' the letter said. The U.S. Senate may hold a hearing on online trading as early as next month, the letter said.
Spitzer's office has fired off letters to several online firms, asking them to provide information about their services, such as the number of customer support people they employ and the average time it takes to process a customer's trade, spokesman Scott Brown said. Brown declined to say how which firms the Attorney General has targeted in its 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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