FEATURE-Online brokers ready for almost anything Y2K
Updated 12:14 PM ET December 8, 1999
By Gilles Castonguay
NEW YORK (Reuters) - Given the intermittent problems he has had trading stocks through his online broker's system, Bob Schreier does not want to take any chances when the calendar turns to Jan. 1, 2000 -- so he is selling all his stocks.
Despite assurances from Charles Schwab & Co. that it is ready for any computer troubles that might arise when the new year comes around, the 50-year-old accountant from Orland Park, Illinois, doubts it can deal with the very remote possibility that its system will crash at the stroke of midnight.
"I don't trust Schwab's system," he said, explaining that it has sometimes been slow to execute his buy and sell orders and, on occasion, lost them altogether when it crashed.
Schwab and other online brokers such as TD Waterhouse Group Inc. have gone to great lengths to dissuade customers from cashing out as Schreier did in the face of the Year 2000 or Y2K problem, in which computers could confuse 2000 for 1900, leading to errors or crashes.
Embarrassed by a series of system crashes in the past year, they say they have spent millions of dollars running tests, upgrading software and replacing computers to make sure that everything runs smoothly when the date changes.
And they have assured millions of investors who trade stocks through their respective Web sites that Y2K will be a nonevent: a boring alternative to the apocalyptic scenarios envisioned by survivalists who have stocked up on guns and canned tuna in their bunkers up in the hills.
NO DIFFERENT FROM ANY OTHER DAY
"I'm confident that customers will not see anything different from what they would see on any other day," said Bill Sherman, the Year 2000 project coordinator at TD Waterhouse, the world's No. 2 discount broker.
Sherman dismissed the possibility of accounts disappearing into cyberspace on New Year's Day, among other fears. "We maintain a record of client holdings on a daily basis," he said, referring to the broker's nearly 3 million accounts and $121 billion in assets.
Online brokers have hired more people to answer phones and keep branch offices open over the New Year's weekend in anticipation of a flood of questions from investors about the status of their accounts. The brokers do not expect to handle any trades since markets will be closed.
Schwab and its competitors are the fastest-growing members of the financial services industry in terms of customer accounts. Riding a bull market and a surge in interest in stocks, they have come to rival traditional houses like Merrill Lynch & Co. Inc. Charging as little as $5 a trade -- a fraction of a full-service broker's commission -- they process about 37 percent of all retail stock trades, or slightly less than 500,000 trades per day.
But the online brokers and other securities firms set aside their rivalries in preparing for Y2K, spending a combined total of $5 billion in the last four years, often coordinating their efforts through a committee set up by the industry's trade group, the Securities Industry Association.
Should anything happen despite their efforts, it will probably be an outside factor such as a power failure rather than an internal one, Arthur Thomas, chairman of the SIA's Year 2000 steering committee, said.
Greg Smith, an analyst at West Coast investment bank Hambrecht & Quist LLC, said he was worried about the prospect of a problem from outside. "It can get a little scary," he said. "You're only as strong as your weakest link."
But the North American Electric Reliability Council, which oversees the continent's power grid, recently said all but a handful of utilities were ready for Y2K and none of the remaining problems were severe enough to cause outages.
The SIA committee will run a communications center before and after the date change to keep brokers, stock exchanges and other industry members in touch with each other, Thomas said. He said the committee was determined to prevent rumors from spreading confusion or sparking panic. "Technical problems that are not Y2K-related could become Y2K problems with rumors."
READY FOR ANYTHING
Schwab, the No. 1 U.S. Web broker with 6.4 million active customer accounts and more than $620 billion in assets, is ready for just about anything that Y2K might throw at it, given the disasters it has survived, spokesman Greg Gable said.
"We've been through earthquakes in San Francisco, fires in the (San Francisco) Bay Area, storms in Florida and snowstorms in Denver," he said.
But some customers still have doubts, given the problems Schwab has had, including a series of outages in October that kept investors from placing trades through the broker's Web site. "They can't even handle the present century let alone the next one," said Schwab customer and advertising freelancer Craig Ferguson of Orlando, Florida.
Gable said the crashes were not related to the broker's Y2K preparations, which were expected to cost about $90 million."Those had to do with difficulties we encountered installing new software and additional capacity and they are now fixed."
Michal Daniel, a Minneapolis freelance photographer, said he took his online broker, industry pioneer E+Trade Group Inc., at its word on being Y2K-compliant. "I'm not going to worry about it," he said, vowing to stay away from his computer for the entire weekend.
Daniel, 42, said he planned to bring in the new year with friends and family at a chalet in the woods that he bought with money earned from trading in Y2K companies, whose business is to make computers compliant.
"It's at the end of a one-mile-long dead-end road," he said of his solar-powered refuge. "The only connection to the (power and communications) grid is the phone."
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