And the JBOH is NOT a class act. How can JBOH solve this?:"For Frazzled Online Brokers, Technology Is the Problem
By SCOTT THURM
"Someday we'll all trade this way," online stock broker E*Trade Group
Inc. advertises. Now that millions of investors are, E*Trade and other
online brokers are in a desperate race to keep up.
Hardly a week goes by without a computer
glitch disabling a major online brokerage;
Charles Schwab Corp.'s system went down
for 20 minutes on Monday. Yet industry
executives and analysts say these outages aren't likely to end soon.
What's behind the trouble? Unrelenting growth has made online brokers
the guinea pigs of the Internet age, pushing the limits of computer systems
and software into uncharted territory.
Here's the challenge: Track investor portfolios and execute thousands of
stock trades simultaneously while serving up continuously updated news,
stock quotes and chat, all without an error. "We're the bleeding edge,"
says Peter Stern, chief technology officer at Datek Online Holdings Corp.
in Iselin, N.J. The central issue, he says, is "how fast can we dish out
information from a database and stick it in [the user's] face."
Online Outages
Recent trading outages at online stock brokerages:
Date
Brokerage
Duration
(minutes)
March 1
Charles Schwab
20
Feb. 24
Charles Schwab
90
Feb. 8
Ameritrade Holdings
28
Feb. 5
E*Trade Group
30
Feb. 4
E*Trade Group
165
Feb. 3
E*Trade Group
75
Source: The companies; WSJ research
The answer, sometimes, is not fast enough, at least not for the day traders
who have flocked to online trading and expect lightning-fast trade
executions and no breakdowns. "No other industry is processing as many
transactions with as tight a tolerance" for error, says Bill Burnham, an
analyst at Credit Suisse First Boston.
Embarrassing Failures
The problems are generally not with the Internet, or even the computer
hardware. After embarrassing failures in the fall of 1997, the major online
brokerage firm beefed up their Internet connections, and they are
continually adding computers to handle more transactions. But the crucial
software knitting these computers together is unproven and vulnerable,
particularly the connections between the Internet "servers" that display
Web pages and the back-office computers that actually process the
trades.
This software, called "middleware,"
communicates between these two groups of
computers that often speak different
languages. The software also balances the
flow of data so that no computer gets
overloaded.
At Schwab, its problems largely have involved software that links its
International Business Machines Corp. and Hitachi Ltd. mainframes to
operate as a unit. Schwab has six mainframes: three that hold customer
account information, and three that actually execute the trades or pass the
trades off to exchanges for execution.
Two decades ago, it was airline-reservation systems that taxed the limits of
IBM's mainframe software, says Gus Maikish, vice president for Wall
Street sales at the Armonk, N.Y., computer maker. The systems would
balk, and the bugs would be identified and fixed before the software was
rolled out to other industries, he says. Today, online brokers perform that
role.
Airline Systems Comparison
Online trading systems still don't handle the volume of transactions of a
major airline-reservations system, such as the one run by Sabre Group
Holdings Inc. Schwab handles about 1,000 computer transactions per
second during peak times, compared with about 6,000 for Sabre. But this
comparison is misleading, says Dawn Lepore, Schwab's chief information
officer.
For one thing, the broker systems are usually encrypted, adding a layer of
complexity in the computer processing as it decodes each incoming
message, Ms. Lepore says. Brokerage databases also change much more
rapidly than those in an airline system, because they must track every new
quote and trade.
Opening up to the Internet adds more complexity. The managers of
brokerage computer systems used to be able to plan for a maximum
number of users, and simultaneous transactions, based on the size of their
own sales force. Merrill Lynch & Co., the industry's largest, has roughly
18,000 brokers and account executives, for example. But once a
brokerage firm goes online, volume can explode unpredictably. At peak
times, Schwab now has more than 60,000 simultaneous users on its Web
site, and is expanding its network to accommodate 200,000. Schwab now
handles 155,000 trades a day online, more than 60% of its total trading
volume.
Putting IBM to the Test
IBM's mainframe-linking software has had trouble keeping up with this
surge. Mr. Maikish says IBM had never tested the software at these high
volume levels. Even if it had, the testing may not have uncovered the
problems. "There's a big difference between what you encounter in a test
and what you encounter at market open," Ms. Lepore says.
Most of the recent outages resulted from efforts to keep up with growth.
Schwab was adding a second mainframe to handle online trades when its
system crashed last week. E*Trade's computers faltered for parts of three
days last month after the company installed new hardware and software
designed to speed transaction processing.
When will the brokers catch up? Probably not before growth slows,
analysts and executives say. "Nothing can grow at 40% a month forever,"
says IBM's Mr. Maikish. "Eventually it will come down to something they
can handle."
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