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Online trades jam system
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October 28, 1997: 6:42 p.m. ET
Internet brokerages report record volume - but not everyone gets through
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NEW YORK (CNNfn) - Kevin Ganschow was eager to cash in on bargain stock prices with his online broker, but all he got was a "failure to connect" message when he fired up his computer Tuesday morning.
He tried 15 times to log on to E*Trade to buy Intel Corp. stock at a bargain of 68-7/8 a share, but watched helplessly as the stock jumped up to 86-1/2.
"I would have made a tidy little profit," said Ganschow, an engineer in the San Fransisco Bay area. "As an investor, I feel like I was left out in the cold. It's not going to make or break me, but it would have been a nice vacation for my wife and I."
While many online investors were able to complete trades, others were left fuming after a record volume reached more than 1 billion shares on the New York Stock Exchange. Some online brokerages said their business more than doubled.
CNNfn Interactive was flooded with e-mails from more than 800 people who had trouble completing online trades.
"I will definitely think twice about trading with them ever again," wrote Robert Weisberg.
Another e-mailer, who gave his name only as "Jeff B.," wrote, "I am really angry and will almost certainly move that account now."
Online trading has evolved in the last two years for an increasing number of investors,. While there have been tie-ups, Tuesday's historic jam proves online companies will have to put their profits in upgrading their infrastructure, said Bob Walberg, an analyst with Briefing.com.
"Online trading has really begun to gain momentum," Walberg said. "It's the wave of the future."
But Walberg and online companies said that the entire system was inundated late Monday and Tuesday - from discount brokers to traditional investment houses.
Blake Darcy, chief executive officer of DLJ direct, the online brokerage component of investment bank Donaldson Lufkin Jenrette, said overall volume more than doubled. He acknowledged some customers got "timed out," or automatically logged off because of the deluge.
"Obviously when you have this type of volume or volatility, it puts a strain on all systems," Darcy said. But he said he didn't hear any loud complaints after spending most of Tuesday on the floor of DLJdirect's customer service and trading unit.
"During high volume periods, where everyone knows you're going through extraordinary events, people understand," Darcy said.
Kim Shepherd, spokeswoman for E*Trade, said early Tuesday the company had no widespread problems. On Tuesday, the company handled some 50,000 bids.
Walberg said online brokerages generally did a good job managing increased volume.
"I expect Ameritrade, E*Trade, Schwab and Fidelity will spend more money on infrastructure over the next few years to alleviate delays," Walberg said.
Experts like Bill Burnham, who works in electronic commerce at Piper Jaffray, said online trading is having a profound effect on many investors. (178K WAV) or (178K AIFF)
Alex Stein, a principal at Gomez Advisors, said the lesser-known brokerages, such as Datek and Webstreet, appear to be doing the best job of meeting demand.Gomez Advisors analyzes online brokers.
"What I expect to see out of this is a few of the players will come out smelling like roses," Stein said. However, he said the cost of entry is going up.
"DLJdirect, E*Trade and Schwab are all spending tens of millions on marketing and raising the barrier to entry substantially. I think we'll see a cooling-off in the number of 'me-too' brands," said Stein.
Briefing.com's Walberg predicts in 10 years the majority of trades will occur online.
"I think we're heading to a point where trading will be totally free and deals won't be structured on a per-trade basis. People will pay flat fees or fees based on some other structure," Walberg said.
In the meantime, customers like Ganschow hope they won't continue to get "failure to connect" messages.
"I've been a small-time investor for 20 years, and I like to participate when everyone is heading to the hills," Ganschow said. "It was very frustrating to watch as the market skyrocketed."
-- By staff writers Martine Costello and Cyrus Afzali
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