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Online brokers widen net
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June 19, 1998: 4:13 p.m. ET
Services expand after electronic trading jam in October market fall
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NEW YORK (CNNfn) - Wall Street may have its ups and downs, but the hyperactive world of online trading is skyrocketing.
In fact, many Internet brokerages have doubled or tripled their capacity since the Dow Jones industrial average sunk 554 points on Oct. 28, 1997.
Meanwhile, the number of people buying and selling stocks on the Web has grown 25 percent, to about 5 million. And every day, the system gets bigger.
"We routinely handle more volume than we did in October," said Vincent Phillips, vice president of web systems for electronic brokerage technology at e.Schwab in San Francisco.
More than 1 billion shares changed hands on the New York Stock Exchange that October day. The delays tied up all of the exchanges, the traditional brokerages and the companies that process orders. But the bottlenecks in online trading were the worst since the industry took off in 1995.
Major expansions
"Since October, many (online) brokerages have invested millions of dollars to expand their capacity," said Steven Hall, senior consultant at Gomez Advisors in Boston.
e.Schwab tripled its overall capacity, Phillips said. It can handle 25,000 "simultaneous log-ons," up from 10,000 in October. (More than 25,000 people can use the system at once, however).
The brokerage now routinely handles more than 91,000 trades a day -- the same number that clogged it on Oct. 28, 1997. It added 500,000 new online customers in 1998, up from 1.2 million in December. Assets in those accounts grew from $80 billion in December to $120 billion as of May 31.
In January, e.Schwab changed its service so online customers could use the phone system or go to branches for the same price of $29.95 a trade. The additional options will help online investors on busy days, Phillips said.
DLJ Direct, the online brokerage arm of investment bank Donaldson Lufkin Jenrette, also tripled capacity, said Blake Darcy, chief executive officer. DLJ Direct can handle 24,000 simultaneous log-ons, up from 8,000 in October.
DLJ Direct added the most new customers the day after the October correction. Darcy thinks some investors were fed up with traditional methods. "They were frustrated with the traditional way of trying to get through to a broker."
Hall said the expansion included adding capacity as well as creating backup systems. E*Trade and Discover Brokerage Direct are among the other services that increased in size.
For the future
But despite the changes, there will still be some delays on unusually heavy trading days, Hall said.
"The Internet can only facilitate a certain number of people at once," Hall said. New electronic customers who weren't trading online in October might be in for a surprise, he said.
Online investors who get caught in a bottleneck might want to avoid trading in the morning before the markets open, which are the busiest times, Hall said. People might also want to choose a brokerage service that offers phone and branch office service as alternatives.
And keep in mind you'll get what you pay for. The cheapest services that offer $8 trades may have especially big delays on heavy volume days, Hall said. The problem is they're aggressively taking on new customers and trying to build capacity at the same time.
"These services are growing at hyperspeed," hall said. "Customers can be on hold for 25 minutes now. They can expect to quadruple that in a crash."
-- by staff writer Martine Costello
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