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Web brokers address surge
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January 15, 1999: 3:20 p.m. ET
Spot shutdowns, trade limits imposed as firms add capacity to handle volume
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NEW YORK (CNNfn) - Online brokerages, trying to lure investors with low commissions and quick transactions, may have done their job too well -- the result being slowdowns and occasional stoppages of the major trading houses during recent volatile periods.
The problems call into question the ability of the online services to deal with increased volume, particularly at the times when investors are most apt to feel as though they need to buy or sell.
One Internet trading service, Waterhouse Securities, was taken down for about an hour earlier this week because of delays in reports of executions returning to customers, says Melissa Gitter, the firm's public relations manager. She says that outage and other smaller ones which have occurred in recent weeks were conscious decisions on the part of Waterhouse management because the execution report delays became unacceptable.
Another firm, Discover Discount Brokerage, is reported to have experienced brief shutdowns due to volatility.
Last Friday, Charles Schwab's online trading was down for about 15 minutes at the opening due to complications from the loading of additional capacity to support the Web site's quote service, says Tracy Gordon, a vice president of corporate communications. She says the firm has not needed to take down the trading system intentionally, despite volume of 70 million hits a day.
E*Trade Group says its site has never been taken down, "although there definitely has been some slowness," says Lisa Nash, a vice president for customer management.
"We have rearchitectured our site and don't have to bring it down," says Nash. "If we see one of our channel of servers that's getting heavy usage, we rebalance the load and migrate those customers to another server."
Suspended issues
Waterhouse has suspended online trading of 11 particularly volatile issues: America Online (AOL), Amazon.com (AMZN),CMGI (CMGI), Yahoo! (YHOO), Excite (XCIT), eBay (EBAY), uBid (UBID), Data Broadcasting (DBCC), Lycos (LCOS), Broadcast.com (BCST) and CBS MarketWatch (MKTW).
Gitter says Waterhouse customers can trade the stocks through the firm's TradeDirect phone service or through its 150 branch offices, and pay the same $12 fee for trades up to 5,000 shares.
"This is nothing new in the industry," says Gitter in describing the trading suspensions. "Other players have made moves to bar certain securities with volatile trading."
Indeed, Schwab, the largest online trading firm, says it has prohibited trading of Internet-related IPOs on the day they come to market, according to Gordon. She says the firm is concerned that investors might suffer a severe loss due to market fluctuations in such issues.
E*Trade allows only limit orders on IPOs when they begin trading, says Nash, so that customers can be made aware of the volatility that might cause an order to be executed at a far different price than the price at which it was placed.
Gordon also says Schwab is issuing advisories for about 25 "fast-market" stocks, including Amazon.com and Yahoo!. While Schwab permits trading in the issues, placing an order results in an advisory screen warning that the order might not be filled at the price it was placed.
Bracing for the opening
Most of the problems have occurred at the busiest time of the day, when the markets open and when they close. "We have experienced some slowdowns at the opening and the close due to high volume," says Paula Ebert, a spokeswoman for Ameritrade's investor relations department.
But Ameritrade hasn't actually shut down, as far as Ebert knows. "It could have been extremely slow, so that they might have timed out," she says of users who may have had trouble getting through.
All of the firms say they're working to resolve the service difficulties. "We've continually been upgrading our systems and manpower to answer phones, so that people having difficulty are able to call," Ameritrade's Ebert says.
E*Trade's Nash says her firm has added 100 customer service representatives and initiated a "triage" system in order to better handle the substantial increase in service calls.
Online trading volume has surged in recent months, particularly during the run-up of Internet issues in late 1998. E*Trade says its online transactions were up 75 percent in the final three months of the year compared with the same-period a year earlier. Waterhouse says the online share of its overall volume, which has quadrupled in the past year, has risen to 65 percent from 40 percent at the end of 1997.
Customers are patient
"Our customers have been remarkably patient," says Waterhouse's Gitter. "I think there's an understanding that what's going on is happening industrywide."
Gitter says the firm fully expects to see its way through the current surge. "We are committed to building this business once this service problem is solved," she says. "We're not going away."
Schwab's Gordon says that the glitches experienced by her company and others online will do nothing to slow the spectacular growth of Web-based trading. "It's like when the Berlin Wall started to fall," she says. "I don't think there's any way to stop it." 
-- by Mark Meinero
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