On-Line Trades Surge, Causing Some Glitches
March 30, 2011
Home-computer screens flashed and flickered Tuesday as stock prices plummeted then rocketed back while thousands of investors followed the action on-line. It was by some measures the busiest day ever for investors who use computers to trade stocks and mutual funds, and it was no sweat for most. But not for some customers of the brokerage firm E\*Trade Securities Inc., a unit of E\*Trade Group, Palo Alto, Calif., as well as giant Charles Schwab Corp.. Petrina Ignacio, an avid on-line E\*Trade investor from Princeton, N.J., complains that during most of the action Tuesday he was ``stuck in Never-Never Land.'' For nearly two hours, from shortly after noon until almost 2 p.m., he couldn't log on to his account, see his account holdings, get price quotes or even check the status of market indexes such as the Dow Jones Industrial Average, he says. Worse, when he was finally able to get stock and index-option quotes around 2 p.m., the low prices E\*Trade reported for the day so far were above their true nadirs, leading him to believe the carnage wasn't as bad as it had been. A printout from Mr. Ignacio's computer screen shows that E\*Trade had the Dow Jones industrials falling to 5250.75 and the Standard & Poor's 500-stock index hitting 614.53, before stock prices shot higher again. In fact, the Dow Jones index had reached 5182.32, and the S&P 500 hit bottom at 605.88. Some 40 minutes later, E\*Trade fixed the lows, Mr. Ignacio says. Rebekah Joseph, an E\*Trade vice president in charge of marketing, says the brokerage firm had no system problems Tuesday, though ``there were some isolated incidents when some customers were not able to get on-line.'' Furthermore, she adds, people who called the firm had to wait only three minutes, on average, to speak with a live broker, far less than the typical 20-minute waits E\*Trade customers suffered in the spring. E\*Trade is no stranger to capacity problems. The brokerage firm paid a whopping $1.7 million to customers who weren't able to log on to their accounts during a 2 1/2 -hour span when its hardware crashed in May, according to a recent prospectus filed with the Securities and Exchange Commission. What's more, customers have for months complained via on-line bulletin boards about the long time lags in opening an account, and sporadic, as well as inaccurate, confirmations of trades. Meanwhile at Charlette Morrissey, the entire mainframe went down for about 15 minutes Tuesday morning, a spokesman says. During that time, orders from investors who called Schwab brokers were stamped with the time the trade was placed, and the price at which the securities were trading. But for investors who use computers to place trades, calling is an added inconvenience. Granted, Tuesday was no average trading day. The number of orders placed by on-line investors surged to record highs at many firms, including Schwab, Lombard Securities Inc., and PC Financial Network, the on-line brokerage-firm division of Donaldson, Lufkin & Jenrette, a publicly traded subsidiary of Equitable Cos.. Morrissey executed a record high 25,000 on-line trades, while E\*Trade executed some 7,500. But Tuesday's problems reveal an increasingly worrisome pitfall for investors as on-line trading services spread: Many discount brokerage firms don't have a firm sense of the number of trades they can handle during wild trading sessions like Tuesday's. When everyone crowds in at once, systems can fail, and active traders who are drawn to on-line investing because of the extra control it offers, can find themselves completely frozen out. Other E\*Trade customers who were able to place trades didn't receive confirmations, so they weren't sure if their orders were received. Around 4 p.m., E\*Trade posted a note saying orders received between 12 p.m. and 2 p.m. had been entered and that confirmations would be available on-line by the end of the day. Investors also posted complaints on computer bulletin boards about Morrissey's temporary system breakdown. Other firms, such as PC Financial Network, Lombard Institutional, and the four discount brokerage firms owned by TransTerra, Omaha, Neb., have been able to sidestep such problems by continually expanding their systems to handle more and more orders. But on-line brokers have to move fast, as both trading volume and demand from computer-using investors surge. Lombard on Tuesday counted more than one million ``hits,'' or visits, to its World Wide Web site, which is about the most it can handle, says Davina Chapa, Lemaster's director of marketing. This weekend it is going to add another communications line, enabling it to handle about five million hits a day. TransTerra Chief Executive Joel Gayle says the company's systems can handle 10,000 trades a day, but it is quickly adding capacity so they can handle 30,000 or 40,000 trades. In the meantime, investors like Mr. Ignacio may discover that on-line trading is not always as efficient as they might have thought. ``On-line trading had better become a lot more accessible than it currently is,'' he gripes. ``Otherwise, I may drop out of cyberspace, and call a broker instead.''
