Frantic trading takes toll on gridlocked online brokers

B CARRICK
Globe and Mail Update

October 15, 2008 at 6:00 AM EDT

Investor Alan Harries has been getting consistent service from his online broker during the past weeks of stock market swings, which is to say it's all bad service.
Whether the market is soaring, like it did yesterday, or plunging, as it did last week, Mr. Harries has found his broker to be slow and unreliable.

“When the market is busy, I haven't been able to execute trades,” Mr. Harries, an investor from Peterborough, Ont., with decades of experience in the markets, said yesterday. “I'm extremely frustrated. On a day like last Friday, when you're trying to sell, all you can see is money being lost because you can't make a trade. And then today, you lose the opportunity to make money because your trades won't go through.”

Online brokers say they're handling trading volumes these days that are double the normal level or more. Some websites are bogging down or timing out on clients, and the wait to talk to a trader on the telephone can be close to an hour at worst at some firms.

“This morning, it's been completely insane,” Doug Coulter, president of RBC Direct Investing, said around 10:30 a.m. yesterday as the S&P/TSX composite index soared more than 1,000 points. “I heard that our telephone volumes were up more than 300 per cent.”

It was much the same story over at the online broker TD Waterhouse. “We're unbelievably busy,” said John See, the firm's president. “Last week alone, we had had two of our top three all-time trading days.”

Online brokers are supposed to be a way for do-it-yourselfers who need no advice to get quick, cheap access to the stock market (they also sell bonds and mutual funds, of course).
But the latest round of service glitches highlights the limitation of online brokers: When the markets are crazy, they sometimes can't deliver.

This is a problem that investors haven't had to deal with since 2000, when frenzied trading of technology stocks routinely caused websites to malfunction and phone queues to stretch endlessly. Most online brokers spent big bucks to add new staff and strengthen their technical capabilities and, until recently, investors had reaped the benefit through largely trouble-free trading.

Mr. Harries' experience shows how the recent surge in trading has again swamped online brokers. “Today was an exercise in frustration,” he said after tussling with his broker's online stock-trading service. At one point, he actually submitted a sell order indicating he'd accept less than what other investors were offering to pay for a stock simply to expedite the trade.
The transaction never went through and he ended up using a market order, something savvy investors usually prefer to avoid, to get the trade executed. Market orders mean you'll accept the going market rate for a stock and you can never be sure of what kind of a price you'll end up with.

For individual investors, problems with their online brokers have been compounded by issues related to the Toronto Stock Exchange.

Brokers say there have been sporadic delays in getting trades confirmed and, yesterday, trading in 100 TSX-listed stocks, closed-end funds and exchange-traded funds was halted for two hours. TSX spokesman Jean-Charles Robillard said such halts are prompted by factors such as unusual price moves in a security. All the affected stocks were trading again by 11:30 a.m.
Roughly nine in 10 trades handled by online brokers are submitted over the Internet these days, which reflects the fact that the commissions are much lower than they are for trades placed over the phone with a trader.

Investors have complained lately about problems logging in at their broker's websites and also about having the screen freeze on them as they're submitting trades.

But people who want to talk to a real person have it worse these days. Christopher Wicks, vice-president of investor services at TD Waterhouse, said clients had to wait as long as 49 minutes to speak to someone at the market open yesterday, and then as long as 36 minutes by the later morning.

A heavy volume of calls is part of the issue at TD, but so is the amount of time that clients are spending on the phone. “We're having longer conversations,” Mr. Wicks said. “People are asking questions, expressing their uncertainty and concerns.”

There are a couple of things investors can do to minimize trading problems with an online broker on the kind of busy days we've seen lately. One is, where possible, to avoid trading at the peak periods of the day – market open and market close. If you do want to place a trade around the 9:30 a.m. market open, log in at your broker's website well in advance.

“Right around market open, the number of simultaneous sign-ons is unbelievable,” TD's Mr. See said.

While he admits to some “slowness” at TD Waterhouse these days, Mr. See says today's problems in the online brokerage business are not as bad as they were back in 2000. “What I've told clients is that in some cases, we've bent, but we certainly haven't broken. We haven't had systems go down.”

Who's the best broker?

The Globe and Mail's 10th annual ranking of online brokers will be published on Oct. 25. Check it out to see how 13 firms compare in such areas as fees, resources and customer satisfaction.