Online brokers moving to crash-proof systems Some investors suffered long delays during Oct. 27 plunge

Securities industry

December 28, 1997|By SAN FRANCISCO CHRONICLE

During the stock market's Oct. 27 mini-crash and the following day's billion-share rebound, customers of the leading online brokerage firms suffered long delays when they tried to sign on or place trades.

Now those firms are scrambling to ensure that their customers won't be left hanging the next time the market goes through a seismic shakeup.

All are spending heavily to beef up their hardware or enhance their software. The firms have to do it to restore customer confidence. They realize the future of Internet trading is at stake.

"Two years ago, most investors didn't trust the Web," said Chris Dominquez, vice president of sales and marketing with Stockpoint, a San Francisco firm that licenses Internet technology.

"Since then customers have become more comfortable, and the online transaction volume has greatly increased. October was a real setback -- a punch in the mouth."

San Francisco-based Charles Schwab Corp., the online leader with an average of 100,000 trades per day, processed 300,000 on Oct. 28. The huge volume created problems that the company is working to correct. In one instance, customers contributed to the delays by not knowing the proper use of the log-on function to access the online trading service.

Instead of clicking the log-on once to get to customer accounts and trading services, many customers clicked repeatedly, without realizing each click sent them to the end of the line. A Schwab spokesman said the company has since put a message fTC on the home page informing customers of the need to click only once.

Gideon Sasson, the company's enterprise president in charge of electronic brokerage, said the firm "experienced delays [on Oct. 27 and 28] that are not acceptable."

Sasson said his staff "detected a couple of bottlenecks" which it is "fixing." The company is currently studying customer usage on its online site on very heavy trading days to see if it can free up more space for trading purposes, Sasson said.

"We are looking for opportunities to move some information-related transactions such as quotes, company research and news from traditional systems that use significant resources for encryption to systems that don't require those resources," he said. "The next time we have a market like the one we had in October, things will work much, much faster."

At Palo Alto, Calif.-based ETrade, the second largest online broker with an average of 24,000 trades daily, volume was twice that heavy during the two-day October mini-crash. Some customers had to wait "several minutes" to log-on, said Debra Chrapaty, the company's chief technology officer.

Chrapaty said ETrade routinely spends many millions a year to improve its systems, but the October experience prompted it to increase the fiscal 1998 budget for improvements by $20 million -- to $70 million.

The money will be used to create a third data center, buy new equipment and enhance the software.

Fidelity Investments, No. 3 among online brokers, is relying primarily on extra equipment to ease the capacity problem. In October it had two server sites, and it has since rushed a third into operation ahead of schedule. A fourth will be added early next year.

"In October our customers were waiting minutes to make transactions," said Stephen J. Killeen, senior vice president of interactive services with Fidelity Brokerage Services. "The next time it will be seconds."

Pub Date: 12/28/97

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