The GAO, the investigative arm of Congress, released a study that said it found site outages or other computer glitches at trading sites that have caused some investors "to suffer losses or miss investment opportunities." In a study of 12 Web brokerages, the GAO also said the sites posted little or no information on the risks of trading online.
As an example, only four of the 12 sites posted information about volatile stocks on their Web sites, the GAO said.
"Some customers have complained to the SEC (Securities and Exchange Commission) that they lost money or missed financial opportunities because they did not understand how online trading worked," the report said.
In the 40-page report, the GAO recommended that the SEC require brokers to post information on their sites regarding potential outages or slowdowns, customer privacy protections and the risks of online trading. In addition, the GAO called for online traders to maintain records of service disruptions to their sites and for the SEC to monitor those records "to ensure that firms have adequate capacity to serve their customers."
Four members of Congress requested the study be conducted, as analysts predict an explosion in online trading. About 6 million investors trade over the Internet, and online transactions make up 37 percent of all retail trading volume in equities and options, the report said.
The GAO reviewed 10 of the largest firms, which control about 90 percent of all online trading. It also polled two firms that each possessed less than 1 percent of the market.
Phone calls to E*Trade, Datek Online and DLJdirect.com were not returned.
Brokerages that offer online trading have been under SEC pressure for more than a year to step up their efforts to educate investors. Although the number of customer complaints regarding site outages has dropped each of the last four years, investors have grown impatient with service disruptions.
Most Web brokerages have seen their sites go down at one time or another. As a result, investors have called for greater reliability. Last year, one investor filed suit against E*Trade after an outage caused him to miss a trade that resulted in a loss, he said.
System outages or slowdowns can prevent traders from accessing their accounts and making timely trades. In the time the trader must wait during a system delay, the stock could fall in value, while the trader is still unable to sell.
Last year, a snarled software change caused days of technical problems at E*Trade, where customers were sometimes barred from trading and viewing their accounts.
Earlier this year, DLJ Direct and Charles Schwab both suffered downtime--with DLJ knocked out for two days in a row and Schwab twice during the month. In February, E*Trade and Datek both were victims of denial of service attacks.
Shaw Lively, research manager for Internet research group International Data Corp. (IDC) applauded the study saying Web brokers need to protect new investors. IDC expects millions more to begin trading online in the future. On the subject of Web site stability, Lively said online brokers are doing everything they can.
"The whole Net is subject to outages," Lively said. "The major firms are clearly investing in infrastructure so that they can be as reliable as possible, but the reality is that the Web is not yet as stable as the telephone."