After facing record-breaking volume earlier this week that choked some market exchanges and tied up the lines of a number of online trading firms, some full-service brokerages and online firms are shelling out compensation money to clients whose trades were executed long after they were placed.
Online trading service Datek is paying ten clients in an effort to compensate them for money lost between the time they placed their orders and the time the orders were executed. The payments go farther toward compensation than the company's standard policy of waiving its commission fee if a trade is executed more than a minute after it is placed.
E*Trade has said it will process client orders based on the stock price for whatever time the investor placed an order, allowing for a "realistic" time for executing the trade. When pressed on what constitutes a realistic time, an E*Trade spokeswoman said, "We're talking seconds, not minutes."
Other online brokerage firms also have policies in place to compensate clients if their trades are delayed, presumably to keep pace with full-service brokerages like Smith Barney and Merrill Lynch. Smith Barney will match the price of a stock purchase to the minute the order was placed, and Merrill Lynch is paying close to $10 million to investors who placed a total of 3,000 trades on Tuesday and faced hours-long delays in the execution of their orders, according to a company spokeswoman.
Critics of online brokerages, however, have pointed out that the guarantees provided by online brokers do not apply to the time it takes users to log on to the service. As volume broke records on Tuesday, many online traders reported long delays in accessing their accounts.
But the services defended their accessibility, even under the duress of extraordinarily high volume.
Ameritrade, which reported no delays in execution of trades, said that users who had difficulty logging on to its Internet site had five other options for placing their trades: touch-tone phone, live brokers, fax orders, personal digital assistants connected through a direct-dial system, and a DOS-based PC system.
"Look at it this way: We don't call ourselves an online firm," said Ameritrade president Mike Anderson. "I consider us to be deep discounters. Only 30 percent of our trades are placed though the Internet. If I'm trading through a full service broker, how many channels do I have? One: I have to call my broker."