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Net brokerages cope with plunge

Online brokerages say they are easily handling the double-digit increase in trading that followed a 357-point plunge in the Dow.

Online brokerage firms say they are easily handling the double-digit increase in trading traffic today, which followed a more-than-350-point plunge in the Dow Jones Industrial Average.

Brokerages such as DLJ Direct, Charles Schwab, Ameritrade, and trading sites run by Quick & Reilly said they had today's trading frenzy well under control despite the significant increase in demand. (See related story)

"[Today's online trading] could set a new record in terms of volume at Quick & Reilly's various Internet operations," said Quick & Reilly spokesman Charles Salmans. Quick & Reilly's sites include Suretrade and QuickWay Net. "We have built systems with a capacity that is much greater than today's needs," he said. "And we don't see any strain on our systems or our people."

Charles Schwab spokesman Tom Taggart said his company also was coping with the increase in traffic uneventfully. "Everything is working great and there are no issues with any of our channels, Web or otherwise," he said.

As online trading has boomed along with the Internet economy, it has been accompanied by a rise in consumer complaints about unreliable access during critical moments when individual investors have the most money on the line. The worst example to date was in October of 1997, when the Dow registered one of the biggest single-day drops in stock market history.

"In October [1997], there were heavy spikes, and that created problems for a number of online brokers," said Blake Darcy, chief executive of DLJ Direct. "There are no real spikes today?it's been gradually building up."

During that bleak October day, scores of investors encountered problems when they tried to log on to their online brokerages to execute trades. Worse still, the alternative option of calling in orders over the telephone also became troublesome because investors were jamming all available phone lines.

"After that October event, people now have several online firms that they do business with," Darcy said. "Customers want to keep their options open. They may have a small account with one firm and a larger account with another."

The incident also prompted the Securities and Exchange Commission and the National Association of Securities Dealers to follow up on complaints by investors to determine what measures the online brokerages were taking to handle the increased volume. Firms such as E*Trade and Schwab were among those visited by regulators. An SEC spokesman said the agency is still studying the issue.

With online trading surging, Web brokerages have tried to keep their systems ahead of the curve.

"Our systems are holding up well today because we've focused on building systems that could handle what we call the '5X' rule," said Michael Anderson, president of Ameritrade. "Our systems are able to hold five times our normal big volumes."

Salmans also said that Quick & Reilly has approached building its systems the way a designer of a bridge would. "You don't design a bridge to carry the maximum load, but two to three times the load," said Salmans. "We've tried to build in a factor of four or five times the load into our systems.

"We have been adding capacity not only because of days like today, but because we have seen such a rapid growth rate in the whole Internet securities business as a whole," he added.

DLJ also has its system designed to handle four times its average daily peak volume, Darcy noted.

Quick & Reilly reported that individual investors tended to trade today as buyers rather than sellers, with a 70 percent to 30 percent buy-sell ratio. DLJ and Ameritrade are reporting similar order flows.

Schwab said that it does not keep intraday trading, but that it saw a marked increase in net sells for U.S. stocks during the month of August.

DLJ Direct said its order volume has increased by 50 percent to 60 percent over its average daily volume today. The brokerage handles about 10,000 trades a day. Quick & Reilly, for its part, said its volume increased about 30 percent relative to normal trade days.