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Web brokers handle crushing trade volume

Online brokers are basking in the afterglow of what analysts say was a smooth management of the explosion in trading volume after interest rates were reduced.

Online brokers are getting high marks from analysts after smoothly managing an explosion in trading volume after interest rates were reduced.

The Federal Reserve's announcement Wednesday that it would cut short-term interest rates led the market to soar 100 points in a matter of minutes. In the past, such high-trading periods have stalled or crashed leading online brokers, including E*Trade, Charles Schwab and Ameritrade Holding.

But Wednesday, all systems went smoothly for Web brokers. None of the major sites had interruptions, mainly because they have all beefed up their computer systems in the last year, analysts said.

"The year 2000 will go down as the year that online brokers caught up with the large trading volumes," Forrester Research analyst Jaime Punishill said. "Their capacity clearly exceeds even the peak volume that exists."

Site slowdowns and outages hurt companies because they lock out customers and undermine people's faith in a company's technology. For brokers, a downed site is especially costly because customers are not only locked out of their accounts but also can be locked into positions that could end up costing them money.

E*Trade was sued in 1999 by investors who said a blackout at the brokerage site prevented them from making timely trades.

"There's nothing worse then not knowing what's going on during a violent trading period," said Gomez senior analyst Dan Burke. "When systems work, nobody notices. When they don't, it feels like the world is going to end."

Beefing up complex computer systems has cost money, time and public-relations hits, DLJdirect chief executive Blake Darcy said.

His company doubled its spending on new technology last year. Darcy and analysts said that the sector hit bottom at the end of 1999 and the early part of 2000, when it went through a series of lengthy outages.

"My guess was that every firm went back to the drawing board," Darcy said. "It gave the whole industry a black eye. Besides financial implications, reputational issues, there are now regulatory concerns. State and federal regulators want to know when you're down, why you're down and whether investors were hurt."

The brokers say they are at a point when they have improved backup systems.

"The investments that they made in their infrastructure have really paid off," Burke said. "I'm not going to say they're over, but they are significantly lessened. I don't expect to see the outages of the past going forward."