Trading Surge Strains Online Brokerages
January 26 2021 - 3:49PM
Dow Jones News
By Justin Baer and Peter Rudegeair
Stock trading volume has surged in the past week, and Wall
Street's online brokers are struggling to keep up.
In recent days, clients of Fidelity Investments, E*Trade
Financial Corp., Charles Schwab Corp. and Vanguard Group have
encountered brief delays executing trades or temporarily lost
access to vital account information. The service disruptions came
during a period of frenetic trading, largely driven by individual
investors.
"These outages generate annoyance among investors in the short
term," said William Trout, director of wealth management at Javelin
Strategy & Research. "Longer-term, outages call into question
the stability of these platforms, even if the need for greater
capacity can be addressed."
The outages also can take their toll on the markets themselves,
especially at a time when individual investors' interest in stocks
has touched levels unseen in decades, he said. Robinhood Markets
Inc. and other popular trading platforms experienced outages last
spring, when concerns over the pandemic and its effect on the
economy triggered the worst stock-market selloff since Black
Monday.
The market snapped back almost as quickly, drawing in many
first-time stock traders. And with many Americans transitioning to
remote work, those investors had more time to pore over their
brokerage accounts and place their bets. Their enthusiasm, along
with efforts by brokers to beef up their platforms, so far has
offset clients' frustration with temporary outages. But repeated
problems will test their patience and draw regulators' attention,
Mr. Trout said.
"The surge in self-directed investing amid Covid has made these
online platforms a centerpiece of the investments landscape," he
added. "As infrastructure becomes a core issue, the markets -- or
the regulator -- will demand reform. Reliability of these platforms
and investor confidence have become interlinked."
During the retail-trading boom of 2020, volume at many big
brokerages shattered records. The average daily number of retail
trades on E*Trade, which was acquired by Morgan Stanley last year,
hit 952,000 in 2020, more than triple its previous annual high
point. Schwab set, and broke, multiple single-day trading records
in 2020, setting a new peak on Nov. 9 of 7.8 million trades.
The number of active retail-trading accounts also swelled. In
the second half of 2020, E*Trade added about 900,000 net new
accounts, bringing Morgan Stanley's total to 6.7 million. Following
the close of its acquisition of TD Ameritrade Holding Corp. in the
fourth quarter, Schwab counted nearly 30 million active brokerage
accounts at the end of 2020.
A spokesman for Fidelity said its online platforms have had no
issues on Tuesday. But "for a short period of time yesterday, some
customers might have an experienced intermittent issue when
attempting to view positions or slowness when attempting to place
orders on Fidelity.com," the spokesman said. "We worked quickly to
remediate the issue and our systems were functioning normally after
that."
Fidelity, he said, monitors its online platforms to help ensure
the firm adds sufficient capacity ahead of any expected surge in
activity.
E*Trade hasn't suffered any outages in recent days, but some
customers experienced delays in executing trades given higher
volumes, a person familiar with the matter said.
A Schwab spokeswoman said "our clients experienced intermittent
issues for a brief period at market open" on Monday.
"We worked to resolve the issue quickly and apologize for any
inconvenience this caused our clients," she said. "Unrelated to
yesterday, this morning we experienced an issue with bank balances
not displaying accurately which has been resolved. Trading
functionality was not impacted."
The firm monitors its platforms and seeks to get ahead of
high-volume trading days. "Nonetheless," the spokeswoman said,
"there remains a risk of technical difficulties, or congestion, or
latency, for a variety of reasons." Schwab pledged to refund
clients' fees or commissions if they aren't satisfied, she
said.
Giant investment manager Vanguard Group suffered system issues
on Monday morning. Some clients complained on social media that
they couldn't access accounts online. The firm apologized Monday on
social media for the inconvenience. "The issue was resolved quickly
and we thank clients for their patience," a spokeswoman said.
Robinhood, whose easy-to-use app had helped draw many first-time
investors to the market last year, said Tuesday its brokerage
systems haven't had any issues this week.
--Dawn Lim contributed to this article.
(END) Dow Jones Newswires
January 26, 2021 15:34 ET (20:34 GMT)
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