Online Brokers Restrict Trades
Online brokers are re-shaping trading rules on volatile Internet stocks as consumer complaints rise about slow execution times and transaction prices, industry members said Thursday.
Steve Hall, senior analyst with Gomez Advisors, which tracks online brokers, said he's seen an increase in customer complaints about slow trades and poor execution prices, especially with red-hot Internet initial public offerings.
"There's been a customer service backlash," he said.
Schwab, the biggest online broker, appears to be in the lead in addressing some of these woes, he said.
An informal survey of online brokers by CBS MarketWatch.com showed that others besides Schwab are starting to introduce new policies to counteract volatility.
Measures include posting advisories on Internet stocks on Web sites, price limits on orders, upping margin maintenance requirements on skyrocketing shares and reviewing orders rather than processing them automatically.
Schwab
Schwab (SCH), which has been limiting online trades of some volatile stocks, freshened its list of restricted shares on Wednesday.
In a bulletin to customers, Schwab said it would not permit online trades of Concur Technologies (CNQR), Metrocorp Bancshares (MCBI), Pacific Internet (PCNTF), and MarketWatch.com (MKTW), which publishes CBS MarketWatch.com.
"These securities have been removed from electronic trading due to expected volatility and fast market conditions when they begin trading," Schwab wrote in a note to its online customers. "Volatility and fast-market conditions could result in price quotes significantly different from the current trading price and cause delays in reports of order execution."
Concur Technologies and Metrocorp Bancshares began trading on Dec. 16. No date has been set for the debut of Pacific Internet or MarketWatch.com.
Schwab is also requiring 50 percent maintenance on a list of 25 Internet stocks, in a move first introduced on Dec. 3.
Ameritrade
Ameritrade (AMTD) has stopped accepting advance orders on IPOs. Instead, it requires purchases only on the day shares start trading.
The online broker is also requiring limit orders - specific prices on stock purchases - on pre-market IPO orders.
On Wednesday, Ameritrade posted a warning on its home page about Internet stocks when Amazon.com (AMZN) shares skyrocketed.
"Due to the extreme volatility in certain Internet related securities, the quotes carried by market data services may not be reflective of the actual price at which trades are occurring," the warning said. It was removed Thursday when Internet fervor ebbed slightly.
National Discount Brokers
National Discount Brokers (NDB) Chairman Dennis Marino said he's considering stronger restrictions, similar to Schwab, on volatile Internet stocks. Already the broker is applying its "review and releas" procedure on pre-market IPO orders.
If an order to buy an IPO stock comes in with no limit on the price, it now gets reviewed by a broker or another representative. If the opening price is much higher than the original asking price, NDB will call the customer to warn them.
"We make a concerted, best effort to check an order and help customers understand what it means," Marino said. "We're a discount broker. We're not in the business of giving advice. Customers ought to have at least a basic understanding of the marketplace and not get carried away, but with our existing staff we'll make as many of these calls as we can."
Waterhouse Securities
Waterhouse Securities, a unit of Toronto-Dominion Bank (TD) has no restrictions on IPO trades, but this month the broker started upping its margin maintenance requirements on stocks such as Amazon.com (AMZN) to 40 percent from 35 percent.
Waterhouse has no requirement to place price limits on orders; nor is it barring online trades altogether on Internet stocks. It updates its maintenance list every day, however.
"As a discount broker, people are coming to us because they want the ability to make their own investment decisions," said spokeswoman Melissa Gitter. "We're doing our best to not restrict what our customers have the ability to do. Investors need to be aware that there are risks, especially with these very volatile Internet stocks."
Merrill
Merrill Lynch (MER) spokeswoman Selena Morris said the broker plans to debut an online trading service in late January.
The site will feature guidance from Merrill's financial advisors.
Recently Merrill launched its Ask Merrill program offering the brokerage's equity research data for free over the Internet.
Written By Steve Gelsi