Market frenzy befuddled some online brokers
Heavy demand caused time lags, potentially raising investor losses
As stock markets plunged on Tuesday, some online brokerage companies couldn't keep up with their customers' clicks.
Companies including Vanguard Group Inc. in Pennsylvania, Boston's Fidelity Investments, and Bank of America Corp.'s brokerage unit experienced significant increases in the time it took their computer networks to serve up Web pages for customers to log in and arrange stock trades, according to a survey by Gomez Inc., a Lexington consulting company.
Theoretically the time lags could cost millions of dollars for shareholders trying to rapidly liquidate stocks as they fell -- or, conversely benefit them if they were trying to buy as the price was falling. For Vanguard, the worst performer, response time to provide a series of six Web pages for do-it-yourself stock traders fell from 11.5 seconds on Monday afternoon from 3 to 4 p.m., a typical period, to almost 3 1/2 minutes during the same hour on Tuesday, Gomez said.
Fidelity's response time fell from 19.4 seconds to a minute and 36 seconds during the same periods, Gomez said.
"When we see a site that doesn't perform well, either they haven't taken the time to study their customers or made the investments" in equipment, said Gomez vice president Matt Poepsel.
Vanguard blamed ill-timed system maintenance for Tuesday's performance but said all customer transactions on Tuesday went through.
A Fidelity spokeswoman, Anne Crowley, noted stock exchanges also reported slow transactions on Tuesday and said the company is still studying yesterday's transactions, when it had twice as much retail trading as usual. Customers could also access its phone system and branch network, she said. "There was an extraordinary volume yesterday and all firms were dealing with it," she said.
Reaction by Banc of America Investment Services grew from about 16 seconds to about 81 seconds. A Bank of America spokesman, Jon Goldstein, said it is "assessing the situation and ensuring our customers' needs are met."
Online brokerage houses were just one piece of the world's computerized financial system that was stressed on Tuesday, when the Dow Jones industrial average fell about 200 points around 3 p.m. as investors reacted to worries about Chinese stocks and the US economic outlook.
Another problem was a computer glitch at Dow Jones & Co. that prevented it from updating the index in real time , making the 200-point drop appear to happen in minutes rather than over a longer period.
Giving consumers real-time access to market systems has been a central promise of the online brokerage industry, which had 11.4 million visitors -- mostly users -- in January, according to comScore Networks Inc. in Chicago.
A competing company that also studies online brokers , Keynote Systems Inc. in San Mateo, Calif., said it measured similar lag times on Tuesday. It said that slow responses could drive away customers.
"This cost the brokerage traders a lot in brand equity," said Abelardo Gonzalez, Keynote web performance manager. "These are the days that count. A business is judged by how it performs on the critical days, not on a day-to-day basis," he said.
Gomez found younger companies like ETrade Financial Corp. in New York and TD AmeriTrade Inc. performed fastest Tuesday. ETrade, for instance, had a response time of 4.9 seconds during Tuesday's toughest hour, Gomez reported, just off its time on Monday of 4.6 seconds.
To test the brokerages, Gomez and Keynote have set up networks of their own computers that automatically log into brokerage accounts throughout the trading day. For Gomez's test, Poepsel said it uses computers in 10 cities that contact the brokerages over commercial Internet connections that yield speeds much higher than the typical consumer would experience.
These computers then perform a series of six tasks automatically, including calling up the brokerages' home page, logging into an account, checking a portfolio, ordering, and then confirming a trade. The computers do not execute the trade, but that's less important than getting to that final step, Poepsel said.
"If you have a problem, there won't be an execution," he said.
Ross Kerber can be reached at email@example.com.