Internet investor: A broker minus the loud braces

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The Independent Online
Last month the London Stock Exchange introduced a new trading system for shares in the FTSE 100. Theorder-driven system does away with the need for brokers. Dealing is done by computer. Buy and sell orders for shares are matched by price automatically. If the Stock Exchange does not need men in loud braces shouting into phones, why should we?

The introduction of the Sets trading system was described by some as Big Bang 2. In 1986, the original Big Bang saw the end of fixed commissions on share dealing in the London market. Eleven years before London's Big Bang, in May 1975, fixed commissions ended on securities trading in the USA. Doing away with fixed charges resulted in the growth of discount brokerages which offer individual investors low-cost, no-frills, execution- only trading services. It is only a small step from a straightforward phone-based buying and selling service to placing such orders via your PC.

As you would expect, Internet dealing is a much bigger phenomenon in the US than it is in the UK, with some 30 brokers offering on-line services. Charles Schwab, the biggest US discount broker, is by far the largest brokerage on the net, claiming, in fact, to account for half of the world- wide on-line investing market. In the US alone Schwab has more than 750,000 Internet trading accounts. In 1995, Charles Schwab purchased Birmingham- based execution-only broker Sharelink. Last month it renamed the business Charles Schwab Europe.

In the UK, only three brokers offer on-line trading services to a few thousand clients and to access one of the services you need to go through one of two financial information services, ESI or Infotrade. Infotrade is a private network, although it is moving on to the web. To subscribe to Infotrade now you need to be running Windows 95 whereas, as a purely web-based service, ESI provides no bar to people using computers with other operating systems.

The three brokers you may choose from are Cater Allen's City Deal, Sharelink (Charles Schwab Europe), and Stocktrade, a subsidiary of Scottish stockbroker Brewin Dolphin Bell Lawrie Ltd. All three brokers are available through Infotrade but only Sharelink and Stocktrade may be accessed via ESI.

One of the main advantages trading via the Internet holds out is cheaper deals. For example, in the US, Quick & Reilly charges $14.95 (pounds 9) per trade for market orders and $19.95 (pounds 12) for limit orders up to 1,000 shares with no requirement to keep a minimum amount on deposit or to trade a minimum number of times over a given period. A two cent charge is added for each share for trades of more than 1,000 shares.

Unfortunately, dealing with the UK brokerages on the net may not be so cheap. You incur charges from ESI or Infotrade on top of the dealing costs. Stocktrade charges 0.75 per cent (minimum pounds 15, maximum pounds 60) with the option of a flat-rate pounds 25 instead. City Deal charges a minimum of pounds 9 for trades of less than pounds 500, rising to a maximum of pounds 40. Sharelink charges exactly the same for its MarketMaster execution-only service by phone as it does over the net. However, Sharelink's Frequent Trader Club on the net has a flat fee of pounds 15 regardless of the size of your deal. The annual charge is the same. Both of Sharelink's net services also levy a quarterly administration charge.

Commission charges will surely become more competitive as the number of brokers offering on-line services grows and the number of investors trading on-line grows. Although you pay for going through the gateways of ESI or Infotrade, they do offer the ability to combine your share trading with the automatic updating of your portfolio and the ability to track its performance as well as access to financial news and statistical data on which to base your trading decisions.

Charles Schwab:

Quick & Reilly:



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