Going for brokerage in cyberspace
Stockbroking On The Internet
Wednesday 31 March 1999
So you have Internet access and you are ready to invest. Your choice of stockbroker may be limited but how do you choose which to use? Remember, all the online dealing services available are execution-only, which means that what you choose to buy and sell and when you choose to buy and sell it is up to you alone.
Among US broking houses, cheap online deals were pioneered by E-Trade five years ago. It charges a minimum of $14.95 for trades in shares listed on the New York Stock Exchange and $19.95 for over-the-counter shares on Nasdaq. But E-Trade is not the cheapest. Ameri- trade's prices start at $8 a deal and Suretrade at $7.95.
Trading on the Internet in the UK, is not as price-competitive. Competition among brokerages is limited and stamp duty of 0.5 per cent is also payable on dealings. In some cases Internet deals are not even cheaper than alternative methods, specifically trading over the telephone. But it can be a convenient way of managing a portfolio of investments.
Charles Schwab Europe, has moved into online electronic trading.Guy Knight, vice-president of European marketing, said: "UK brokers have already chased each other down ahead of automation. This is a way of maintaining those low prices - it is not going to get exceptionally cheaper."
On the surface, the lowest price on offer to UK customers is offered by Cave & Sons at pounds 5 plus 1 per cent up to a deal value of pounds 5,000. But this is an e-mail service only. It competes with Xest, James Brearley and Fastrade. Their minimum dealing charges are pounds 20, pounds 20 and pounds 15 respectively. You may specify a limit price at which you wish to deal with these services, to make sure you don't end up buying or selling at more than you wish to pay or less than you wish to get.
But Xest accepts limit orders only on a "fill or kill" basis. That is to say, if the trade cannot be carried out immediately at the price specified it is cancelled. Brearley and Fastrade accept limit orders for the day before cancelling them if they are unable to fulfil the trade.
Stocktrade, a division of the Edinburgh-based stockbroker Brewin Dolphin Securities, was the first to announce a real-time service last December.
The systems behind Stocktrade were developed with assistance from Interactive Investor. The chair, Sherry Leigh Coutu, described real-time trading as "a significant move towards a democratic marketplace, giving private investors an equal footing with the institutions and making the market healthier for all".
It takes about two weeks to set up an account with Stocktrade. Once registered, you pay pounds 25 per trade up to a value of pounds 12,500. You also pay an annual Crest Sponsored Membership service charge of pounds 25. Trades are settled on a T+1 basis, which means you take delivery of the shares or the cash is put into your account the day after you deal. When you trade you will be given 15 seconds to accept the price offered before the quote lapses.
Charles Schwab Europe offers two services, Frequent Traders Club and Market Master. The Frequent Traders Club has a pounds 15 connection fee and costs pounds 60 a year in "membership" but each trade thereafter is a flat pounds 19.50 no matter the size of the transaction. There is a pounds 25 one-off connection fee but no annual subscription charge for Market Master and trading costs start at a minimum of pounds 15 or 0.9 per cent on deals up to pounds 2,500.
Barclays Stockbrokers' service expects to have more than 10,000 customers before the end of 1999. It offers the first online service which does not require you to hold your shares via a nominee account.
Phillip Bungey, research and development Director of Barclays Stockbrokers, says: "Independent research has shown that the majority of investors still prefer to deal with certificates than with a nominee so we have responded to this demand by providing the UK's first certificated Internet dealing service."
You also have just 15 seconds with Barclays Stockbrokers in which to accept or reject a price quote. The minimum dealing cost is pounds 17.50 or 1.5 per cent on trades under pounds 5,000.
The firm is also trumpeting its Price Improver system, introduced in November, which it claims should improve the price you get as buyer or seller. Philip Bungey says: "Via our system, all the main market makers in any given share are scanned to ensure the best price at any given time. Other online services link to only one market-maker and we have proved that 50 per cent of the time our system will ensure a better price." Signing up to the Stocktrade or Charles Schwab Europe's service involves sending them an e-mail from their website. They will send you a full information pack by return via the Royal Mail.
You are required to fill in and return the forms with any fees required and the funds needed to open your trading account, and you will be supplied with an access password.
Barclays Stockbrokers is touting its service as the easiest to join with free registration and it takes five minutes for the online credit check. Barclays Stockbrokers' on-screen application form asks for address, credit and bank account details.
What you put in is checked electronically with your bank and against the voter roll to make sure you are who you say you are. Barclays is prepared to offer an immediate trading facility of up to pounds 7,500.
In the fourth quarter of 1998, E-Trade was rated as the world's top online investing site by financial researchers from the Lafferty Group in its web-based Financial Services Report.
But, in February, E-Trade suffered the largest number of temporary breakdowns, which have affected several US online brokerages, leaving many customers unable to trade for some days.
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