US brokers seek to curb Internet frenzy
Thursday 04 February 1999
Wall Street has reeled in recent months from the impact of galloping Internet stocks and soaring popularity of online trading. Trading over the Web rose 34 per cent in the last quarter of last year. About one in seven stock trades in the US are now conducted in cyberspace.
Latest estimates from CSFB show that online trading in January may have leapt by between 25 and 50 per cent. Most of the increase was due to the seemingly unstoppable interest of individual investors in Internet stocks such as Amazon.com and the cyber-auction site, eBay.
Concern is rising that some investors, overwhelmed by the prospect of fabulous hi-tech gains, may be overexposed. While Internet stocks have risen strongly across the board, many individual issues have fluctuated wildly, sometimes by up to 40 per cent in an hour: eBay moved between $160 and $220 on 22 January.
This week Charles Schwab, the leader in online brokerages, said it was increasing from 50 per cent to 70 per cent the amount of investor assets - or maintenance margin - required to back up any of 23 Internet and computer- related funds bought with borrowed money.
The Nasdaq exchange, home to most hi-tech listings, is considering rules that would allow it to suspend trading in individual stocks when prices move too fast on a single day. While the proposal is still under consideration, a special committee convened to study it last year came down against it this week.
At the same time the Securities and Exchange Commission, the industry watchdog, has been deluged with complaints from investors about faltering service from online brokerages. Most problems have been caused by websites simply unable to cope with demand. Yesterday, E-Trade, the number three online brokerage, suffered a freezing of its site and had to apologise to customers.
As demand grows, the online dealing jam may get much worse before it gets better.
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