Brokerages Become First to Let Investors Buy, Sell Stocks Through Internet : Innovation: The on-line system offered on the World Wide Web wins praise as faster, easier, cheaper and more convenient than traditional brokers. Larger firms still have security concerns.

Two brokerage firms here have made it possible to surf Wall Street--buying and selling stocks via the Internet.

Howe Barnes Investments and Security APL Inc. have developed Net Investor, the first on-line trading system over World Wide Web, the most user-friendly and fastest-growing part of the Internet.

“We’re opening accounts on a daily basis,” said Richard Griffin, senior vice president of Net Investor, a division of Howe Barnes. “I can’t say how many, but it has been getting a good reception.”

Michael Peterson, a student at Stanford University, says he finds Net Investor fast, easy to use, more convenient and cheaper than traditional brokerage services.

“The whole trade took me about two minutes,” Peterson said. “I can go anywhere on campus, log into the Internet and trade. I’ve used brokers before, but this is much easier.”

Other brokerage firms plan to follow Net Investor’s lead.

QuoteCom, based in Reno, Nev., will launch its own trading system over the Web by the third quarter, said Chris Cooper, company president. QuoteCom already offers a financial analysis service over the Web.

New York-based K. Aufhauser & Co., which provides stock quotes, financial analyses and research over the Web, will also offer trading over the Web beginning Friday.

K. Aufhauser & Co. has had a trading system operational over Telnet, another part of the Internet, and offers a 10% discount on commissions to clients who use it. About 10% of K. Aufhauser & Co.’s 20,000 clients have traded on the system.

Commercial services, including America Online, CompuServe, Genie and Prodigy, already offer services for trading stocks on-line. The Internet is by far the most accessible system, with the most open structure, which makes it most vulnerable to hackers. Security concerns have kept brokerage firms away from the Internet, until now.

While competition in the on-line brokerage services on the Internet is likely to become intense this year, larger brokerage firms won’t jump in until security measures are standardized, said Cooper.

“It’s not that difficult to put (trading) services on the Web. The entry barriers aren’t that high,” he said. “I think the competition will initially come from the smaller brokers. They’ll be more aggressive. The bigger ones are probably about a year away.”

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Charles Schwab Corp., the nation’s largest discount brokerage firm, has researched the possibility but says it isn’t satisfied with security.

“The Internet is still the Wild, Wild West of trading,” said Tom Taggart, a spokesman for Schwab, which takes about half of its calls and about a third of its trades through its proprietary automated telephone service called StreetSmart.

“Over $10 billion changes hands each month through Schwab. We’ve done a lot of research on the Internet, but we have some concerns about security and control,” Taggart added.

Keith Aufhauser, president of K. Aufhauser & Co., says security hasn’t been a problem so far on the Telnet.

“We’ve done hundreds of trades a day for the last four months and not a single snooper has snooped,” he said.

Web’s server software is designed to encrypt, or code, each transmission using security-enhanced software designed by Netscape Communication. Clients use a password and account code before making the transaction.

“I believe the security issue is effectively solved,” said Cooper. “You would need a supercomputer and many years of experience to break the code.”

However, William Bluestein, author of a Forrester Research report on interactive investing, doubts the Internet security measures are sufficient.

“Despite the hype about the Internet, the network is not secure enough to handle investment transactions,” Bluestein said in the report. “It will take 18 months for Internet security issues to get sorted out.”

Yet Bluestein predicts that on-line investing will grow from fewer than 500,000 accounts today to more than 1.3 million by 1998.

And competition from brokerage firms offering on-line trading services could lead to more pressure on commission fees, observers say.

“I think there’s already pressure on commission prices,” said QuoteCom’s Cooper. “Customers on Net are very price sensitive. They don’t just want discount brokers, they want deep-discount brokers. Those who want full services aren’t going to be on the Internet.”