E-Trade’s 2-Hour Service Shutdown Frustrates Online Investors
E-Trade Group, one of the largest online brokerages, blamed a software upgrade for prolonged service outages Wednesday that left angry investors unable to trade shares for about two hours.
The fast-growing Palo Alto-based company compounded the problem by not having enough staffing to handle many telephone inquiries from investors who tried to call in their orders instead.
“This is totally unacceptable service,” said E-Trade Vice President Lisa Nash, adding that a team led by the company’s chief information officer would work through the night to analyze what went wrong and how to avoid a recurrence.
E-Trade shares fell $3 to close at $55.25 on Nasdaq, but rivals may have benefited from its problems. AmeriTrade Holding Corp. shares soared $18.25 to $128.56, Siebert Financial rocketed $23.50 to $49.50 and J.B. Oxford Holdings Inc. jumped $7.25 to $12. E-Trade had the third-largest number of online trades in 1998’s fourth quarter, behind Charles Schwab Corp. and Canadian-owned Waterhouse.
E-Trade said it will investigate every investor complaint sent to a special e-mail address (service2@etrade.com) and make up for customer losses.
“If there is reason to believe that their concerns weren’t addressed, then we will make them whole,” Nash said. The company has records of who was on its Web page for trading at the times in question, mostly between 7:15 and 9:15 a.m. Pacific time. She said the losses may be covered by E-Trade’s insurance.
Credit Suisse First Boston analyst Bill Burnham predicted the company won’t have to spend more than $1 million to make up customer losses, since the markets generally rose Wednesday and the most active traders have accounts at more than one brokerage.
Still, investors bombarded Internet message boards devoted to E-Trade with complaints. “It’s painful to watch your stocks if you are helpless to do anything,” one investor wrote to a Silicon Investor message board. “I’ve aged 10 years in the last hour.”
Another pledged that his first trade upon reconnecting would be a short sale of E-Trade, or a bet that the stock will fall.
Yet analysts saw the glitch as a predictable growing pain for the nascent industry.
“I don’t think people will quit the whole thing. Self-directed investing is empowering,” said Alan Alper, an analyst at Gomez Advisors, which offers consumers evaluations of online services. “Whether people will question E-Trade because of this, I don’t know.”
Scott Appleby, an ABN AMRO analyst who follows E-Trade, said he wasn’t too worried about the impact of the outage.
“These things happen,” he said. “I probably wouldn’t change my account [to another online service]. That’s even more of a hassle.”
E-Trade processes an average of 43,000 trades a day, with 11.8% of the burgeoning online market. Such transactions account for one in seven U.S. stock trades.
Alper recommends that investors have their own, more traditional backup systems: a broker to call and, if necessary, a building to walk into.
“The interdependency of technologies is such that no company can make the claim that their site is 100% reliable,” he said. “You need to have a variety of avenues.”
